Why are people complaining about crushing debt when there's IBR?

[rocketman08]

<p>Re: Mortgages

I found this guy’s forum post which says all that matters is your FICO score and the payment to income ratio: IBR Question.</p>

<p>“When you apply for credit on IBR, your FICO score will be OK and then on top of that, as long as you can show that al your monthly payments (amounts of which are reported) total less than like a third of your gross income, you’re good to go.”

Don’t know what to say other than this guy doesn’t know what he’s talking about. 5 years ago this was probably true, but those day’s are long over. </p>

<p>You need far more than just a good FICO score to get a mortgage. The FICO score is really only a measure of your historical ability to make monthly payments on time. It also looks at the amount of debt relative to your credit limits on variable accounts (eg credit cards) but it does not really look at the total amount of debt you have overall nor does it have anything at all to do with your income. The later is what a bank loan officer will dig into during the mortgage application process.</p>

<p>

Are you absolutely sure? Could I get some references?

Go down to your local bank, tell the loan officer you have six figures + in non-dischargable educational debt and are on a government program to reduce your payments since you’re not able to make full payments… then ask them for a mortgage. See how long it takes for them to laugh you out of the bank. </p>

<p>

Responsible borrowers with modest incomes shouldn’t have to pay potentially crippling taxes on forgiven student loans.

By definition someone who borrows way more than they can ever afford to repay is not a “responsible borrower.” As such this quoted statement really makes no sense. </p>

<p>

We are hopeful that this issue will be resolved before any borrowers qualify for forgiveness through IBR. We’ll continue to work on this issue and keep you informed. Urge your representatives to support H.R. 2492. Learn more about the bill.

Hopefully this change will be implemented soon, and that will be the end of the threat of taxation in the off chance that you have significant debt after 20 years.

</p>

<p>H.R. 2492 was introduced several years ago and never went anywhere. It was thrown out there in the midst of big bailouts just like several bills proposing to just “forgive” the massive debt of those that purchased way more home than they could ever afford. Such concepts were very unpopular with the broader public and were quickly pushed aside–given that it’s the broader public that would be expected to pick up the tab for the irresponsible poor decisions of others.</p>

<p>Never say never, but the chances of this or any similar bill ever going anywhere are very slim to none. </p>

<p>

Well, the fine print is that forgiven debt is not counted as income to the extent that it made you insolvent. (I got this information from the link I posted above. I verified it myself.) So you will never “go bust.”

</p>

<p>If at the forgiveness point you have no real assets to speak of for the IRS to go after to recover the tax liability (no bank savings, no house, no car, no taxable investments…) well then you’re basically bust already. </p>

<p>IBR is designed to be a short term safety net system, primary for the first few years out of school when one’s income may have yet to reach full potential. The price for using that safety net is that you pay back more money in the longer term. </p>

<p>There’s no free lunch here. If you borrow a huge sum, and are not getting public service forgiveness credit, you’ll pay it back one way or the other (+ a boatload of interest)… unless you’re just completely bust for several decades and that’s hardly a desirably outcome.</p>