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

[cormy3]

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Yes, you can make higher payments if you want. I agree that if you are on IBR and yet are somehow still able to make the original full payments that you don’t pay more and that IBR is basically a free insurance policy that would allow you to pay less if you had to…

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<p>That’s what I meant, though. By IBR having no downsides, I meant in no case will you be worse off with IBR than without IBR. Will you be completely scot-free in any case? I concede that you won’t. But that doesn’t mean IBR isn’t a game-changer for many.</p>

<p>I’m still waiting for an answer to my original bafflement: why all the horror stories of recent grads when there exists IBR? Or are they all just worrying about the future, and are not actually hurting at this very moment?</p>

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With IBR it’s not uncommon to actually go into negative amortization (i.e. you pay money each month and each month you owe more than the previous month). This is where my comment about payday loans originated from. This is especially true with law school sized debts where someone comes out and then does not land a big-law job.</p>

<p>I certainly do not think a payday loan would be better… my point is that many people don’t understand that IBR can often be way for one to get stuck in a similar crazy financial situation where you just keep throwing money at a black hole.

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<p>The opinion of the guy in the forum link I posted was that if you’re making such small payments on your debt as to go into negative amortization, you definitely won’t have much assets 20 years down the road. Which means your enormous debts will be forgiven outright, under our current tax code, whether or not that debt forgiveness bill passes. This is unlike for other types of loans, as far as I know.</p>

<p>Whether this opinion is accurate, I don’t know. Right now it’s like, I have the raw numbers in front of me, and now I have to fit them into a qualitative model, which I am failing to do because I’m new. I see now why financial literacy or financial understanding is hard. There are so many variables wrapped around so many personal considerations, and the relationships among them are worked in percentages or compound percentages. What do you think I should do besides play around with calculators for a few years to get a “feel”?</p>

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What you’re referencing says that if you have no assets for the IRS to go after then they’ll go away… but if you have no monthly income, no savings, no investments, no property then you’re hardly in a desirable place.

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<p>What you described is what happens if you owe the IRS something. What I’m talking about is whether you will owe. In spirit, I don’t see the insolvency provision to be the same as having no more assets for them to go after. In financial terms, they are clearly different: with the insolvency provision, you will always be left with a substantial percentage of your assets remaining after paying off your obligations to the IRS. </p>

<p>I agree and have agreed many times that this situation should be avoided altogether. But if you’re in that kind of hole, the IRS and IBR and even the student loans themselves (because of IBR) are not what brought you there. </p>

<p>If you think law school graduates are likely to end up with a bad job and little assets, maybe that is good reason not to go to law school. But that’s pretty independent of the loans – thanks to IBR. I believe that, starting 2014, for the lowest income levels IBR will require payments of under 10% of discretionary income. That’s hardly going to keep someone down for the 20 years he has to make payments. If he is still poor 20 years down the road, much of his debt will be forgiven. The loans, and thus IBR, will not be his biggest concerns.</p>

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One should keep in mind that many with such optimistic views are likely in a boat where they’ll desperately need this bill to pass because they borrowed way more than they could afford. </p>

<p>Who knows what the future would bring, but it would be very unwise to make a decision to borrow a massive sum of money on the basis that a law mightchange at some point down the line. The law is what it is today… that could always change but for the foreseeable future that seems highly unlikely.

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<p>Okay, fair enough. I still have a few years to make my decision. Just like I talk in terms of getting my IBR loans post-2014 (20 year forgiveness instead of 25), I’ll wait and see what the future brings.</p>

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Yes, IBR will help provide some protection from allowing the student loans on their own to make you go bust… but on the flip side unlike most loans you’ll still owe the money back even if you do end up going bankrupt. </p>

<p>If you borrow the money you’ll pay it back one way or the other eventually… and if you don’t make full payments from day one you’ll end up paying back a lot more one way or the other.

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<p>Not if the other guy’s post is accurate. Basically it’s free lunch for 20 years, and then a big free lunch finale.</p>

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I think you also need to understand that 25 years is a really long time. Sure, you’ll be forgiven in 25 years…and let’s assume that you go straight to LS out of undergrad, and therefore graduate at 25. 25+25 = 50, the age you will be when those loans get forgiven through this program. Something tells me you’d want to have a mortgage for a house long before then, and good luck getting that with $100k in debt.

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<p>Please see discussion about this above. I’m still curious why there are no official sources that say exactly what lenders look for. ><</p>