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Hot take: I think income-based repayment plans are secretly worse than standard loans for most people
So I was crunching numbers on a $45k student loan for a friend last night. Standard plan over 10 years would cost them about $6k in interest total at 4.5%. But the income-based plan they're on? Minimum payments barely cover interest. After 20 years of paying, they'd still owe more than they started with and then get hit with a tax bomb on the forgiven amount. I found this out on the studentaid.gov calculator. Am I missing something or is income based repayment a trap unless you're going for PSLF?
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rubyk865mo ago
Isn't the tax bomb just future you's problem though?
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emery_young135mo ago
The 'tax bomb on the forgiven amount' part is what got me too." I did the math on my own loans and realized I’d rather just pay them off fast with a side hustle than gamble on IBR.
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kaid595mo ago
Haha honestly I feel that. Ngl I tried the side hustle route and ended up just burning out and buying way too many energy drinks. My math was basically "if I pay extra each month I can be done in 10 years" and then I realized I was paying like $50 extra a month and that's basically a coffee habit I can't break. Tbh sometimes I think I should just accept the tax bomb and hope inflation makes it smaller in 20 years.
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