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The trap with income based repayment is that after 20 or 25 years worth of payments less than the accruing interest the original principal plus all the capitali
by bradleyjg 7y ago
The trap with income based repayment is that after 20 or 25 years worth of payments less than the accruing interest the original principal plus all the capitalized interest is forgiven, but that forgiven debt is taxable income to the borrower. So the borrower has replaced a debt to the department of education to one to the IRS.
- mikepurvis 7y agoSurely the taxes on that income are considerably less than what was forgiven? If nothing else, this seems like an argument for permitting the recipient of this particular kind of windfall to break it up across a few years, possibly retroactively.
- bradleyjg 7y agoWhen the lender is the government and the forgiveness is an intended and advertised part of the program from loan origination, I’d argue it isn’t meaningfully a windfall. Further, I’d argue that the borrower isn’t the main beneficiary of these student loan programs. Rather they are intended to, and do, enable monstrous cost growth in private de facto for-profit universities.