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If your income is so low that you didn't paying off your Federal student loans after 20 years of income based repayment, you aren't contributing much if anythin

If your income is so low that you didn't paying off your Federal student loans after 20 years of income based repayment, you aren't contributing much if anything to a 401k, and you owe more on your car than it's worth. Fair market value of your clothes is barely worth considering. If you make enough that you have significant assets, you almost certainly make enough that you'll be paying the max under the income based repayment plan, and you'll pay off your loans in 10 years. Remember that it's assets minus liabilities just before the discharge, which means the discharged debt counts. The minimum payment is 10% of your discretionary income, and if 10% of your discretionary income didn't pay that loan debt after 20 years, it's very unlikely your income was high enough to build assets that are significantly greater than said loan.

lazyasciiart 7y ago
I think you're assuming that people would have fairly consistent incomes, whereas many of them are going to start by making almost nothing, letting the loan+interest pile up, and then once they make a decent income they'll follow advice to pay minimums on student loans and save simultaneously. It's only an issue for people with larger student loans, but 25% of people have >$50k in loans - and unfortunately not all of them are doctors.
- learc83 7y ago
  The dependent student lifetime limit is $31k btw so you'd need to have basically no income for 10 years to raise it to $50k, or you'd need to be older or go to grad school. Either way it's unlikely that you spend much time not making enough to cover interest payments with the minimum payment. In the case that you do spend years with basically no income, you aren't likely to start making enough to build assets significantly faster than you are paying down your loan because the minimum payment are pegged to income. Most people with low enough income for this to be problem are saving at most few % in their 401k, and are renting a home. I'm not saying that this can never happen, but you'd need to perfect storm of circumstances for it to be a major issue. And regardless, the tax burden is never going to be more than around ~25% of your assets--even in the worst case. >25% of people have >$50k in loans - and unfortunately not all of them are doctors That's including private loans, which don't come with income based repayment, so it's irrelevant.

lazyasciiart 7y ago

I think you're assuming that people would have fairly consistent incomes, whereas many of them are going to start by making almost nothing, letting the loan+interest pile up, and then once they make a decent income they'll follow advice to pay minimums on student loans and save simultaneously. It's only an issue for people with larger student loans, but 25% of people have >$50k in loans - and unfortunately not all of them are doctors.

learc83 7y ago
The dependent student lifetime limit is $31k btw so you'd need to have basically no income for 10 years to raise it to $50k, or you'd need to be older or go to grad school. Either way it's unlikely that you spend much time not making enough to cover interest payments with the minimum payment. In the case that you do spend years with basically no income, you aren't likely to start making enough to build assets significantly faster than you are paying down your loan because the minimum payment are pegged to income. Most people with low enough income for this to be problem are saving at most few % in their 401k, and are renting a home. I'm not saying that this can never happen, but you'd need to perfect storm of circumstances for it to be a major issue. And regardless, the tax burden is never going to be more than around ~25% of your assets--even in the worst case. >25% of people have >$50k in loans - and unfortunately not all of them are doctors That's including private loans, which don't come with income based repayment, so it's irrelevant.