Student Loan Guidance please: Income Based Repayment (IBR)
I have unsubsidized student loans that are currently at $221,259.85. My current annual income is $88,500, which will hopefully increase overtime but I am thinking no more than $150,000 in the next 10 years.
I am looking at payment plan options and IBR or PAYE give me the lowest monthly payments and lowest payment overtime. I know the payments will change with income but using the calculator estimating up to 150,000 my payments would still be lower than the standard repayment or the other fixed options.
Looking into the IBR, I learned of the “tax bomb” at the end of the 20 years of payment. I know there is an ability to declare insolvency. But I do not fully understand everything about this.
If I have $400,000 or so that is forgiven, there will be an unreasonable amount that is taxed. I can’t imagine there is a way I would have the income to pay it. Is that true? What would qualifying for insolvency do?
I have read about choosing IBR and investing extra money into some account (401k, Roth, etc?) to save up for the tax bomb. The IBR payments would be pretty low that I could afford to throw a few hundred into a savings account each month. I still don’t know if that would give me enough to pay it off or if I would want to be saving money that I could use/save elsewhere just to give it away to the IRS haha
The standard repayment plan would be $2726 per month. I definitely would not be able to afford this payment right now or in the near future. The other fixed payment options are still pretty high, and I would end up paying around $550,000 in the end.
I really am just looking for guidance on if the IBR plan is a mistake, or will the tax bomb not be nearly as bad as it seems.