I am on the IBR repayment plan (loan forgiveness 25 years). I know that at the 25 year mark, the remaining balance will be forgiven and I have to pay income taxes on that amount. I have two questions:

1. Is it wise to start putting money aside now in order to pay for the amount I know I’ll have to pay income taxes on later?

2. Someone told me that a tax specialist can make the remaining amount exempt and forgiven as well. I never heard of this but thought I’d throw it out there.

I’d love to hear your thoughts please!

1. Maybe…you’ll want to calculate different scenarios and see which one yields the best results.

2. Your only option is to declare insolvency. This link explains it very well with examples https://lawyerist.com/83690/defusing-student-loan-interest-tax-bomb/

Thank you that site was helpful!

That article is completely true. But to deliberately plan to be insolvent is just silly. The loan borrowers with high balances are usually graduate school students. And since pre-tax retirement contributions lower your AGI, student loan borrowers should have significant assets at the time of forgiveness.

It would be more realistic to put some money aside, take out a short term loan, take off work that year of forgiveness and/or move to a state without state income taxes to handle your bill.