I graduated last year from graduate school, and only just recently found out about IBR. It sounds like a great plan for me as I currently have a VERY large amount of student debt relative to my income, but I’m still not sure on the details.

My debt is currently around $240,000! I realize this is a large amount, and most of it was accumulated in graduate school. My AGI is around 60,000, and will likely never increase significantly. I am currently supporting my boyfriend, who is a full time student and has no income. And I recently found out I am expecting a child this winter, so my family size is 3.

My question is whether or not I have to pay interest at the end of 25 years, which would be very significant (around 200,000??), or if I should try to be more aggressive in paying of the loans quickly? At the moment I do not have a lot of extra money each month, but I could possibly have help in the future from my boyfriend. I’m also worried if my income decreases, if I wanted to work part time after I have the baby this winter, will I be able to make any dent in the loans. I need your advice!!

If you are quite certain that your AGI (in current dollars) will not increase significantly above $60k for the next 25 years, and you think you may have to pay tax on the forgiven loan balance- consider establishing some sort of financial vehicle that will accrue over 25 years to be worth the expected tax burden. A little over a long time will add-up!  If you need it you’ve got it. If not this would be a nice present to your future self. 

I use the phrase, “you think you may have to pay tax” because I think there is a good possibility that some upcoming legislation will bring IBR in line with the loan forgiveness for public service program (PSLF), wherein for some types of student loans- the taxes are presently not taxable.

The US Treasury reviewed several different types of student loan forgiveness and loan cancellation provisions in a September 19, 2008 letter to Representative Sander Levin. The letter specifies that the following types of student loan forgiveness are not taxable:

Public Service Loan Forgiveness (Section 455(m)(2) of the Higher Education Act of 1965)
Teacher Loan Forgiveness (Sections 460 and 428J of the Higher Education Act of 1965)

On the other hand, the letter also specifies that the following other types of student loan discharges do represent taxable income:

Death and Disability Discharge (Section 437(a) of the Higher Education Act of 1965)
Closed School, False Certification and Unpaid Refund Discharge (Section 437(c) of the Higher Education Act of 1965)
Closed School Discharge (Section 464(g) of the Higher Education Act of 1965)
Income-Contingent Repayment (Section 455(e) of the Higher Education Act of 1965)
Income-Based Repayment (Section 493C(b)(7) of the Higher Education Act of 1965)