When I was in graduate school at NYU, I was painfully aware of my student loan situation. I had just tripled my debt load by deciding to go to my “dream school” and left my career, family, and boyfriend behind for what I thought was an experience of a lifetime.
Graduate school was good, but I do seriously question how much I was willing to pay for it.
When in school, I remember speaking with other classmates and soon enough it became clear there were two types of students at NYU: those getting help from their parents, and those taking out massive student loans. I was part of the latter group.
I enjoyed graduate school, but it felt like a ticking time bomb until I graduated. I tried to pretend I wasn’t really taking out so many loans and could do so successfully because they weren’t due yet. But my time was coming.
As I got to know people better, I’d lament about how much debt I was in and ask my classmates about what their plans were after graduation. How did they plan to pay off their debt?
Many of my classmates, with the utmost nonchalance, said they were going to take part in the income-based repayment program and “just pay the minimum for 25 years.”
I nodded in agreement, but in my head I was quickly calculating. I thought to myself, “I do not want to be 51 when my student loans are forgiven.”
It was in that moment that I decided I would pay my student loans now and not later. When I am 51 years old, I want to be preparing for retirement, traveling, and enjoying my money, not worrying about something I did decades before.
To be honest, part of me is jealous of people that just don’t care about their student loan debt. I wish I could not care, but I am obsessed with trying to get out of debt as soon as possible, even on a small salary.
However, maybe it’s a good thing I do care. Recently I have heard of some huge consequences related to income-based repayment. Although the program is supposed to help people that can’t afford to pay back their loans by forgiving the remaining balance after 25 years, the Internal Revenue Service (IRS) considers the forgiven amount taxable income.
In cases of six-figure debt, you could be paying a hefty (surprise!) tax bill. In one way, it makes sense. The government is forgiving part of your loans, and in some cases those loans and interest amounts are even bigger than their original balance. However, many student loan borrowers are unaware of this.
There is some discussion around changing this, but as of now, this is the policy. The income-based repayment program is still relatively new, so we will see how everything shakes out in the future.
One of the main reasons I am not on IBR or any other programs is that I don’t trust them. I know, that is my own cynicism. But everything is so new that I’d rather just pay off my loans on my own as soon as possible. Yes, it’s a burden now, but I’m still relatively young.
I feel like you will either pay now or pay later.