By Joseph Reinke, CEO of FitBUX
The Wall St. Journal recently published an article that highlights the need to plan for your future if you are using a Federal income driven repayment (“IDR”) plan to repay your student loans. In 2015, the government collected $171 million in Social Security benefits for unpaid student loans. The Government Accountability Office (“GAO”) reported that 114,000 Americans aged 50 and older had their Social Security benefits reduced to offset defaulted student loans.
The article warns that borrowers who are currently enrolled in a Federal IDR plan may face even greater risk when they retire. While these IDR plans generally allow for borrowers to make lower payments compared to traditional loan payments, the loan balance may continue to grow and only becomes forgiven after 20 or 25 years, at which time the forgiven amount is considered taxable income. At that point, although borrowers may no longer have to have to deal with the Department of Education, they instead have to deal with the IRS.
A recent study by the GAO reported that approximately 25% of all Direct Loan borrowers are now enrolled in Federal IDR plans. Consequently, the Wall St. Journal article should serve as a major warning to all borrowers using Federal IDR plans. It is not something to fear but to be planned for. The Wall St. Journal article stresses the importance of developing a sound repayment strategy so that you are better prepared.
If you would like FitBUX to help you develop a student loan repayment strategy that is customized to your needs, you can sign up to be part of our beta test today at www.fitbux.com.