My Federal Debt and Me: The Truth About Income Based Repayment

Marina ModlinPlease welcome Marina Modlin, wills and trusts attorney and author of The Independence Track — a resource for freelance attorneys. Today, Marina is sharing her student loan story and what she’s learned about Income Based Repayment (IBR). 

Welcome, Marina!

So, the other day I called the people who are servicing my consolidated federal law school loans, with a vague hope of finding out the terms of IBR, or Income Based Repayment, in which I am enrolled.

Now, I’m not usually the kind of person to be enrolled in something that I don’t understand — but with these loans, I felt like I had no choice: I couldn’t afford a regular payment, yet I couldn’t find any coherent documentation online, and the servicing company back at the time when I first enrolled was not able to explain it to me (they have since gone out of business. Can you even imagine what it’d take to go out of business in this industry?!)

Anyways, the new servicing company’s rep was fantastic, in that he actually explained how IBR works.

A Little Background

I chose to go to University of San Francisco SOL in 2003, a private school in the middle of SF. I lived alone in a modest studio in a safe-ish part of town. I studied abroad one summer, primarily because I couldn’t get one of those coveted 1L summer jobs. For the third year, I moved out of SF back into my mom’s house, and borrowed some more to study for the bar.  I did not earn a single dollar during the three years in law school, but I did score unpaid internships in Yahoo litigation department, in SF Office of the Public Defender, and spent a whole summer working (and commuting 3 hours a day) for free at the Northern District Court as a judicial extern.

My tuition was somewhere in mid-$30k per year, a bargain by today’s standards. I say “somewhere” for two reasons. First, I don’t actually remember. Second, it went up every year. At 22, paying off $100k of tuition plus three years of living expenses plus interest worth of debt felt unreal.

But a number of things reassured me about my debt, and my future: first, how easily it came. I felt like you had to do more to get a $5,000 credit card than to get $50k to finance the first year of law school. I just received a letter that my money is ready at the financial aid office, came by, signed a paper, got a huge check for living expenses, and never even saw my tuition — it went straight to the school. Second, I was told this is “good debt” and thus is ok to have. Third, and probably most important, I was “investing in my future” and upon graduation will have a marketable skill that I could turn around and sell to my employers for $100k+ a year. And at $100k a year salary, $150k of debt doesn’t seem too overbearing.

Well anyways, the $100k a year turned out to be a dream that went unfulfilled for the great majority of my class, including myself. I took a strange path for a little while, but about a year after gradation was on my way to building my own practice, first freelance, and then estate planning. Over the past 7.5 years now I’ve been slowly getting more and more secure in my financial and otherwise existence in this world. I’ve worked my ass off, paid my bills, maintained a great credit score, deferred my loans for a while but only as much as I needed, started paying them off as soon as I could (and before moving out of my mother’s house), and have never had a single late payment. I felt OK, maybe even quite pleased with myself.

And then I thought, I should see what shape my federal loans are in (they’re locked in by the federal government at a really high interest rate), to see if I can make some sort of a long-term financial plan. And so a few days ago I called Nelnet, the people who are servicing these loans.

And I learned that on my federal student loans, I currently owe $500 MORE than the day I graduated from law school.

How IBR Works

Income Based Repayment is a program available for federal debt. It applies a formula to cap your monthly payment at something that the federal government thinks is “affordable.” You have to apply and reapply annually to stay in the program.  Please remember that I’m not an expert, and everything I’m telling you is based on a conversation with a servicing company rep.

So, this is how IBR works:

  • You have to apply by providing the last year’s tax return: they are looking at your AGI.
  • You need to know your family size. Your family size is you plus anyone else for whom you’re at least 50% financially responsible. This makes no sense, but the rep told me that roommates qualify here (but pets do not).
  • If your family size is one (as mine is), the feds think that was I NEED to live on annually is about $17,500 (that doesn’t even cover my rent in the SF Bay Area, and hasn’t for the last 3 years). If my family size was 2, this NEED amount would have gone up to $22-thousand-something.
  • Everything above that NEED number is “discretionary spending” money, and the IBR payment is 15% of that money.
  • You have to reapply every year, and your payment will be recalculated based on last year’s income.

Weird, random, and awful things about IBR:

  • The current rule is that after 25 years worth of timely payments, your debt will be forgiven. HOWEVER, the program has not been around for 25 years, thus there isn’t a single debtor who has in fact experienced this.
  • The rep (who is in this line of business and sounded very knowledgeable otherwise) said that the amount of money that is in IBR is so staggering that he has a hard time imagining how this will ever be forgiven, i.e. not repaid back to taxpayers. Given that Congress can change laws and programs as it pleases, he said he “wouldn’t rely” on this debt being forgiven.
  • Even if it is forgiven, in 25 years, it will create a taxable event, and I have not come across anyone who knows what that will look like. Presumably it will just be taxed as ordinary income?
  • You cannot prepay in IBR. In other words, you can ONLY make the minimum required payment. If I were to pay extra money, it will basically confuse the auto debit system, but would not move things along.
  • At roughly $40,000 a year income – what my income was in 2013, which my current IBR payment is based on — my monthly payment covered approximately 50% of the interest generated by this loan every month. The rest of the interest just accrued, but was not capitalized — i.e. added to the principal.
  • Once I leave IBR, all this interest will in fact get capitalized. Way to reward me for making more money and thus paying off my debt quicker!!!
  • Once income gets into approximately $70-$80k a year, the IBR payment actually becomes higher than the regular 25-year repayment term payment.
  • Unlike what previous people told me, apparently federal debt can in fact still be refinanced with private loans, but most of deferment and IBR options will disappear.
Going Forward

Well, I feel my takeaway from this consists of two parts. The first part is a concrete plan for dealing with my student loan debt. Personally, I feel I shouldn’t count on this debt being forgiven, and work towards paying it off. If I do want to pay it off, I must leave IBR and face a larger mandatory monthly payment. But before I leave IBR I should also save money to pay off the accrued interest before it capitalizes (apparently there’s a small window of time). This will require a staggering amount of money, every month, but I guess that’s what I’m doing. (I can still fantasize about fundraising on or winning the lottery, right?)

The second part is really just looking at my life, and the big picture. I feel that given how hard I’ve worked, I should be in a better place — but I’ll probably get there. I also feel that a country where higher education is this prohibitive is severely misguided.


Thanks, Marina!

Marina Modlin emigrated from Saint Petersburg, Russia. She received her B.A. from UC Davis and her J.D. from USF School of Law. Right after graduation in 2007 she founded Modlin Legal, first a freelance law firm and then a wills and trusts firm.

To learn more about Marina’s freelance law practice, go to or order her book, The Independence Track: How to Succeed as a Freelance Attorney. To learn more about Marina’s wills and trusts practice, or to schedule a free consultation, go to You can contact Marina at


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  1. Maura Anderson says

    I would like to correct one inaccuracy I noticed in this article because it’s important when educating about student loans to educate accurately. The author states “You cannot prepay in IBR. In other words, you can ONLY make the minimum required payment. If I were to pay extra money, it will basically confuse the auto debit system, but would not move things along.”

    I am not sure where she is going with this. You can absolutely prepay under IBR. I do it every month with no problem. It may result in your account showing that you are prepaid by x amount of dollars, but just keep paying every month and it works.

    • Hi Maura,

      You beat me to it – thank you for your correction!

      As I indicated in the beginning of the article, I am NOT an expert in IBR – all of my information was based on a conversation with a customer service representative. (The goal of this article was simply to share my experience w/ IBR… receiving incorrect information is definitely a part of that experience… not the first time, unfortunately!)

      Anyways, my conversation with the customer service rep took place about 3 weeks ago… I was talking to him to figure out my situation. He told me that IBR cannot be prepaid.

      I spent the last 3 weeks since that conversation deciding whether I dare exit IBR this year, even though I’d still qualify, just to finally be able to make progress on paying off the debt. I have concluded that that is what I’ll do.

      Then I called Nelnet again last night, to finalize the details, and a new customer service rep told me that I CAN prepay. I asked to speak to the supervisor, since I’ve gotten two conflicting stories – and the supervisor confirmed that it can in fact be prepaid. But the article was already scheduled to be published, and we haven’t had the chance to correct it yet.

      Given that, I’ve chosen to stay in IBR so long as I qualify, and make extra monthly payments.

  2. Chelsea Callanan says

    I really appreciate this article – my recent passion has become helping young professionals with staggering debt create alternative and residual streams of income. It took me 1 year part-time working with a great network marketing company to create a residual income that exceeds my monthly payments (which is not insubstantial) and now I am continuing to grow that income to exceed what I made as a lawyer. I had never considered diversifying my income beyond the billable hour as a lawyer or career coach – but residual income is a beautiful thing. Best of luck Marina – the hoops we have to jump through to be a responsible generation of educated debt-holders is staggering.

  3. I’ve really researched the IBR payment plan since it’s the only plan my husband and I can remotely afford each month given our high amount of student loan debt.

    I understand that the debt is theoretically forgiven in 25 years but I’m actually of the belief (or maybe hope) that the laws will change in the next 20 years to grant some kind of student loan forgiveness plan or the debt might become dischargeable in bankruptcy.

    I wouldn’t want to be killing myself paying a very high monthly payment to the detriment of my kids and family, just to find out in 10 years there is some kind of forgiveness plan I might qualify for.

    Also I think that for tax purposes if you’re insolvent at the time of the forgiveness of debt in 25 years that you won’t pay taxes on the amount forgiven. It won’t be hard to be insolvent at that time if we plan accordingly.

    Anyway student loans are a huge problem for our society and I hope that some change is in our future.

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