My student loans are currently in IBR with $0 payments, so of course I've considered going back to school and getting more loans, like MikeBOS. But:
Can I get more loans if I'm already in IBR?
Is IBR here to stay or might a new president eradicate it before I could get the new loans on it?
I don't have any loans. I just see IBR as a huge boon that hardly anyone is really taking advantage of and so I try to push it on people.
I don't see why you couldn't go back to school and take out more loans. That's another feature/unintended consequence of the program; once you pass the threshold where you decide you're just gonna use IBR until the loans are forgiven, you could get as many additional degrees as you want and pay nothing for them.
There was even a recent modification that sweetened the deal where if you didn't have any pre-existing loans before 2008, and if you took out a federal education loan in 2012, your IBR payments are only 10% of disposable income (income above 150% of the poverty line) as opposed to 15%. And the loans are forgiven after 20 years, not 25. And the loans don't just cover tuition, they'll pay your rent while you're in school and cover a pretty decent consumerist lifestyle.
The US essentially passed unlimited free higher education for anyone who wants it and nobody's talking about it.
One favorite sport among the more investment savvy students (not me at the time) in Denmark was to do a carry trade on low interest student loans. They'd borrow the money at 2% and then immediately roll it over to a government bond at 4% with the same duration. This was essentially risk free arbitrage (plus having made regular payments on such a large loan for some time looked good on the credit report too). Is something similar possible here?
Can you drill down on this a bit more -
"your IBR payments are only 10% of disposable income (income above 150% of the poverty line) as opposed to 15%"
-and maybe provide some links if you have some?
But might IBR disappear like it seems Obamacare might? As far as I can tell I would have to wait until I stopped going to school (3+yrs?) and then apply for IBR for the new loans - what if IBR disappears by then?
Here's a decent summary article about the recent changes.
The formula is to basically figure out what 150% of the poverty line is. Currently $16,775 for a single person living in the lower 48 states (higher in AK and HI). Say your income was $20k for the year. Under IBR, you would not have to pay more than 10%(15% under the old program) of your income over and above 150% of the poverty line. So the total annual payment would be $322.50, no matter what your loan balance is. If your income was $16,775 or lower, you'd have to pay nothing.
If you're married or have dependents, the poverty line number increases. Also, currently IBR doesn't look at your spouse's income. So your spouse could be making $1M/year, and you could still potentially qualify.
In addition, IBR doesn't look at your total taxable income, but rather, your adjusted gross income. So between stashing money into pre-tax 401k/traditional IRA accounts, HSA's, educational savings accounts, and whatever else, you have some wiggle room to lower any potentially required payments.
Further, if your income suddenly goes up one year (I think if you make more than around $60k/year you no longer qualify for the program) so you don't qualify, you could get right back on the program the following year if your income goes back down. So, an ERE type, could potentially preserve a majority of his taxable capital gains as unrealized and then clump them all together in one big year, pay the min loan payments for that year, and then go right back into IBR the following year.
Also, you could arrange your taxable investments to be largely in things like muni bonds, which don't add to your federal AGI. You could be making a million dollars a year off of muni bonds, and still qualify for IBR.
But might IBR disappear like it seems Obamacare might?
I suppose anything's possible, but it seems unlikely to me. It's been around for almost 6 years now and seems to be pretty well established. If they're not going to allow people to discharge student loan debt in bankruptcy, they pretty much have to have some other kind of relief program.
What does seem likely to me are modifications to the program. Particularly to close all the loopholes I just exposed above.
@jacob Some loans given to students for 'living expenses' are at 0% until after graduation, so I suppose there is a small opportunity for some arbitrage there. The real boon though would be taking out $10k-$20k/year for 'living expenses' for like a decade while you get a bachelors and a couple of graduate degrees, living off of part-time work and investing the federal loan money all along, and graduating with $100k-$200k+ invested and with a debt obligation that you don't really have to pay off if you're happy with an income below ~$30k/year. It's kind of unbelievable.
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