Do you support a Flat Tax a Fair Tax or a Progressive Tax ?

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Yeah I guess that is something to keep in mind......but yeah I am trying to tell myself not to beat myself up over struggling with things. I mean the worst that could happen is I end up homeless but I have seen when I am downtown how these people help each other out and such so its not like I would be left to die. Not saying I am going to drop out and go for that......but I will have to see how things go and just deal with them as they come I guess.......I certainly don't want to feel like I have to be accomplishing something for society in order to be worth anything. Its just kind of stressful to think about

And it seems like the media and such does a lot to make people in simular positions to me seem lazy and worthless.....and mob mentality does freak me out and the media can be a good tool for that. I guess I just am kind of afraid of being spit on so to speak when I am just trying to survive like anyone else.

Thank You for your replies.

Well, I guess I should make sure you meant the IRS, as in the tax agency, and not the lender who administered the loan. I'm a lot more clueless on the later

The first determining factor as far as taxes go will be what actually happens when you stop paying. If the loan just sits there, ie you legally owe it, but no one actively tries to close the books on it, then you don't have a taxable event. You may have a creditor after you, but as far as the tax law is concerned, it is a non-event. If there is some point in the future when you are deemed to no longer owe it, THEN you have a taxable event. If you get the lender to agree to formally forgive the debt, THEN you have a taxable event.

But what actually happens? Common scenario, the reason it never gets paid, and ends up forgiven, is because you have no assets. If everything you own (clothes, electronic, computers, cars, cash) is worth 5,000, and your debts are 50,000, then you are insolvent by 45,000.

Which plays out as follows:

If 50,000 of debt is forgiven, then you have 50,000 of cancellation of debt income. HOWEVER, that income can be excluded to the extent of insolvency, which in my example was 45,000. Leaving only 5,000 of income going onto a tax return in exchange for walking away from 50,000 of debt. And if your other earnings are low enough, that may not actually end up taxed, either.

Well as it stands now I live at my moms house so I don't have my own place, I don't have a car, I have a bass, bass amp, lap top and stereo but yeah its not 5,000 dollars worth. Hopefully when I am done with college I can find some way of affording at least a place to live....I mean even if my mom has no issue with me staying there I am not going to live at my moms house when I'm 28 or older. but yeah I really don't know that i will be able to pay all the loans back depending on how much I would be making and how much I end up owing. But I hope your right and there are exceptions like that because I was under the impression if you can't pay when they want you to they will try and press legal charges or something......and I am not trying to do anything illegal by going to college. lol

Your concern sounds like it relates to the lender, and the recourses they might have in getting you to repay. Which is not the IRS.

But everyone knows you can't get blood from a turnip. The whole point to student loans is to increase your earning power, so that you will be able to repay the loan. It doesn't always work, and the program knows that, but how it actually handles the defaults I have no idea. I'm just the tax person.

It's not the IRS you have to worry about when it comes to student loans. It's unlikely that any debt forgiveness would be taxed because it is exceedingly rare to get any debt forgiveness at all, and if you do, you'd likely be insolvent anyway.

These loans are generally not resolved through bankruptcy. They stay with you until you pay them off. You can sometimes get them deferred, but interest still accrues. I'm not 100% sure here, but I think the bank can garnish wages and seize assets for non-payment. It can get pretty ugly. Many people believe this is the next major financial crisis that we're facing.

I'm not trying to scare you Sweetleaf. I've never heard of anyone being thrown in jail or anything like that. I think there are some newer government programs that allow borrowers to base their payments off their income and increase terms to 25 years, or something like that, at which point, then the balance might be forgiven. But it's generally good advice to get rid of student loans as fast as possible. Try to avoid deferrals and refinancing because it ends up costing you a small fortune on top of the fortune you're already paying out.

I can fully appreciate not fitting the mold, but I think it's a lot harder to start your own business than you realize. I don't mean to highlight the negatives here, but you did indicate that your current venture is not working out. I've been there myself. It's not just hard, it's really, really, really hard. While it all sounds good on paper, the bottom line is that you've gotta pay the bills.

It's definitely a challenge to get a good job, especially these days, but the benefits of having an employer are still pretty good. Another option is self employment, where you don't necessarily start your own business, but you do freelance work for existing companies. That's what I do. I "work" for a company, but I'm not technically employed by them. I don't have any start-up costs or liabilities, but I also don't get any benefits, including unemployment if my services are no longer needed. The best part is that I work from home so I can avoid people (yay) and stay home with my kids (no childcare costs - another yay).

Thinking outside of the box is great, but I think, pragmatically, finding an employer is still the best way to go for most people.

As an "independent contractor" you are, in essence, running your own business. Very small, but it's your own.

That's essentially where I am now. My business has not grown because I can't find a way to expand it and expect it to take off, but I'm not giving up hope on it yet.



Here's the skinny on student loans.

1. IF YOU DEFAULT, the IRS can be utilized by the student loan holder as a collection agency. This offends me. To what I know, the IRS will generally just seize any tax refund you have coming, but with the abuse this agency is known for, I question how long that is all they will restrict themselves to.

2. Is "loan forgiveness" taxable. Yes....normally. If you work for someone and they pay $10,000/year towards your student loans, the IRS considers that $10,000 taxable income (as of now). There is a tax free loan forgiveness if you consolidate under the Income Based Repayment Plan (IBR) and you work for a government agency or a qualified non-profit. After 10 years of FULL-TIME employment, your student loans are forgiven with no tax liability. This offends me because....Both the IBR and Income Contingent Repayment Plan (ICR) forgives the remaining balance of your student loans after 25 years of repayment. When this happens, as of now, the IRS treats the forgiven amount as taxable income. So, less time and no tax liability for two select groups of workers, but nothing for the rest of us.

3. Bankruptcy is very hard to get for student loans. Currently the standard of "undue hardship" requires satisfying a 3-prong test.

A. Can you make your student loan payments?
Caveat: Are they talking payments towards paying in full without default or just meeting the minimum required payments (IBR/ICR plans would never be able to meet this standard as the payment is capped at what you can afford). I contend it must mean payments on a schedule to full payment by the date the loans would otherwise go into default, but I've not yet found case law upholding that interpretation.

B. Is your economic situation likely to change in the foreseeable future?
Caveat: The longer you have until your loans go into default, the less likely you can persuasively argue this as you might get a good job 5 years in the future. Bankruptcy for student loans should therefore be sought about 5 years out from the date of default or if the overall circumstances are such that it is impossible to ever pay the debt. KEEP IN MIND that your student loans are insured against your death or permanent and total disability, so I think the standard of "hardship" must be below that because the "worst case scenario" is already covered.

C. Have you been making payments in "good faith?"
Caveat: This is a cruel question as the creditor can scrutinize every asset you have and every penny you spend. They can scrutinize how much you've tried to find better employment or if you've limited yourself to working only one job. It is critical to know what a bankruptcy court judge is predisposed to impose on a debtor seeking relief before filing. So far, the courts seem quite reasonable. Car payments for one mode of reliable transportation that isn't lavish isn't an issue. Most common essential living expenses are not disputed. Insurance (life/health/disability) payments are not disputed. Being able to work more than one job and choosing not to can be an issue. I don't think anyone can be expected to work a full-time and a part-time job for an indefinite period of time, but someone choosing to take a vacation can become a point of dispute. It is critical to realize every spending choice might be scrutinized. What might be a well-deserved indulgence to you might be seen as money you should have given to your creditors. To be fair, I get the impression courts only have issue when it's a consistent amount that appear every month (e.g., spending $100/month on satellite TV when you could have met your monthly loan payment with an extra $70/month). Even if you needed an extra $500/month, if they find that you consistently had $500+/month spent on things they deem non-essential, they might rule you acted in bad faith not putting that money towards your student loans.

The good news is that a bankruptcy court has ruled that the tax liability that comes when an ICR plan ends and the balance is forgiven DOES CONSTITUTE UNDUE HARDSHIP because IRS obligations are not dischargable in bankruptcy and most people are in their retirement years when this comes to pass and could not possibly come up with the money to pay the tax liability.

When I chose to go back to school, I was hesitant about borrowing so much for my education. I asked and researched student loans because I wanted an "exit plan" should I be unable to repay them. NEVER would I have agreed to student loans under the current legal structure, but it all changed AFTER I was well into my degree program and could not get out. When I did my initial research, the law then was that you had to go at least 7 years in repayment in good faith before your student loans would be subject to bankruptcy discharge as any other unsecured debt. I learned the law was changed about a year or so before I finished grad school.

Needless to say, after I got shafted out of my exit strategy, I knew I was screwed if I didn't get a good job out of grad school. Then, 9/11 happened, and the rest is history. Now I pay a lot of attention on where this is going and what the courts are ruling because if things don't change for student loan borrowers, my only way to get the debt off my back is to either luck out and get a job with a government agency or non-profit and spend 10 years with them or file bankruptcy about 5 years out from when my loans default and argue "undue hardship."

Yes, I know technically it's the same thing, but I don't need to search for clients, do any marketing, or worry about networking. All good things for someone who's not exactly a social butterfly. I answer to a boss and follow procedures. Get paid on a regular basis. It feels like I'm an employee, even though I'm not.

Most people I know who consider their endeavors to be a business have to work really hard just to get things off the ground. They are in constant sales mode (something I suck at). There's also a much larger risk involved. I've seen people pour their life savings into their business, only to end up loosing everything. It's so sad. It's important to keep an objective and realistic look at things. It's a lot like gambling. You've gotta know when to keep rolling and when to walk away. That entrepreneurial spirit is infectious. It can lead some to great accomplishments and others to utter failure. It can be hard to separate true hope from false hope.

It can be helpful if you have someone else to evaluate your business from an outside perspective. Someone with your best interest at heart, but no interest in the business itself, like a friend or family member (with some solid business sense). Anyway, good luck. Most really successful people have had at least one, if not many failures before reaching their ultimate achievements. Most fails are just wins in disguise.

It really is pretty bad. I'm not terribly worried about the IRS extending their reach, but the current structure definitely sucks. It is unfair that only some forgivenesses (?) are not taxable while others are. Given the enormous burden that student loans have become, I think all discharges should be tax-free, like they have done for mortgages (short sales, foreclosures - any forgiven balance is not taxed as income through 2012, I think, maybe longer).

As far as I know, even death does not discharge a student loan if it was taken out by the parents. Can you image - you take out a loan for your kid to go to school. They die, and you still have to pay for their education for years to come. It's awful.

I'm almost done paying off mine. We've had our own hardships (lost jobs, lost a house), but we always put the student loan payment as top priority because of its permanence. Looking back, it was a pretty bad investment considering that my current job has nothing to do with my degree. I may still use it someday (I hope to), but who knows. I just cannot wait to be rid of it.

.25 * income - 30,000
the outcome is what you owe or that the government owes you.
for full disclosure I cribbed this from Milt Friedman.
every adult files separately.