If you have a very HIGH debt to income ratio, meaning your student loan balance is more than your income (especially when it's 2x or more your income) - you're safe haven is going to be relying on income-based federal forgiveness programs for your federal loans. What this looks like is you will be paying down your debt slow and steady to maximize your forgiveness, while also preparing for the tax consequence that you may have at the end of that term.
There are generally three forgiveness programs that are available to most of everyone on an income-based plan with the right loans.
First of which being the Public Service Loan Forgiveness program or PSLF - you qualify for this plan if you work for a nonprofit, 501(c)(3) or government entity.
Under PSLF, you would make 120 qualifying income-based payments on your qualifying loans working for a qualifying employer... there is a lot of qualifying you need to confirm there...
That means after essentially 10 years of payments, whatever balance is left over is then forgiven and that forgiven debt is NOT considered a taxable event to you. I would highly suggest anyone working in public service to look into taking advantage of this program.
The other two forgiveness programs are for individuals who work in the private sector. Depending on which income-based plan is chosen, you could be looking at a maximum repayment period of 20 or 25 years - this means that after that maximum term, whatever balance is left over is forgiven however when you work in the private sector, that forgiven debt (as of the current tax code) is a taxable event for you in the year it's forgiven.
So for example, let's say you have $150,000 of student loan debt. You pay on those loans on an income-based plan for 20 years and let's say $20,000 is forgiven. That $20,000 is then reported as income for you in that forgiving year. Not only do you need to be paying on your federal student loans - you also need to be saving for that tax consequence down the road - with all that said, your overall nominal cost should still be lower than if you did not take advantage of the forgiveness program.
Speak to a Certified Student Loan Professional™ to help navigate the available federal forgiveness programs and what plan is right for you
Meagan Landress, CSLP®
Certified Student Loan Professional™
Financial Coach Meagan