Honestly there has been plenty of talk/examples of not being taxed on that "bomb". If they qualify for IBR of $0, they are likely also going to qualify to not be taxed on the remaining "bomb" at the end. I see no issue with it, still, as at the end of the day, in the extreme, $50k is still less than $78k + interest over the period of time it takes to repay. One has 20 years to save and if you save and/or invest wisely for those 20 years, it will be much less out of pocket than had you tried to pay it off faster. I would be interested to see if anyone has actually been taxed on this.
No doubt, and there's plenty of proponents for getting rid of the tax bomb as well. But the bigger part of the 20 years to save argument is that they're on a $0 payment right now. Either they're a big family or they don't make much - both of those lead me to think they might not have too much leeway for saving, but hopefully I'm wrong or there's something else missing in the picture.
And while 50 < 78 is true, the IRS doesn't give 20 year payment plans afaik right? I know they work with people though, just not sure to what extent.
The IRS can do some very long payment plans.
If they are looking to pay down/off the SLs, then they should be able to hopefully save $100/mo. That alone at a 5% rate of earning puts it at nearly 42k, so they would need to save a hair more than $100/mo. I still bet that will be cheaper in the long run and there is still no guarantee that they will get the tax bomb and especially if they qualify for $0 IBR payments. So this is all hypothetical at this point. I would look into it more if I was OP. Again, it is just my opinion, and 20 years or even if there is only 5 years left before they qualify to be discharged/forgiven (whatever the official verbiage is), I would still go the route of letting that happen over trying to pay them off rapidly.
Like you said, there is a reason they have $0 IBR payments. For my SO, it is because he has $0 income. Makes sense and they don't count my income because we are not married, so it is legit. We will ride it out the 20 years. He had put 7 years into it already and forgot to recertify one year and got scared to call them for some reason and they ended up defaulted, so he has to start from scratch after rehab. Hard lesson learned for him, but we will take the tax bill over paying on loans that currently sit at 200% of their original amount.
Starting Score: 2•20 | EQ 550 | TU 498 | EX 505 Current Score: 11•20 | EQ [F8 615] [F9 653] [EQ5 645] [VS3 657] | TU [F8 600] [F9 552] [TU4 563] [VS3 639] | EX [F8 587] [F9 573] [EX2 614] [VS3 631] Goal Score: 680