Many times, our prospective clients find that their Debt to Income Ratio, prevents them from qualifying for a mortgage loan. To illustrate, here are the numbers for a recent DEBT SHREDDER client, we rescued from financial ruin in the future.

James & Karen recently started paying on their student loans 54 months after they took them out (4 years + 6mo. Grace period.) J&K borrowed $68,000 originally. Now, since they were in deferment (Interest is ACCRUING the whole time) they OWE $85,000. The rate they agreed to 4-1/2 years ago was 6.99% APR.

After graduation J&K entered into a “INCOME BASED REPAYMENT PROGRAM” (The Federal Government signed into law in 2016.) The REPAYE calculators say they should pay just $280.00 monthly.  After making payments for 20 years the debt would then be “Forgiven” and they could stop making payments and would not owe any more money.

Unfortunately, the reality is that to pay off their loans, at that rate, in 20 years would require a payment of $658.49 monthly. This means that $378.49 gets ADDED to the UNPAID BALANCE every month. ($658.49 - $280.00 = $378.49) So the REPAYE program will NEVER actually PAY OFF their loan.

After making 240 payments and paying $67,200 in interest J&K will get FORGIVEN $175,837.00 ($85,000 + ($378.49 X 240)). Or to put it another way, their bankers will WRITE OFF $107,837.00 MORE than they BORROWED after 20 years and $67,200.00 in payments.

Now you are probably asking yourself “Why should I care about J&K?” Here is why; If you get into one of these programs, and your banker WRITES OFF the FORGIVEN DEBT as a LOSS on their books that year. They will issue YOU a form 1099m for (As in J& K’s case $175,837.00) Which according to the IRS code means that money forgiven is TAXABLE INCOME for that year 20 years from now.

Please understand the full ramifications of this. 20 years after you graduate, you will likely be at the top of your professional earning capacity. Plus you will be at the highest Income Tax Rate in your life (30 – 35% according to several accountants we spoke with)

You will get a BILL for the TAXES YOU OWE ON $175,837.00 TAXABLE INCOME that you didn’t ACTUALLY GET PAID!

At the low end, that is about $52,000 in taxes you will owe THAT YEAR and we all know the IRS is VERY GOOD at collecting what is owed them.

Now for the good news. J&K got the DEBT SHREDDER. Using the money they already earn they will be DEBT FREE having PAID OFF their debts in just 6.8 years. After becoming DEBT FREE, if they continue to invest at just 1% return. They will have $1.25 MILLION DOLLARS saved. Really, someone is going to get that money. Is it the bank and the IRS, or is it you and your family?

(-$52,000)………………………….OR………………………………..$1,257,000.00