That exists: https://studentaid.gov/manage-loans/repayment/plans/income-d...
A capped ISA (like what Lambda offers) would be livable and capped.
Why does everyone not get onto this program?
- With the Lambda ISA, your remaining balance is forgiven after 2 years of payments, while the federal income-driven repayment plans require 20-25 years of payments.
- Lambda ISA has a fixed dollar "cap" (currently $30k), but the "cap" for income-driven repayment plans is however much you borrowed + interest that accrues over the life of the loan.
- Most importantly, the Lambda ISA is for a much smaller amount of money. Very few of the news articles about student debt profile students with a balance of only $30k. The horror stories tend to be students who borrowed >$100k, often for graduate study.
>IBR is not capped
It's capped at the 10 year pay off amount.
> takes 25 years for forgiveness
That's only for people who borrowed before 2014. For people after it's only 20 years.
>equires payments the entire time (regardless of whether or not you have an income)
Nope. Deferment time counts towards the 20 years. And you will never be required to make payments if you have no income.
>the amount forgiven is treated as taxable income (so you get a tax bomb when you actually receive the benefit)
Nope. Only the amount forgiven up to the point of solvency. If you don't manage to pay off your debts in 20 years time, you likely lack assets, which means almost none of it will be treated as income.
That's not so likely, really. Assets counted in solvency include your car, your laptop, your clothes, retirement accounts like 401ks and even the value of any life insurance policy held. Standard financial advice is to contribute to retirement before paying above the minimum on student loans, and often even to put away additional savings as well.
