“Why Should I Give You A Raise If You Are Participating in Income Based Repayment (IBR)?”

When an average young associate demanded a substantial raise in pay, the boss’s common response was something like, “No, and if you don’t like it, you can walk. There are 20 others who will take your place for half your pay.” This leads to feelings of butthurt, declining work quality and preparations to defect and possibly burning a bridge or two along the way. But because of high unemployment among young attorneys and young people in general, they are forced to accept their current condition until they can find something better or they just can’t take it anymore.

Now, thanks to alternative student loan repayment programs such as IBR and Pay As You Earn (PAYE) which limits the amount of monthly student loan payments based on income, employers can pay young lawyers (and young people in general) a pittance without the guilt and the butthurt. Employers familiar with IBR rules can make a convincing argument that there is no economic benefit to giving a raise because it will only lead to a higher monthly student loan payment. If IBR/PAYE still exists in 10 to 15 years, employers have a good chance of convincing employees to forgo pay raises if he has a large student loan that will be forgiven after the 20 to 25 year period.

It’s difficult to predict whether employers will try pulling some shit like this. But I suspect many employers don’t know about IBR/PAYE. How can employers find out about your student loan debt? Simple – check the applicant’s credit report which most states allow. If the credit report shows multiple debts to the Department of Education or another student loan company (Sallie Mae, ACS, AES, etc.), that can indicate he or she has at least some federal loans. If the applicant balks at your $30,000 per year offer, then just say “Hey, at least you have a low monthly IBR payment.”

Conversely, some people will refuse to take higher paying jobs because they have participated in IBR/PAYE for many years and are relying on loan forgiveness.

I will leave it to wiser minds do a more detailed analysis of the numbers and determine whether IBR can be useful to an employer. But I think it is only a matter of time before more and more employers learn about IBR and how it can be used to exploit recent graduates with obscenely high student loan debt.


2 thoughts on ““Why Should I Give You A Raise If You Are Participating in Income Based Repayment (IBR)?”

  1. Anonymous

    LOL. Of course, the idea that student debtors might actually WANT to pay back more of their debt never occurred to you …

    The old saw is true – you really CAN’T cheat an honest man!

  2. dirtbag

    keep in mind that “loan forgiveness” under the PAYE and IBR actually creates a windfall of “taxable income” in that 20th or 25th year. If you get $50,000 “forgiven”, you don’t have to pay it to the loan provider, but the IRS will come looking for that extra $50k of income you received as debt forgiveness. So it’s still in your best interest to pay off as much of it as possible. Any employer who would try to use a lower loan payment as an excuse to pay you less is an asshat.


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