Michael Hulshof left the University of La Verne in 2012 with his law degree and $145,000 in student debt. Today, that figure is about $220,000 and, by the time he's 55, he figures it will be around $400,000. That's when his real problems could begin.
Hulshof, a 33-year-old attorney in Antioch, California, entered into a payment plan for graduates who took out federal student loans and who have low income-to-debt ratios. The plan, known as "income-driven repayment," is intended to help graduates who can't afford to pay off their loans within 10 years.
On his income of $90,000 a year, Hulshof pays about $575 per month toward his student loans. It's an affordable payment, but it doesn't come close to covering the $1,500 a month the loans accrue in interest at rates ranging between 6.5 and 8.5 percent.
Under the repayment plan, Hulshof's remaining debt will be forgiven after 25 years. But there's a catch: That forgiven debt is considered income by the Internal Revenue Service, which means he and his wife will face a big tax bill when they finally get out from under the debt cloud.
"Me and my wife talk about it all the time, how we'll deal with it at that point," Hulshof said, estimating that he could owe upward of $175,000 in taxes. "It's incredibly depressing to think about, that bankruptcy may be your only option … to start over at 55 when you worked so hard to get an education to better yourself and society."
Income-based repayment was originally passed by Congress in 1994, but it was mostly unused until the introduction of new plans between 2009 and 2015. Today, there are five different income-based repayment plans and more borrowers than ever before: As of Sept. 30, more than 4.2 million borrowers of federal direct student loans were enrolled in one of the plans, an increase of more than 50 percent from the year prior and an increase of more than 160 percent from 2013, according to the U.S. Department of Education.
The plans do offer lower payment options to graduates who otherwise would likely default on their loans. But critics, including borrowers, student advocacy groups and their supporters in Washington, D.C., say they need to be adjusted to insure that borrowers don't face massive tax bills at the end of their repayment periods.
"Programs such as the income-based repayment program have helped in a small way to ensuring that students can continue to pursue their dreams and get on with their lives while they responsibly pay off their student debt," Rep. Jim McDermott, D-Wash., said in a statement to NBC News. "However, slamming students and families with a massive tax bill after they have played by the rules is just wrong."
McDermott introduced legislation last year to address the problem, either by allowing borrowers to refinance student loans at lower rates so that repayments would reduce the principal or by exempting the retired debt from federal income taxes. Neither approach passed muster with the House Ways and Means Committee. (A spokesperson for the committee did not respond to requests from NBC News for comment.)
The Obama administration also proposed changing the tax code to exempt the forgiven debt from taxes, but the provision did not make it into the final budget agreement passed by Congress and signed by President Obama in December.
Senate Democrats are trying again this year. Legislation introduced on Jan. 21 by Sen. Elizabeth Warren, D-Mass. — the Reduce Student Debt, or REduce Student (RED) Act — would allow debtors to refinance their loans at between 3.86 and 6.41 percent, depending on the type of repayment plan they are on.
The varying rates are indicative of a confusing array of income-based repayment plans.
Hulshof's repayment plan is called income-contingent repayment, the first plan passed in 1994. The plan lowers monthly payments to 15 percent of discretionary income and forgives the debt after 25 years.
The Consumer Finance Reform bill passed in 2009 introduced a new income-based repayment plan, capping payments at 15 percent and forgiving the debt after 25 years. Since then, the government has introduced three other variations, including a new version of income-based repayment.
The differences among them can get confusing.
"All this stuff is part of the problem," said Natalia Abrams, executive director of the group Student Debt Crisis. "We have five different programs with different dates and different set-ups and it creates confusion for the student loan borrower."
That confusion extends to the retirement of the debt, she said. Many borrowers don't understand the tax bill that awaits them upon forgiveness.
"When we talk to any borrower now, we say, think about the fact that you will pay a tax bill," she said.
While Abrams and other advocates for relief wait to see if Congress will act, they are waiting to see how the IRS handles borrowers who face tax on their forgiven debt: Those who signed up for income-driven repayment in 1994 — the first year it was available — will be first to face the potential consequences in 2019.
Joshua Cohen, a lawyer specializing in student debt, said that the high number of students in the program and the likelihood that few will be able to pay taxes suggests the IRS may just look the other way.
"How (is the IRS) going to get the manpower to collect on all this?" he said.
Indeed, the IRS has in the past chosen not to pursue taxes that it could have collected, says Alice Abreu, a professor at Temple University School of Law.
However, those instances — such as its decision to not tax frequent flier miles or hotel reward points earned on hotel reward points — are rare and usually involve ambiguous statutes that give the agency some leeway.
"In this particular case, I would be shocked if the IRS took such action," Abreu said, noting that an existing statute explicitly exempts forgiven debt from taxation for borrowers who work for a qualifying government agency or nonprofit.
That leaves debtors on an income-driven repayment plan with little choice but to make the reduced payments and hope that lawmakers come up with a solution before the tax bill comes due.
Cohen, the student-debt attorney, is himself is on an income-driven repayment plan and currently owes about $200,000 on a loan at a 6.3 percent interest rate.
"What I tell myself is the same thing I tell my clients: The tax bill is still less than what you would owe" if you paid the loan in full, he said.
In the meantime, he urges them not to drive themselves crazy working two jobs or cutting expenses to the quick to try and pay down the loan principal.
"You go to school to live," he said. "You don't live to pay your debt."