Typical situation (because most students are in bad law schools, not T6):

Kid goes to law school for $45,000 a year @ 6.8%, for 3 years (the average debt of a law grad is $175,000 so I am being generous).

Kid graduates law school and accepts an offer for $47,500 dollars.

Kid cannot make the monthly payments so they go on IBR. After 25 years whatever is not paid by Kid is forgiven--what that number is depends highly on how much kid pays.

I will tell you based on my experience as a lawyer the kid is not making six figures in his life. Maybe plateau in the 70s-80s, if lucky. Law is just not an easy way to make a living for most grads.

So: you take that $45,000 will have 6.8% interest for 27 years (interest accrues in law school), $45,000 will have 6.8% interest for 26 years, and $45,000 will have 6.8% interest for $45,000. It is really hard to estimate what the final amount will be (if the Kid can pay down the principle it is HUGE).

Whatever that amount left is is considered taxable income because you received the benefit of forgiveness. In this situation it is like the forgiveness will be closer to $300,000 than $100,000 based on paying 15% of your income at $47,5000. That $300,000 is added to your tax return for that last year, and you are liable to the extent you are solvent. What does that mean? Well people guess using other types of indebtedness but nobody has any debt forgiven under IBR so no one knows.

Right now President Obama and several key dem and GOP leaders are proposing a cap on forgiveness at $57,500. If that were to come in to play you'd get a $57,5000 tax bomb maximum, and then the rest of the dead would continue to accrue throughout your life, and upon death the Department of Education would stand in line with the other creditors to take what assets they can from your estate.