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I would try to work with them as best you can. Apparently it looks like if you take 25 years to repay the loan, then after 25 years, the unpaid portion will be dismissed but you'll have to pay taxes on the dismissed portion:

This is from:
http://www.ed.gov/offices/OSFAP/DirectLoan/RepayCalc/dlindex2.html

Income Contingent Repayment

This plan gives you the flexibility to meet your Direct Loan obligations without causing undue financial hardship. Each year, your monthly payments will be calculated on the basis of your adjusted gross income (AGI, plus your spouse's income if you're married), family size, and the total amount of your Direct Loans. Under the ICR plan you will pay each month the lesser of:

1. the amount you would pay if you repaid your loan in 12 years multiplied by an income percentage factor that varies with your annual income, or
2. your monthly discretionary income* multiplied by 20%.

If your payments are not large enough to cover the interest that has accumulated on your loans, the unpaid amount will be capitalized once each year. However, capitalization will not exceed 10 percent of the original amount you owed when you entered repayment. Interest will continue to accumulate but will no longer be capitalized.

The maximum repayment period is 25 years. If you make payments under the standard or 12-year extended plan and then switch to the ICR plan, time under the former plan counts toward your 25-year repayment period. Time spent in other plans or in deferment or forbearance does not count toward the 25 years. If you haven't fully repaid your loans after 25 years under this plan, the unpaid portion will be discharged. You will, however, have to pay taxes on the amount that is discharged.
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