IBR and sticker-shock...

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kswiss
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IBR and sticker-shock...

Postby kswiss » Wed Mar 10, 2010 5:02 am

So, I'm weighing my options at several schools, including everything from full ride to sticker. My wife has grad school debt, and we just plugged her numbers into an IBR calculator and the results were surprising.

First: we are currently very poor according to the government. We have two kids and make less than 40k. That is considered partial hardship and she is eligible for IBR.

Right now, we pay 215/mo for her loans, and only about $40 goes to principle.

Under IBR, it looks like we'd only pay 36/mo, but any extra interest is forgiven for 3 years so the principle doesn't grow. After that, it begins re-capitalizing? I couldn't exactly figure it out.

So in the end, paying the 36/mo and saving 40/mo for 3 years and paying a one time principle payment on the last payment would put her loans in the exact same spot after three years as the current 215/mo.

Now.... for me. To go to the school that I'd like to, I'm going to have to borrow about 100k. Is it going to work out the same for me? Say I get a job at around 50k. My payments are going to be capped in the same way? And interest will be written off for three years?

If I understand it correctly, it is a totally different frame for debt. Instead of being something that must be paid ASAP so as not to be a hindrance, it protects those that might never make tons of money, because the payment is capped at a reasonable % of income, and forgiven after 25 years?

Forgive me, this is the first time I've looked at IBR. I'm not going to law school to get rich. I have something specific that I'd like to do, and I likely won't make a ton of money, at least for the first several years. If IBR is what it seems it is, it makes taking on the debt seem a little less life-threatening.

Has anyone researched this. Am I off base, or is my understanding fairly sound?

Thx.

FeuerFrei
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Re: IBR and sticker-shock...

Postby FeuerFrei » Wed Mar 10, 2010 10:05 am

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Last edited by FeuerFrei on Fri Feb 04, 2011 2:30 pm, edited 1 time in total.

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pleasetryagain
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Re: IBR and sticker-shock...

Postby pleasetryagain » Wed Mar 10, 2010 10:32 am

If you know you wont make any money why are you paying $100k for law school? Why not go somewhere you get significant money/free ride/is much cheaper instead of asking those who do make money to pay for your education for the rest of your life? Or is that now the American way?

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kswiss
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Re: IBR and sticker-shock...

Postby kswiss » Wed Mar 10, 2010 11:49 am

First, I found the answer to my question in the govt. documentation about IBR. If you have subsidized Stafford loans, the interest is forgiven on the first 3 years of interest that would be capitalized into principle. This doesn't apply to unsub loans, and after three years, if the IBR payments don't cover your interest, it is recapitalized into the loan every year.

pleasetryagain wrote:If you know you wont make any money why are you paying $100k for law school? Why not go somewhere you get significant money/free ride/is much cheaper instead of asking those who do make money to pay for your education for the rest of your life? Or is that now the American way?


I really can't stand people that make a comment that has nothing to do with a post just to insert their narrow political viewpoint. I was asking a practical question about a program available to people with federal student loan debt, not inviting a philosophical discourse about the nature of the nanny state.

There are so many assumptions that you are making here to assume that I am trying to game the government out of cash. First of all, I am trying to make an informed decision about the pros and cons between schools. I have a full scholly from one, partial from the other. I would like to go to the better school that ranks well, but I'm very debt averse because of the economy. I didn't even know about IBR until tonight. I'm just looking at the possibilities.

Also, I don't plan on not being able to pay it back. I would like the flexibility of choosing to go into PI work if thats what I am passionate about in 3 years, and I don't want to have to turn an opportunity like that down because I can't afford debt payments. All of the schools that I applied to have cheap COA, and money has been a factor in this whole process for me thus far, so its not like I'm going to live like a prince for three years and find some way not to pay.

I started looking into this because me and my wife were trying to figure out our finances for this fall. We currently both work, but we're moving to a new town and we have two kids. We're trying to find a way for me to have as stress free of a 1L year as possible, with her possibly working only a couple hours a week (she's a psychotherapist, so part time work is usually easy to come by).

Don't jump on people for looking into all of their debt repayment options. If you don't have to use a program like IBR, good for you, but don't make it out to be welfare or something. Its a way of structuring your loan payments so they rise with your income, not free money.

edited because pleasetryagain is actually a classy dude, and I suck at anonymous message boards.
Last edited by kswiss on Wed Mar 10, 2010 5:21 pm, edited 1 time in total.

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Ipsa Dixit
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Re: IBR and sticker-shock...

Postby Ipsa Dixit » Wed Mar 10, 2010 12:06 pm

I would like the flexibility of choosing to go into PI work if thats what I am passionate about in 3 years, and I don't want to have to turn an opportunity like that down because I can't afford debt payments.


It this is the case, you should also look into the requirements of the College Cost Reduction and Access Act. It is for people who go into public interest (government or nonprofit) work. You can still use IBR, which is available even if you work for a private for profit company, but under CCRAA it is possible to eliminate outstanding debt after 120 qualifying payments (so 10 years worth) rather than 25 years. The forgiven debt under CCRAA is also tax-free while I believe the debt forgiven after 25 years of IBR is taxed as income.

Equal Justice Works has a lot of great info about CCRAA and also LRAP programs. It also has info on IBR. --LinkRemoved--

I've seen a couple presentations by Heather Jarvis from Equal Justice about this and she is great about explaining this stuff. If you have a chance to see a presentation from her and have question about student debt repayment, I highly recommend going.

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pleasetryagain
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Re: IBR and sticker-shock...

Postby pleasetryagain » Wed Mar 10, 2010 12:09 pm

kswiss wrote:Teabagging asshole.


How did my comment have nothing to do with your post.. after all it was just another "option" you can consider?

I personally don't agree with IBR but I am willing to concede that it is useful for those who find themselves unable to pay their loans since they cannot be discharged through bankruptcy. However, I do not agree with those who plan from the get-go to take on debt loads they know they cannot pay with the jobs they wish to get, and count on IBR (read: other peoples tax dollars) (maybe not you, but your post definitely seems to be in this spirit) to make up the difference because they cant stomach not going to the best school they can get in to.

It's great that you are "debt averse" but relying on other taxpayers to pay your debt is not (at least didnt used to be) a reasonable plan to deal with it.

Its a way of structuring your loan payments so they rise with your income, not free money.


lol.. how is that not free money?.. especially considering it is forgiven after a set number of years that just happens to be less for government workers than private sector workers.

IBR should be the LAST thing you consider after all other options have failed. Building into your law school payment plans is similar to marrying someone you don't think you want to be with and relying on divorce as the back up plan. .. oh wait..

But anyway, I'll just take my ridiculous, self-sufficient, self-supporting ideology and go jerk it to Glenn.

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kswiss
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Re: IBR and sticker-shock...

Postby kswiss » Wed Mar 10, 2010 12:24 pm

Look man, I definitely came off as harsh. It bugs me when people reply JUST to insert their political opinion. I understand that you might consider "go for the scholarship school" to be advice, but it doesn't sound like it when you shroud it in neo-con hyperbole.

That said: IBR isn't some plan of last resort. Tons of people that I knew with UG debt take advantage of the different repayment options for their student loans, and I don't see it as gaming the system.

Take a rather outlandish situation. Lets say that Joe the Plumber takes out 100k in loans to get an advanced home sewage management degree. He only makes 40k for the next 25 years working as a private consultant. His loan payments would be capped at around 300 a mo. 300 a mo X 12 X 25 = 90,000. So the government would lose 10% of their investment on ol' Joe.

Now take Joe Sixpack, who wants to be a lawyer for a Northwest brewery. He takes out a 100k in loans also, and starts at 40k a year. But within 10 years, he is making 80k and his IBR payments are no longer capped. So his loans are automatically restructured to be paid off in 10 years from that point, and the government makes all of its money + interest.

I'm going to say that Joe Sixpack is the more likely scenario for most people using IBR. Even law students in the lawpacholypse will probably grow their income over time, whether they work in law or fast food. My wife currently is on the old plan, but her loans will still be paid off in 15 years at the current price with interest.

IBR isn't welfare, as much as you would like to plug it as such. Say what you will about the 10 year debt forgiveness option, which really is writing off the debt. But IBR payments for 25 years is going to lead to more money for the government in most cases than requiring people to pay it off in 10 years and dealing with defaults.

FeuerFrei
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Re: IBR and sticker-shock...

Postby FeuerFrei » Wed Mar 10, 2010 2:19 pm

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Last edited by FeuerFrei on Fri Feb 04, 2011 2:30 pm, edited 2 times in total.

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Kiersten1985
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Re: IBR and sticker-shock...

Postby Kiersten1985 » Wed Mar 10, 2010 2:23 pm

kswiss wrote:Look man, I definitely came off as harsh. It bugs me when people reply JUST to insert their political opinion.


Kind of like what you just did?

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kswiss
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Re: IBR and sticker-shock...

Postby kswiss » Wed Mar 10, 2010 4:55 pm

Where is my political opinion.

Tell me where I'm wrong here on IBR. If I truly don't understand then maybe I'm crazy. I read the actual policy document this morning.

To calculate your payment, you take AGI - (poverty threshhold for family size X 1.5). Your payments are capped at 15% of that number per year.

So, a single person (Joe Sixpack) with 100k in loans, a making 80k.

So 80k-(14kX1.5) = 59k x .15 = 8850/year in debt payments
(14k is estimated poverty threshhold for single person.)

8850 / 12 = 737.5

So yes, at 80k your payments would still be capped, but the 10 year repayment would be 1150/mo, so your payment under IBR would actually be just slightly lower than someone paying off their loans on the 15 year repayment plan. In turn, your loans, interest and all, would be 100% paid for sometime in the 16th year. Thats not free money, thats actually the government making a significant amount of interest and ROI, significantly more than paying it off faster.

all I'm saying is that the only people that can really game the system are those that take out massive loans, and then don't make any real money (like less than 45k a year) at any point in the 25 years before the are forgiven. And even in that case, the government is only losing like $400 a year on that person. They probably waste more on coffee in the senate breakroom in an hour.

Not to say it couldn't be abused, but you would have to purposefully limit your life in order to stretch it out 25 years and have the government forgive.

Thats how the plan actually works. Theres probably tons of misinformation out there, but that is straight from the horses mouth. Its not a welfare program, and I don't see how anyone would have an ethical issue in using IBR to repay their loans. Its not a political issue in the least, its an option.

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kswiss
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Re: IBR and sticker-shock...

Postby kswiss » Wed Mar 10, 2010 4:59 pm

pleasetryagain wrote:instead of asking those who do make money to pay for your education for the rest of your life? Or is that now the American way?
Kiersten1985 wrote:
kswiss wrote:Look man, I definitely came off as harsh. It bugs me when people reply JUST to insert their political opinion.


Kind of like what you just did?


That was what I was referring to as pure political opinion. That is a philosophical statement about who should pay for what in a democracy, that was not supported by any real evidence. Just a soapbox.

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Ipsa Dixit
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Re: IBR and sticker-shock...

Postby Ipsa Dixit » Wed Mar 10, 2010 7:21 pm

In order to get loan forgiveness under IBR or CCRAA, the government has to own the loans. If there is outstanding principal at the end of the 25 or 10 years then the government is subsidizing the individual student. But I am not sure this is really costing taxpayers anything more than it already costs taxpayer to subsidize private lenders. Rather, it's shifting subsidies that already exist to the individual students rather than to the lenders.

I would need to read more about it though to be sure, but this is my understanding. Maybe someone else has better info.

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kswiss
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Re: IBR and sticker-shock...

Postby kswiss » Wed Mar 10, 2010 7:39 pm

Ipsa Dixit wrote:I would need to read more about it though to be sure, but this is my understanding. Maybe someone else has better info.


exactly. The "government owns the loans" requirement applies to any stafford and gradplus loans, you just have to call your servicer, IIRC.

jaydizzle
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Re: IBR and sticker-shock...

Postby jaydizzle » Wed Mar 10, 2010 7:46 pm

After law school, is their a way to consolidate private loans from undergrad to government loans?

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kswiss
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Re: IBR and sticker-shock...

Postby kswiss » Wed Mar 10, 2010 7:49 pm

jaydizzle wrote:After law school, is their a way to consolidate private loans from undergrad to government loans?


apparently not, according to ibrinfo.org

jaydizzle
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Re: IBR and sticker-shock...

Postby jaydizzle » Wed Mar 10, 2010 7:51 pm

I wish I could go back in time to when I was 17. I would shoot myself.... I took on way too much debt undergrad. After I finish next semester, I will be screwed.

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Re: IBR and sticker-shock...

Postby Kobe_Teeth » Wed Mar 10, 2010 7:51 pm

jaydizzle wrote:After law school, is their a way to consolidate private loans from undergrad to government loans?



No.

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Ipsa Dixit
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Re: IBR and sticker-shock...

Postby Ipsa Dixit » Thu Mar 11, 2010 12:20 pm

exactly. The "government owns the loans" requirement applies to any stafford and gradplus loans, you just have to call your servicer, IIRC.


I don't think this is exactly correct. My Stafford and GradPLUS loans are owned by a private company. Stafford and GradPLUS can come from the Federal Direct Loans program where the government lends directly and owns the loans. Not all schools participate in the Federal Direct program. Rather, they participate in the Federal Family Education Loan Program (FFELP) where a private lender makes and owns the loans (with subsidies and guarantees from the government.) My school participates in FFELP so when I graduate, if I want to take advantage of the benefits of CCRAA for example, I need to consolidate my loans with Federal Direct. Though they are Stafford and GradPLUS, I cannot leave them with the original lender if I want loan forgiveness after 120 payments from public interest employment.

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kswiss
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Re: IBR and sticker-shock...

Postby kswiss » Thu Mar 11, 2010 3:29 pm

Ipsa Dixit wrote:
exactly. The "government owns the loans" requirement applies to any stafford and gradplus loans, you just have to call your servicer, IIRC.


I don't think this is exactly correct. My Stafford and GradPLUS loans are owned by a private company. Stafford and GradPLUS can come from the Federal Direct Loans program where the government lends directly and owns the loans. Not all schools participate in the Federal Direct program. Rather, they participate in the Federal Family Education Loan Program (FFELP) where a private lender makes and owns the loans (with subsidies and guarantees from the government.) My school participates in FFELP so when I graduate, if I want to take advantage of the benefits of CCRAA for example, I need to consolidate my loans with Federal Direct. Though they are Stafford and GradPLUS, I cannot leave them with the original lender if I want loan forgiveness after 120 payments from public interest employment.


This is definitely correct. I have a lot of experience with this as my wife is in repayment on her grad loans. If you call the lender, they can transition them into direct loans easily. I'm not sure how it works, but it isn't a difficult process.

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Ipsa Dixit
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Re: IBR and sticker-shock...

Postby Ipsa Dixit » Thu Mar 11, 2010 3:39 pm

kswiss wrote:This is definitely correct. I have a lot of experience with this as my wife is in repayment on her grad loans. If you call the lender, they can transition them into direct loans easily. I'm not sure how it works, but it isn't a difficult process.


I misunderstood you. I thought you were saying the government owns the loans because they are Stafford or GradPLUS even if they are being serviced by someone else.

Sorry about that then. It looks like we are saying the same thing




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