LRAPs -- using IBR vs using Standard 10-yr payment plan

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opus127
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LRAPs -- using IBR vs using Standard 10-yr payment plan

Postby opus127 » Thu Mar 18, 2010 11:33 am

I've been reading about Northwestern's (https://www.law.northwestern.edu/admiss ... /lrap.html) and UVA's (http://www.law.virginia.edu/html/public ... orgive.htm) loan forgiveness programs. Northwestern clearly states that it uses IBR calculations to determine payments, and a UVA's instructions refer to the standard 10-yr payment plan.

As I understand it, using IBR means that you (and the school) have to pay less each year (and thus pay off less of the total debt each year), but that after 10 yrs in the public sector, all outstanding loans are forgiven.

Using the standard 10-yr payment plan, you (and the school) pay more each year, and between you and the school, all loans are paid off in 10 yrs.

If you work the full 10 years in the public sector, you pay much less through an IBR-based LRAP.

BUT, if you decide to leave the public sector before 10 yrs, an IBR-based LRAP leaves you with considerably more outstanding debt.

Am I missing anything here? There seemed to be a good deal of excitement about NU's new IBR-based LRAP, but I'm not sure I see what's so great about it. Any thoughts?

Thanks!

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opus127
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Re: LRAPs -- using IBR vs using Standard 10-yr payment plan

Postby opus127 » Fri Mar 19, 2010 12:25 pm

Is anyone else comparing schools with different LRAP calculations like this? Any thoughts on pros/cons of schools using IBR/standard 10-yr plan? Anything big I'm missing in my simplification above?

Thanks for any observations/opinions/advice.


(yes, shamelessly bumping my own thread.)

Anonymous Loser
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Re: LRAPs -- using IBR vs using Standard 10-yr payment plan

Postby Anonymous Loser » Fri Mar 19, 2010 1:06 pm

Have you contacted Virginia to ask of the information you linked to above is up-to-date? It seems very odd that the school has not designed its institutional loan forgiveness program to work in conjunction with the CCRAA IBR program.

Also, it looks like married students fare somewhat better under the NU plan than the Virginia plan, if that's something that is an issue for you.

edit: Just to be clear, the NU plan pays out more than the minimum IBR payment. Unless I am misreading your post, you seem to be assuming that NU is not making additional payments toward unpaid interest.

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opus127
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Re: LRAPs -- using IBR vs using Standard 10-yr payment plan

Postby opus127 » Fri Mar 19, 2010 1:34 pm

Thanks for your reply!

I have not yet contacted UVA, but will certainly ask if they're still using the old standard 10-yr plan -- seems odd to me, too.

And I am aware that NU helps with interest payments. NU's website is all up-to-date, with a calculator and everything. Still, the amount actually paid each year under NU's plan is considerably less than it would take to repay the loans in their entirety over 10 yrs.

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NayBoer
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Re: LRAPs -- using IBR vs using Standard 10-yr payment plan

Postby NayBoer » Fri Mar 19, 2010 7:57 pm

What little I know about these programs is from the websites, so somebody correct me if I'm wrong.

The NU plan seems to leave you paying a lot less while in the program, and then the PSFP kicks in to essentially cover your unpaid interest. So basically they don't pay the loan much, they mostly stop the interest. So if you switch out of public service, your loan won't have grown out of control but will still mostly be waiting.

The UVA plan is tougher because it expects you to pay a much bigger amount of your loan. The upside is you paid more so you'll have less debt if you switch out of public service. And they contributed more to you right off the bat.

Sidenote: from appearances NU gives you a $5k credit for your spouse (and $5k for children) and doesn't factor spousal income, while UVA partially punishes you for your spouse's income (figuring part of it should go to your debt). So NU is better in that way if you get married.

Seems like if you know you'll want to switch out of public service after a few years then UVA will have given you much more money, but if you know you can make it 10 years then NU will have likely given you more aid.

NU also punishes you way less for getting more money. UVA expects less of your money (zero for under $35k) until around $43k, at which point but NU and UVA expect you to pay around $4k. If you managed to make $80k, NU IBR is $9,563 and UVA expects you to contribute $22,500. So there's a lot more flexibility to get raises with NU's plan.

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beef wellington
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Re: LRAPs -- using IBR vs using Standard 10-yr payment plan

Postby beef wellington » Fri Mar 19, 2010 8:30 pm

UVA is rumored to be upgrading their LRAP. The current incarnation is far stingier than NU's new one. Definitely confirm this with the school, but personally I'm operating under the assumption that the two will have basically equivalent LRAPs by the time we graduate.

edit: the reason I say UVA's current LRAP is stingier is I find it extremely unrealistic to be making regular, non-IBR payments on my loans while living off a PI salary.

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beesknees
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Re: LRAPs -- using IBR vs using Standard 10-yr payment plan

Postby beesknees » Fri Mar 19, 2010 8:53 pm

After sitting in on Michigan's financial aid talk, their aid advisor made it seem like IBR is not a very desirable option - which is why they don't involve their LRAP with that program, which I really like.

My understanding is that IBR is a decent repayment option only if you know you want to commit at least 10 years of your life to public service because if not, you could end up owing more after 6 years of repayment than when you graduated (because IBR simply allows you to make a smaller payment, interest still accrues at a normal rate, and then it is forgiven if you make 120 payments while working in a qualifying job).

Any LRAP program that is associated with IBR, I'd be wary about simply because of this. As an above poster mentioned, a school's LRAP could cover the additional interest that accrues so that at least your loan balance isn't growing. But, essentially, its not paying off anything either. With Michigan's LRAP, at least, you are making payments on a 10 year repayment schedule with forgivable school loans (ie they loan you 6 or 12 months worth of their share of loan payments at a time and forgive it after that 6 or 12 months). Interest isn't accruing and you are actually paying off the loan, not banking on forgiveness 10 years down the road.

This is important in the event that you lose qualifying employment or decide to pursue a different path, you won't be suddenly shouldering the same (or worse, more) debt than you had at graduation.

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beef wellington
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Re: LRAPs -- using IBR vs using Standard 10-yr payment plan

Postby beef wellington » Fri Mar 19, 2010 8:59 pm

beesknees wrote:My understanding is that IBR is a decent repayment option only if you know you want to commit at least 10 years of your life to public service because if not, you could end up owing more after 6 years of repayment than when you graduated (because IBR simply allows you to make a smaller payment, interest still accrues at a normal rate, and then it is forgiven if you make 120 payments while working in a qualifying job).

This is true. If you want PI, you should commit ten years to it unless you can afford to make standard payments.

fortissimo
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Re: LRAPs -- using IBR vs using Standard 10-yr payment plan

Postby fortissimo » Fri Mar 19, 2010 10:44 pm

beesknees wrote:After sitting in on Michigan's financial aid talk, their aid advisor made it seem like IBR is not a very desirable option - which is why they don't involve their LRAP with that program, which I really like.

My understanding is that IBR is a decent repayment option only if you know you want to commit at least 10 years of your life to public service because if not, you could end up owing more after 6 years of repayment than when you graduated (because IBR simply allows you to make a smaller payment, interest still accrues at a normal rate, and then it is forgiven if you make 120 payments while working in a qualifying job).


:shock:

CyLaw
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Re: LRAPs -- using IBR vs using Standard 10-yr payment plan

Postby CyLaw » Fri Mar 19, 2010 11:08 pm

fortissimo wrote:
beesknees wrote:After sitting in on Michigan's financial aid talk, their aid advisor made it seem like IBR is not a very desirable option - which is why they don't involve their LRAP with that program, which I really like.

My understanding is that IBR is a decent repayment option only if you know you want to commit at least 10 years of your life to public service because if not, you could end up owing more after 6 years of repayment than when you graduated (because IBR simply allows you to make a smaller payment, interest still accrues at a normal rate, and then it is forgiven if you make 120 payments while working in a qualifying job).


:shock:


If IBR has you paying less than the interest on your loan, then yep. The key benefit to IBR is the PI forgiveness after 10years, or regular forgiveness after 25 years. Other than that, it is mostly to be used as a stop gap until you can get a better paying job.

Correct me if I am wrong, but you can choose to pay more in IBR, right? You're not restricted to only paying per year what they calculate, correct?

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beef wellington
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Re: LRAPs -- using IBR vs using Standard 10-yr payment plan

Postby beef wellington » Fri Mar 19, 2010 11:34 pm

CyLaw wrote:
fortissimo wrote:
beesknees wrote:After sitting in on Michigan's financial aid talk, their aid advisor made it seem like IBR is not a very desirable option - which is why they don't involve their LRAP with that program, which I really like.

My understanding is that IBR is a decent repayment option only if you know you want to commit at least 10 years of your life to public service because if not, you could end up owing more after 6 years of repayment than when you graduated (because IBR simply allows you to make a smaller payment, interest still accrues at a normal rate, and then it is forgiven if you make 120 payments while working in a qualifying job).


:shock:


If IBR has you paying less than the interest on your loan, then yep. The key benefit to IBR is the PI forgiveness after 10years, or regular forgiveness after 25 years. Other than that, it is mostly to be used as a stop gap until you can get a better paying job.

Correct me if I am wrong, but you can choose to pay more in IBR, right? You're not restricted to only paying per year what they calculate, correct?

I don't think the feds restrict you, no, but I recall seeing some LRAPs that won't pay more than your minimum payment. But those might have been based on standard payment plans. Either way, definitely read the fine print.

Torvon
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Re: LRAPs -- using IBR vs using Standard 10-yr payment plan

Postby Torvon » Sat Mar 20, 2010 1:47 am

beef wellington wrote:This is true. If you want PI, you should commit ten years to it unless you can afford to make standard payments.

+1

Also I would just like to add that if you are planning on the loan forgiveness route then make sure you are only borrowing the correct kind of loans. Not ALL loans are forgiven after 10 years.




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