LRAP/IBR question Forum

[pjo]

So I've been working for the past year and a half while living rent free at my parents' house. This has enabled me to save up a nice chunk of money (enough to pay for most of, if not all of my first year tuition at UVA). The plan was to directly apply this money to my first year tuition and thereby not have to take out as much money in loans (and decrease the interest I'll accrue). After looking more into LRAP/IBR though, I'm having second thoughts. My number one goal is to get a good enough firm job that I wouldn't need/qualify for IBR. At the same time, I haven't ruled out Gov and PI work or even working at a small firm. All of those options would allow me to qualify for LRAP/IBR. I'm under the impression (maybe falsely, still trying to understand how it works) that the aim with IBR isn't so much to pay back the full amount of loans but rather bide your time until the 10 yrs passes and your loan is forgiven. If that’s the case, would I be better to hold onto my money, take out the full amount in loans, then start using my money after I graduate to help me make my monthly payment? Do I have anything to lose by paying outright for my first year tuition rather than holding onto the money until after I graduate?

[sheD]

You should check with your individual school, but in general, I believe that only loans taken out to cover the COA minus your calculated student contribution are LRAP-eligible. So if you have cash in the bank, you will be expected to spend some of it toward your contribution, and if you choose to take out loans to cover that contribution, those aren't eligible for LRAP - so yes, there would be negative consequences to not making your full contribution if you can do so and your LRAP has that restriction. Your contribution in future years would also continue to include a portion of any remaining assets (not including retirement money).

I don't think IBR has the contribution loan restriction, but you need to make sure you have all federal direct loans when you start repayment. The big downside of IBR is that if you work in PI for a shorter amount of time (say 5-7 years), your payments will have been capped (and possibly paid through LRAP), but since you won't have made much (if any) progress on your principal, you could have at least the same amount of debt you started with when you move to standard repayment. You can still do IBR in non-PI jobs, but it's extended to 25 years before loan forgiveness and you get hit with a tax bomb when the debt is forgiven.

HTH!