How does IBR work?

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Anonymous User
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Re: How does IBR work?

Postby Anonymous User » Sun Apr 07, 2013 11:29 am

Would it be smart to pay a bit more earlier on and switch to paying at a lower level once you are assured you won't be pushed out of a firm? A bit confused on how that would work (if you could even do that).

Or would it make more sense just to do the PAYE system and just put the money you would be paying into the loans into savings/investments/retirement? You could always pull out the money if you needed it.

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Re: How does IBR work?

Postby Anonymous User » Sun Apr 07, 2013 1:08 pm

Anonymous User wrote:Would it be smart to pay a bit more earlier on and switch to paying at a lower level once you are assured you won't be pushed out of a firm? A bit confused on how that would work (if you could even do that).

Or would it make more sense just to do the PAYE system and just put the money you would be paying into the loans into savings/investments/retirement? You could always pull out the money if you needed it.


The less you make the better PAYE is. The only reason it would be advantageous to pay more than minimum PAYE payments is if you think you will be making partner in BigLaw or will have otherwise high (>200k) income for the next 10-20 years

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Re: How does IBR work?

Postby Anonymous User » Sun Apr 07, 2013 1:36 pm

Anonymous User wrote:
Anonymous User wrote:Would it be smart to pay a bit more earlier on and switch to paying at a lower level once you are assured you won't be pushed out of a firm? A bit confused on how that would work (if you could even do that).

Or would it make more sense just to do the PAYE system and just put the money you would be paying into the loans into savings/investments/retirement? You could always pull out the money if you needed it.


The less you make the better PAYE is. The only reason it would be advantageous to pay more than minimum PAYE payments is if you think you will be making partner in BigLaw or will have otherwise high (>200k) income for the next 10-20 years


Anon you replied to here

Good point. I was an anon earlier mentioning that I will be starting out at 75K at a firm as long as I get an offer after my 2L summer. Tertiary market, cheap COL, etc. PAYE looks ideal, because it'd be about $500 per month instead of $2000 per month. I just worry about making partner or being kept on as a senior associate (the firm doesn't tend to push people out, and even if they do, they tend to find you a job as in house counsel or something and actively help you there).

Just me thinking as a seriously risk averse person. So you think, in that scenario, it'd be best just to do PAYE and invest the rest of the savings (~$1500 per month)? It'd be nice to start saving a bit at a young age.

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Re: How does IBR work?

Postby Anonymous User » Sun Apr 07, 2013 1:57 pm

Anonymous User wrote:
Anonymous User wrote:
Anonymous User wrote:Would it be smart to pay a bit more earlier on and switch to paying at a lower level once you are assured you won't be pushed out of a firm? A bit confused on how that would work (if you could even do that).

Or would it make more sense just to do the PAYE system and just put the money you would be paying into the loans into savings/investments/retirement? You could always pull out the money if you needed it.


The less you make the better PAYE is. The only reason it would be advantageous to pay more than minimum PAYE payments is if you think you will be making partner in BigLaw or will have otherwise high (>200k) income for the next 10-20 years


Anon you replied to here

Good point. I was an anon earlier mentioning that I will be starting out at 75K at a firm as long as I get an offer after my 2L summer. Tertiary market, cheap COL, etc. PAYE looks ideal, because it'd be about $500 per month instead of $2000 per month. I just worry about making partner or being kept on as a senior associate (the firm doesn't tend to push people out, and even if they do, they tend to find you a job as in house counsel or something and actively help you there).

Just me thinking as a seriously risk averse person. So you think, in that scenario, it'd be best just to do PAYE and invest the rest of the savings (~$1500 per month)? It'd be nice to start saving a bit at a young age.


Anon here that you quoted & anon that posted the novel on the last page with the hypothetical $'s.

Please don't take my posts to advise that. I know finance and statistics, but no first hand experience legal employment/exit options. All I was doing was giving a straight numerical analysis of IBR and PAYE vs. paying your loan yourself.

PAYE is the better financial long term outcome IF:
1. Your salary remains low enough such that at the end of your 20 years of PAYE you still have a large balance to be forgiven. If, on the other hand, your salary is high enough such that 10% of your income is significantly more than the annual interest on your loan, it would be better just to pay it off from the start.
2. PAYE stays in its current state for 20 years, or improves. If America decides in 2024 that it is done paying off the the balance of peoples' loans with tax dollars, you could theoretically be left exactly where you started.

If either of these you believe will not be true for yourself, ie you think you may make partner with 400k salary, or you think that the government may (retroactively) discontinue loan forgiveness programs, then paying off your loan balance ASAP will have a higher ROI than any other investment you can make. (Discounting PAYE, paying off Stafford gives you a 6.8% ROI, and gradPLUS a 7.9% ROI -- you are unlikely to get this kind of yield on a yearly basis even in a tax protected account such as your 401k.)

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Re: How does IBR work?

Postby Anonymous User » Sun Apr 07, 2013 4:05 pm

Anonymous User wrote:
Anonymous User wrote:
Anonymous User wrote:
Anonymous User wrote:Would it be smart to pay a bit more earlier on and switch to paying at a lower level once you are assured you won't be pushed out of a firm? A bit confused on how that would work (if you could even do that).

Or would it make more sense just to do the PAYE system and just put the money you would be paying into the loans into savings/investments/retirement? You could always pull out the money if you needed it.


The less you make the better PAYE is. The only reason it would be advantageous to pay more than minimum PAYE payments is if you think you will be making partner in BigLaw or will have otherwise high (>200k) income for the next 10-20 years


Anon you replied to here

Good point. I was an anon earlier mentioning that I will be starting out at 75K at a firm as long as I get an offer after my 2L summer. Tertiary market, cheap COL, etc. PAYE looks ideal, because it'd be about $500 per month instead of $2000 per month. I just worry about making partner or being kept on as a senior associate (the firm doesn't tend to push people out, and even if they do, they tend to find you a job as in house counsel or something and actively help you there).

Just me thinking as a seriously risk averse person. So you think, in that scenario, it'd be best just to do PAYE and invest the rest of the savings (~$1500 per month)? It'd be nice to start saving a bit at a young age.


Anon here that you quoted & anon that posted the novel on the last page with the hypothetical $'s.

Please don't take my posts to advise that. I know finance and statistics, but no first hand experience legal employment/exit options. All I was doing was giving a straight numerical analysis of IBR and PAYE vs. paying your loan yourself.

PAYE is the better financial long term outcome IF:
1. Your salary remains low enough such that at the end of your 20 years of PAYE you still have a large balance to be forgiven. If, on the other hand, your salary is high enough such that 10% of your income is significantly more than the annual interest on your loan, it would be better just to pay it off from the start.
2. PAYE stays in its current state for 20 years, or improves. If America decides in 2024 that it is done paying off the the balance of peoples' loans with tax dollars, you could theoretically be left exactly where you started.

If either of these you believe will not be true for yourself, ie you think you may make partner with 400k salary, or you think that the government may (retroactively) discontinue loan forgiveness programs, then paying off your loan balance ASAP will have a higher ROI than any other investment you can make. (Discounting PAYE, paying off Stafford gives you a 6.8% ROI, and gradPLUS a 7.9% ROI -- you are unlikely to get this kind of yield on a yearly basis even in a tax protected account such as your 401k.)


Anon you quoted

Thanks. The last bit I get for sure (also I think it's absurd that our interest rates are so fucking high anyway, but I digress).

PAYE is a pretty interesting concept. I will really need to sit down and think about this for a while. The firm I will be at this summer definitely increases pay as you advance, but like I said -- it's not the world's best paying firm gig. Some real good points all around.

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kalvano
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Re: How does IBR work?

Postby kalvano » Mon Apr 08, 2013 2:11 am

Niddar wrote:Thanks everyone. Filing separately it is.


Do you have a mortgage or anything at all like that? Filing separately, you lose a lot of the tax benefits of being hitched.

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Niddar
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Re: How does IBR work?

Postby Niddar » Mon Apr 08, 2013 2:26 pm

kalvano wrote:
Niddar wrote:Thanks everyone. Filing separately it is.


Do you have a mortgage or anything at all like that? Filing separately, you lose a lot of the tax benefits of being hitched.


Nope. Our return is really simple, just a couple of W2s. Unfortunately it looks like we'll owe like ~500 when if we filed together we would be getting around $1500.

I spoke with the holder of my law school federal loans. If you have had a loan before 2007 you don't qualify for PAYE. However, if you are able to pay off the existing loans that were taken out prior to '07 you will be able to qualify for it. I only had like one or two small federal loans so I think I might be able to do it. Even if I can't, it might make sense to look into private funding source to payoff just those loans toqualify for PAYE? I think. I don't know much about consolidation, so this might not work, but worth a shot i guess.

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deebs
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Re: How does IBR work?

Postby deebs » Tue Apr 09, 2013 11:57 am

PAYE is so much better than IBR, but I have a 2006 undergrad federal stafford loan with like 5k outstanding that is going to forbid me from qualifying for it. Fuck.

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Re: How does IBR work?

Postby Anonymous User » Wed May 29, 2013 11:49 am

deebs wrote:PAYE is so much better than IBR, but I have a 2006 undergrad federal stafford loan with like 5k outstanding that is going to forbid me from qualifying for it. Fuck.

So would I qualify for PAYE if I took out a small undergrad loan in 2006 that was payed off before starting law school and taking on more debt?

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beepboopbeep
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Re: How does IBR work?

Postby beepboopbeep » Wed May 29, 2013 12:15 pm

Anonymous User wrote:
deebs wrote:PAYE is so much better than IBR, but I have a 2006 undergrad federal stafford loan with like 5k outstanding that is going to forbid me from qualifying for it. Fuck.

So would I qualify for PAYE if I took out a small undergrad loan in 2006 that was payed off before starting law school and taking on more debt?


This is how I understand it, but I spent a loooot of time talking to the government loan people, my lenders, and both my law school and undergrad, without getting much more of a "yea, I would guess that's how it works too" from any of them.

The relevant passage:

You also must be a new borrower as of Oct. 1, 2007, and must have received a disbursement of a Direct Loan on or after Oct. 1, 2011. You are a new borrower if you had no outstanding balance on a Direct Loan or FFEL Program loan as of Oct. 1, 2007, or had no outstanding balance on a Direct Loan or FFEL Program loan when you received a new loan on or after Oct. 1, 2007.


So I just paid mine off with savings and am waiting for that to be reflected in the NSLDS before signing any promissory notes. But like I said, no one really seems to know authoritatively how it works, so, grain of salt.

edit: nice necro and pointless anon posting, btw

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Re: How does IBR work?

Postby randoname » Wed May 29, 2013 4:47 pm

Did we get an answer about prepayment on IBR?

For instance, if you weren't sure about your financials in the short term, wouldn't it just be smarter to apply for IBR so that you have the option to make lower payments, and then as you become more comfortable with your budget you could perhaps increase your monthly payments voluntarily to avoid the buildup of interest?

**Edit: I realize PAYE is better than IBR, but I have undergrad debt from before 2007, so I'm more concerned with IBR. Maybe others are in the same boat.

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Tiago Splitter
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Re: How does IBR work?

Postby Tiago Splitter » Wed May 29, 2013 5:59 pm

randoname wrote:Did we get an answer about prepayment on IBR?

For instance, if you weren't sure about your financials in the short term, wouldn't it just be smarter to apply for IBR so that you have the option to make lower payments, and then as you become more comfortable with your budget you could perhaps increase your monthly payments voluntarily to avoid the buildup of interest?

**Edit: I realize PAYE is better than IBR, but I have undergrad debt from before 2007, so I'm more concerned with IBR. Maybe others are in the same boat.

I don't believe there has ever been an issue with paying more under IBR/PAYE. I think it's pretty much an automatic now that if you are eligible you sign up for it and just pay more if you want to.

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quakeroats
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Re: How does IBR work?

Postby quakeroats » Wed May 29, 2013 7:07 pm

Tiago Splitter wrote:
randoname wrote:Did we get an answer about prepayment on IBR?

For instance, if you weren't sure about your financials in the short term, wouldn't it just be smarter to apply for IBR so that you have the option to make lower payments, and then as you become more comfortable with your budget you could perhaps increase your monthly payments voluntarily to avoid the buildup of interest?

**Edit: I realize PAYE is better than IBR, but I have undergrad debt from before 2007, so I'm more concerned with IBR. Maybe others are in the same boat.

I don't believe there has ever been an issue with paying more under IBR/PAYE. I think it's pretty much an automatic now that if you are eligible you sign up for it and just pay more if you want to.


If you have loans at different rates, you should always take PAYE. That way, you can put anything extra toward the loans with the highest interest rates.

randoname
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Re: How does IBR work?

Postby randoname » Wed May 29, 2013 7:58 pm

quakeroats wrote:
Tiago Splitter wrote:
randoname wrote:Did we get an answer about prepayment on IBR?

For instance, if you weren't sure about your financials in the short term, wouldn't it just be smarter to apply for IBR so that you have the option to make lower payments, and then as you become more comfortable with your budget you could perhaps increase your monthly payments voluntarily to avoid the buildup of interest?

**Edit: I realize PAYE is better than IBR, but I have undergrad debt from before 2007, so I'm more concerned with IBR. Maybe others are in the same boat.

I don't believe there has ever been an issue with paying more under IBR/PAYE. I think it's pretty much an automatic now that if you are eligible you sign up for it and just pay more if you want to.


If you have loans at different rates, you should always take PAYE. That way, you can put anything extra toward the loans with the highest interest rates.


Yes, yes, I realize that. That's why I prefaced my question the way I did.

I'll try again: assuming PAYE to be the best option, but also an option that may not be available to those of us with undergrad debt from before 2007, does IBR allow for prepayment? And further, what would be the strengths, weaknesses, and limits of IBR regarding prepayment?

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quakeroats
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Re: How does IBR work?

Postby quakeroats » Wed May 29, 2013 8:06 pm

randoname wrote:
quakeroats wrote:
Tiago Splitter wrote:
randoname wrote:Did we get an answer about prepayment on IBR?

For instance, if you weren't sure about your financials in the short term, wouldn't it just be smarter to apply for IBR so that you have the option to make lower payments, and then as you become more comfortable with your budget you could perhaps increase your monthly payments voluntarily to avoid the buildup of interest?

**Edit: I realize PAYE is better than IBR, but I have undergrad debt from before 2007, so I'm more concerned with IBR. Maybe others are in the same boat.

I don't believe there has ever been an issue with paying more under IBR/PAYE. I think it's pretty much an automatic now that if you are eligible you sign up for it and just pay more if you want to.


If you have loans at different rates, you should always take PAYE. That way, you can put anything extra toward the loans with the highest interest rates.


Yes, yes, I realize that. That's why I prefaced my question the way I did.

I'll try again: assuming PAYE to be the best option, but also an option that may not be available to those of us with undergrad debt from before 2007, does IBR allow for prepayment? And further, what would be the strengths and weaknesses of IBR regarding prepayment?


There's no prepayment penalty for student loans that I'm aware of, but I haven't spent much time on that question. You might want to call your student loan servicer or dig into the Regs.

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kalvano
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Re: How does IBR work?

Postby kalvano » Mon Jun 03, 2013 5:20 pm

Contacted my lender about PAYE and they said they can't do anything until 60 days before payment is due. I thought I needed to get going on a plan right away?

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nevdash
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Re: How does IBR work?

Postby nevdash » Mon Jun 03, 2013 5:22 pm

kalvano wrote:Contacted my lender about PAYE and they said they can't do anything until 60 days before payment is due. I thought I needed to get going on a plan right away?

I've heard that loan servicers often have no idea what they're doing (or at least the reps you speak to over the phone don't), but mine told me the same thing FWIW.

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A. Nony Mouse
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Re: How does IBR work?

Postby A. Nony Mouse » Mon Jun 03, 2013 5:54 pm

Yeah, that's right. Going on it "right away" just means "before the first loan payment is due."

Legen..waitforit
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Re: How does IBR work?

Postby Legen..waitforit » Mon Jun 03, 2013 6:01 pm

tag




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