How does IBR work?

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wildhaggis
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Re: How does IBR work?

Postby wildhaggis » Thu Mar 28, 2013 8:18 pm

deebs wrote:
wildhaggis wrote:The October 2007 cut-off seems unusual, though I guess any cut-off will be arbitrary.

I've heard some mention that they had federal loans prior to the cut-off, seemingly precluding them from qualifying, but somehow qualified for the program after consolidating all of their federal loans.

I know the recency of the program means a lot of this is nebulous to most. Any idea why consolidation would allow someone to qualify with pre-2007 federal loans?


No idea, I talked to my school's fin aid director yesterday, but I couldn't get clarification re: pre-2007 loans. I asked if paying off those pre-2007 loans would be a way to get around it, but I have to call my actual service provider to find out. It would be nice to get some confirmation on consolidating to meet that requirement, the differences in payments under IBR v PYE is very substantial.

I did learn that all interest generated during law school is capitalized into the principal when repayment begins (how awesome!!!) and that IBR/Pay-as-you earn will also capitalize all interest into principal if you no longer meet the financial hardship requirement. She didn't know how that if/when this happens, if the new principal amount would be used for the hardship requirement.


I'm curious about this, and have heard some conflicting things.

Granted, I've seen quite a few people mention that consolidating does nothing for you if you have pre-October, 2007 loans, while I've only seen one guy claim to have qualified after consolidating... FWIW.

Evidence doesn't look good.

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Re: How does IBR work?

Postby Anonymous User » Thu Mar 28, 2013 10:01 pm

kalvano wrote:Quick PAYE question: any loan that came from the feds and is disbursed through the school is a Federal Direct loan, right? Even a Grad PLUS loan? And those are eligible for PAYE?


Maybe. Some schools only do direct loans, others don't. Log in to http://www.nslds.ed.gov/nslds_SA/ to check your loans, and if they say FFEL or just PLUS, it'll need to be consolidated before it qualifies. If it says Direct, you're good. All direct loans qualify for IBR, and ones that meet that Oct. 2007 criteria qualify for PAYE. All FFEL loans can be consolidated into Direct loans, it's just one extra step.

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kalvano
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Re: How does IBR work?

Postby kalvano » Thu Mar 28, 2013 10:31 pm

Anonymous User wrote:
kalvano wrote:Quick PAYE question: any loan that came from the feds and is disbursed through the school is a Federal Direct loan, right? Even a Grad PLUS loan? And those are eligible for PAYE?


Maybe. Some schools only do direct loans, others don't. Log in to http://www.nslds.ed.gov/nslds_SA/ to check your loans, and if they say FFEL or just PLUS, it'll need to be consolidated before it qualifies. If it says Direct, you're good. All direct loans qualify for IBR, and ones that meet that Oct. 2007 criteria qualify for PAYE. All FFEL loans can be consolidated into Direct loans, it's just one extra step.



All of my loans say Direct before them, and I took out nothing before law school (started in 2010), so I'm good for PAYE, right?

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gwuorbust
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Re: How does IBR work?

Postby gwuorbust » Fri Mar 29, 2013 1:01 am

Anonymous User wrote:
kalvano wrote:Quick PAYE question: any loan that came from the feds and is disbursed through the school is a Federal Direct loan, right? Even a Grad PLUS loan? And those are eligible for PAYE?


Maybe. Some schools only do direct loans, others don't. Log in to http://www.nslds.ed.gov/nslds_SA/ to check your loans, and if they say FFEL or just PLUS, it'll need to be consolidated before it qualifies. If it says Direct, you're good. All direct loans qualify for IBR, and ones that meet that Oct. 2007 criteria qualify for PAYE. All FFEL loans can be consolidated into Direct loans, it's just one extra step.


You likely saved me ~$200/month for the foreseeable future. Thank you!

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quakeroats
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Re: How does IBR work?

Postby quakeroats » Fri Mar 29, 2013 1:28 am

wildhaggis wrote:The October 2007 cut-off seems unusual, though I guess any cut-off will be arbitrary.

I've heard some mention that they had federal loans prior to the cut-off, seemingly precluding them from qualifying, but somehow qualified for the program after consolidating all of their federal loans.

I know the recency of the program means a lot of this is nebulous to most. Any idea why consolidation would allow someone to qualify with pre-2007 federal loans?


It's all in the Register: http://www.gpo.gov/fdsys/pkg/FR-2012-11 ... -26348.pdf

Comments: Many commenters suggested that the Department should expand eligibility for the Pay As You Earn repayment plan (the proposed ICR-A plan) to include borrowers other than new borrowers as of October 1, 2007 who receive Direct Loan disbursements on or after October 1, 2011. Many of these commenters felt that it was unfair to exclude certain borrowers from the Pay As You Earn repayment plan. The commenters argued that all Federal student loan borrowers should have access to all repayment plans.
One commenter suggested basing the eligibility criteria for the Pay As You Earn repayment plan on academic or award years rather than on the fiscal year approach taken in the proposed regulations. The commenter stated that using fiscal years may be confusing to borrowers, who are more familiar with award or academic years. The commenter suggested that if budgetary constraints preclude using an award year approach, we consider using calendar years 2008 and 2012 (January 1, 2008 and January 1, 2012, respectively) instead.
Discussion: In implementing the President's Pay As You Earn repayment initiative, the Department attempted to provide the benefit of the initiative to as many borrowers as budgetary constraints would allow. While the Department understands the view of some of the commenters that the Pay As You Earn repayment plan should be available to all Federal student loan borrowers, expanding eligibility would constitute a significant cost to the government. Similarly, defining “new borrower” on the basis of award years rather than fiscal years would result in significant additional costs.
We understand the commenter's concern that some borrowers may be confused by the use of fiscal year dates and appreciate the recommendation to use calendar years instead. However, the Department believes it is preferable to make the Pay As You Earn repayment plan available to as many borrowers as possible. Using calendar years to define the group of eligible borrowers would exclude borrowers from the Pay As You Earn repayment plan who would have otherwise been eligible under the proposed regulations. For example, a borrower who received the first disbursement of a loan in the fall of 2008 and graduated in three and a half years, with a final loan disbursement occurring on October 15, 2011, would not be eligible for the Pay As You Earn repayment plan if the regulations required the receipt of a Direct Loan disbursement on or after January 1, 2012, rather than on or after October 1, 2011, as in the proposed regulations. Similarly, an otherwise eligible borrower who received the first loan in November 2007 would qualify under the proposed regulations, but would be ineligible if the regulations defined new borrower as someone who had no outstanding loan balance as of January 1, 2008. We believe making the Pay As You Earn repayment plan available to as many borrowers as possible is preferable to using dates that may be less confusing, but that would limit eligibility.
Changes: None.

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Re: How does IBR work?

Postby Anonymous User » Fri Mar 29, 2013 2:17 am

Anonymous User wrote:There's a bit of misinformation in this thread.

Most people who are starting law school now or have started in the past few years will be eligible for Pay As You Earn, which is basically a new form of IBR that took effect last December.

You are eligible for PAYE if you didn't receive a gov't loan before 2007 and have at least one federal loan disbursed after October 2011.

You also have to qualify for a partial financial hardship.

Once you are on PAYE, you never lose eligibility. Your monthly payment will never be higher than it would have been under the standard 10 year repayment plan.

Under PAYE, you pay 10% of your AGI above the poverty line. Say you owe $200k in student loans, and make $70k. Under PAYE, your monthly payment would be $444. Such a payment normally would not even cover the interest on the loan. Once you make qualifying payments for 20 years, (not the 25 as under IBR), you can apply for forgiveness.
The tax treatment right now is that the forgiven amount counts as income. Yes, at first glance that sounds bad. However, you'll want to consider a few things. The first is that the time value of money means that paying tax on the forgiven amount will be easier in 20 years than trying to pay the balance over nearly as long while paying much more per month in an attempt to cut through the high interest rate. Simply put, the money is much more valuable to you now than it will be then. Second, you only pay tax up to the amount of your net worth, so if you happen to be dirt poor and don't have much in the way of assets by the time the 20 years rolls around, your tax burden will be negligible.

I agree though with the concerns expressed that schools will use these types of programs of to induce people to not worry about the cost of school. Essentially the government is just paying the costs of higher education. Schools need to be held accountable and I think stricter protocols for disbursement of student loans should be in place so schools have incentives to keep costs down. Right now schools have little incentive reign in the costs.

There is no certainty that PAYE will exist in its current form in 20 years, but there is no reason to think that the government will just get rid of it completely. After all, they literally just enacted the program a few months ago.

PAYE is a better deal for almost EVERY student with loans above the $150k+ mark if they aren’t making biglaw money, although it will depend on your COL and other factors. I think you’ll find that in coming years even grads with biglaw will begin to use the program. More and more students are graduating with $250k+ debt, and even with Biglaw salary a new grad will qualify for PAYE.

I don't know what I'm missing but this PAYE seems ridiculously generous.
Take someone who graduates with $170,000 in debt and got biglaw. He plans to work at that for a few years and thinks he'll likely land at a low six figures job after five years. His original plan was to pay everything as quickly as possible, say four years of scrimping and saving every dollar and paying an average of $47,000 a year. Now, he can pay 10% of his AGI above the poverty threshold so say he'll pay 13,000; 14,000, 15,000 and 16,000 his first four years for a total of $58,000. The interest is raising his debt level but he's holding on to an extra $130,000 and if he's smart he'll invest it and get 5-7% APY.

Then, he goes to his $110,000 job. Now he's got a wife and a couple kids, so he's paying 10% of about $65,000 a year. (150% of poverty level is like $35,000 and the money he's paying to student debt comes off AGI.) Now, assume he's going to pay about $150,000 over the ensuing years if he gets some raises. His total payments will be $208,000 before forgiveness, which is likely worth far less in present value than the $170,000 over four years, and additionally, he'll have the $130,000 nest egg in case he gets laid off. Alternatively, if he gets a massive raise in year 14 when interest has already brought his "debt" to $320,000, he can choose to pay it off using his "nest egg" or continue at the old salary until after forgiveness.

TL;DR: How is PAYE not an incredible free lunch even for people who get Big Law?

Edit: http://www.constitutionaldaily.com/inde ... &Itemid=65

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Re: How does IBR work?

Postby Anonymous User » Fri Mar 29, 2013 3:53 am

Isn't keeping that huge debt load for 20 years through PAYE going to kill your credit rating, though, for the next 20? I honestly don't know how that would effect it, so I hope someone can chime in there. I'm looking at 220 in debt after interest or so in loans with a 70-90K firm gig (as long as I get offered after this summer).

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Re: How does IBR work?

Postby Anonymous User » Fri Mar 29, 2013 8:35 am

kalvano wrote:
Anonymous User wrote:
kalvano wrote:Quick PAYE question: any loan that came from the feds and is disbursed through the school is a Federal Direct loan, right? Even a Grad PLUS loan? And those are eligible for PAYE?


Maybe. Some schools only do direct loans, others don't. Log in to http://www.nslds.ed.gov/nslds_SA/ to check your loans, and if they say FFEL or just PLUS, it'll need to be consolidated before it qualifies. If it says Direct, you're good. All direct loans qualify for IBR, and ones that meet that Oct. 2007 criteria qualify for PAYE. All FFEL loans can be consolidated into Direct loans, it's just one extra step.



All of my loans say Direct before them, and I took out nothing before law school (started in 2010), so I'm good for PAYE, right?


Based on that info, yes, you'd be fine for PAYE. Be aware that you can't really apply until after graduation, but apply ASAP when your servicer lets you, because it can take months to get on the plan and everything working.

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Re: How does IBR work?

Postby Anonymous User » Fri Mar 29, 2013 8:38 am

Anonymous User wrote:TL;DR: How is PAYE not an incredible free lunch even for people who get Big Law?


Under PAYE 20 year forgiveness, you are hit with a tax bill for the forgiven amount at the end--and your debt likely rises instead of getting paid down. It's not a great choice for anyone who can pay off their debt normally and isn't doing PSLF. Of course, if you work in PI or the government, it's a really good idea because that forgiveness is in only 10 years and not taxed.

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Re: How does IBR work?

Postby Anonymous User » Fri Mar 29, 2013 8:48 am

Anonymous User wrote:Isn't keeping that huge debt load for 20 years through PAYE going to kill your credit rating, though, for the next 20? I honestly don't know how that would effect it, so I hope someone can chime in there. I'm looking at 220 in debt after interest or so in loans with a 70-90K firm gig (as long as I get offered after this summer).


Having student loans affects your credit score, yeah. It affects it in some positive ways (student loans are better than credit card or medical debt, and can establish positive payment history), but it's still going to show on your overall debt load. That's true if you do PAYE or a 10 year repayment, except if you make all your payments in a 10 year plan, it only affects your credit for 10 years. One thing to note is that you CAN pre-pay with PAYE. Having a lower required minimum doesn't stop you from paying more if you want to be out of debt sooner and don't want to do forgiveness.

At 70k per year, I think you're going to struggle making 10 year payments on 220k of debt. Those payments will likely be over $2600 per month, which is possible on 70k of course, but pretty tough in a high cost of living area. You would have to live like you made $25k take-home, essentially.

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quakeroats
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Re: How does IBR work?

Postby quakeroats » Fri Mar 29, 2013 2:47 pm

Anonymous User wrote:
Anonymous User wrote:TL;DR: How is PAYE not an incredible free lunch even for people who get Big Law?


Under PAYE 20 year forgiveness, you are hit with a tax bill for the forgiven amount at the end--and your debt likely rises instead of getting paid down. It's not a great choice for anyone who can pay off their debt normally and isn't doing PSLF. Of course, if you work in PI or the government, it's a really good idea because that forgiveness is in only 10 years and not taxed.


This won't last. The current structure adds up to millions of voters being hit with a few hundred thousand dollars of unearned income. They'll scream bloody murder and Congress will acquiesce.

wildhaggis
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Re: How does IBR work?

Postby wildhaggis » Fri Mar 29, 2013 10:18 pm

quakeroats wrote:
Anonymous User wrote:
Anonymous User wrote:TL;DR: How is PAYE not an incredible free lunch even for people who get Big Law?


Under PAYE 20 year forgiveness, you are hit with a tax bill for the forgiven amount at the end--and your debt likely rises instead of getting paid down. It's not a great choice for anyone who can pay off their debt normally and isn't doing PSLF. Of course, if you work in PI or the government, it's a really good idea because that forgiveness is in only 10 years and not taxed.


This won't last. The current structure adds up to millions of voters being hit with a few hundred thousand dollars of unearned income. They'll scream bloody murder and Congress will acquiesce.


One can only hope.

I see a lot of people saying how good of a deal PAYE is, and I understand the math behind this, but are they taking into account the enormous tax bomb when making these claims?

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Re: How does IBR work?

Postby 09042014 » Fri Mar 29, 2013 11:07 pm

wildhaggis wrote:
quakeroats wrote:
Anonymous User wrote:
Anonymous User wrote:TL;DR: How is PAYE not an incredible free lunch even for people who get Big Law?


Under PAYE 20 year forgiveness, you are hit with a tax bill for the forgiven amount at the end--and your debt likely rises instead of getting paid down. It's not a great choice for anyone who can pay off their debt normally and isn't doing PSLF. Of course, if you work in PI or the government, it's a really good idea because that forgiveness is in only 10 years and not taxed.


This won't last. The current structure adds up to millions of voters being hit with a few hundred thousand dollars of unearned income. They'll scream bloody murder and Congress will acquiesce.


One can only hope.

I see a lot of people saying how good of a deal PAYE is, and I understand the math behind this, but are they taking into account the enormous tax bomb when making these claims?


Even if you are taxed 35% on 250K we are only talking 87k. Just put 400 dollars a month into a safe investment for the 20 years and you'll have that ready to go.

I think if I were eligble under PAYE I'd do it.

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nevdash
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Re: How does IBR work?

Postby nevdash » Sat Mar 30, 2013 12:20 am

Desert Fox wrote:Even if you are taxed 35% on 250K

Wouldn't your balance balloon way past 250k over the course of 20 years? I think the horror story I worry about is my balance reaching like 600k or something.

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Re: How does IBR work?

Postby 09042014 » Sat Mar 30, 2013 12:24 am

nevdash wrote:
Desert Fox wrote:Even if you are taxed 35% on 250K

Wouldn't your balance balloon way past 250k over the course of 20 years? I think the horror story I worry about is my balance reaching like 600k or something.


I don't know for sure. But I think only the principle is part of the tax bomb, and since interest doesn't capitalized, I think the tax bomb is basically limited to your starting balance (less if you pay all the interest down). I'm not totally sure about this though.

@second-class IBR only people

I don't think the numbers really work for us unless we have a lot lower salary. The extra 5 years and 5% really distort the payoff. It's definitely better than the 25 year non IBR plan. But it makes sense to just pay it off.

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nevdash
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Re: How does IBR work?

Postby nevdash » Sat Mar 30, 2013 12:59 am

Desert Fox wrote:
nevdash wrote:
Desert Fox wrote:Even if you are taxed 35% on 250K

Wouldn't your balance balloon way past 250k over the course of 20 years? I think the horror story I worry about is my balance reaching like 600k or something.


I don't know for sure. But I think only the principle is part of the tax bomb, and since interest doesn't capitalized, I think the tax bomb is basically limited to your starting balance (less if you pay all the interest down). I'm not totally sure about this though.

@second-class IBR only people

I don't think the numbers really work for us unless we have a lot lower salary. The extra 5 years and 5% really distort the payoff. It's definitely better than the 25 year non IBR plan. But it makes sense to just pay it off.


Oh shit, you're right. From http://studentaid.ed.gov/repay-loans/un ... s-you-earn:

Limitation on the capitalization of interest—While you have a partial financial hardship, interest that accrues but is not covered by your loan payments will not be capitalized, even if interest accrues during a deferment or forbearance. Unpaid interest capitalizes if you are determined to no longer have a partial financial hardship, but the total amount of interest that capitalizes while you are repaying your loans under the Pay As You Earn plan is limited to 10% of your original principal balance when you begin paying under Pay As You Earn.


Thanks for brightening my night, brother.

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kalvano
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Re: How does IBR work?

Postby kalvano » Sat Mar 30, 2013 1:41 am

So really, this plan is protection for people who took out $150K+ in loans and end up with a $55K - $70K a year job.

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Re: How does IBR work?

Postby 09042014 » Sat Mar 30, 2013 1:57 am

kalvano wrote:So really, this plan is protection for people who took out $150K+ in loans and end up with a $55K - $70K a year job.


It's really for anyone with a high debt to income level. 250K of debt probably makes sense even if you are making big law lockstep.

The old IBR isn't so beneficial. It really blows I can't do the new one.

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Re: How does IBR work?

Postby quakeroats » Sat Mar 30, 2013 2:17 am

Desert Fox wrote:
kalvano wrote:So really, this plan is protection for people who took out $150K+ in loans and end up with a $55K - $70K a year job.


It's really for anyone with a high debt to income level. 250K of debt probably makes sense even if you are making big law lockstep.

The old IBR isn't so beneficial. It really blows I can't do the new one.


From the borrowers prospective, there isn't a maximum on how much you should borrow. In fact, the rational thing to do is borrow as much as you possibly can. Your payment can't exceed 10% of your income whether you borrow $10 or $10 million. Save whatever you don't need and at worst suffer a penalty on a small fraction of it in 20 years.

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Re: How does IBR work?

Postby Pokemon » Sat Mar 30, 2013 6:12 pm

kalvano wrote:So really, this plan is protection for people who took out $150K+ in loans and end up with a $55K - $70K a year job.


Honestly, making 70k to 80k after law school is not a bad outcome if you made 40-50k before.
200k in loans is not just 200k loans, it is also a payment of 30k a year for ten years which is also the difference between 40-50k and 70k-80k (sure taxes screw things over a little; opportunity cost not as much if you actually appreciate being a lawyer). For people able to start and continue at around 75k, they are not completely screwed. The ones in the 45-60k range on the other hand are really screwed.

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Re: How does IBR work?

Postby Anonymous User » Sat Mar 30, 2013 8:04 pm

Pokemon wrote:
kalvano wrote:So really, this plan is protection for people who took out $150K+ in loans and end up with a $55K - $70K a year job.


Honestly, making 70k to 80k after law school is not a bad outcome if you made 40-50k before.
200k in loans is not just 200k loans, it is also a payment of 30k a year for ten years which is also the difference between 40-50k and 70k-80k (sure taxes screw things over a little; opportunity cost not as much if you actually appreciate being a lawyer). For people able to start and continue at around 75k, they are not completely screwed. The ones in the 45-60k range on the other hand are really screwed.


I'd much rather be at $40k with PSLF than $75k in the private sector. You'd take home the same, roughly $32k (provided your school as a LRAP program) if you wanted your debt to disappear in 10 years, either through repayment or forgiveness.

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Re: How does IBR work?

Postby Anonymous User » Sat Mar 30, 2013 9:26 pm

So I'm not qualified for this new loan repayment, since my first college loan was in Sept 2007? Even if my first law loans are for next year, none of my loans are eligible, right?

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Re: How does IBR work?

Postby quakeroats » Sun Mar 31, 2013 12:45 am

Anonymous User wrote:So I'm not qualified for this new loan repayment, since my first college loan was in Sept 2007? Even if my first law loans are for next year, none of my loans are eligible, right?


http://www.gpo.gov/fdsys/pkg/FR-2012-11 ... -26348.pdf

It's not entirely clear. The answer seems to be that if you have loans before 10/07 you're fine unless you have an outstanding loan from that period at the time you take a loan post-10/07, but I suspect the loan servicers won't have a handle on the finer points of the plan.

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Re: How does IBR work?

Postby TTRansfer » Sun Mar 31, 2013 2:58 am

quakeroats wrote:
Anonymous User wrote:So I'm not qualified for this new loan repayment, since my first college loan was in Sept 2007? Even if my first law loans are for next year, none of my loans are eligible, right?


http://www.gpo.gov/fdsys/pkg/FR-2012-11 ... -26348.pdf

It's not entirely clear. The answer seems to be that if you have loans before 10/07 you're fine unless you have an outstanding loan from that period at the time you take a loan post-10/07, but I suspect the loan servicers won't have a handle on the finer points of the plan.


I read that from it, too. I.e. if you have current loans dating back to then, sorry. But if you HAD loans then and have them paid off now, you should be good to go. Otherwise it wouldn't make any sense.

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Re: How does IBR work?

Postby Anonymous User » Sun Mar 31, 2013 7:05 am

TTRansfer wrote:
quakeroats wrote:
Anonymous User wrote:So I'm not qualified for this new loan repayment, since my first college loan was in Sept 2007? Even if my first law loans are for next year, none of my loans are eligible, right?


http://www.gpo.gov/fdsys/pkg/FR-2012-11 ... -26348.pdf

It's not entirely clear. The answer seems to be that if you have loans before 10/07 you're fine unless you have an outstanding loan from that period at the time you take a loan post-10/07, but I suspect the loan servicers won't have a handle on the finer points of the plan.


I read that from it, too. I.e. if you have current loans dating back to then, sorry. But if you HAD loans then and have them paid off now, you should be good to go. Otherwise it wouldn't make any sense.


I asked my loan servicer and they told me that because I had an outstanding balance on my 2007 loan when I received a new loan in 2011, I would not be eligible even if I paid my 2007 loan off before I went into repayment.

edit: yeah, if you pay off your college 2007 loan before you receive a loan for law school you'll be eligible.




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