How does IBR work?

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quakeroats
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Re: How does IBR work?

Postby quakeroats » Sun Mar 31, 2013 1:06 pm

Anonymous User wrote:
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.


Does having at least one pre- and one post-10/07 loan kill your eligibility, even if they're all paid off before you take out law-school loans? How about if you've paid all pre-10/07 loans but you maintain a post-10/07 loan that you took out while your pre-10/07 loan was outstanding? My reading of the rule counts both of these borrowers as ineligible.

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Re: How does IBR work?

Postby DoveBodyWash » Fri Apr 05, 2013 3:14 pm

tag

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Ruxin1
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Re: How does IBR work?

Postby Ruxin1 » Fri Apr 05, 2013 3:28 pm

cusenation wrote:tag


:|

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Homelandsagreatshow
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Re: How does IBR work?

Postby Homelandsagreatshow » Fri Apr 05, 2013 3:33 pm

oh my god...this is horribly confusing...I don't even know if I HAVE any outstanding loans from pre 10/07...I don't think i do but..

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kalvano
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Re: How does IBR work?

Postby kalvano » Fri Apr 05, 2013 10:38 pm

Now I'm mad I didn't take out more loans.

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Re: How does IBR work?

Postby Anonymous User » Sat Apr 06, 2013 2:11 am

edit, ended up quite long... TL;DR would be: it is better not to pay your loans beyond the tiny minimum PAYE payment rather than try to pay your loans yourself. Just let the government take care of it.

quakeroats wrote:
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.


JFC... this plan is so retardedly good... is America really going to keep bailing out everyone making horrible investments for the next 20 years... i mean just how long can we keep raising taxes to pay for constantly ballooning debt??

If I have access to 150k if I need it (not liquid, but I can get easy enough,) it's enough to make my (sticker) graduation bill from a top school very manageable... BUT I would be BEYOND PISSED if I paid off my tuition when I could have just made shitty little payments for the next 20 years and get it forgiven... i mean WTF

I *WAS* sure of liquidating assets and avoiding loans, because my assets can definitely not match the ~8.5% ROI on avoiding loans. BUT given this PAYE shit, consider this:

Using the following assumptions:
-typical sticker debt level, determined by me for a particular T14 school, to be $277,804.54 ($66,817.25 stafford, $210,987.25 gradPLUS)
-poverty level doesn't increase (Very conservative, it has risen approx. 4% annually since its creation)
-marginal income tax rate remain the same, NYC state income tax (8,97% over 400k, and 3.876% local tax) - (again conservative for paying off loan early, because living in NJ would eliminate NYC tax and make tax bomb smaller.
-175k salary avg for first 4 years, then 100k for the next 21 years (reasonable conservative estimate based upon this site's groupthink including bonuses and raises)
-35k COL (again very generous)
-60% take home salary
-the above two figures give you disposable income of $70,000 for 4 years, and $25,000 thereafter
-btw, YES, you are eligible for both IBR and PAYE under these circumstances
-all leftover money over COL and student loan payments is invested at 5% annual ROI (you can easily and safely guarantee yourself better than 5% annual ROI long term with smart index funds/other smart funds -- this also generous because it takes a crazy person to invest every leftover $ into long-term investments)
-money is invested all at the beginning of the year, not totally accurate but good enough
in short, EVERY estimated constant gives the advantage to paying off loans early

Wealth after 25 years given info above:
1) 25 year extended payment plan, you pay $2078.24 per month for 25 years. Your net worth at the end of 25 years: $615,494.83
2) 10 year fixed repayment is not even possible, and I'm not going to figure out 10 year graduated, but it result in somewhere between 1 and 3...
3) paying off as fast as possible -- you would be paid down to ~$64k after 4 years in biglaw, and balance zeros out around month 78, net worth after 25 years: $766,761.78
4) IBR - $1,984/mo. for 4 years, then $1,041/mo. for the next 21 years - $1,097,707.01 in assets, with loan balance of $717,147.66 (loan was down to $275,362.48 after BigLaw), therefore a tax bomb of $436,817.83. Leaves a net balance of $660,889.18.
5) PAYE - $1,194/mo. for 4 years, then $694/mo. Assets worth $1,375,531.17 after year 25. Then, regardless of loan balance ($786,021.37), you are taxed on $305,585.00 of earned income at year 20. This leaves you with net assets of $1,069,946.17. WTF IS THIS SHIT. Sounds like free money from the government rewarding you for not paying your loan.

Now consider my personal situation, where I potentially have chunk of $ to potentially avoid taking loans:
Wealth after 25 years given info above: plus a starting nest egg of $150,000 either put towards loans or invested
1) take out full loans, 25 year extended payment plan, you pay $2078.24 per month for 25 years. Your net worth at the end of 25 years: $1,123,448.07.
2) take out full loans then pay off as fast as possible without using nest egg -- you would be paid down to ~$64k after 4 years in biglaw, and balance zeros out around month 78, net worth after 25 years: $1,274,715.02.
3) put all $$$ down to minimize loans and pay off asap- 150k down means loans start during 4th semester, for a debt of $99,928.18 at graduation. Then, you can have your loans paid off after month 18 of BigLaw. Thereafter all extra $ goes to investments. After 25 years, balance is $1,468,873.19. As expected up until this point...
4) IBR - Same as before, just with the savings being invested the whole time. After 25 years, balance of $1,168,842.42.
5) PAYE - Same as before, just with the savings being invested the whole time. After 25 years, balance is a massive $1,577,899.41.

What. The. Hell. Using an absolute lower bound, with every constant being a disadvantage for PAYE, it is mathematically better to take loans out and let the government take care of it under PAYE than to use your own money to pay for school. $109,026.22 better to use PAYE, even when making 6 figures your entire career. And that's not even taking into account that if we keep getting people like Obama in office, we probably wont even have to pay the tax bomb!! If it was up to current administration, there would probably be IBR/PAYE tax-bomb bailouts, which would make this freaking ridiculously lopsided in favor of NOT paying down your loans.

Something is seriously screwed up with this... The largest risk of relying on PAYE for the best possible outcome, would be if Americans finally come to their senses and slash taxes and government spending...but honestly, what are the chances of that? The only other risk would be that you end up making a very high salary, in which case you made a slightly worse investment since even under PAYE you would pay off your entire loan yourself. We're talking 500k+ salary here though.

disclaimer: Sorry, 0L here, but very relevant to me; non-trad with exp in finance and need to make huge decision in a couple months whether or not to pre-pay my sticker tuition by liquidating assets or not...

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Rahviveh
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Re: How does IBR work?

Postby Rahviveh » Sat Apr 06, 2013 4:37 am

Delete
Last edited by Rahviveh on Sat Apr 06, 2013 5:31 am, edited 1 time in total.

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RELIC
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Re: How does IBR work?

Postby RELIC » Sat Apr 06, 2013 5:00 am

ChampagnePapi wrote:^ to the above 0L (pm me if you want, I've been researching this a lot) i don't think we should we plan on this program existing in its current form by the time we graduate. They could create an income cap which would disqualify you from taking advantage of those benefits. Anyone attending should be prepared to pay it off the good fashioned way. I see any changes to be unlikely in the near future though - Obama just got re-elected, if anything they will expand the program not reduce it. Graduation year for us will be election year

I do think your question is very relevant for those of us with savings that could go towards tuition.

How does your analysis change if you assume a higher salary? Youll pay a lot more since I think 100k after big law is kind of conservative. The tax bomb would decrease, but I don't think even think the tax bomb will happen by the time forgiveness hits

EtA: sorry for another 0L posting in here lol

What? There already is an income cap. I don't think you under stand how IBR and PAYE work.

Go read this: http://studentaid.ed.gov/repay-loans/understand/plans

Also, don't post in the employment forum until you are in law school.

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Re: How does IBR work?

Postby Anonymous User » Sat Apr 06, 2013 5:09 am

Delete

NYstate
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Re: How does IBR work?

Postby NYstate » Sat Apr 06, 2013 8:01 am

Can someone tell me how the financial hardship is determined? I'm not getting how earning more than most people in the US means you have financial hardship. I assume it is be ause your debt to income ratio is so high.

This will be a massive benefit for medical students as well.

Edit: the reason is that partial financial hardship is based on the difference between the amount you will pay under the 10 year program and the amount you will pay under the PAYE program. If it is less under PAYE you qualify.

I calculated the amount my sister might borrow for her Anthropology PhD which will be about 50,000. Her payment would be zero based on her low level post- doc salary.

I foresee disaster with this plan for the entire country. Lol
Last edited by NYstate on Sat Apr 06, 2013 9:08 am, edited 1 time in total.

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somewhatwayward
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Re: How does IBR work?

Postby somewhatwayward » Sat Apr 06, 2013 8:45 am

^
The IBR definition is where your payments on a regular ten-year plan exceed your IBR-calculated payment. The IBR calculated payment is (.15*(AGI - (1.5*federal poverty level)))/12....ie, 15% of your AGI minus 150% of the federal poverty line for your family size. I just ran the calculation for $160,000 with a family of one and it comes out to $1785 for a family of one (if larger family, pay less), and I think a large amount of people entering big law will have monthly payments larger than that and probably qualify for IBR. For example, if you have $170,000 in loans (not that far from average at a top school) at 6.8%, your monthly payments under a ten-year plan would be $1,956 and you would qualify for IBR. These calculations also assume a family of one (the bigger your family, the less your IBR payment and the more likely you qualify) and that you have no deductions to make your AGI less. One caveat, though, is that if you stay in big law for awhile, eventually your IBR payments may surpass your ten-year monthly repayments at which point I think you would be kicked off the plan and your interest would capitalize. In the example I gave above, if you were a third-year making $185,000 lockstep, your IBR payments would now surpass your ten-year payments (assuming family of one) unless you had a bigger family or you had deductions. Since a lot of people start families around that time, it wouldn't surprise me if a lot manage to continue to qualify. Also, many have much higher loan balances than $170,000. Over half the students at CLS pay sticker, which is, what, $250,000?

I don't know if it is the same definition for PAYE.

Regarding the LOL, I agree: we are going to hell-in-a-handbasket.

Anonymous User wrote:edit, ended up quite long... TL;DR would be: it is better not to pay your loans beyond the tiny minimum PAYE payment rather than try to pay your loans yourself. Just let the government take care of it.


I generally agree with you. I would like to point out that it was a Republican who came up with this cockamamie scheme that will ultimately lure thousands more hapless young people to law school (I am sure this plan is already showing up in law school promotional materials).

NYstate
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Re: How does IBR work?

Postby NYstate » Sat Apr 06, 2013 8:56 am

somewhatwayward wrote:^
The IBR definition is where your payments on a regular ten-year repayment plan exceed your IBR-calculated payment. The IBR calculated payment is (.15*(AGI - (1.5*federal poverty level))/12....ie, 15% of your AGI minus 150% of the federal poverty line for your family size. I just ran the calculation for $160,000 with a family of one and it comes out to $1785 for a family of one (if larger family, pay less), and I think a large amount of people entering big law will have monthly payments larger than that and probably qualify for IBR. I don't know if it is the same definition for PAYE.

Regarding the LOL, I agree: we are going to hell-in-a-handbasket.

Anonymous User wrote:edit, ended up quite long... TL;DR would be: it is better not to pay your loans beyond the tiny minimum PAYE payment rather than try to pay your loans yourself. Just let the government take care of it.


I generally agree with you. I would like yo point out that it was a Republican who came up with this cockamamie scheme that will ultimately lure thousands more hapless young people to law school (I am sure this plan is already showing up in law school promotional materials).



To the 0L anon: I note you are calculating assuming you get biglaw. Not a problem if you have assets to cover debt anyway, but don't stake your entire financial future on getting biglaw.
----
Deleted because I was wrong and don't want to confuse anyone!! Sorry!!
Last edited by NYstate on Sat Apr 06, 2013 9:10 am, edited 2 times in total.

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Elston Gunn
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Re: How does IBR work?

Postby Elston Gunn » Sat Apr 06, 2013 9:00 am

NYstate wrote:
somewhatwayward wrote:^
The IBR definition is where your payments on a regular ten-year repayment plan exceed your IBR-calculated payment. The IBR calculated payment is (.15*(AGI - (1.5*federal poverty level))/12....ie, 15% of your AGI minus 150% of the federal poverty line for your family size. I just ran the calculation for $160,000 with a family of one and it comes out to $1785 for a family of one (if larger family, pay less), and I think a large amount of people entering big law will have monthly payments larger than that and probably qualify for IBR. I don't know if it is the same definition for PAYE.

Regarding the LOL, I agree: we are going to hell-in-a-handbasket.

Anonymous User wrote:edit, ended up quite long... TL;DR would be: it is better not to pay your loans beyond the tiny minimum PAYE payment rather than try to pay your loans yourself. Just let the government take care of it.


I generally agree with you. I would like yo point out that it was a Republican who came up with this cockamamie scheme that will ultimately lure thousands more hapless young people to law school (I am sure this plan is already showing up in law school promotional materials).



To the 0L anon: I note you are calculating assuming you get biglaw. Not a problem if you have assets to cover debt anyway, but don't stake your entire financial future on getting biglaw.
----

Under PAYE you benefit from taking a low paying job. Once you get on the program, your payments don't increase. I can't believe my sister could not pay a penny on her loans no matter what salary she subseqquently earns. She can easily deal with the tax on 55,000 ( 50,000 plus a maximum 10% for interest) more than 20 years from now.

This plan is crazy.


Where are you getting that your payments don't change? I'm pretty sure they go up as your salary does.

NYstate
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Re: How does IBR work?

Postby NYstate » Sat Apr 06, 2013 9:06 am

Elston Gunn wrote:
NYstate wrote:
somewhatwayward wrote:^
The IBR definition is where your payments on a regular ten-year repayment plan exceed your IBR-calculated payment. The IBR calculated payment is (.15*(AGI - (1.5*federal poverty level))/12....ie, 15% of your AGI minus 150% of the federal poverty line for your family size. I just ran the calculation for $160,000 with a family of one and it comes out to $1785 for a family of one (if larger family, pay less), and I think a large amount of people entering big law will have monthly payments larger than that and probably qualify for IBR. I don't know if it is the same definition for PAYE.

Regarding the LOL, I agree: we are going to hell-in-a-handbasket.

Anonymous User wrote:edit, ended up quite long... TL;DR would be: it is better not to pay your loans beyond the tiny minimum PAYE payment rather than try to pay your loans yourself. Just let the government take care of it.


I generally agree with you. I would like yo point out that it was a Republican who came up with this cockamamie scheme that will ultimately lure thousands more hapless young people to law school (I am sure this plan is already showing up in law school promotional materials).



To the 0L anon: I note you are calculating assuming you get biglaw. Not a problem if you have assets to cover debt anyway, but don't stake your entire financial future on getting biglaw.
----

Under PAYE you benefit from taking a low paying job. Once you get on the program, your payments don't increase. I can't believe my sister could not pay a penny on her loans no matter what salary she subseqquently earns. She can easily deal with the tax on 55,000 ( 50,000 plus a maximum 10% for interest) more than 20 years from now.

This plan is crazy.


Where are you getting that your payments don't change? I'm pretty sure they go up as your salary does.



Ah- you are correct! It does increase or decrease with salary. What confused me was that you can stay on PAYE if you choose. Once you are on PAYE, your payments will always be calculated under their low formula. I assume your payment is recalculated every year.

So my sister will still get in at least two years of zero payments.

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Re: How does IBR work?

Postby Anonymous User » Sat Apr 06, 2013 11:00 am

NYstate wrote:Ah- you are correct! It does increase or decrease with salary. What confused me was that you can stay on PAYE if you choose. Once you are on PAYE, your payments will always be calculated under their low formula. I assume your payment is recalculated every year.

So my sister will still get in at least two years of zero payments.


If your income changes, you are supposed to tell them so that they can recalculate your payments. You get low payments for exactly the amount of time when your income is low, and if you have to make those payments for 20 years. It's not exactly a 'get out of loan free' program except for people with very high debt who will spend two decades at a low income, or people who qualify for PSLF.

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Re: How does IBR work?

Postby Anonymous User » Sat Apr 06, 2013 12:26 pm

As someone who's going into IBR with PSLF and at $175k in loans, I can definitely tell you I weighed options of going into private practice over the PI/Gov't route. Considering all the factors of biglaw lifestyle and assuming I would get pushed out in 3-4 years versus the PSLF route, I chose to go with the government gig.

Under a biglaw salary I wouldn't qualify for IBR, or if I did it would be very minimal. In order to pay my loans off before I got pushed out I'd have to live on even less than I will be living on with a government job. I saw myself losing the six figure salary and still having significant debt with a job that wouldn't allow me to finish paying it off comfortably in 10 years or less.

IBR doesn't make sense in the private sector because you're straddled with so much debt for so long. IBR just removes the ball and chain that is student loans and replaces it with a bigger ball and looser, more comfortable chain.

As a younger student, graduating at 24, I'd much rather put in the work at my semi-prestigious state prosecuting office (one of the big 5ish) and be free of my bad investment by the age of 34 rather than still having to struggle with a payment every month until I'm gray.

I should add that yes, I did have the grades for biglaw and am graduating from a school that would have allowed me to go that route.

All that being said, if one day a plaintiffs firm sees me in court and wants to offer me a job where I could conceivably pay off my debt in a few years, I'd probably jump at the opportunity. We all know that's where the real money is, anyways.

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Re: How does IBR work?

Postby Anonymous User » Sat Apr 06, 2013 3:44 pm

somewhatwayward wrote:^
The IBR definition is where your payments on a regular ten-year plan exceed your IBR-calculated payment. The IBR calculated payment is (.15*(AGI - (1.5*federal poverty level)))/12....ie, 15% of your AGI minus 150% of the federal poverty line for your family size. I just ran the calculation for $160,000 with a family of one and it comes out to $1785 for a family of one (if larger family, pay less), and I think a large amount of people entering big law will have monthly payments larger than that and probably qualify for IBR. For example, if you have $170,000 in loans (not that far from average at a top school) at 6.8%, your monthly payments under a ten-year plan would be $1,956 and you would qualify for IBR. These calculations also assume a family of one (the bigger your family, the less your IBR payment and the more likely you qualify) and that you have no deductions to make your AGI less. One caveat, though, is that if you stay in big law for awhile, eventually your IBR payments may surpass your ten-year monthly repayments at which point I think you would be kicked off the plan and your interest would capitalize. In the example I gave above, if you were a third-year making $185,000 lockstep, your IBR payments would now surpass your ten-year payments (assuming family of one) unless you had a bigger family or you had deductions. Since a lot of people start families around that time, it wouldn't surprise me if a lot manage to continue to qualify. Also, many have much higher loan balances than $170,000. Over half the students at CLS pay sticker, which is, what, $250,000?

I don't know if it is the same definition for PAYE.

Regarding the LOL, I agree: we are going to hell-in-a-handbasket.

Anonymous User wrote:edit, ended up quite long... TL;DR would be: it is better not to pay your loans beyond the tiny minimum PAYE payment rather than try to pay your loans yourself. Just let the government take care of it.


I generally agree with you. I would like to point out that it was a Republican who came up with this cockamamie scheme that will ultimately lure thousands more hapless young people to law school (I am sure this plan is already showing up in law school promotional materials).


You can't be "kicked off" PAYE, and I don't think you can be kicked off IBR either. If you no longer have a partial financial hardship, all it changes is that your monthly payment is no longer based on your income, but reverts back to the amount you would've paid under the standard 10 year repayment at the time your loans first went into repayment. Your monthly payment can never be higher than that no matter what. Once you're on PAYE, you never lose eligibility. That is, you never lose eligibility for the 20 year forgiveness. If you no longer have a partial financial hardship, then I think your interest can be capitalized. Because under PAYE, while you have a partial financial hardship, the maximum interest capitalization is 10% of the original balance. These keeps the balance from ballooning until the forgiveness period since it's only simple interest added to the principal.

PAYE makes absolute sense for any and everyone, regardless of job, who has $200k+ in debt.

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Re: How does IBR work?

Postby Anonymous User » Sat Apr 06, 2013 3:46 pm

Anonymous User wrote:
NYstate wrote:Ah- you are correct! It does increase or decrease with salary. What confused me was that you can stay on PAYE if you choose. Once you are on PAYE, your payments will always be calculated under their low formula. I assume your payment is recalculated every year.

So my sister will still get in at least two years of zero payments.


If your income changes, you are supposed to tell them so that they can recalculate your payments. You get low payments for exactly the amount of time when your income is low, and if you have to make those payments for 20 years. It's not exactly a 'get out of loan free' program except for people with very high debt who will spend two decades at a low income, or people who qualify for PSLF.


Not really. Your income doesn't have to be low, your debt just has to be high. 10% of your discretionary AGI is really, honestly, nothing.

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Niddar
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Re: How does IBR work?

Postby Niddar » Sat Apr 06, 2013 5:00 pm

Anyone here married who has experience with IBR/PAYE? Specifically: I've read that it can make sense to file taxes "married filing separately" so only your income is considered for the payments required under these programs. I just wanted to see if anyone has experience with this before I take a hit on my current tax return first. FWIW: I played with a couple calculators and it seems as though this is true -- and my loan servicer seemed to indicate this was true, but just wanted to see if anyone has first hand knowledge about this.

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Re: How does IBR work?

Postby cinephile » Sat Apr 06, 2013 5:26 pm

Niddar wrote:Anyone here married who has experience with IBR/PAYE? Specifically: I've read that it can make sense to file taxes "married filing separately" so only your income is considered for the payments required under these programs. I just wanted to see if anyone has experience with this before I take a hit on my current tax return first. FWIW: I played with a couple calculators and it seems as though this is true -- and my loan servicer seemed to indicate this was true, but just wanted to see if anyone has first hand knowledge about this.


If you live in a community property state, filing separately won't help you out anyway.

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somewhatwayward
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Re: How does IBR work?

Postby somewhatwayward » Sat Apr 06, 2013 5:54 pm

Anonymous User wrote:
somewhatwayward wrote:^
The IBR definition is where your payments on a regular ten-year plan exceed your IBR-calculated payment. The IBR calculated payment is (.15*(AGI - (1.5*federal poverty level)))/12....ie, 15% of your AGI minus 150% of the federal poverty line for your family size. I just ran the calculation for $160,000 with a family of one and it comes out to $1785 for a family of one (if larger family, pay less), and I think a large amount of people entering big law will have monthly payments larger than that and probably qualify for IBR. For example, if you have $170,000 in loans (not that far from average at a top school) at 6.8%, your monthly payments under a ten-year plan would be $1,956 and you would qualify for IBR. These calculations also assume a family of one (the bigger your family, the less your IBR payment and the more likely you qualify) and that you have no deductions to make your AGI less. One caveat, though, is that if you stay in big law for awhile, eventually your IBR payments may surpass your ten-year monthly repayments at which point I think you would be kicked off the plan and your interest would capitalize. In the example I gave above, if you were a third-year making $185,000 lockstep, your IBR payments would now surpass your ten-year payments (assuming family of one) unless you had a bigger family or you had deductions. Since a lot of people start families around that time, it wouldn't surprise me if a lot manage to continue to qualify. Also, many have much higher loan balances than $170,000. Over half the students at CLS pay sticker, which is, what, $250,000?

I don't know if it is the same definition for PAYE.

Regarding the LOL, I agree: we are going to hell-in-a-handbasket.

Anonymous User wrote:edit, ended up quite long... TL;DR would be: it is better not to pay your loans beyond the tiny minimum PAYE payment rather than try to pay your loans yourself. Just let the government take care of it.


I generally agree with you. I would like to point out that it was a Republican who came up with this cockamamie scheme that will ultimately lure thousands more hapless young people to law school (I am sure this plan is already showing up in law school promotional materials).


You can't be "kicked off" PAYE, and I don't think you can be kicked off IBR either. If you no longer have a partial financial hardship, all it changes is that your monthly payment is no longer based on your income, but reverts back to the amount you would've paid under the standard 10 year repayment at the time your loans first went into repayment. Your monthly payment can never be higher than that no matter what. Once you're on PAYE, you never lose eligibility. That is, you never lose eligibility for the 20 year forgiveness. If you no longer have a partial financial hardship, then I think your interest can be capitalized. Because under PAYE, while you have a partial financial hardship, the maximum interest capitalization is 10% of the original balance. These keeps the balance from ballooning until the forgiveness period since it's only simple interest added to the principal.

PAYE makes absolute sense for any and everyone, regardless of job, who has $200k+ in debt.


Yeah, you're right, you aren't kicked off but once you no longer have a partial financial hardship, the interest capitalizes. Through manuveuring, it would probably be possible to keep their payments under the ten-year payment amount to avoid capitalization for awhile. There are adjustments people could take advantage of, like contributions to retirement plans.......and student loan interest payments (since IBR money goes first toward paying off interest, can you deduct your IBR payments or the portion of them that goes to interest if you make enough? Then you'd end up with IBR payments that reduced your AGI thereby increasing your likelihood of qualifying for partial financial hardship). I realized what I said earlier was partially wrong because getting married would raise the federal poverty line but it would also presumably increase your AGI. Kids would reduce your payment without increasing your AGI.

I don't know as much about PAYE. I thought interest was capped with PAYE so that you could never pay more than 50% total on top of what you borrowed (ie, 1.5x what you borrowed total) but it would be taken out of your pay check as if your wages were being garnished and it could potentially go on forever, but all that doesn't sound like what you guys are describing....did they change it?

Anonymous User
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Re: How does IBR work?

Postby Anonymous User » Sat Apr 06, 2013 6:35 pm

cinephile wrote:
Niddar wrote:Anyone here married who has experience with IBR/PAYE? Specifically: I've read that it can make sense to file taxes "married filing separately" so only your income is considered for the payments required under these programs. I just wanted to see if anyone has experience with this before I take a hit on my current tax return first. FWIW: I played with a couple calculators and it seems as though this is true -- and my loan servicer seemed to indicate this was true, but just wanted to see if anyone has first hand knowledge about this.


If you live in a community property state, filing separately won't help you out anyway.


I don't think this is true. IBR is a federal program, and under their rules, they say filing separately on your federal taxes means you don't need to include spouse's income. Since it's income-based and not property based, I don't think community property states affect it at all.

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A. Nony Mouse
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Re: How does IBR work?

Postby A. Nony Mouse » Sat Apr 06, 2013 6:49 pm

Anonymous User wrote:
cinephile wrote:
Niddar wrote:Anyone here married who has experience with IBR/PAYE? Specifically: I've read that it can make sense to file taxes "married filing separately" so only your income is considered for the payments required under these programs. I just wanted to see if anyone has experience with this before I take a hit on my current tax return first. FWIW: I played with a couple calculators and it seems as though this is true -- and my loan servicer seemed to indicate this was true, but just wanted to see if anyone has first hand knowledge about this.


If you live in a community property state, filing separately won't help you out anyway.


I don't think this is true. IBR is a federal program, and under their rules, they say filing separately on your federal taxes means you don't need to include spouse's income. Since it's income-based and not property based, I don't think community property states affect it at all.

I'm 95% sure this is correct. I'm on IBR, married, and currently living in a community property state (although my husband is actually living in another, non-community property state, but I don't think that makes any difference). Last year (first year on IBR) I was in a non-community property state, and nothing seems to have changed with the move - it's still just my federal tax income that counts.

Anyway, yes, we file "married filing separately" because that means the IBR people calculate my loan payment based only on my income, not our combined incomes, which makes a huge difference to the payment amount. We don't have a mortgage or children and neither of us is are in school, so I don't think filing jointly would offer us much benefit anyway - not as much benefit as getting my loan payments calculated on the much lower income. (Admittedly, once we stopped filing jointly his taxes went way up, but in part that's because he hasn't adjusted the deductions from his paychecks, silly boy. And I got a huge refund, so it just went to pay his taxes, and we broke even.)

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cinephile
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Re: How does IBR work?

Postby cinephile » Sat Apr 06, 2013 6:55 pm

^ All I know is what the debt counselors told us at the financial aid seminar on IBR.

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Niddar
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Re: How does IBR work?

Postby Niddar » Sat Apr 06, 2013 7:19 pm

Thanks everyone. Filing separately it is.




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