How does IBR affect your decision? Forum

[Great Satchmo]

I'm curious, and I need to do more reading and thinking about this, but how does IBR change decisions for certain schools?

If you have debt of around $110k coming out of school, versus $180k, what is the real difference if you get the job starting with pay around $70k? If IBR only demands you pay 15% of your income, and it is forgiven after 25 years, what is the incentive to go for the cheaper school? Is it simply the assumption that one's income will raise over a decade or two, and that the smaller debt could be paid off before 25 years even though you start out with IBR?

Is there a threshold for which IBR makes sense in comparing total debt amounts?

[A'nold]

Got me to go to ls, lol. I probably would have ended up going anyway, but I would be much more concerned with debt.

[nowinGA]

I'm curious, and I need to do more reading and thinking about this, but how does IBR change decisions for certain schools?

If you have debt of around $110k coming out of school, versus $180k, what is the real difference if you get the job starting with pay around $70k? If IBR only demands you pay 15% of your income, and it is forgiven after 25 years, what is the incentive to go for the cheaper school? Is it simply the assumption that one's income will raise over a decade or two, and that the smaller debt could be paid off before 25 years even though you start out with IBR?

Is there a threshold for which IBR makes sense in comparing total debt amounts?

It is affecting my decision big time. (Though my numbers go even higher)...and I need to do more research too. If you go into biglaw, yes, I think the assumption is (and the smart thing to do) that you will pay it off before 25 years. It would not make sense to drag it out and end up paying so much because of interest. Of course that would require a bit of discipline and modesty when you go into repayment.

But I am with you. Trying to wrap my ahead around the fact that my monthly payment would be the same whether I have $110K in loans...or $210K. They are very big numbers to be throwing around so casually...but it is where I find myself.

[Great Satchmo]

I'm curious, and I need to do more reading and thinking about this, but how does IBR change decisions for certain schools?

If you have debt of around $110k coming out of school, versus $180k, what is the real difference if you get the job starting with pay around $70k? If IBR only demands you pay 15% of your income, and it is forgiven after 25 years, what is the incentive to go for the cheaper school? Is it simply the assumption that one's income will raise over a decade or two, and that the smaller debt could be paid off before 25 years even though you start out with IBR?

Is there a threshold for which IBR makes sense in comparing total debt amounts?

It is affecting my decision big time. (Though my numbers go even higher)...and I need to do more research too. If you go into biglaw, yes, I think the assumption is (and the smart thing to do) that you will pay it off before 25 years. It would not make sense to drag it out and end up paying so much because of interest. Of course that would require a bit of discipline and modesty when you go into repayment.

But I am with you. Trying to wrap my ahead around the fact that my monthly payment would be the same whether I have $110K in loans...or $210K. They are very big numbers to be throwing around so casually...but it is where I find myself.

My example:

I have $75,000 scholarship (guaranteed + whatever I can get through performance/applications after that) at McGeorge (where Sacramento has a cheap cost of living) = pragmatic choice for debt.

However, I also got into Cardozo January entry, with no scholarship which is $44k in tuition a year, plus Manhattan cost of living = around $200k in debt.

Assuming I don't get a bunch of extra scholarship money at McGeorge while in 2L or 3L, it's looking more like $100,000 in loans versus $200,000 in loans. What is the real difference here with IBR?

What scenarios should I be thinking about that make this tip one way or another? From what I can figure, here are some scenarios:

(1) I get a low paying job out of law school, and it doesn't increase all that much. I'd have to pay the $100k-$200k in debt off over a period of close to 20 years anyway, so this would mean the difference in debt doesn't matter.

(2) I get a low paying job out of law school, but it does increase over 5-10 years to a significant salary (north of $100k/year). IBR would be necessary in the beginning, but then I could potentially pay off the loan before 25 years (however, how do you know which would be cheaper: paying it off, or letting IBR wipe it out?). In this case, I'm not sure how to analyze the benefits/costs of looking at IBR.

(3) I make a fair amount of money out of law school, in which case the lower debt load is preferable since I could conceivably pay it off fairly quickly - so debt matters.

[Anonymous Loser]

If you have debt of around $110k coming out of school, versus $180k, what is the real difference if you get the job starting with pay around $70k? If IBR only demands you pay 15% of your income, and it is forgiven after 25 years, what is the incentive to go for the cheaper school?

Assuming a constant salary of $70,000*, making only the minimum IBR payment, you pay off the $110k in 17 years (total cost slightly over $200k), but the $180k would take the full 25 years (total cost nearly $350k, with ~$25k in interest and principal forgiven).

So, the real difference is 8 years and $150,000. Seems like ample incentive to me.




*Which is unrealistic for the entire repayment period, but I'm just trying to provide a clear, simple example.

[Wooster33]

Trying to wrap my ahead around the fact that my monthly payment would be the same whether I have $110K in loans...or $210K. They are very big numbers to be throwing around so casually...but it is where I find myself.

The IBR is a terrible program for this reason. It creates no incentive to take out less than maximum loans. It creates no incentive to choose a cheaper, lower ranked school over a higher ranked, more expensive one. It causes a complete disconnect between the economic value of a degree and what one is willing to pay for that degree. I do not blame people for using the program, but let's be honest with ourselves--should the taxpayer pay for your elite law school education when you could have attended another institution with much less or in many cases no debt? Hell no.

[jks289]

IBR includes spousal income so unless you plan to marry someone who makes no money or not get married, IBR can end up being completely worthless.

[Devin the Dude]

If you have 100k+ debt and don't get biglaw, you probably won't be able to pay it in 25 years. lawyer salaries are abysmally low and the law degree keeps you from breaking into more lucrative fields. Anyway, most LS students won't be practicing law in 25 years--and due to the deleterious effects of LS-related opportunity cost, probably won't be making much money doing something else.

The real divide is between those who get government/nonprofit jobs and those who don't. If you get a government job, you pay IBR minimums for 10 years and don't pay any taxes on the forgiveness. Otherwise, you pay for 25 years and then get taxed on the balance, which by then could be half a million bucks. That will all count as income in the year you get it, of course, and you'll enjoy a ~$100k bill. Some people say Congress might eventually change this law to help people like us, but if they do, they probably won't make it retroactive to help people taking out debt now.

We're not the only ones in this boat. Every indebted and underemployed college graduate will be clamoring for any kind of government job to get that 10-year get-out-of-tax-jail-free card. Without connections or military status, getting even the most menial government job will be nearly impossible.

So IBR makes it possible to live on whatever fast food-level salary shitlaw is paying these days, but doesn't otherwise help much for private-sector workers. It probably shouldn't affect your decision unless you have a rock-solid connection to a government job.

As for me, I'm praying for runaway inflation.

[jks289]

Trying to wrap my ahead around the fact that my monthly payment would be the same whether I have $110K in loans...or $210K. They are very big numbers to be throwing around so casually...but it is where I find myself.

The IBR is a terrible program for this reason. It creates no incentive to take out less than maximum loans. It creates no incentive to choose a cheaper, lower ranked school over a higher ranked, more expensive one. It causes a complete disconnect between the economic value of a degree and what one is willing to pay for that degree. I do not blame people for using the program, but let's be honest with ourselves--should the taxpayer pay for your elite law school education when you could have attended another institution with much less or in many cases no debt? Hell no.

I think you are missing the point of IBR, the idea is to help lawyers who have chosen lower paying fields. A majority of the time that is public interest, which is why it makes sense for the "tax payers" to pay into the system. Society gets an ultimate benefit.

[Great Satchmo]

Trying to wrap my ahead around the fact that my monthly payment would be the same whether I have $110K in loans...or $210K. They are very big numbers to be throwing around so casually...but it is where I find myself.

The IBR is a terrible program for this reason. It creates no incentive to take out less than maximum loans. It creates no incentive to choose a cheaper, lower ranked school over a higher ranked, more expensive one. It causes a complete disconnect between the economic value of a degree and what one is willing to pay for that degree. I do not blame people for using the program, but let's be honest with ourselves--should the taxpayer pay for your elite law school education when you could have attended another institution with much less or in many cases no debt? Hell no.

I think you are missing the point of IBR, the idea is to help lawyers who have chosen lower paying fields. A majority of the time that is public interest, which is why it makes sense for the "tax payers" to pay into the system. Society gets an ultimate benefit.

Can't you get the loan forgiven after 10 years of public service?

IBR seems to affect that, but also those who start out in private practice with low salary.

[sawwaverunner]

I don't know anything about IBR, but I would want to know virtually everything I was getting myself into if it came down to taking on 210k in student loans. I would just be careful when it comes to making any rash decisions about it.

[Great Satchmo]

Well, I don't want to take on more debt than I have to - I was just wondering at what decision points IBR comes into play to make choosing a more expensive school not as detrimental.

However, it does seem that going with lower debt is still the right answer (considering T14's aren't in the mix for me).

Worst comes to worst, I get a poorly paying job, have less debt, and IBR will still mitigate the hurt of the repayment.

And the spousal income is a good point - I'm single now, but I'm assuming at some point in my future I'll want to get married.

[nowinGA]

IBR includes spousal income so unless you plan to marry someone who makes no money or not get married, IBR can end up being completely worthless.

Explain how it is worthless. I mean, even if you have a high income, doesn't it still cap your payments at 15%/month? (though obviously you can pay more than that, I get that) Maybe I am misunderstanding.

[Stringer Bell]

IBR was an enormous factor in my decision to go to a t10 at sticker. In the event that I strike out on biglaw and wind up teaching or decide I want to do PI, it's a nice safety net.

IBR includes spousal income so unless you plan to marry someone who makes no money or not get married, IBR can end up being completely worthless.

This is a good point and I have actually brought up to my girlfriend the possibility that we might not be able to get married for 10 years after I graduate.

[thickfreakness]

Zero. I'm married and likely going the private practice route so I'll be paying all of my loans back.

[Great Satchmo]

Zero. I'm married and likely going the private practice route so I'll be paying all of my loans back.

IBR applies to people in private practice, right?

[09042014]

It is good for a worst scenario. I risk millions in future earns against paying 15% of my income for what is basically life.

The tax question needs to be addressed though.

[ozarkhack]

IBR includes spousal income so unless you plan to marry someone who makes no money or not get married, IBR can end up being completely worthless.

Explain how it is worthless. I mean, even if you have a high income, doesn't it still cap your payments at 15%/month? (though obviously you can pay more than that, I get that) Maybe I am misunderstanding.

This is a good point and I have actually brought up to my girlfriend the possibility that we might not be able to get married for 10 years after I graduate.

Better buy that ring! (or find another excuse)

You can still use IBR if you're married. You just have to file your taxes separately. See here.

Of course, filing separately could wind up not being the best financial decision. (My understanding is that, for example, you would not get to claim dependent child tax credits and other similar tax benefits -- including, bizarrely enough, deductions/credits for school loans.) So .. um ... see your financial adviser??

[thickfreakness]

Zero. I'm married and likely going the private practice route so I'll be paying all of my loans back.

IBR applies to people in private practice, right?

Maybe, but I'll probably be in a firm making six figures so I think that precludes IBR as an option.

[nowinGA]

Zero. I'm married and likely going the private practice route so I'll be paying all of my loans back.

IBR applies to people in private practice, right?

Maybe, but I'll probably be in a firm making six figures so I think that precludes IBR as an option.

That is what I don't get. Why does it preclude it as an option. Is the cap not 15%? (sorry to be redundant)...obviously it behooves you to pay it off faster...but isn't the camp 15% even if you are making a gazillion dollars?

[Devin the Dude]

Well I suppose you could but if you're making that much, you might as well just pay it off. OTOH, poors like me will be saved from loan payments on schedule while making $25k/year, which obviously would be an impossible situation.

[thickfreakness]

Zero. I'm married and likely going the private practice route so I'll be paying all of my loans back.

IBR applies to people in private practice, right?

Maybe, but I'll probably be in a firm making six figures so I think that precludes IBR as an option.

That is what I don't get. Why does it preclude it as an option. Is the cap not 15%? (sorry to be redundant)...obviously it behooves you to pay it off faster...but isn't the camp 15% even if you are making a gazillion dollars?

I'll have maybe 70K in loans after scholarships, on a 10 year repayment plan with a combined gross income of around 180K there's no way I'll hit 15%. I've done the numbers already--IBR won't do crap for me (assuming that it's around for the whole 10 years after I get out of school).

[Always Credited]

Zero. I'm married and likely going the private practice route so I'll be paying all of my loans back.

IBR applies to people in private practice, right?

Maybe, but I'll probably be in a firm making six figures so I think that precludes IBR as an option.

That is what I don't get. Why does it preclude it as an option. Is the cap not 15%? (sorry to be redundant)...obviously it behooves you to pay it off faster...but isn't the camp 15% even if you are making a gazillion dollars?

Its not forgiven until 25 years, which at the 15% of your BigLaw income rate - being, lets say, $130,000/year - $24,000(16k poverty level x 150%) = $106,000/year x 15% = $15900/year, or $1,325. Since this won't even cover the interest of a $200,000 loan, you COULD pay this every month for 25 years. Or, you could put more of your ample income into the loan short-term, and have it finished off in 10 years ultimately saving money in the long run.

25 years X 12 months/year X $1,325 per month = $397,500 total payment before loan is forgiven. Not worth it when you can pay off the sticker $200,000 before interest accumulates it to $300,000 for a savings of almost $100,000.


HTH.

[nowinGA]

That is what I don't get. Why does it preclude it as an option. Is the cap not 15%? (sorry to be redundant)...obviously it behooves you to pay it off faster...but isn't the camp 15% even if you are making a gazillion dollars?

Its not forgiven until 25 years, which at the 15% of your BigLaw income rate - being, lets say, $130,000/year - $24,000(16k poverty level x 150%) = $106,000/year x 15% = $15900/year, or $1,325. Since this won't even cover the interest of a $200,000 loan, you COULD pay this every month for 25 years. Or, you could put more of your ample income into the loan short-term, and have it finished off in 10 years ultimately saving money in the long run.

25 years X 12 months/year X $1,325 per month = $397,500 total payment before loan is forgiven. Not worth it when you can pay off the sticker $200,000 before interest accumulates it to $300,000 for a savings of almost $100,000.


HTH.[/quote]

yeah, yeah, I get that it would be a dumb thing to do...I am just trying to wrap my head around the rules. thanks!

[webbylu87]

Zero. I'm married and likely going the private practice route so I'll be paying all of my loans back.

IBR applies to people in private practice, right?

Maybe, but I'll probably be in a firm making six figures so I think that precludes IBR as an option.

That is what I don't get. Why does it preclude it as an option. Is the cap not 15%? (sorry to be redundant)...obviously it behooves you to pay it off faster...but isn't the camp 15% even if you are making a gazillion dollars?

According to the Federal Student Aid website:

To qualify for IBR, you must have a "partial financial hardship." You have a partial financial hardship if the monthly amount you would be required to pay on your IBR-eligible loans under a Standard Repayment plan with a 10-year repayment period (based on the amount you owed on those loans when they initially entered repayment) is higher than the monthly amount you would be required to pay under IBR.

This is important. If you earn too much money, you won't qualify for IBR. Not everyone is eligible. With that said, if you're earning $160k you might as well choose the 10 year repayment plan and get that monkey off your back.

This has the best information I've found regarding IBR eligbility, qualifying loans, etc, etc: http://studentaid.ed.gov/students/attac ... _FINAL.pdf