PSLF and Consecutive Qualifying Payments Forum

[Winter is Coming]

This question may be too specific for this board, but I'd figure I'd pitch to see if anyone has any input. I know that the Public Service Loan Forgiveness program requires 120 separate payments for forgiveness and that they specifically say these payments do not have to be consecutive.

Lets say someone (these numbers are hypothetical, but the situation is similar to mine) has 20,000 dollars in undergraduate debt, takes a public service job after graduation for two years and makes 24 qualifying payments.

They then go to law school and take out another 80,000 in loans. They graduate law school and practice some type of public interest law with a total loan balance around 98,000.

Do they separate the undergraduate and law school balance in terms of forgiveness? Essentially, would the 20,000 be forgiven after 96 payments (24 made before law school) and the 80,000 law school balance require its own 120 payments? How do they calculate the amount you would owe each month? Would it be two separate amounts?

Any insight is appreciated.

[twenty]

If you do not consolidate your loan, you will have 8 years remaining on your undergrad loans, an 10 years remaining on your law school loans. You will have to make two separate payments, and thus have to qualify for PAYE/IBR twice.

If you do consolidate your loan, your undergrad "loan" (which is now part of the law school loan) restarts and is tied to the 10 year clock. You now have to make one IBR/PAYE payment, and your school's LRAP will cover it. At year 8, your undergrad portion is not automatically forgiven.

I had this same question a few months ago, and this is what DoED told me.

[Winter is Coming]

Thanks. Yeah I guess I'll have to figure out if it makes more sense to consolidate when I take out the LS loan. Also makes me wonder if the extra money (what little it is) that I've been paying over what I actually owe each month (to cut down on the eventual interest being charged) really makes much of a difference.

[midwest17]

If you're sure you're going to do PSLF, I don't think paying anything over the IBR amount makes sense. If you think there's a chance you'll drop out of the program, though, it's probably a good decision.

[Winter is Coming]

Appreciate it guys, thanks.

[mr. wednesday]

You don't need to consolidate to have two loans on IBR, and your total payment for both groups of loans will be the same whether you consolidate or not. Essentially, if your IBR payment would be $100 for your UG loans and $300 for your law school loans, it's going to be $400 total regardless of whether you consolidate or just pay $100 and $300 separately.

If you are making PSLF eligible payments now, don't lose those two years of payments for no benefit whatsoever.

[twenty]

You don't need to consolidate to have two loans on IBR, and your total payment for both groups of loans will be the same whether you consolidate or not. Essentially, if your IBR payment would be $100 for your UG loans and $300 for your law school loans, it's going to be $400 total regardless of whether you consolidate or just pay $100 and $300 separately.

If you are making PSLF eligible payments now, don't lose those two years of payments for no benefit whatsoever.

How does this happen when both IBR payments are tied to your salary? To be making 100 dollar payments and 300 dollar payments, you'd have to be making a 30k salary and a 55k salary at the same exact time.

[mr. wednesday]

How does this happen when both IBR payments are tied to your salary? To be making 100 dollar payments and 300 dollar payments, you'd have to be making a 30k salary and a 55k salary at the same exact time.

No, you are making a salary that requires $400 in payments. Either you pay $400 to a consolidated loan or $100 to one loan and $300 to another, but you are still paying $400 either way.

[midwest17]

Here's the FAQ:

If I have multiple unconsolidated loans, will I have to consolidate them to qualify for IBR?
No, but you may want to anyway. Your lender will take all of your federal loans into consideration in determining your IBR eligibility and payment. If you have multiple lenders, your total IBR payment will be apportioned among the lenders. This will require communication and cooperation from multiple lenders, more paperwork, and an increased risk of errors or problems, so consolidating your loans might be a way to streamline the process. Here is some information on the pros and cons of student loan consolidation.

[twenty]

Not saying I don't believe you, but that doesn't make a lot of sense. Suppose his original undergraduate loans would be paid off with an IBR payment (let's say $400/mo using your numbers) before a 10 year timeline, thus making him ineligible for IBR. But now he takes out a huge law school loan and moves his undergrad payment down to $100/mo, which would make him eligible for IBR on the undergrad loan (even though the original interest rate hasn't changed) and the difference is made up on the graduate loan (presumably $300).

In that world, it's beneficial to literally always be in school part time, since you'll make more money through the loan CoL disbursement (even at community college!) than you'll pay out in IBR over the scope of the year -- and as long as you stay in your job, your debt will be forgiven on a rolling basis rather than on a day-done-borrowing-plus-ten-years.

Maybe it's just me... but that feels like it's not right. Where are you pulling your info from?

edit> ninja'd by midwest, reading now.

[twenty]

Jesus, you're (apparently) right.

Excluding laziness, why would anyone consolidate then? Furthermore, why wouldn't you just put your current undergraduate loans on the lowest repayment plan you possibly can right now (i.e, a 30-year), then switch to a 10-year IBR once you qualify for LRAP?

[midwest17]

Jesus, you're (apparently) right.

Excluding laziness, why would anyone consolidate then? Furthermore, why wouldn't you just put your current undergraduate loans on the lowest repayment plan you possibly can right now (i.e, a 30-year), then switch to a 10-year IBR once you qualify for LRAP?

Is 30-year IBR eligible for PLSF?

[mr. wednesday]

PSLF forgives each individual loan after 120 qualifying payments on each individual loan. It absolutely is not end of borrowing + 10 years.

And the reason you wouldn't put your UG loans to 30 year payments is that it's hard to get a PSLF eligible job after law school, and if you don't get one, you're paying even more in interest. Plus OP is saying they are making PSLF qualifying payments now, so they should continue and then have that portion of their loan forgiven 8 years after law school instead of 10. 30 year payments aren't PSLF eligible.

[twenty]

No, but if you're going to law school (and thus not making payments/definitely not working in PI full time, presumably) then the LRAP will kick in at graduation and takes care of both payments. At the very least (even if he never uses LRAP) the difference between the money saved on the 30-year payment schedule now is going to be more than the extra money spent by a presumably bigger PI salary post-graduation.

edit> although in fairness, in the situation OP hypothetically has where he has 20k in undergrad debt, the 30-year payment may actually be more than the PAYE payment. And the hassle of fooling around with your loans and the assumption that you will definitely be doing a PSLF eligible job after law school is probably not worth the 8k-14k you save in the process.

[midwest17]

No, but if you're going to law school (and thus not making payments/definitely not working in PI full time, presumably) then the LRAP will kick in at graduation and takes care of both payments. At the very least (even if he never uses LRAP) the difference between the money saved on the 30-year payment schedule now is going to be more than the extra money spent by a presumably bigger PI salary post-graduation.

So this is a different consideration from the consolidation one, right?

You could do 30-year IBR pre-law school, then after law school switch both (or consolidate) to 10-year IBR combined with LRAP and PSLF.

Or you could do 10-year IBR pre-law school, and make 2 years of PSLF-eligible payments. after law school, you make 8 years of PSLF-eligible payments on that loan and it's forgiven, and 10 years of PSLF-eligible payments on the law school loan, and it's forgiven, all under LRAP.

You pay less money on the first plan, but you get some of your loan forgiven earlier on the second plan. Which is helpful in case you lose LRAP eligibility towards the end of the 10-year period. Not sure which is the better option.

(By the way, aren't there some schools that won't cover undergrad loans under LRAP, even if you consolidate?)

[twenty]

You pay less money on the first plan, but you get some of your loan forgiven earlier on the second plan. Which is helpful in case you lose LRAP eligibility towards the end of the 10-year period. Not sure which is the better option.

Right, and the more I think about it, the less sense this makes. Even if you did get to the point where you save a few thousand over the course of ten years, you put yourself at a very unlikely, but magnitude-ally large risk if something goes wrong.

(By the way, aren't there some schools that won't cover undergrad loans under LRAP, even if you consolidate?)

Most of the programs tied to PSLF should cover both loans (since the payments are identical), though there's certainly schools (notably UTexas, Cornell, Columbia's interest-plus-plan, and HYS) that won't.

[twenty]

So I guess all that to say, if you're living in a world outside of law school where you can make more money from CoL disbursements than you'll pony up in PAYE payments, that's a way better option than food stamps.

[mr. wednesday]

Other schools that don't cover UG loans under LRAP include NYU, Chicago, Penn and Duke. Even though the payment is the same amount, school LRAPs will pay as little as they possibly can.

[midwest17]

So I guess all that to say, if you're living in a world outside of law school where you can make more money from CoL disbursements than you'll pony up in PAYE payments, that's a way better option than food stamps.

I'm confused. Doesn't this only work assuming you can get a PSLF-eligible job eventually?

[A. Nony Mouse]

I'm confused by the terminology here - people are talking about "30 year IBR" and "10 year IBR." Do you just mean the regular loan repayment, either standard (10 years) or extended (30)? Because isn't IBR 25 years (v. PAYE which is 20)?

[mr. wednesday]

So I guess all that to say, if you're living in a world outside of law school where you can make more money from CoL disbursements than you'll pony up in PAYE payments, that's a way better option than food stamps.

I'm confused. Doesn't this only work assuming you can get a PSLF-eligible job eventually?

Yes. You can't earn any forgiveness if your loans are deferred because you are in school, so always enrolling part time to avoid making payments just pushes off your debt further and further without ever getting closer to forgiveness.

[twenty]

Other schools that don't cover UG loans under LRAP include NYU, Chicago, Penn and Duke. Even though the payment is the same amount, school LRAPs will pay as little as they possibly can.

Penn explicitly says they do on their info page, but I haven't researched the others extensively enough/called their financial aid offices to get a confirmation.

I'm confused. Doesn't this only work assuming you can get a PSLF-eligible job eventually?

If the tax bomb goes away on the PAYE-forgiveness, it even works for non-PSLF spots. Of course, it makes the most sense for PSLF spots for obvious reason.

I'm confused by the terminology here - people are talking about "30 year IBR" and "10 year IBR." Do you just mean the regular loan repayment, either standard (10 years) or extended (30)? Because isn't IBR 25 years (v. PAYE which is 20)?

To be clear, there is no "30-year IBR", and any payments made under a 30-year plan will NOT count towards loan forgiveness. That said, the 30-year payment will in many cases (especially on undergrad loans) be lower than the IBR payment, which if a student is going to law school regardless, might make sense to pay as little as physically possible before law school, since the remainder of the UG debt will, in most cases, be picked up by PSLF. This is true even if the student goes to a school with a crappy LRAP (but still ends up in a PSLF-eligible job), since the difference between the money saved on the 30-year plan before law school will likely be more than the money spent on the back end due to not having access to PAYE in the pre-law school months/years.

[twenty]

You can't earn any forgiveness if your loans are deferred because you are in school, so always enrolling part time to avoid making payments just pushes off your debt further and further without ever getting closer to forgiveness.

This is why your pointing out that non-consolidated loans will pay the exact same as consolidated loans, just with a (likely) lower interest rate and a closer PSLF forgiveness (and presumably PAYE-forgiveness) date strikes me as so weird. You continue making PAYE payments on your loans while you're perpetually in school part time. Then when you eventually die, your loans get forgiven anyway. Better than food stamps.