NYU LRAP: please walk me through Forum

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NYU LRAP: please walk me through

Post by SpeciallySpecious » Tue Jan 04, 2022 12:28 pm

I've spoken to a counselor, read the website, still Flummoxed and need a "walkthrough" of the actual scenario from a clear perspective. I will say what I seem to understand as my hypothetical future situation: I have graduated from NYU Law (yay me). But I have a bunch of loans (boo). I also have begun working at a job in public interest that qualifies for LRAP (yay). Okay. So I enroll in LRAP, on the income-driven plan that is tied to PSLF (because, somehow, I don't qualify for the NYU-only plan (why? not sure)). What happens now?

FIRST, Let's Set The Financial Stage to understand this better: Let's say I was NOT in LRAP. I went on a regular 10-year repayment program. My payments were $1500 per month. The first three years, that might be about $1000 a month interest and $500 a month principal (obviously each month more of the 1500 would be principal and less would be interest -- I could clearly see this in the amortization schedule that would be transparently shown to me, say, on Navient). But now, because I am in the NYU LRAP income-driven plan, my monthly payment is (hypothetically) $400 a month (because, according to NYU's formula, that's just -- what it is). So, I pay my $400 a month.

OKAY, moving ahead: Let's say 3 years have elapsed. I've made 36 payments of $400 each. I decide that I don't want to be a lawyer anymore. This is not so bad, because NYU LRAP "vests" you after 3 years! But what does that actually mean in dollars? It means, apparently, that they begin the actual forgiveness. BUT -- what do I actually still owe on my loans?? THIS is what's so hard to figure out!

I've made 36 payments, but what did those payments consist of? How much principal and how much interest? ANY principal? Just SOME of the interest? Apparently this is the case, because on the website they go into the nasty subject of "negative amortization" -- meaning that those 36 payments of $400 each I've made did not even cover all the interest, let alone any of the principal. Is that correct? So, am I correct in thinking (based upon information I have gathered so far) that, at that 36-month point, NYU will write me a check for --- well, that's just it --- for WHAT? If I'm going to be really "forgiven" at that 36- month point, I would think they would write me a check for the $400X 36 payments I've made ($14,400) PLUS the check to cover that ugly "negative amortization" -- right? So that, at that 36-month "good-bye to LRAP" point, I would be left with 70% of my principal (is that right? would I have been forgiven 30% of my principal at the 30% mark of the ten years?) and start a new, 10-year repayment schedule at 5% interest (that's what I read on the website -- you start again, get a new 10 years at 5% -- is that right??)

OR -- am I left with some strange amount of interest? more than 70% of the principal? some other horrific and possibly mysterious balance of -- something?

[And Now, here is another, worse scenario -- what if I have to leave LRAP BEFORE the three years are up? UNVESTED. Is there any way to find out what I'd owe at any point? In other words, is the interest that I have NOT been paying (because I've been on the income-driven plan, wildly underpaying my loan) COMPOUNDING in some diabolical way?]

And now, the worst scenario of all: I make my payments for 10 years. Now I have settle up with the Federal Government, right? What if it doesn't work out, but NYU LRAP never told me I was in danger? Do I get that miserable penalty of interest that has been compounding in that diabolical way for all TEN years now?

AND -- what about the TAX BOMB situation at the end of the 10 years? Is the "forgiveness" taxable, or not? Supposedly, if I'm staying in LRAP, NYU is paying me back every six months (according to the website. Is THAT forgiveness taxable each year? (I don't think it is, actually. I think NYU has worked that part out -- but I'm not sure)

The thing is, I have all these questions, but I don't necessarily want to present them to NYU in this sort of adversarial/paranoid fashion! I want to enter law school as a fairly reasonable, trusting, yet on-her-toes person! Therefore, any assistance you can give me, boy would I appreciate! Thank you.

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