Celebrating 10 years! 2007-2017

Overrated IBR

Of course it's better than the alternative, but IBR isn't al warfrat10/12/18
Schools should be responsible for interest payments if their irishlaw10/12/18
Yeah, IBR/PAYE are great for low income borrowers (in terms 6figuremistake10/12/18
It's 10% of what you make above 1 1/2 times the poverty leve fettywap10/12/18
Do you expect uneducated Americans to feel bad that you are triplesix10/12/18
No but to my point, the system repaying would be less puniti warfrat10/12/18
You can refinance. SoFi and a bunch of other rackets send me billcarson10/12/18
I don't disagree but that ain't gonna change bc that's how g triplesix10/12/18
IBR amount is capped at the 10 year repayment amount. REPAYE thirdtierlaw10/12/18
Exactly. Well said. esquirewalletsmatter10/12/18
Furthermore, the ultimate offer SoFi gives most borrowers is daveramsey10/13/18
My student loans are paid. You signed the promissory notes, acerimmer10/13/18
The fact you paid your student loans is meaningless. I pay lolwutjobs10/13/18
Bankruptcy doesn't exist for student loans, peasant. acerimmer10/14/18
I know that and that was not my point. lolwutjobs10/14/18
I could pay mine off but have chosen otherwise due to circum david6198310/14/18
No, that is working as intended. Its also a great reason to daveramsey10/14/18
You can't claw back anything from a 401(k). They are suppose guyingorillasuit10/14/18
Maybe. You need to create an excel spreadsheet and do the ma thirdtierlaw10/14/18
I expect the tax bomb to be eliminated and if not, at least um1l10/14/18
"The tax is really a legislative loophole with its effects s triplesix10/14/18
Yes but the cancellation of debt has been generally applied um1l10/14/18
Be careful "switching" between IBR and REPAYE. I switched, a guyingorillasuit10/14/18
You may want to double check that. I'm almost certain that t thirdtierlaw10/14/18
When I moved from IBR to REPAYE, it triggered a refinance, w guyingorillasuit10/14/18
Oh yea that changes things. I'm sorry, that is pretty bad. I thirdtierlaw10/14/18
I was not given a choice as to whether I need to refinance o guyingorillasuit10/14/18
Is this definitely the case because I solely changed from IB esquirewalletsmatter10/14/18
It only doesn't count if you refinance. If you are just swit thirdtierlaw10/14/18
Thank God 🙏 Edit. Sorry Gigs. esquirewalletsmatter10/14/18
Everybody switched from IBR to Repaye. Repaye has only been fettywap10/14/18
Trust me. I have gone back and forth with them on this. The guyingorillasuit10/14/18
Well yes, if you move from another lender over to DOE, you'r fettywap10/14/18
I know that now. However, that distinction was lost on me be guyingorillasuit10/14/18
Who is everyone? The married people? They probably aren’t downwardslope10/14/18
The tax deductions I'd lose out on by filing separate would thirdtierlaw10/14/18
Can you still file taxes separately on PAYE or REPAYE withou david6198310/14/18

warfrat (Oct 12, 2018 - 11:44 am)

Of course it's better than the alternative, but IBR isn't always the relief its cracked up to be.
Case in point, my newly recalculated monthly payment on IBR is $960.
Sure, I guess my income has increased too, but it really restricts discretionary purchases.
The real solution? With all the talk of student loan debt, I think a more practical and effective solution is to prohibit the capitalization of interest in deferment and forbearance. That is where I took a huge hit and balances skyrocketed as it took me over a year to land a decent job after graduating.

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irishlaw (Oct 12, 2018 - 11:53 am)

Schools should be responsible for interest payments if their students can’t find a job. Watch the price of law school and enrollment drop.

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6figuremistake (Oct 12, 2018 - 11:56 am)

Yeah, IBR/PAYE are great for low income borrowers (in terms of keeping you out of the gutter, at least).

When I finally was able to start earning income, my monthly payment were 0/practically 0. At the time, at least, you could use your previous year's tax records for the income calculation.

Once I was consistently making real money, however, the monthly payments shot way up. I was fortunate that I had been able to pay off most of the principal, so I just consolidated and went on the extended payment plan to keep the monthly payments. I don't want to think about how much I'd be forking over now if was still on IBR.

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fettywap (Oct 12, 2018 - 12:48 pm)

It's 10% of what you make above 1 1/2 times the poverty level, so it should still be affordable. If I didn't have Repaye, my payments would be about $2,000 a month. It's frustrating to think of all the things I could do with that money instead of paying loans for 30-35 years though.

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triplesix (Oct 12, 2018 - 12:52 pm)

Do you expect uneducated Americans to feel bad that you are making decent income and federal gov wants the money they paid for your school back?

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warfrat (Oct 12, 2018 - 1:19 pm)

No but to my point, the system repaying would be less punitive if interest wasn't capitalized and refinancing would be available like it is for every other type of consumer lending.

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billcarson (Oct 12, 2018 - 1:30 pm)

You can refinance. SoFi and a bunch of other rackets send me stuff to refinance my loans every week. Now if you have a situation where you went years at $0 payments, your refi options are slim to nonexistent. You don’t see lenders refinancing a mortgage that is in arears or for property proven to be worth little

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triplesix (Oct 12, 2018 - 2:03 pm)

I don't disagree but that ain't gonna change bc that's how government makes money.

No reform to loans is happening until gov starts losing money.

That's why I don't even try to do ibr. If you ever plan on making any decent money, they will get theirs. You are the fat juice profit they need to keep this charade going.

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thirdtierlaw (Oct 12, 2018 - 2:19 pm)

IBR amount is capped at the 10 year repayment amount. REPAYE is lower than the 15% of IBR, but it doesn't have a cap, luckily you can switch back and forth. I have all sorts of ideas on how to improve the current loan situation, the most simple is to allow everyone to refinance their loans at 1-2%. But IBR isn't really a bad program. If they do away with the tax bomb it'll have been an amazing program for borrowers.

As a poster above suggested, you can refinance on an extended plan. Some of them have great rates. What you lose is the IBR protections. Even though I'm going to pay more money in IBR payments than having refinanced, IBR can't be beaten when it comes to the ability to make monthly payments of "$O per month" if you lose your job or something else happens. SOfi and others won't afford you that luxury.

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esquirewalletsmatter (Oct 12, 2018 - 4:40 pm)

Exactly. Well said.

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daveramsey (Oct 13, 2018 - 5:38 pm)

Furthermore, the ultimate offer SoFi gives most borrowers is a negligible Gain and in cases costs MORE.

E.g., $50,000 at 6.55% interest Feds over 10 years, with IBR protection. $50,000 refi to SoFi at 5.97% (about their average for people under 800 credit who aren’t in BigLaw) plus a several thousand dollar origination fee plus closing fee= $56,600 or so subject to Bout 6% interest with NO IBR and ANY LATE payment dings your credit and the account is charged off at 4-5 months of less than full payments.

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acerimmer (Oct 13, 2018 - 4:02 am)

My student loans are paid. You signed the promissory notes, it's your debt. You owe it. You pay it. Life sucks, deal with it.

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lolwutjobs (Oct 13, 2018 - 11:33 pm)

The fact you paid your student loans is meaningless. I pay my debts yet it is good things like bankruptcy exist.

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acerimmer (Oct 14, 2018 - 4:47 am)

Bankruptcy doesn't exist for student loans, peasant.

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lolwutjobs (Oct 14, 2018 - 6:55 pm)

I know that and that was not my point.

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david61983 (Oct 14, 2018 - 10:00 am)

I could pay mine off but have chosen otherwise due to circumstances. Wife makes total bank and me only about $40k. Total balance is now like $130k at 6.75%. After the 18k I max into my 401k each year my monthly payment is about zero. We file separately. Still have 16 years on IBR. Am I doing the right thing assuming my income stays the same? I don't see much risk given that my 401k contributions should average at least 6.75%.

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daveramsey (Oct 14, 2018 - 10:07 am)

No, that is working as intended. Its also a great reason to allow the feds to clawback 401k contributions and gains on high income IBR users at the end of the 25 year period.

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guyingorillasuit (Oct 14, 2018 - 12:18 pm)

You can't claw back anything from a 401(k). They are supposed to be exempt from execution. Touching people's 401(k)s would require a massive overhaul of federal legislation, and would constitute political suicide for anyone who tried.

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thirdtierlaw (Oct 14, 2018 - 10:38 am)

Maybe. You need to create an excel spreadsheet and do the math. There are some assumptions you'll need to make, i.e. the top tax bracket won't change in the next 16 years. You can calculate, generally, what your total forgiveness amount will be. You then look at what taxes will be on that money. Then you add in what your estimated monthly payment totals will be over the next 16 years. That will show you what your payoff amount will be.

Then compare that to what you'd pay if you were paying it off in a shorter period of time while making payments you can reasonably afford.

There are some inherent risks in these calculations, IBR programs may ultimately be repealed. There are some strong arguments on why that is unlikely, but it is a nonzero risk. The other risk is that you get a job 6 years from now paying significantly more than you're making now, so you'll have substantial monthly payments and still have the tax bomb to pay off at the end, ultimately paying much more towards your loans than had you paid them off in 10 years.

There are also some omissions that aren't accounted for in the models because you want to plan for the worst case scenario. Namely inflation. Compare the value of a dollar now to 25 years ago. So the total 16 years from now won't feel as expensive. It's also assuming that the tax bomb still exists. If it doesn't then the decision is very easy to make at a 6figure debt load.

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um1l (Oct 14, 2018 - 11:45 am)

I expect the tax bomb to be eliminated and if not, at least reduced to something based on the original principal and not 25 years of IBR interest. The purpose of IBR was not to create a balloon payment. The tax is really a legislative loophole with its effects so far away that Congress simply hasn’t gotten around to it yet.

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triplesix (Oct 14, 2018 - 12:18 pm)

"The tax is really a legislative loophole with its effects so far away that Congress simply hasn’t gotten around to it yet."


Nope, it is a general tax rule that canceled debt is income for the debtor.

For this to change Congress would have to write a very specific law to exempt student debt cancellation without upsetting last century of tax precedent.

Your assumtion is essentially that federal government is going to implement a specific law for the benefit of a narrow group. Good luck.

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um1l (Oct 14, 2018 - 12:45 pm)

Yes but the cancellation of debt has been generally applied for debts relating to business deals, not 25 years of payments on federal student loans on a program specifically designed to help borrowers. It’s more uncharted territory rather than application of over 100 years of precedent. PSLF not having a tax bomb already opened the door for a future legislative or IRS ruling fix.

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guyingorillasuit (Oct 14, 2018 - 12:20 pm)

Be careful "switching" between IBR and REPAYE. I switched, and they took away about 10 years of loan service credit after telling me on the phone they would not do this. I complained up the chain, and the response was "you should have read the promissory note, instead of listening to some guy on the phone". I made a rookie mistake.

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thirdtierlaw (Oct 14, 2018 - 1:11 pm)

You may want to double check that. I'm almost certain that the forgiveness statute itself says it doesn't matter which program you're using as long as payments are being made.
See 34 CFR 685.221 (f)(1).

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guyingorillasuit (Oct 14, 2018 - 1:26 pm)

When I moved from IBR to REPAYE, it triggered a refinance, which meant a whole new loan was issued. My old service credits were lost.

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thirdtierlaw (Oct 14, 2018 - 1:35 pm)

Oh yea that changes things. I'm sorry, that is pretty bad. It's obnoxious how mis/uninformed these people are. You can call 3 times and get 3 different answers to the same question.

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guyingorillasuit (Oct 14, 2018 - 2:22 pm)

I was not given a choice as to whether I need to refinance or not. They expressly said I would be able to keep all of my service credits. That's what hurts - they lied and got away with it. Their phone conversations aren't recorded, and I have nothing to prove that they lied. Imagine someone coming into your house, and taking all of your cars, all of your furniture, all of your clothes, your silverware, everything. Unless you have very expensive cars, that wouldn't even add up to the financial damage these folks did to me.

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esquirewalletsmatter (Oct 14, 2018 - 3:07 pm)

Is this definitely the case because I solely changed from IBR to Repaye bc they stated it still counted the same towards forgiveness.

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thirdtierlaw (Oct 14, 2018 - 3:23 pm)

It only doesn't count if you refinance. If you are just switching programs it isn't an issue.

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esquirewalletsmatter (Oct 14, 2018 - 3:33 pm)

Thank God 🙏

Edit. Sorry Gigs.

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fettywap (Oct 14, 2018 - 3:14 pm)

Everybody switched from IBR to Repaye. Repaye has only been around a few years. You still get credit for forgiveness. There's no refinance. I'm assuming your loans are with the Department of Education.

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guyingorillasuit (Oct 14, 2018 - 7:07 pm)

Trust me. I have gone back and forth with them on this. The refi wiped out my service credit. My loans were not with the DoE originally, for some reason (or not all of them were). When I refi'd into a DoE loan, which is mandatory for REPAYE, I got shafted.

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fettywap (Oct 14, 2018 - 7:27 pm)

Well yes, if you move from another lender over to DOE, you're refinancing. You have to have 25 years of payments to the DOE. Not sure why that was confusing.

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guyingorillasuit (Oct 14, 2018 - 7:48 pm)

I know that now. However, that distinction was lost on me before. Why does this appear self-explanatory to you? I perceived this the same way as most other people in this thread - from the standpoint of which program I was enrolled in, not who my lender was. I read online, and was then told by DOE staff, that my credits would be preserved. Keep in mind that loan forgiveness programs are widely seen as wiping out your debt after 20/25 years of timely payments, not 20/25 years of timely payments *to the same lender*.

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downwardslope (Oct 14, 2018 - 7:47 pm)

Who is everyone? The married people? They probably aren’t going to switch because they can’t file separately. The people who want to get married soon probably won’t sign up for REPAYE either. The people who might have a few bad/low years initially but are then making a relatively good income later? They aren’t going to switch either because they could end up with payments higher than their repayments on the standard plan. I think I have one friend who signed up. The rest have stuck with IBR because they now have decent incomes, are married, or are in serious relationships.

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thirdtierlaw (Oct 14, 2018 - 8:12 pm)

The tax deductions I'd lose out on by filing separate would cost me more than not switching to Repaye. The 10% vs 15% makes a big difference as well. The other nice thing is that if my payments were ever to be over the 10 year repayment plan, I'd just switch back.

When you run the numbers, switching to repaye can make a lot of sense.

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david61983 (Oct 14, 2018 - 4:30 pm)

Can you still file taxes separately on PAYE or REPAYE without your spouse's income counting? You can on IBR.

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