IBR vs PAYE

[ani316]

Hello,
I have $200K in federal student loans. I currently earn $150K and my wife earns $90K (she has no loans).
1. I was on IBR from 2013-2015. However, I forgot to re-apply this year, and I have been on the standard repayment plan for the last 4 months. When I do apply now for the IBR, do my payments from the previous 3 years not count toward the 25 years forgiveness period? Would this mean I start 25 years all over??
2. When I mistakenly got off the IBR, did my interest capitalize and is there any way of getting them to reverse it?
3. Would I qualify for IBR if under my current salary, my standard payment amount is less than IBR amount?
4. If in the future, I am not earning anything, would my IBR drop to $0 and would that count towards 25 years?
5. I took out my first loan after 2007. Do i qualify for PAYE and do my previous years of (IBR+Standard) payments count toward the 20 years forgiveness period?
6. On IBR/PAYE, my loans may balloon to $1 million. What are the chances that I do not have to pay taxes on that?
Thank you so much for your help!
Ani

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[sazerac]

Hello,
I have $200K in federal student loans. I currently earn $150K and my wife earns $90K (she has no loans).
1. I was on IBR from 2013-2015. However, I forgot to re-apply this year, and I have been on the standard repayment plan for the last 4 months. When I do apply now for the IBR, do my payments from the previous 3 years not count toward the 25 years forgiveness period? Would this mean I start 25 years all over??
2. When I mistakenly got off the IBR, did my interest capitalize and is there any way of getting them to reverse it?
3. Would I qualify for IBR if under my current salary, my standard payment amount is less than IBR amount?
4. If in the future, I am not earning anything, would my IBR drop to $0 and would that count towards 25 years?
5. I took out my first loan after 2007. Do i qualify for PAYE and do my previous years of (IBR+Standard) payments count toward the 20 years forgiveness period?
6. On IBR/PAYE, my loans may balloon to $1 million. What are the chances that I do not have to pay taxes on that?
Thank you so much for your help!
Ani

1. IBR and similar programs are month by month, not continuous payments. If you can show 300 months (25 years) of qualifying payments (at least the minimum of IBR or 10 year repayment plan) you are fine. So all of your payments thus far qualify.

2. I believe your interest did capitalize and there is nothing you can do about it. Live and learn. Hopefully somebody else can verify?

3. A qualifying IBR payment is the minimum of the 15% discretionary income or standard repayment plan. If your salary is so large that your standard payment would be smaller, just pay the standard amount and your payments will qualify for IBR forgiveness.

4. If your income drops to $0 or any amount less than 150% of the poverty line, your qualifying payment is $0. Yes, a payment of $0 still qualifies as one of your 300 months. Go be a hobo for 25 years, and your loans are forgiven.

5. No idea. Hopefully somebody else can answer this.

6. Predicting future tax law is difficult. The people may protest that taxable forgiveness is punitive. The people may protest that tax free forgiveness to high income professionals is unfair. Nobody knows.

 

[SigmaFS]

Given your income and assuming you filed a joint return, you likely do not qualify for IBR. A general rule of thumb for IBR is if your AGI exceeds your student loan balance when you entered IBR, then you probably don't qualify for IBR. Please feel free to confirm using the following calculator: https://studentloans.gov/myDirectLoan/mobile/repayment/repaymentEstimator.action

Having said that, you might qualify for a new income driven repayment program, REPAYE, which is expected to be available Dec. 2015. I've previously posted some information on REPAYE.

 

[ani316]

1. I have called "Mygreatlakes" a few times and asked them if my previous payments qualify. Every time they say that the 25 years have to be "consecutive". I don't know what to think!?

3. Can I use my 2014 tax return to qualify for IBR (our combined income was significantly less in 2014 than it is now - I started my new job 3 weeks ago and the salary is pretty high)? In order for my standard payments to qualify for the 25years IBR forgiveness period, don't I have to be a continued participant of the IBR (even though I may be paying standard payments while on the IBR)?

For the REPAYE plan, don't I need to have a "partial hardship"?

 

[sazerac]

1. I have called "Mygreatlakes" a few times and asked them if my previous payments qualify. Every time they say that the 25 years have to be "consecutive". I don't know what to think!?

3. Can I use my 2014 tax return to qualify for IBR (our combined income was significantly less in 2014 than it is now - I started my new job 3 weeks ago and the salary is pretty high)? In order for my standard payments to qualify for the 25years IBR forgiveness period, don't I have to be a continued participant of the IBR (even though I may be paying standard payments while on the IBR)?

For the REPAYE plan, don't I need to have a "partial hardship"?

"Mygreatlakes" is wrong, and that is why you are coming here for a second opinion.

You don't have to believe an anonymous poster (like me) on the internet though. Here are the facts, straight from the same government that set up the rules for your student loans.

https://studentaid.ed.gov/sa/sites/default/files/income-driven-repayment-q-and-a.pdf

Your consecutive months question is covered in question 28. Your varying income questions are answered in questions 20-23. Your hypothetical Zero Income scenario is question 29. This document covers some of your other questions as well.

Enjoy.

 

[SigmaFS]

1. I have called "Mygreatlakes" a few times and asked them if my previous payments qualify. Every time they say that the 25 years have to be "consecutive". I don't know what to think!?

3. Can I use my 2014 tax return to qualify for IBR (our combined income was significantly less in 2014 than it is now - I started my new job 3 weeks ago and the salary is pretty high)? In order for my standard payments to qualify for the 25years IBR forgiveness period, don't I have to be a continued participant of the IBR (even though I may be paying standard payments while on the IBR)?

For the REPAYE plan, don't I need to have a "partial hardship"?

Agree w/Sazerac that Great Lakes is wrong - it should be 300 qualified payments.

And, no, you don't have to demonstrate a partial financial hardship to remain in REPAYE. The Dept of Education has removed the monthly repayment cap of no more than the 10-year standard payment amount. Also, only direct loans qualify for REPAYE. If you need to convert FFELP (Federal Family Education Loan Program) to Direct via Direct Consolidation, the clock is reset to zero.

How about refinancing through a private lender like SoFi, CommonBond, DRB, etc.? Your income might support the move and you might secure a lower rate.

 

[deleted158872]

AFAIK, if you are a new borrower (definition: if you have outstanding loans after 2014) then you won't qualify for PAYE (10%) but you will qualify for IBR (15%). Correct me if I'm wrong.

 

[DrMidlife]

AFAIK, if you are a new borrower (definition: if you have outstanding loans after 2014) then you won't qualify for PAYE (10%) but you will qualify for IBR (15%). Correct me if I'm wrong.

Not correct at this time. Always refer to official .gov sources for existing program terms and FAQs. https://studentaid.ed.gov/sa/repay-loans/understand/plans/income-driven

Current PAYE qualification is that you're a new borrower as of 2007 with loan disbursement after 2011.

The REPAYE program is coming and removes disbursement date & income limitations. This is still politics, as opposed to policy.
http://www.nytimes.com/2015/08/15/y...gram-will-reduce-student-loan-repayments.html
http://www.wsj.com/articles/educati...ded-student-loan-repayment-program-1436300209

 

[RangerBob]

Why are you bothering with IBR? You and your wife make $240k before taxes--if I were in your shoes (and I'm not, but I wish I was), assuming stable incomes, I'd consolidate with a private lender and pay off those loans within 5 years--you'll save a fortune on interest and taxes. The odds of IBR/PAYE/REPAYE loan forgiveness being tax free, while possible, are very low. The odds of forgiveness being limited/taken away are higher.

If your loan balloons to $1 million on REPAYE/IBR, you'll have to pay far more than your current loan balance in taxes. I'm not sure how accurate the $1 million figure is, but this is exactly why IBR/PAYE/REPAYE loan forgiveness often hurts more than it helps.

You're well within reach of kicking off those debt shackles--why hang on to it? The sooner they're paid off the better.

 

[ani316]

Thanks a lot for all your help. Few more questions based on the above answers:

1. In order to apply for PAYE, do I need to consolidate my Direct and FFEL loan? I have 2 Direct loans and 1 FFEL loan. OR can I do PAYE on 2 out of my 3 loans, and IBR on my FFEL loan?

2. Under our income last year, we would qualify for PAYE. This year in August, I joined a new job in which my income is significantly higher. When applying for PAYE, can I still use my 2014 income, OR 2015 income (which includes half of the lower salary and half of the higher salary), OR do I have to use my "Current" higher salary?

3. If I don’t qualify for PAYE or IBR, should i continue paying standard monthly payments and apply for REPAYE in December or continue paying standard monthly payments until I plan to quit my job 2 years from now and then apply for PAYE/IBR?

4. In the application do I need to apply for IBR versus PAYE or it that automatic? There’s no option to select one or the other.

5. In order for my standard payments to qualify for the 25years IBR forgiveness period, don't I have to be a continued participant of the IBR (even though I may be paying standard payments while on the IBR)?

FYI, I am trying to get on the IBR/PAYE/REPAYE and not just pay off the loans quickly, because after doing some calculations, this route is financially better given my future plans of work etc.

 

[SigmaFS]

1. In order to apply for PAYE, do I need to consolidate my Direct and FFEL loan? I have 2 Direct loans and 1 FFEL loan. OR can I do PAYE on 2 out of my 3 loans, and IBR on my FFEL loan?
First, the borrower must be eligible for PAYE. One PAYE criteria is you must not have a federal student loan originated before Oct. 1, 2007. If you had a federal student loan originated on or before Oct. 1, 2007 and did not repay it before receiving another federal student loans after Oct. 1, 2007, you don't qualify for PAYE.

2. Under our income last year, we would qualify for PAYE. This year in August, I joined a new job in which my income is significantly higher. When applying for PAYE, can I still use my 2014 income, OR 2015 income (which includes half of the lower salary and half of the higher salary), OR do I have to use my "Current" higher salary?
Again, do you qualify of PAYE? Given your stated current income of ~$240k, you probably don't qualify for an IBR payment.

3. If I don’t qualify for PAYE or IBR, should i continue paying standard monthly payments and apply for REPAYE in December or continue paying standard monthly payments until I plan to quit my job 2 years from now and then apply for PAYE/IBR?
REPAYE - only direct loans are eligible for REPAYE. You would need to convert your FFEL loans to Direct loans via Direct Consolidation at www.studentloans.gov. The Dept of Education should issue final REPAYE program terms in late October.

4. In the application do I need to apply for IBR versus PAYE or it that automatic? There’s no option to select one or the other.
The loan servicer will determine which repayment program you qualify for based on when you first received a federal student loan. You can check on www.nslds.ed.gov.

5. In order for my standard payments to qualify for the 25years IBR forgiveness period, don't I have to be a continued participant of the IBR (even though I may be paying standard payments while on the IBR)?
Yes, you can qualify for forgiveness under IBR if you make 300 qualified payments. Keep in mind, you must annually re-apply for IBR to remain an IBR participant for forgiveness purposes.

FYI, I am trying to get on the IBR/PAYE/REPAYE and not just pay off the loans quickly, because after doing some calculations, this route is financially better given my future plans of work etc.

 

[ani316]

Just one more question:

When applying for IBR, I am entering my 2014 tax return. However, is it then asking me "If my income has significantly changed since 2014" which it is.
If I say yes, I will not qualify for IBR with my current income. Is there any way around it?

 

[RangerBob]

Just one more question:

When applying for IBR, I am entering my 2014 tax return. However, is it then asking me "If my income has significantly changed since 2014" which it is.
If I say yes, I will not qualify for IBR with my current income. Is there any way around it?

If that's the case you're supposed to answer "yes" and then you wouldn't qualify for IBR. Lots of people seem to lie about this question, but that doesn't make it right/ok.

You can call your loan servicer and ask them what to do--sometimes they say you can answer "no." But even if they say to do that, at most you'll get one year of IBR, (assuming your eligibility calculations are correct, but I'd assume with a combined income higher than your debt that you wouldn't be eligible)

This is why it's a good idea to apply/re-apply for IBR right before getting that attending salary.

With all that said, if you earn to much for IBR, it means you're in a really good place financially--congratulations.

 

[Debt Free Doctor]

Hello,
I have $200K in federal student loans. I currently earn $150K and my wife earns $90K (she has no loans).
1. I was on IBR from 2013-2015. However, I forgot to re-apply this year, and I have been on the standard repayment plan for the last 4 months. When I do apply now for the IBR, do my payments from the previous 3 years not count toward the 25 years forgiveness period? Would this mean I start 25 years all over??
2. When I mistakenly got off the IBR, did my interest capitalize and is there any way of getting them to reverse it?
3. Would I qualify for IBR if under my current salary, my standard payment amount is less than IBR amount?
4. If in the future, I am not earning anything, would my IBR drop to $0 and would that count towards 25 years?
5. I took out my first loan after 2007. Do i qualify for PAYE and do my previous years of (IBR+Standard) payments count toward the 20 years forgiveness period?
6. On IBR/PAYE, my loans may balloon to $1 million. What are the chances that I do not have to pay taxes on that?
Thank you so much for your help!
Ani

Perhaps these 2 flowcharts may help. Let me know if you have other questions.
Happy getting debt-free