Income Based Repayment Plan: Does it Blur the Line Between Tuition Costs?

[zariman]

I posted earlier asking which choice would be wiser between Walsh University (North Canton, Ohio) and Northwestern University (Chicago, Illinois). The cost difference between the two schools including tuition and cost of living is about 40k. At this point the cost difference is pretty substantial. However, if I were to repay my loans using the Income Based Repayment Plan (IBRP) this is what the numbers look like:

Walsh University (under the assumption of making on average $75,000 over 25 years):
Using the IBR calculator: $728.00 per month for 300 months (25 years).
728.00 * 300 = 218,400.00. Now include the tax I have to pay from the massive debt I am forgiven (estimated at 30%), 0.30 * (352,403.43 (what I would have normally accrued over 25 years) - 218,400.00) = 40,894.73. Now the total, 218,400.00 + 40,894.73 = $259,294.73.


Northwestern University ($80,000 over 25 years):
IBR rate: 728.00 per month for 300 months.
791.00 * 300 = 237,300.
0.30 * (448,284.61 - 237,300) = 63,295.38.
237,300 + 63,295.38 = $300,595.38.

The reason I have a higher salary for Northwestern University is because I might be more inclined to work near Chicago which has a higher paying salary to adjust for the higher cost of living.

Under the IBRP, the cost difference between the two schools comes up to be $41,400.65 over the 25 years which doesn't seem like a whole lot.

My point is when using the IBRP to pay back your loans, does it really matter if a school is cheaper by 40k or so including tuition and cost of living at face value? After breaking down the payments for IBRP, the difference in cost seems almost minimal.

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[ChickenLiver]

You bring up a good point here but it seems to me that you're trying to talk yourself into going to NU. You're right that 40k difference over 25 years is not very substantial but I'm sure you could still find a job in Chicago if you went to Walsh so you could make more money but still have a cheaper tuition. If you really have your heart set on NU then do it. I volunteered at a hospital in suburban Chicago and several therapists that I volunteered under were new grads from NU and had nothing but great things to say about it.

 

[zariman]

You bring up a good point here but it seems to me that you're trying to talk yourself into going to NU. You're right that 40k difference over 25 years is not very substantial but I'm sure you could still find a job in Chicago if you went to Walsh so you could make more money but still have a cheaper tuition. If you really have your heart set on NU then do it. I volunteered at a hospital in suburban Chicago and several therapists that I volunteered under were new grads from NU and had nothing but great things to say about it.

Well, it is more my dad trying to talk me into going to NU. Originally, I was set on going to Walsh (even paid the deposit), but my dad continues to push me to go to NU. My only counterargument for not going to NU was because of the high cost, but when I lay it out like I did in my original post, it really doesn't seem all that bad (unless I made an error in calculations). Supposedly in 2014, the IBR rate is supposed to go down even further and over a shorter period of time (20 years instead of 25) so things are only looking brighter.

 

[Axesmasher]

Why not take advantage of the public service loan forgiveness? Your on an income based plan for 10 years then remaining balance is forgiven.

 

[nicolej5]

Ditto what Axe said. I believe that with Obama's loan forgiveness thing all debt is wiped out after 10 years (I could be really wrong with this, just what I remember hearing). The worst mistake you can make is going somewhere your dad wants you to go. You have to go to the school, you have to put the work in, and most likely you have to pay the debt off. Go where YOU want to go, in this instance, forget everyone else's opinion.Going where your dad wants you to go just for that sake will make you miserable with a capital m (especially if you're on the hook for all loans and parents aren't helping)!

 

[mccomasg09]

.

 

[zariman]

Be careful with the loan forgiveness ...whose got a crystal ball to know if it will even still be around in 8-13 years the way our economy is going... The cheaper option is always the better option on this board, but I know northwestern is a great program and there are a lot of people on this board who go and graduated there I would PM a lot of them and see if they say its worth it. Also what's your undergrad debt look like? That's another factor, if you don't have much if that and you want to go to the "better" program that could make your decision a little easier.

My undergrad loan isn't too bad at 15k.

About the loan forgiveness, I am going to pretend it doesn't exist at this point as its future is completely unknown. I will take advantage of it when the time comes, but it is risky to rely on it this early in the loan cycle.

I like what NU has to offer. I was initially put off by it, because of the high cost, the only reason why I went against my dad's wishes. Knowing that the cost isn't too bad, I no longer feel forced to go to NU when pushed by my dad, but now I have an inclination to attend there.

 

[DPTHopeful2012]

Ditto what Axe said. I believe that with Obama's loan forgiveness thing all debt is wiped out after 10 years (I could be really wrong with this, just what I remember hearing). The worst mistake you can make is going somewhere your dad wants you to go. You have to go to the school, you have to put the work in, and most likely you have to pay the debt off. Go where YOU want to go, in this instance, forget everyone else's opinion.Going where your dad wants you to go just for that sake will make you miserable with a capital m (especially if you're on the hook for all loans and parents aren't helping)!

FYI, debt is wiped out after 10 years working in a public service organization. More info here:
http://studentaid.ed.gov/repay-loans/forgiveness-cancellation/charts/public-service

Also, keep in mind that 'forgiven' amounts are taxable in the year given. As the law is written now, forgiven student loans are taxed the year they are given. If you have $100,000 forgiven, you may pay as much as $40,000 or more in income taxes.

 

[zariman]

FYI, debt is wiped out after 10 years working in a public service organization. More info here:
http://studentaid.ed.gov/repay-loans/forgiveness-cancellation/charts/public-service

Also, keep in mind that 'forgiven' amounts are taxable in the year given. As the law is written now, forgiven student loans are taxed the year they are given. If you have $100,000 forgiven, you may pay as much as $40,000 or more in income taxes.

Although the amount forgiven after IBRP is taxable, if you are eligible for Public Service Loan Forgiveness, the amount forgiven is not taxable as an income.

http://www.finaid.org/loans/forgivenesstaxability.phtml

Only problem I have with the Public Service Loan Forgiveness is the vagueness of what constitutes a non-profit working organization. Do most hospitals fall in this category?

 

[DPTHopeful2012]

Although the amount forgiven after IBRP is taxable, if you are eligible for Public Service Loan Forgiveness, the amount forgiven is not taxable as an income.

http://www.finaid.org/loans/forgivenesstaxability.phtml

Only problem I have with the Public Service Loan Forgiveness is the vagueness of what constitutes a non-profit working organization. Do most hospitals fall in this category?

Thanks for the info. And I'm not sure if hospitals fall under the public service category. I want to say no, but I'm not 100% sure.

 

[mccomasg09]

.

 

[GTT4DPT]

With this type of plan there does seem to be a lot of unknowns: Will the IBRP program remain in place? Will your income grow to a point where you are phased out of IBRP eligibility and you end up having to pay the full amount of the loan?

Same thing with the 10 year loan forgiveness: Would a future job description + work environment qualify you for some kind of loan forgiveness after 10 years, or could that change too? I've heard people talk about how these things could happen and could help them, but I haven't yet heard of a PT who said: yeah, I did this and it worked just fine. Anyone have any stories?

What does seem to be certain is that you will have substantial debt sitting around in your name for the bulk of your working years that will likely impact your credit score. It could make it difficult to get a mortgage or lines of credit in the future if that's something you care about.

My gut tells me that these plans are really intended to help out people who have made bad decisions and are in "oh my god I want to kill myself" kind of debt. It's a safety net for poorly thought out plans, and maybe not something to strategize around. But there does appear to be this opportunity for "free money" 25 years from now, which gives me a nauseous feeling. I wouldn't really trust congress in the year 2038 to not screw me over.

 

[zariman]

With this type of plan there does seem to be a lot of unknowns: Will the IBRP program remain in place? Will your income grow to a point where you are phased out of IBRP eligibility and you end up having to pay the full amount of the loan?

Same thing with the 10 year loan forgiveness: Would a future job description + work environment qualify you for some kind of loan forgiveness after 10 years, or could that change too? I've heard people talk about how these things could happen and could help them, but I haven't yet heard of a PT who said: yeah, I did this and it worked just fine. Anyone have any stories?

What does seem to be certain is that you will have substantial debt sitting around in your name for the bulk of your working years that will likely impact your credit score. It could make it difficult to get a mortgage or lines of credit in the future if that's something you care about.

My gut tells me that these plans are really intended to help out people who have made bad decisions and are in "oh my god I want to kill myself" kind of debt. It's a safety net for poorly thought out plans, and maybe not something to strategize around. But there does appear to be this opportunity for "free money" 25 years from now, which gives me a nauseous feeling. I wouldn't really trust congress in the year 2038 to not screw me over.

The maximal potential salary for PT isn't going to be greater than $100,000 so we won't ever have to worry about losing IRBP eligibility. Also, I believe once you are signed in on the IBRP, you are going to be grandfathered in even if they abolish the plan a couple of years from now. I have trust in our government at least that much.

 

[GTT4DPT]

The maximal potential salary for PT isn't going to be greater than $100,000 so we won't ever have to worry about losing IRBP eligibility.

?

More than 10% of PTs are already making more than $100k:

http://www.bls.gov/ooh/healthcare/physical-therapists.htm#tab-5

Here's a snippet from the IBRP Q&A:

Q15 What happens if my income increases so much that I no longer have a “partial financial hardship” as described in Q&A #4 above? Do I then lose eligibility to repay under IBR?

A15 If your IBR payment amount increases to the point where it is more than the monthly amount you would be required to repay under a 10-year Standard Repayment Plan, you would no longer be considered to have a “partial financial hardship.” In this situation, you may remain on the IBR Plan (to take advantage of some of the other IBR benefits, as described in Q&A #2), but your monthly payment will no longer be based on your income. Instead, you will be required to pay the amount you would have been required to pay under a 10-year Standard Repayment Plan based on the amount of your eligible loans that were outstanding when you began repaying under IBR. Your repayment period based on this recalculated amount may be more than 10 years. [January 5, 2010]

Also, I believe once you are signed in on the IBRP, you are going to be grandfathered in even if they abolish the plan a couple of years from now. I have trust in our government at least that much.

And they might grandfather you in, but hit you with a 70% tax rate on your windfall given that the US will be drowning in debt. I just think a little suspicion here is a good thing. But it's your life. I'm just some guy on the internet.

 

[zariman]

A15 If your IBR payment amount increases to the point where it is more than the monthly amount you would be required to repay under a 10-year Standard Repayment Plan, you would no longer be considered to have a “partial financial hardship.” In this situation, you may remain on the IBR Plan (to take advantage of some of the other IBR benefits, as described in Q&A #2), but your monthly payment will no longer be based on your income. Instead, you will be required to pay the amount you would have been required to pay under a 10-year Standard Repayment Plan based on the amount of your eligible loans that were outstanding when you began repaying under IBR. Your repayment period based on this recalculated amount may be more than 10 years.

I like that you can remain in the IBR Plan even when you are no longer considered to have a "partial financial hardship" and still take the advantages of the IBR Plan. I also like that the monthly repayment is capped at a certain number, so if somehow you are making a large sum of money, you are not forced to pay a percentage of that.

And they might grandfather you in, but hit you with a 70% tax rate on your windfall given that the US will be drowning in debt. I just think a little suspicion here is a good thing. But it's your life. I'm just some guy on the internet.

IBRP is also the only way I can somewhat manage my enormous loans. I have no choice but to be optimistic about it. I do truly appreciate your concerns.

 

[GTT4DPT]

IBRP is also the only way I can somewhat manage my enormous loans. I have no choice but to be optimistic about it. I do truly appreciate your concerns.

It seems you're thinking about this more than most people. I hope that you can continue researching the options and caveats that pre-PTs should be aware of, and help us all better understand the landscape we're facing. It seems there is an enormous amount of minutia and potential misunderstanding surrounding IBPR and other loan forgiveness programs. The expense of PT school seems to be escalating in leaps and bounds. We're in the wild west without much good precedent.

In the grand scheme of things, blowing past the IBRP income cutoffs is about as "first world problem" as it gets. You've been accepted into some great programs. I'm very interested to hear where your decisions take you and I wish you the best.

 

[zariman]

I ended up getting accepted to an in-state school, therefore I no longer have to rely on this plan. Since I'm out of the loop, I suggest those who are looking at the IBR to approach it very carefully. Use it at your own discretion - only use it if you have to. I wouldn't choose an expensive school banking on this plan.