Income-based repayment program

[rachroo]

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Hi everyone! For those of us who have just recently received our financial aid information and our school's tuition/book/projected cost of living figures 😱...I thought I'd see if any of you had heard of the newly passed Income-based repayment program?

What's your opinion? Does this apply to the federal loans for veterinary students? Is it actually beneficial of one to do this after graduation vs. trying to pay off loans as quickly as possible (and by that I mean living in a 1-bedroom apt for 10 years eating ramen noodles as to be free from loans asap)?

 

[sumstorm]

My current understanding, which may not be 100% accurate, is that a single individual w/o dependents would need to make less than $50k annual, married w/2 kids less than$100k annual. Federal loans only (stafford, grad plus, fed consolidation.) Also, at the end of 25 years, if you still have loans that are discharged, you are responsible for taxes on them.

Here is a good general website:

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

 

[laurafinn]

I've heard of income-based repayment, although not through my school.

My understanding is that vet student federal loans are included. Here's a handy calculator: http://www.ibrinfo.org/calculator.php. I plugged in a few numbers: if you owe $200,000 at 7.5% and make $75,000/year, you could pay $730/month, rather than the $1300/month or so you would normally be paying. Taxes on the forgiven amount after 25 years may be quite scary.

 

[TSUJC]

Thanks for that calculator!! 👍

 

[EqSci]

I don't really see the benefit in lower payments unless you really can't afford the higher ones. All you're doing is making your debt last longer and increasing the amount of interest that you'll have to pay. I would think that common sense would tell most people to pay as much as possible per month towards their debt.

 

[Angelo84]

I don't really see the benefit in lower payments unless you really can't afford the higher ones. All you're doing is making your debt last longer and increasing the amount of interest that you'll have to pay. I would think that common sense would tell most people to pay as much as possible per month towards their debt.

I think the benefit is that the required payment is lower but you can choose to pay more when you can to bring the debt down faster. But if you have a bad month you are only required to pay the lower amount.

 

[rachroo]

I would think that common sense would tell most people to pay as much as possible per month towards their debt.

Paying everything off as quickly as possible while living as cheaply as possible may be common sense to most but IBRP is an option that I was just curious about. With the IBRP one only pays a max of 15% of their income per year. After 25 years whatever is left you don't have to pay (but as sumstorm brought up, you have to pay taxes on it, which I didn't originally know). So paying with the IBRP lowers ones monthly fee and then after 25 years you don't have to pay it off anymore...which sounds kind of nice to me (until I heard about paying the taxes part).

 

[Caninerepro]

So in essence you would pay based upon your current income for 25 years, then pay income taxes on the remaining balance as if the amount not paid back was straight income for that year? Am I correct in m y understanding of this? 😕

 

[sumstorm]

realize the other issue are income limitations. My understanding is if you make above a certain income, you will be knocked out of the program. That might not be correct, just my current understanding

 

[sumstorm]

So in essence you would pay based upon your current income for 25 years, then pay income taxes on the remaining balance as if the amount not paid back was straight income for that year? Am I correct in m y understanding of this? 😕

I believe so. IE, if at the end of 25 years you still had $40k in debt, you would have to pay taxes on the $40k pay off. You wouldn't owe $40k, but whatever percentage of tax bracket that additional earning would put you in.

Again, I am not an expert, this is just what I have read.

 

[Caninerepro]

Yes it would make sense that there would be an income cap. Still good to know about even if for just during residency. I would still want to pay back the loan, but to perhaps have a lower rate during the first few years would be good. Thanks for the clarification.

 

[sumstorm]

Yes it would make sense that there would be an income cap. Still good to know about even if for just during residency. I would still want to pay back the loan, but to perhaps have a lower rate during the first few years would be good. Thanks for the clarification.

Yeah, I have thought about it that way as well. I feel it is risky to assume you will never bust through an income cap (also I don't know how that works if you have a spouse...does thier income count?) or that the program won't change over 25 years (govt is fickle that way) but it could be very helpful just for the reduced cost.

 

[laurafinn]

I don't really see the benefit in lower payments unless you really can't afford the higher ones. All you're doing is making your debt last longer and increasing the amount of interest that you'll have to pay. I would think that common sense would tell most people to pay as much as possible per month towards their debt.

Nah, my repayment period would have been 30 years, so 25 years is an improvement. There is no way I could have paid off $200K in less than that. And $1300/month is quite a hefty part of a new grad's salary, and I doubt I could put more towards my loan than that. Plus, if you don't own and you don't specialize, a vet's salary flattens out pretty quickly.

Also, it appears that there is some movement to make the forgiven amount at the end of the 25 years non-taxable. (Check out http://www.ibrinfo.org/faq.vp.html#_Will_forgiven_loan)

 

[david594]

Also keep in mind that if you plan to specialize, you are talking about 4-5 years of making <$30k a year as an intern/resident. So during those years there is no way one could bepaying their full loan payments on a $200,000 loan. Your other option would be deferring for all those years... and then paying it all off and the capitalized interest.

Now if you were to opt for IBR, you will be making affordable payments for those first 5 years... and then are only left with 20 years of paying 15% of your salary.