FHA, Student Loans, and IBR

[goodygoody]

HOORAY!!!  This has been the biggest fear I've had on the IBR plan -  I've been horrified that I'd end up with a massive tax bill eventually.  This is so exciting.  Thanks for the info!

[goodygoody]

Darnit.  I just checked, and I'm in income contingent, not income based.  So it looks like forgiven loans in that program are taxable?  Hmph.

[Booner72]

ME TOO!!  When I first signed up w/ IBR they didn't know what the h they were doing.  Now it seems they have gotten their act together.  They now have the forms available that you can have your employer fill out to keep track of the 120 payments if you are a public service employee.  That's a relief!   You can confirm this by doing your own research at the IBR site.

I think I'm voting for Obama - I recently heard that instead of 25 years of payments, they are down to 20 years of payments, for federal loans to be forgiven.  I read that from an email I get as I am on the mailing list for some government student loan information site, I think it's through DirectLoans.  He has definitely made drastic improvements to the student loan problems in this country.

[Booner72]

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@goodygoody wrote:

Darnit.  I just checked, and I'm in income contingent, not income based.  So it looks like forgiven loans in that program are taxable?  Hmph.

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Huh.  I didn't know that.  can you at least switch to IBR?

[goodygoody]

I don't think so - I think it has to be 25 years in one program, so if you switch you have to start over with 25 years...  Apparently there was a bipartisan bill a couple years ago proposing to stop charging tax on loan forgiveness, since obviously people with large loans and no income aren't able to make huge tax payments, but it didn't even get to be voted on.  I swear I read somewhere that you can request a waiver or something for the taxes - hoping someone will read this thread and have that info...

[MBOhio2]

I am almost positive (and unless something has changed) that IBR is the only program that you become permanantly locked into. So if you are on the income contingent plan, you could switch over to IBR, but not the other way around. Once you opt into IBR, you are stuck with it, which can be a bad thing because IBR's payment are great if you are lower income, but if you are higher income (like me), you then will suddently have huge payments. 15% of one's income when your income is 6 figures is A LOT! I would have lower payments in another program, but I'm stuck with IBR now. It's not the end of the world, but chose carefully when you are selecting to opt into IBR because if you will make a higher income in the near future, it may not be the best option for you.

[goodygoody]

I guess I see your point, but it seems that if your income goes up to 6 figures, you can afford the 15% payment even though it's high?  It should only be 15% of disposable income, which is after your living expenses and exemptions for any dependents, so it's not actually 15% of your income (or it shouldn't be - if they're charging you that, you should call someone). 

[MBOhio2]

goodygoody - The IBR payment is based on your AGI on your tax filing (not disposable income), so it based on your actual income and does not take into account your living expenses, etc. To be more technical, it isn't exactly 15% but is instead 15% minus a deductor, which isn't very much. Here is the exact formula:

The IBR monthly payment amount is based on your annual Adjusted Gross Income (AGI) and family

size. Specifically, the maximum annual amount you are required to repay under IBR is 15% of the

difference between your AGI and 150 percent of the U.S. Department of Health and Human Services

(HHS) Poverty Guideline amount for your family size and state. This annual repayment amount is then

divided by 12 to determine your monthly IBR repayment amount.

As a result, the amount of my IBR payment is HUGE and is just under 15% of my monthly gross income (you can do the math). Yes, I can technically afford that, but signing up for IBR has basically forced me to pay off a 25-year student loan in 10-15 years by just about doubling the "normal" monthly payment and sucking a huge portion of my disposable income along the way. I wish I would have know this when I signed up for IBR right after graduation because then I would have stayed with a traditional repayment arrangement and not done IBR.

I've already spoken with Direct Loans about this and it's simply the downside of IBR. Once you opt in, you cannot get out.

[Booner72]

My plan to prevent that is to just put any raises I get into 401K and my flex spending account (medical).  Plus I want that forgiveness after 8'ish more years!

My payment has gone up and down - the first year I only claimed 2 (me and son), then found out the next year I could claim both my kids even though I didn't claim them both on taxes.  Now it's going to go up bc I made about 5K more than the year before.  I'm not filing my taxes until the deadline so IBR can't raise my payment until my taxes are in - Last year I held on until June.  When I first signed up they let my payment be based on "IF" I did married filling separate, which I did the next year.  But had my friend at work try to do the same thing, and they told her she couldn't until she DID file married/separate.

I only wish I had signed up in 2007 when the public service employee gig came out.

[goodygoody]

GAH!  Now I'm glad I'm in Income Contingent and not income based - you pay a percentage of disposable income in income contingent, which has a cost of living adjustment along with the dependent adjustment.  I guess the downside to that one is that you end up with a crazy tax bill when the loans are forgiven.  I wish they would pass legislation getting rid of that. 

I guess the upside is that your loans will be paid off faster?    Not much of an upside.  Sorry.  Student loans suck.  At least your education seems to have paid off - I have massive loans and a master's degree in counseling, and average salary is still only around $40,000.