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SL IBR Guidance

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SL IBR Guidance

Considering options and looking for some guidance. Thanks in advance.


I'm currently on standard repayment on defaulted then rehabbed SL's (current since last December). I'm considering applying for Repaye plan and just want to make sure I'm not missing any glaring disadvantages (other than a bit more interest paid). estimator is still showing an old defaulted perkins loan ($1700) that I just paid off but will take some time before its updated. Should I wait until that is updated prior to applying?


Thanks for any help.



EDIT: Can't seem to attach picture with plan details so note, loan isn't enough to look at forgiveness. Repaye is 129 mos and I hope to pay extra as funds are available.


Message 1 of 4
Established Contributor

Re: SL IBR Guidance

How much is the loan? And if you don't mind, your income (will that be steady over the years or will you have significant increases) if you're married, have dependents, etc.

The answer is actually complicated. Yes, there is an added subsidy benefit for REPAYE. If you're taking advantage of this it means your payments are not covering the interest. Since they're not touching the principal, you're likely a candidate for forgiveness. Otherwise IBR, REPAYE, etc really wouldn't matter in that you should definitely be paying now than the minimum to pay down there loan as day as possible.
The estimator is helpful but as I tell people it's not for everybody. It's most helpful for the year you are in and is often highly inaccurate over the course of the loan. For example, the range of payments. Most people interpret this as set. It's not because each year it's determined by your income. So basically the calculation is based on what your income increase would be over that period, with significant annual raises. For many people like me, you could be on your plan for 5 years and your payments actually ended up being about the same. Suddenly, that amount
they estimated you'd pay goes overall way down and the above forgiven goes way up. So when it says your payments will be $200-$600 over the course of the loan, you really have to take into account if you'll be making enough at the end too be making $600 payments.

The second thing to take into account is your circumstances. IBR has an income cap ($50k). If you are on it and your income goes above that you can stay on it. But if you go on REPAYE and your income goes above it, you cannot later switch back. This is important because that brings up to marriage. If you're married it get married, REPAYE will always take into account both of your incomes (and also both of your federal student loans if you have any). IBR, will take only your income if you file married filing separately (which has it's own consequences, money-wise).
To switch from IBR to REPAYE requires one payment at the standard payment amount or a reduced payment as low as $5 (the amount is your choice). That payment doesn't count towards the required number of payments for loan forgiveness.
If you can provide more details, maybe I can provide an answer more specific for you. However, sometimes choosing between the two plans is just an almost impossible choice based on events that haven't happened yet.

Message 2 of 4

Re: SL IBR Guidance

Thanks. That makes sense. They're assuming significant increases in my pay to arrive at how long I'll be paying and the amount each year. So if I don't get those increases, my payments stay lower, extending the terms and the interest paid.

Loan amt is 32k, avg 4.5%. AGI was 46k last year. Single, no kids.

Really just looking to lower my obligated monthly amount to allow some flexibility in when and how much extra I can pay. I was ok with their estimate 129 months with a bit more interest tacked on, but I don't think I want to pay on this thing for 20+ years.

I need to read up more on the interest subsidy. Curious now about going on repaye, but still making full "standard" payments that I'm making now. Is the overage applied to principal?
Message 3 of 4
Established Contributor

Re: SL IBR Guidance

Yes, that's exactly it. I see from you income and loan balance, just like you said you'll be ineligible for anything forgiven.
At 4.5% average interest, I would try to pay extra like you said but it's also an opportunity to build up other things. From the estimates that you'll be paying it in for 10-11 years, I would just take it easy.
Personally, if you plan on maybe getting married in that timeframe (or already are), I'd stick with IBR. The payments are higher but nothing compared to if you no longer qualify for IBR (at your income sis like that could be a possibility soon) and they use your joint income.
If I was pretty sure I was not getting married I would go with REPAYE. The minimum payments will be lower.
I don't think you'll qualify for the interest subsidy in either plan though because the interest will be covered by your monthly payments.

To answer your question I missed before, I would apply as soon as you can. Your loan you paid off is not affecting anything because your payments are Income-driven.
One tip is to get a loser payment than that they allow re-certification at any time. So if you have a paycheck during the year that's lower than what your annual income would be calculated at, you can use that. The payments will be recalculated and be good for the next year. This is voluntary, so you don't have to have them recalculate when your income goes back up, just when it's time for you to recertify.

Message 4 of 4
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