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Which IDR plan should I choose?

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Valued Member

Which IDR plan should I choose?

 

I'm in need of some guidance on these different plans. I've read quite a bit of information but still unsure as to which one would be best. I currently owe $63,000 in subsidized and unsubsidized loans. Putting in my AGI from last years taxes reflected the estimated payments below. I will make about $10,000-15,000 more this year due to a new job. Do I get in a plan now at the lower income? Will that payment be for a year from the date I start the plan or will income verification come sooner? I would like to get and keep the lowest payment possible for a year as I'm trying to purchase a car soon and it will be included in DTI. My loans are currently in forbearance. Does it make sense to consolidate the subsidized loans before entering the payment plan or would that close an open tradeline on my credit report which has perfect history? My credit reports reflect two tradelines for student loans. No lates ever on either one. Loan Servicer is Navient.

Thank you all for any help you can provide.

 

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Screen Shot 2019-07-11 at 8.26.25 AM.pngScreen Shot 2019-07-11 at 8.26.48 AM.png



  



Chapter 7 BK Filed: 3/26/2019 DC: 7/9/2019
Chapter 13 BK Filed: 4/2017 Dismissed: 3/2019
Message 1 of 4
3 REPLIES 3
Established Contributor

Re: Which IDR plan should I choose?

Thank you very much for posting the image. This makes it very easy to answer your question, which is my opinion.
You have a sizeable debt and even with the increases they have listed there, it seems you will be up for forgiveness. I would plan for that. This means overall you'll be wanting to pay the very least you can at all times. I will assume you're not married. If you have plans on getting married, this may change how you approach this.
First you need to understand the difference between the plans. I'm going to explain it for REPAYE vs IBR. If you instead qualify for PAYE or IBR for new borrowers, adjust accordingly. REPAYE is calculated by taking 10% of (your adjusted gross income minus the federal poverty level for your family size which is probably 1). IBR on the other hand is 15% of the same number. Both plans have a 20 year forgiveness, 25 for any portion thats graduate loans and only 10 if you qualify for PSLF. There are other forgiveness plans too, listed on the student loan website but most people don't qualify. Both of them have subsidy benefits. The government will pay all of the interest not covered by your monthly payment on subsidized loans for the first 3 years on REPAYE. Half the remaining interest thereafter. On unsubsidized loans, they will pay half of the remaining interest for the life of the loan. IBR has a lessor but similar subsidy. You must make under ~$50k to be on IBR, but once you qualify you're grandfathered in even if you get raises. If you're married filing separately, they will only take your income. REPAYE is open to almost anyone. If you're married, they take both of your incomes and both of your federal loans into account for payments. You can switch from IBR to REPAYE with a reduced standard payment in between and your qualifying count for forgiveness will be maintained. In your case you n might not qualify to switch back though (because if your income). You interest will never capitalize.

To read the chart you also need to understand those payments. I always tell people, ignore the range because it's usually wrong for most people. Each year is unique, and it's calculated each year. Thus, only the first number in the range is correct. The $600 is an estimation based on a generalization; most people starting out with $130 payments will not be making enough to make $600 payments in the end. This means the estimate is low on what amount will be forgiven. The best plan imo is to recalculate this ever year to see what that year's payment will be.
You need to take your loans out of forbearance immediately imo. This does not help your credit and it will only allow interest to build up on your loan. This also extends the time you could be making payments on your loan toward Forgiveness. I don't know about the car loan vs a mortgage but lenders don't mind a low payment on IDR in my experience. If you do it now you can also apply with last year's taxes. The application with IRS link takes about 5 minutes. Your payments will be locked in for the next year. Another tip is that you may recertify earlier than the 1 year for a lower payment if you can use a paystub from a "low" month. It can't be older than 90 days. Then the payments will good for another 12 months again. Put your iDR recertification in your calendar; they have been knows to forget to remind people to recertify.
I would say don't consolidate at all. You already have once for each the unsubsidized loan and subsidized loan. Doing it again actually presrves the subsidized and unsubsidized portions but turns it into one new loan at 100% utilization. The old tradelines would close but still be factored in your FICO score. All IDR payments to forgiveness start over.
Sorry for the long post but that's my advice. Consider the forgiveness program, and decide if you want the lower payments on REPAYE, with the awareness that you probably won't be able to switch back to IBR later with your future income. Or stay on IBR, lose out on some of the subsidies but knowing that you'll still have reasonable payments if you later get married.
Does this make sense? Any questions?



Message 2 of 4
Valued Member

Re: Which IDR plan should I choose?


@Sabii wrote:
Thank you very much for posting the image. This makes it very easy to answer your question, which is my opinion.
You have a sizeable debt and even with the increases they have listed there, it seems you will be up for forgiveness. I would plan for that. This means overall you'll be wanting to pay the very least you can at all times. I will assume you're not married. If you have plans on getting married, this may change how you approach this.
First you need to understand the difference between the plans. I'm going to explain it for REPAYE vs IBR. If you instead qualify for PAYE or IBR for new borrowers, adjust accordingly. REPAYE is calculated by taking 10% of (your adjusted gross income minus the federal poverty level for your family size which is probably 1). IBR on the other hand is 15% of the same number. Both plans have a 20 year forgiveness, 25 for any portion thats graduate loans and only 10 if you qualify for PSLF. There are other forgiveness plans too, listed on the student loan website but most people don't qualify. Both of them have subsidy benefits. The government will pay all of the interest not covered by your monthly payment on subsidized loans for the first 3 years on REPAYE. Half the remaining interest thereafter. On unsubsidized loans, they will pay half of the remaining interest for the life of the loan. IBR has a lessor but similar subsidy. You must make under ~$50k to be on IBR, but once you qualify you're grandfathered in even if you get raises. If you're married filing separately, they will only take your income. REPAYE is open to almost anyone. If you're married, they take both of your incomes and both of your federal loans into account for payments. You can switch from IBR to REPAYE with a reduced standard payment in between and your qualifying count for forgiveness will be maintained. In your case you n might not qualify to switch back though (because if your income). You interest will never capitalize.

To read the chart you also need to understand those payments. I always tell people, ignore the range because it's usually wrong for most people. Each year is unique, and it's calculated each year. Thus, only the first number in the range is correct. The $600 is an estimation based on a generalization; most people starting out with $130 payments will not be making enough to make $600 payments in the end. This means the estimate is low on what amount will be forgiven. The best plan imo is to recalculate this ever year to see what that year's payment will be.
You need to take your loans out of forbearance immediately imo. This does not help your credit and it will only allow interest to build up on your loan. This also extends the time you could be making payments on your loan toward Forgiveness. I don't know about the car loan vs a mortgage but lenders don't mind a low payment on IDR in my experience. If you do it now you can also apply with last year's taxes. The application with IRS link takes about 5 minutes. Your payments will be locked in for the next year. Another tip is that you may recertify earlier than the 1 year for a lower payment if you can use a paystub from a "low" month. It can't be older than 90 days. Then the payments will good for another 12 months again. Put your iDR recertification in your calendar; they have been knows to forget to remind people to recertify.
I would say don't consolidate at all. You already have once for each the unsubsidized loan and subsidized loan. Doing it again actually presrves the subsidized and unsubsidized portions but turns it into one new loan at 100% utilization. The old tradelines would close but still be factored in your FICO score. All IDR payments to forgiveness start over.
Sorry for the long post but that's my advice. Consider the forgiveness program, and decide if you want the lower payments on REPAYE, with the awareness that you probably won't be able to switch back to IBR later with your future income. Or stay on IBR, lose out on some of the subsidies but knowing that you'll still have reasonable payments if you later get married.
Does this make sense? Any questions?

Thank you so much! This information was great and helped answer a lot of questions. Just for clarification, on IBR no matter how much I make later from raises, I will still pay the same amount as I did when I entered the plan? So recertifications on IBR work different? In my case, IBR would be 15% of last years taxes no matter how much more I make this year or years to come? Shouldn’t the payment only go down on that plan as the principal goes down? Sorry for so many questions. Just want to make sure I have a clear understanding before I choose.



  



Chapter 7 BK Filed: 3/26/2019 DC: 7/9/2019
Chapter 13 BK Filed: 4/2017 Dismissed: 3/2019
Message 3 of 4
Established Contributor

Re: Which IDR plan should I choose?

You're welcome.
No, still an annual calculation. It's the dilemma of staying on IBR or going to REPAYE. REPAYE (10%) will likely be a lower payment for you now, but if you get married, it will take into account but if your income. Unless they have a loan too your payments will go way up. Your income will also probably be too high to go back to IBR. If you stay on IBR, you'll be paying more now but if you get married your payments at that time will only be based on the calculations with your income (taxes filing as married filing separately).
There's also the possibility that you would lose more by filing separately then you would gain from having only your income counted. In which case you're still better off with REPAYE.
I'm sorry if I confused you further. It's so hard because you don't know where you might be in 10 or 20 years, right? It makes it hard to make a decision now.
Ask as many questions as you like. 🙂



Message 4 of 4
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