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PSLF 10-year vs IRB 25-year Loan Forgiveness

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  • PSLF 10-year vs IRB 25-year Loan Forgiveness

    4 years into employment with a nonprofit I learned that I should submit the employment certification form, and received a response that I am not eligible for PSLF due to my loans being 'FFEL' instead of 'Direct'. Last year and this year I applied and qualified for IRB. So I am wondering...if I can reconsolidate into 'Direct' in order to qualify for PSLF, will I 'lose' the 7.5 years since July 2009 that may qualify for the 25-year forgiveness under IRB? (I may not always work for a nonprofit, especially since I am starting over at square one).

    My other question is I read somewhere that 50% of the interest that accumulates for the first 3 years under IRB is subsidized? Or was it REPAYE? I can't find that info again immediately, I wonder if anyone has any insight for my situation. I don't seem to qualify for REPAYE, and I wonder if it is also because my loans are considered 'FFEL'? Is IRB 'better' than REPAYE? Or should I reconsolidate to get under REPAYE for an interest subsidy I am not currently getting? I have small business(es) that help get my AGI down.

    It is so frustrating that you have to be a loan professional just to navigate your own student loan options.

  • #2
    Sorry, I mean IBR.


    • #3
      Oh, and I 'did' call both Navient and the Dept of Education Fed Student Aid Office. The former says to call the latter, and the latter says they can't give advice about your situation when I was just trying to get the facts about losing the 7.5 years. They say 'yeah' no matter what you ask, so I didn't get anywhere.


      • #4

        • The IBR forgiveness is taxable.  If you get $100,000 forgiven, your taxable income will be $100,000 higher that year...meaning you'll be out prob over $25,000 or more in taxes.  You will also pay a very large amount over the 25-year life of that loan with the horrid interest rates federal loans have (6.8% or so).

        • The PSLF forgiveness is not taxable, but there's a question if it will continue to be available.

        • RePAYE does subsidize 50% of unpaid interest each month, but depending on your income, that may not save you very much money.

        • Private refinancing can very often be a good idea since you can generally get very low rates.

        • Consolidating creates a new loan, meaning its disbursement date is the consolidated date, and it has zero payments and resets the clock.

        It's hard to give any insight as to which of those courses of action might be correct without knowing more.  Please start by sharing your income, married/single, how much you owe, and at what rate.


        • #5
          Well getting married this year, so combined income around $210-235K moving forward but can drive AGI down by maxing out 401Ks and some biz deductions including home office and vehicle depreciation. Combined student loan burden is $267K (and growing due to interest compounding). He just graduated so $170K with an interest rate of 5.875%. My interest rate is 4.875% on $97K (I think that's with a slight APR discount for auto-debit through Navient).

          We are building a house in a rural area that is not close to any hospitals, so moving forward I am considering per diem travel contract work, which is inconsistent and does not qualify for PSLF. I am also considering a hospital with a bit of a commute. So a lot of options up in the air.


          • #6
            I doubt that it matters but I'm a Clinical Pharmacist not a Physician, and husband-to-be is a Behavioral Psychologist that works remotely from home.


            • #7
              A few points:

              1) even if you consolidated with the hopes of doing PSLF, you would now not qualify for a partial financial hardship and you would be ineligible (if I'm not mistaken) for an income driven repayment plan. You'd be put on a standard plan and would end up paying back the loan in whatever term was selected.

              2) you mixed two things up regarding 50% subsidy and the 3 years. DMFA is correct about REPAYE and the subsidy. But the other minor thing to note is that any interest owed not covered by your payments under IBR/PAYE on subsidized (and only subsidized) loans in the first 3 years is subsidized/paid for by the government.

              Your best bet is likely private refinance and paying them off as soon as possible.


              • #8

                Your best bet is likely private refinance and paying them off as soon as possible.
                Click to expand...

                +1. this smells like a refinance situation


                • #9
                  Hmm...when I explored the refi option my interest was actually going to 'increase' so I'm not sure how that's the best solution. My credit is excellent but I still couldn't get anything under 5%. My s/o is dealing with some kind of scam on his credit report from years ago he didn't know was there until recently.

                  What really sucks is that when the int rates were going up & we were scrambling to consolidate in 2005 or so Sallie Mae kept telling me their 'system wouldn't let them' until after the rates were no longer 3%. Then the 'system' was suddenly fine and the people I was to call back & speak to directly & had all the notes in the system suddenly never heard of me.

                  Anyway I'll look into the math again with the higher interest rates. Thanks for all your help!


                  • #10

                    when I explored the refi option my interest was actually going to ‘increase’ so I’m not sure how that’s the best solution
                    Click to expand...

                    What are the interest rates for your various loans currently?


                    • #11
                      4.875% on $97K & 5.875% on $170K. Again the latter can't be refinanced currently due to an error on credit report we are trying to get resolved. Once that is resolved we both have excellent credit.


                      • #12
                        OK, so p much an average of 5.51% on $267,000, given the proportion of the loans and rates.

                        Given the following:

                        • Adjusted gross income: $210,000

                        • Family size: 2

                        • Location: lower 48 states (not AK/HI)

                        • Assuming married filing jointly (both debts and incomes counted since I don't know your individual incomes)

                        • Your RePAYE would be $1,549.75 monthly the first year ([income - 1.5*poverty] / 120, defined as 10% of disposable income)

                        • Your IBR would be $2,324.63 monthly the first year ([income - 1.5*poverty] / 80, defined as 15% of disposable income)

                        • The 10-yr standard payment would be $2,899.20 monthly (IBR and PAYE are capped at this, RePAYE isn't)

                        • Interest accrued monthly at 5.512% on $267,000 = $1,226.35, meaning there wouldn't be any interest subsidy from RePAYE anyway.

                        Assuming your income increases 5% each year, doing RePAYE, you would pay a total of $413,864 over 179 payments (14 years 11 months).  You wouldn't make it out to the 25-year forgiveness, anyway.

                        IBR would have you paid off a total of $359,212 over 130 payments (10 years, 10 months).  Again, you're not making it out to the 25-year forgiveness anyway.  You'd hit the 10-yr std monthly repayment cap in your 6th year.

                        If you did PSLF and RePAYE, over 120 payments (10 years), you'd have paid $240,106 over the life of the loan.  $151,052.48 would be forgiven.  That's a big risk to take in case the untaxed forgiveness is capped in coming years which, if Trump's first week in office has shown anything, is probably going to happen.

                        On the other hand, if you could do a private refinance to 4.5% over 10 years, you'd pay $2,767.15/month at a total paid of $332,057, saving you $81,806 over the life of the loan from if you did RePAYE without PSLF and $17,155 over straight IBR.  That would comprise 15.8% of your total annual income your first year, which your budget should be able to accommodate (if that's not the case, you might have a planning, spending, or budgeting issue).  Especially if you can get a better private refinance rate than that (SoFi starts 10-yr at 4.49% fixed and 3.145% variable) or, even better, pay it off over a shorter term like 5 or 7 years, you'd be even better off.


                        • #13
                          Yikes, that's worse than what I came up with (because of deductions, and he has child support). Not getting married is an option. There is too much gender discrimination at my current workplace, so I'm definitely relocating. I guess moving back home and doing travel contracts is out of the question since my income may not be consistent in that case, that's what I was after. It sucks since I have a paid for family lakehouse but no nearby hospitals to work at. Thanks for the clarity!


                          • #14
                            Well, what matters is the MAGI on your tax return, not your tax deductions. Mortgage interest, real estate taxes, charitable donations, etc don't factor into it.

                            Married filing separately or staying single might not help too much either (depending in the proportions) because you both have debt. It would be two smaller payments for two smaller incomes, but might add up to be similar. It could be calculated separately if I knew individual incomes. It might be helpful if the one with lower income had the higher debt. However, the tax situation might not benefit you.

                            Point is, other than PSLF, you're facing taxed forgiveness. You won't get forgiveness from federal income-driven repayment plans because, with your incomes, you won't hit the term (but will pay a ton of interest over that term at that rate).

                            If you don't want to lock yourself into PSLF, you can look for other state-level or employer-based loan forgiveness programs, or you can do a private refinance to a lower rate.


                            • #15


                              It is so frustrating that you have to be a loan professional just to navigate your own student loan options.
                              Click to expand...

                              +1 for the refi team.

                              This was very frustrating to me as well.

                              I ended up refinancing my resident wife's student loans a couple years ago.  I found it to be the most straightforward, sure bet option.  I believe it may have been possible to save some money making her eligible for PSLF, but I would have been: A) committing her to finding a qualifying job and excluding a huge swath of career paths, B) committing us to a federal program with a hazy future, C) possibly causing us to have to file separate returns which would have been an added cost at the time, D) missing out on a much better rate and the ability to pay down her loan instantly, E) stretching out her loan payoff picture to at least 10, possibly 20 years, F) substantial added complexity to our lives, one more thing to worry about, and on and on and on.

                              For me, the ability to save interest today, payoff more principal today, avoid added cost and headache today, etc. outweighed the potential benefit years down the line, much of which may have been mitigated by career choices, acts of congress, and who knows what else.