Fedloan calculation of standard payment incorrect?

[icarus8]

Hello everyone,

I am hoping some of the student loan gurus on here can help me with some trouble I have had with fedloan.

Some background:

I just finished residency and was in IBR for the majority of the time. I got in about  36 qualifying PSLF payments in that time.

I have about 350K in principal and 60K in non-capitalized interest total debt. These were somehow consolidated into 2 different piles and I'm not sure how they screwed that up - I wasnt paying close enough attention back then and now I can't get a straight explanation from them.

Fedloan recently re-certified my IBR using last year's tax return but in it they mention that my standard payment amount (and thus the cap on my future IBR payments as an attending) would be something like 4300 dollars a month. I thought this was high and plugged my loan data into the student loan calculator - it gives me 2600 as the standard repayment number.

I've asked them about this twice and each time I got a different/nonresponse for why their number is correct ("it has to do with the term of the loan" (what?) and "it has to do with the consolidation, its hard to explain (try me?)).

 

Can anyone shed light on this? Has anyone had this issue? This becomes highly relevant for me moving forward as I try to work towards PSLF and not spend so much of my income on monthly payments.

 

Thanks in advance for your help!

[DMFA]

icarus8 wrote:

Hello everyone,

I am hoping some of the student loan gurus on here can help me with some trouble I have had with fedloan.

Some background:

I just finished residency and was in IBR for the majority of the time. I got in about  36 qualifying PSLF payments in that time.

I have about 350K in principal and 60K in non-capitalized interest total debt. These were somehow consolidated into 2 different piles and I’m not sure how they screwed that up – I wasnt paying close enough attention back then and now I can’t get a straight explanation from them.

Fedloan recently re-certified my IBR using last year’s tax return but in it they mention that my standard payment amount (and thus the cap on my future IBR payments as an attending) would be something like 4300 dollars a month. I thought this was high and plugged my loan data into the student loan calculator – it gives me 2600 as the standard repayment number.

I’ve asked them about this twice and each time I got a different/nonresponse for why their number is correct (“it has to do with the term of the loan” (what?) and “it has to do with the consolidation, its hard to explain (try me?)).

 

Can anyone shed light on this? Has anyone had this issue? This becomes highly relevant for me moving forward as I try to work towards PSLF and not spend so much of my income on monthly payments.

 

Thanks in advance for your help!

Click to expand...

The 2 piles can be a lot of things - some subsidized, some unsubsidized.  Also the interest is p much its own pile, functionally speaking; it doesn't bear interest of its own (i.e. capitalization).

When you consolidated (did you consolidate?), it wiped out all the payments on the prior loans, because they became new loans.  So any PSLF-eligible payments made on loans that were then consolidated go into the ether, and you start back over at zero.

Standard payment is assuming 120 payments.  It's based upon the amount of what you owed when you entered repayment, or if you consolidated, what the amount was at that time.  If you owed about $375,000 at that time, then the calculated payment would indeed be about $4,300.

I know the drones at the loan servicers are known for being less-than-perfect, but are you completely sure you've ruled out your own error in all this?

BTW if you want low payments, why are you in IBR?  PAYE is 1/3 lower (10% of DI vs 15%).  RePAYE is even better if you're single, since just in case you do end up on the hook for the loan, it subsidizes half of unpaid interest (based on calculated payment) each month.

[icarus8]

Hi DMFA,

Thanks for the response.

I am definitely not sure I have ruled out my own error here. But when I go to the studentloans.gov calculator and log in with my FSA ID it shows my loan details and gives me the payment numbers as below:

http://imgur.com/Vo4LO1Y

http://imgur.com/NRHHR1x

 

I consolidated everything before making any payments, so I didn't lose any PSLF-qualifying payments there.

I consolidated right when I finished school, and entered repayment at that time.

 

As for why I'm in IBR - I dont qualify for PAYE because I had a single undergrad loan prior to the PAYE cutoff (for a tiny amount... if only I had known).

Part of why I'm trying to sort this out is to determine if I should switch to REPAYE - my understanding is that there is no payment cap under REPAYE. I also understand that spousal income is always counted in REPAYE, so I am trying to do the math to see if those payments will be lower once attending salary hits - but it all depends on where the standard payment amount cap is for IBR.

 

Thanks again!

[nachos31]

DMFA wrote:

Standard payment is assuming 120 payments.

Click to expand...

I believe the answer lies therein. The standard repayment term used to determine the cap of the amount paid under an income-driven repayment (IDR) plan is 10 years. The standard repayment term on the studentloans.gov website is 30 years, if memory serves. Obviously, repaying over 10 years will lead to a much higher amount than repaying over 30 years. I believe this explains the discrepancy you are coming across--you are using the lower 30yr term amount and the IDR plans assume 10yr.

[DMFA]

icarus8 wrote:

Hi DMFA,

Thanks for the response.

I am definitely not sure I have ruled out my own error here. But when I go to the studentloans.gov calculator and log in with my FSA ID it shows my loan details and gives me the payment numbers as below:

http://imgur.com/Vo4LO1Y

http://imgur.com/NRHHR1x

 

I consolidated everything before making any payments, so I didn’t lose any PSLF-qualifying payments there.

I consolidated right when I finished school, and entered repayment at that time.

 

As for why I’m in IBR – I dont qualify for PAYE because I had a single undergrad loan prior to the PAYE cutoff (for a tiny amount… if only I had known).

Part of why I’m trying to sort this out is to determine if I should switch to REPAYE – my understanding is that there is no payment cap under REPAYE. I also understand that spousal income is always counted in REPAYE, so I am trying to do the math to see if those payments will be lower once attending salary hits – but it all depends on where the standard payment amount cap is for IBR.

 

Thanks again!

Click to expand...

What is your income now that you're out of training?

The partial financial hardship as defined for income-driven repayment is the 10-year standard rate at the time the loan entered repayment (or was consolidated).  I don't understand the second graphic you linked.  It doesn't make any sense how you could pay less than the amount owed without forgiveness.  The calculator thinks that your amount owed was $212,072.14 for that [=pv(7.225%/12,120,2487,0,0)].  The remainder are calculated for the appropriate amount ($421,125).  It makes no sense.

Here's my calculations assuming you're earning $250,000.  If you want to fill in some blanks, I can run them again.


Long story short: PSLF all the way, minimize your monthly payment, and if your wife has a high and comparable income, consider running the numbers of filing taxes separately...it's not often advantageous to do so, but might be worth looking into.

[ArkyDore]

I was going to put a bunch of numbers, but I'll just keep it simple.

• $4300 is a reasonable 10 year, monthly payment amount. It's probably higher than that since the interest capitalizes when you no longer qualify for IBR. Leads me to the second point...


• You no longer qualify for IBR once your family incomes is over $369,000 (2 person family)(but still could qualify for PSLF!). Add roughly $5,000 income per year per additional kid. If you qualified for 10% PAYE, REPAYE, or IBR(10% version), you could make up to $541,000 per year before hitting the cap...


• If you reconsolidated, which it somewhat seems like you did, your loan date is the new consolidate loan date which might mean you qualify for a more recent program.


• The chart showing all of the programs does not include PSLF (a separate program that compliments all of those options), so several of those programs are calculated over 20-25 years, but you would only make 10 years of payments before all is forgiven (tax free)


• If you only did/doing 3 years of residency and then the rest in a non-academic(501c3)/government position, you might as well refinance at lower rates since PAYE/IBR/ICR/REPAYE without qualify for PSLF is not worth it.

It's a lot of loans. Payments/total amount paid are not going to be cheap unless it makes sense for you to take the PSLF route.

 

 

[icarus8]

nachos31 wrote:

DMFA wrote:

Standard payment is assuming 120 payments. 

Click to expand…

I believe the answer lies therein. The standard repayment term used to determine the cap of the amount paid under an income-driven repayment (IDR) plan is 10 years. The standard repayment term on the studentloans.gov website is 30 years, if memory serves. Obviously, repaying over 10 years will lead to a much higher amount than repaying over 30 years. I believe this explains the discrepancy you are coming across–you are using the lower 30yr term amount and the IDR plans assume 10yr.

Click to expand...

This is the answer. Thank you!!

I am not clear why they use the 30 year term for standard (since they have the elongated term as a separate response) but this explains the discrepancy.

Thank you.

[icarus8]

I did 4 years of residency and got about 40 payments out of that (late start, ignorance is bliss when you're young)

Now I have an attending job and I work for a 501c3, and by my math the savings w PSLF are very robust, so I think I have to go for that.

 

 

[icarus8]

DMFA wrote:

icarus8 wrote:

Hi DMFA,

Thanks for the response.

I am definitely not sure I have ruled out my own error here. But when I go to the studentloans.gov calculator and log in with my FSA ID it shows my loan details and gives me the payment numbers as below:

http://imgur.com/Vo4LO1Y

http://imgur.com/NRHHR1x

 

I consolidated everything before making any payments, so I didn’t lose any PSLF-qualifying payments there.

I consolidated right when I finished school, and entered repayment at that time.

 

As for why I’m in IBR – I dont qualify for PAYE because I had a single undergrad loan prior to the PAYE cutoff (for a tiny amount… if only I had known).

Part of why I’m trying to sort this out is to determine if I should switch to REPAYE – my understanding is that there is no payment cap under REPAYE. I also understand that spousal income is always counted in REPAYE, so I am trying to do the math to see if those payments will be lower once attending salary hits – but it all depends on where the standard payment amount cap is for IBR.

 

Thanks again!

Click to expand…

What is your income now that you’re out of training?

The partial financial hardship as defined for income-driven repayment is the 10-year standard rate at the time the loan entered repayment (or was consolidated).  I don’t understand the second graphic you linked.  It doesn’t make any sense how you could pay less than the amount owed without forgiveness.  The calculator thinks that your amount owed was $212,072.14 for that [=pv(7.225%/12,120,2487,0,0)].  The remainder are calculated for the appropriate amount ($421,125).  It makes no sense.

Here’s my calculations assuming you’re earning $250,000.  If you want to fill in some blanks, I can run them again.


Long story short: PSLF all the way, minimize your monthly payment, and if your wife has a high and comparable income, consider running the numbers of filing taxes separately…it’s not often advantageous to do so, but might be worth looking into.

Click to expand...

Thanks for running your spreadsheet. That is about my AGI (after deductions for 403b, etc). I ended up with very similar numbers to you when doing my math - its nice to have the confirmation

 

I really appreciate all the responses/knowledge.

 

Another question for the experts:

 

1. PAYE eligibility: I am fairly certain I had stafford loans in college, pre-2007. However, I'm not sure that I did and I cant find records about it after my consolidation. The fedloan site seems to think all my loans were disbursed 2011 or later... I consolidated them in 2013.

Am I eligible for PAYE? (I've read that consolidation later on doesn't make you eligible if you borrowed FEEL loans prior to 07).

2. Is PAYE still PSLF after 120 payments? I was reading something that said 20 years (see below, copy and pasted from fedloan's site):

Monthly Payments

• Payment amount may be less than the interest that accrues each month, possibly as low as $0.00.


• For loans eligible for federal interest subsidy, if the payment amount is less than the interest that accrues each month, the remaining portion of the interest will not be charged for up to 3 years on this plan.


• Certification for this plan must be completed annually. Based on the information gathered in the certification process, your payment amount may be recalculated.


• For married borrowers filing a joint federal income tax return, the spouse's eligible loan debt and Adjusted Gross Income (AGI) is also considered when determining eligibility and calculating the payment amount.

Things to Consider

• May extend the repayment term past the standard 10 years, up to 20 years maximum.


• Offers loan forgiveness after you make the equivalent of 20 years of qualifying monthly payments.


• In order to qualify, you must be considered a 'new borrower' on or after 10/01/2007 and have received an eligible Direct Loan disbursement on or after 10/01/2011.Note: If you took out any Direct or FFELP loans prior to 10/01/2007, you may not be considered a 'new borrower'. We will review your complete federal student loan history and make an official determination of your eligibility if you request this repayment plan.

2. Does it make sense to do REPAYE? Is there any downside at this point? The ones I can see are a. interest capitalizes (shouldnt matter in the end), b. possibility of some kind of bait and switch when I switch programs affected my PSLF eligibility that I don't know about (I can't actually think of anything but paranoid, I guess) c. lack of a cap of payments based on income and inability to benefit from filing separately (ie if i get married and my spouse is getting paid well, my payment could be larger than the standard)

 

Thanks again, everyone

[DMFA]

1. Consolidating creates a new "consolidation loan."  This *should* render you eligible.


2. What you are looking at for "forgiveness" is for the taxable forgiveness embedded within the income-driven repayment programs (RePAYE, PAYE, IBR).  PSLF is a different kettle of fish.  The PSLF forgiveness is not taxable and is at 120 eligible certified payments (10 years) regardless of whether you were RePAYE, PAYE, IBR, etc.


3. RePAYE is worth it if your spouse does not have too high of an income and if you won't be filing taxes separately.  The stack of filing taxes separately, doing PAYE as your plan, and being full-time employed by a nonprofit so as to be eligible for PSLF (MFS/PAYE/PSLF) is how you get the absolute least paid over the life of your loan, and ideally, it doesn't matter how much interest you let accrue because you're not paying it anyway.
   
   
   
   • The first problem with that is you are penning yourself in for ten total years (seven left for you) only to be all of: full-time, employed, and for a non-profit, often which pays less (though you can still do side-work to make extra; as long as you average like 37 hours/week or so for an eligible employer, there's a specific math to it).  If you break any one of those criteria, then you're on the hook not only for all your principal, but a ton of the interest that's been sitting there accruing.  RePAYE is good for limiting the interest accrual just in case you decide your nonprofit job sucks or you want better flexibility.
   
   
   • The second problem is that filing taxes separately tends to be disadvantageous both for a higher tax bill as the higher income would be taxed at a higher bracket - the MFS brackets are just half the MFJ brackets, meaning if incomes are the same then it's not much difference, but if most of the income comes from one person, it's going to be more at the higher bracket - and that MFS renders you ineligible for many deductions and credits.  This can be worth a few thousand a year, so if it saves you more in payments on a loan you won't fully pay back anyway than you'd lose to taxes, then it can still be an OK idea.
   
   
   
   

As you can see, it's not a simple decision.  RePAYE gives you the hedge for flexibility but a higher payment.  PAYE requires you to do MFS to get the benefit of lower payment, but costs you in taxes and leaves you exposed just in case you're on the hook for the interest if you quit PSLF or if the government takes it away from us.  If you decide against PSLF, then the thing to do in that moment is to do a private refinance and not pay the exorbitant 7% interest on those loans.

We personally did the MFS/PAYE/PSLF for my wife stack until she decided she didn't want to commit to full-time for another 7 years, so we did a private refinance to the low 3% range.  Our incomes were similar, so it didn't hurt us too much to be MFS.

[ArkyDore]

DMFA, where are you getting the 37 hours/week? I thought it was 30 hours a week and 9 months a year. The way it is structured I think is for teachers and professors to qualify even though they are gone during the summers.

[nachos31]

It's 30 hours/week. I haven't heard the 9mo rule.

[DMFA]

ArkyDore wrote:

DMFA, where are you getting the 37 hours/week? I thought it was 30 hours a week and 9 months a year. The way it is structured I think is for teachers and professors to qualify even though they are gone during the summers.

Click to expand...

DMFA wrote:

like 37 hours/week or so for an eligible employer, there’s a specific math to it

Click to expand...

From the official employment certification form:

"Full-time means working for one or more qualifying employers for the greater of: (1) An annual average of at least 30 hours per week or, for a contractual or employment period of at least 8 months, an average of 30 hours per week; or (2) Unless the qualifying employment is with two or more employers, the number of hours the employer considers full time."

The specific person for whom I had to figure that amount was working less than the amount and needed it to get to the minimum since they were part-time some of the year.  It was a weird situation and they needed to get in more hours to get up to the 30-hr average.  Anyway, there it is straight from the horse's mouth.  I guess I should have stated that number was one specific person's situation.  Sorry if I was misleading.