PSLF/IBR Quandry

[PulmGuy]

I have been looking through the forums for this answer, but I have not been able to find this addressed specifically.

I recently finished fellowship, and I have begun working at a PSLF qualifying institution.  I have been on the IBR and made 57 qualifying payments (according to Fedloan) with 63 to go.  Since I have begun working at an attending's salary, I have also been aggressively moonlighting as well.  I am still technically on the IBR, but when I recertify in about 8 or 9 months, my income will be too high to continue as IBR, and I will likely go into RePAYE.  I spoke with Fedloan about how to proceed, but I found their loan councilor to be lacking.  I have $220,000 in subsidized and unsubsidized consolidation loans and $40,000 more in interest at 6.8%.

My question:

1.  Is there truly a downside to not recertifying my IBR?  Sure, my loans will go into capitalization of the interest, but it seems that I will remain on IBR making qualifying payments that are notably less than 10% of my income.  I estimate that my monthly payment will transition to $2500/month based on previous letters my lender around recert time.  With my excessive moonlighting, I anticipate that my AGI will be around $400,000 if not this year, then next year.  If I go into RePAYE, I will finish my loans off before anything can be forgiven.  If I do not recertify, I will end of paying about $150,000 by the time I get to 120 qualifying payments.  This will leave me with $110,000 to be forgiven assuming that the capitalized portion added to the principle will also be forgiven.  It kind of feels like I am gaming the system by doing this, but I feel that if I can offset nearly half my debt that I should.

2. Should I care about the capitalization if it is going to be forgiven anyway?

3. Can anyone poke holes in my reasoning on this?  Am I missing some fine print somewhere?

In the meantime, I am contributing to a brokerage account in case PSLF gets changed, and there is no grandfathering so I can rid myself of the debt as quickly as possible.  I appreciate any advice that you folks can provide.

[DMFA]

PulmGuy wrote:

I have been looking through the forums for this answer, but I have not been able to find this addressed specifically.

I recently finished fellowship, and I have begun working at a PSLF qualifying institution.  I have been on the IBR and made 57 qualifying payments (according to Fedloan) with 63 to go.  Since I have begun working at an attending’s salary, I have also been aggressively moonlighting as well.  I am still technically on the IBR, but when I recertify in about 8 or 9 months, my income will be too high to continue as IBR, and I will likely go into RePAYE.  I spoke with Fedloan about how to proceed, but I found their loan councilor to be lacking.  I have $220,000 in subsidized and unsubsidized consolidation loans and $40,000 more in interest at 6.8%.

My question:

1.  Is there truly a downside to not recertifying my IBR?  Sure, my loans will go into capitalization of the interest, but it seems that I will remain on IBR making qualifying payments that are notably less than 10% of my income.  I estimate that my monthly payment will transition to $2500/month based on previous letters my lender around recert time.  With my excessive moonlighting, I anticipate that my AGI will be around $400,000 if not this year, then next year.  If I go into RePAYE, I will finish my loans off before anything can be forgiven.  If I do not recertify, I will end of paying about $150,000 by the time I get to 120 qualifying payments.  This will leave me with $110,000 to be forgiven assuming that the capitalized portion added to the principle will also be forgiven.  It kind of feels like I am gaming the system by doing this, but I feel that if I can offset nearly half my debt that I should.

2. Should I care about the capitalization if it is going to be forgiven anyway?

3. Can anyone poke holes in my reasoning on this?  Am I missing some fine print somewhere?

In the meantime, I am contributing to a brokerage account in case PSLF gets changed, and there is no grandfathering so I can rid myself of the debt as quickly as possible.  I appreciate any advice that you folks can provide.

Click to expand...

You have to recertify your income every year to stay in the program.

Once you're in IBR, you can stay in IBR regardless of how high your income becomes; if your calculated IBR payment of (AGI-1.5pov)/80 is greater than the 10-year standard payment (using the initial balance when entering repayment), then your IBR payment becomes that 10-year standard.

*Assuming* the loan is being forgiven, the only thing that matters is paying as little as possible on it, and therefore how much interest has accrued doesn't matter.  At the higher payments, you'll start paying the accrued interest and it will stop accruing each period, actually starting to reduce the principal.

Only ways this stops working for you is if PSLF changes to prevent forgiveness or if you want to stop working as a full-time employee of a non-profit.

[PulmGuy]

Interesting.  That is contrary to what the FedLoan councilor told me.  I asked about that specifically (when my income becomes higher what my maximum payment will become).  She indicated that with the higher income, I would no longer qualify to be on the IBR program and would automatically be twitched to the Revised Pay As You Earn program.  On that program, she said I would then be paying 10% of my AGI.  I don't know if this is a newer policy or if my councilor was simply misinformed, but that has been entirely the source of my dilemma.  However, the Fedloan website seems to suggest that if you do not recertify, you will remain in the IBR program, but you will be on the 10 year pay off schedule with the previous interest being capitalized.

 

From the Studentloan.gov Website for IBR:

Eligibility Requirements

• To initially qualify for this plan and to continue to make income-based payments under this plan, you must have a partial financial hardship, which means that your calculated payment amount under IBR must be less than what you would pay under the Standard Repayment Plan with a 10-year repayment period.

This seems to suggest that my councilor may have been correct that I will be forced into a different plan.  This would make my question about not recertifying more relevant.

[DMFA]

PulmGuy wrote:

Interesting.  That is contrary to what the FedLoan councilor told me.  I asked about that specifically (when my income becomes higher what my maximum payment will become).  She indicated that with the higher income, I would no longer qualify to be on the IBR program and would automatically be twitched to the Revised Pay As You Earn program.  On that program, she said I would then be paying 10% of my AGI.  I don’t know if this is a newer policy or if my councilor was simply misinformed, but that has been entirely the source of my dilemma.  However, the Fedloan website seems to suggest that if you do not recertify, you will remain in the IBR program, but you will be on the 10 year pay off schedule with the previous interest being capitalized.   From the Studentloan.gov Website for IBR: Eligibility Requirements

• To initially qualify for this plan and to continue to make income-based payments under this plan, you must have a partial financial hardship, which means that your calculated payment amount under IBR must be less than what you would pay under the Standard Repayment Plan with a 10-year repayment period.

This seems to suggest that my councilor may have been correct that I will be forced into a different plan.  This would make my question about not recertifying more relevant.

Click to expand...

Then that has changed.  You're not making income-based payments anymore, though; you make the 10-year standard.  Here's what I pull from their FAQ, page 11:

16. How is the monthly payment amount determined under the income-driven repayment plans? Under the PAYE Plan and the IBR Plan, your monthly payment amount is based on your income and family size when you first begin repayment under the plan. However, if your income increases to the point that your calculated monthly payment amount would be more than what you would have to pay under the 10-year Standard Repayment Plan, your monthly payment will be adjusted and will no longer be based on your income. Instead, your required monthly payment will be the amount you would pay under the 10- year Standard Repayment Plan, based on the loan amount you owed when you first entered the PAYE or IBR plan. This ensures that you will never have a monthly payment that is greater than the amount you would have to pay under the 10-year Standard Repayment Plan.

20. If I’m repaying under PAYE or IBR, what happens if my income increases so much that I no longer qualify to make payments based on income? Do I then lose eligibility to repay under PAYE or IBR? No. If your income increases to the point that your calculated PAYE or IBR payment amount is more than the monthly amount you would be required to repay under a 10-year Standard Repayment Plan, you will remain on the PAYE or IBR plan, but your monthly payment will no longer be based on your income.  Instead, you will pay the amount you would have been required to pay under a 10-year Standard Repayment Plan. This 10-year Standard Repayment Plan monthly payment amount will be calculated based on the amount of your eligible loans that were outstanding when you first began repayment under the PAYE or IBR plan. Although your required monthly payment will be the 10-year Standard Repayment Plan amount (as described above), you will continue repaying your loans under the PAYE or IBR plan, and your maximum repayment period will remain at 20 or 25 years.

21. If I’m repaying under the PAYE or IBR plan and my income increases so that I no longer qualify to make payments based on income, but I stay in the plan and make the 10-year Standard Repayment Plan amount, is it still possible for me to receive loan forgiveness after 20 or 25 years? Making payments under the PAYE or IBR plan that are not based on income does not disqualify you from receiving loan forgiveness. As long as you remain on the PAYE or IBR plan and you meet the other requirements for loan forgiveness, you will qualify for forgiveness of any loan balance that remains at the end of the 20- or 25-year period. However, if your income remains high and you continue to make the 10- year Standard Repayment Plan payment amount, your loans may be repaid in full before the end of the repayment period.

22. If my loan servicer determines that I no longer qualify to make PAYE or IBR plan payments based on my income and I am paying a 10-year Standard Repayment Plan amount, what happens if my income decreases? During any period when your monthly payment amount is not based on your income, you still have the option of recertifying your income and family size. If you recertify and your income or family size has changed so that your calculated PAYE or IBR payment would once again be less than the 10-year Standard Repayment Plan amount, your servicer will recalculate your payment and you'll return to making payments that are based on your income.

So take that for what it's worth.  Their drones on the other end of the line are notorious for not knowing what they're talking about.  

[PulmGuy]

That's fantastic information.  Thank you so much for your help!

[cgossage]

The info DFMA provided is absolutely correct.  I wanted to add on point to what he said.  Under REPAYE it is possible to actually pay more than your standard 10-year payment plan if your income goes high enough while IBR caps your payment at the standard 10-year payment plan amount.  Which is again, what the representative told you doesn't make sense.