Some IBR Questions

[MSooner]

We started IBR (spouse is in training) with FedLoan last summer. It was a PITA that took 4 months to process. Because I had left my job the year before to stay home, our 2016 income was way higher than our current income, so we couldn't use last year's tax return. We opted for the income verification process via paycheck, but they just couldn't figure it out. My husband is able to moonlight and I think those checks messed them up. The first time they denied us. The second time they put the payment at well over $600 (we're making less than $80k with moonlighting with a family of 5). The third time they came back with $330 and I was tired of fighting it and wasting time, so I just said "fine." I love that they cannot tell you what your own income is according to their calculation--what BS! Based on the official estimator, our payments should have been closer to $250.

At any rate, I'm looking forward to having them recalculate our payments based off our 2017 tax return!

1. How soon after I file my tax return can I start the request for a payment recalculation?

2. I've noticed family size affects the payment quite a bit. For us, adding another child would apparently knock off $50/month. We are planning to go for our 4th this summer (no, not to simply lower IBR payments   ). The estimator actually tells you to include unborn children in your calculation--my question is how soon can you actually do this? $400 (8 months of reduced payment) isn't chump change, but I cannot imagine what ************************ that verification process must be. Has anyone attempted to claim the increased family size before the child is born?

[cgossage]

The problems with FedLoan are unfortunately common.  I would reapply for a new payment immediately after your tax return is finalized and yes you can include unborn children.

Is there any reason you are in IBR instead of REPAYE?  If not, I would also change your payment plan at the same time.  It will be worth it for the lower payment and the interest subsidy provided by REPAYE.  Are you pursuing PSLF?

[MSooner]

cgossage wrote:

The problems with FedLoan are unfortunately common.  I would reapply for a new payment immediately after your tax return is finalized and yes you can include unborn children.

Is there any reason you are in IBR instead of REPAYE?  If not, I would also change your payment plan at the same time.  It will be worth it for the lower payment and the interest subsidy provided by REPAYE.  Are you pursuing PSLF?

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Sorry, I was using IBR as a general term. We are on the REPAYE plan specifically. We aren't pursuing PSLF.

As for unborn children, does it matter if they will be born in the following calendar year? What sort of documentation do they ask for?

[cgossage]

I haven’t specifically had a client apply with an unborn child but I know what the rules say. My guess is they will take your word for it on the number of children rather than making you show medical support for the claim.

[cgossage]

One more thing, based on how the rules are written, you should be able to count an unborn child as long as you are pregnant. There aren’t any restrictions on how far along you are.

[DMFA]

MSooner wrote:

Sorry, I was using IBR as a general term.

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*Not* picking on you - but I see a lot of people doing this sort of thing, conflating the specific plan Income-Based Repayment with the overarching term Income-Driven Repayment (including RePAYE, PAYE, IBR, ICR).  Personally I think this arises from the low amount of education which the Dept of Ed and servicers confer upon the borrowers.  Then again, I see specific terminology misused in lots of areas with finance, especially with regard to IRAs - "rollover," "contribution," and "conversion" are often improperly used.  It's hard not to pick nits in a field rife with nits to pick.

If a person actually wants to know anything about their own loans, they've got to do a pretty decent amount of digging, and even then there's a fair amount of ambiguity...and it's not a strong guarantee that you'll get good information from the drone on the other end of the line if you call. Their borrower services leave a lot to be desired. :-(  Although I guess they benefit from keeping their borrowers in the dark, and as such aren't motivated to be more helpful.  Gotta wonder if that's really ethical.  Oh well, rant over.

At any rate...file your income certification as soon as you have your taxes done and a 1040 in hand, and include your soon-to-be-born child in the family size.  Congratulations on your future child!

As it pertains to income certification, you only *have* to do it once every 365 days.  You *can* do it more often than that, especially if your family size goes up or income goes down, meaning you'd pay less.  You are *not obligated* to file it if your income increases in between certifications, such as if you use a resident tax return in your last year of training, and then start making attending income in July.

However, this sort of thing should really only be done in training, when your earning is very low compared to your future earning and your debt amount.  Anything you don't pay is just kicking the can down the road, allowing interest to accrue (not compound), which will then capitalize when you refinance.  [The exception is PSLF, if you believe it will happen - in that instance, the point is to pay as little to the loan as possible.]  Since $1 of your current income is worth a lot more than $1 of your future attending income, it's reasonable to pay the minimum on your loans until you're out of training, at which point you can refinance and be aggressive.  This is why RePAYE is so great, with both the lowest payment (AGI - 1.5pov)/120 [2/3 of IBR], and limiting interest accrual by 50% of unpaid interest.  Only downside is a working spouse's income is always included and hence can't be reduced by filing taxes separately.

MSooner wrote:

We are planning to go for our 4th this summer

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...actually, what do you mean by that?  You already have a gestating entity due for delivery in 5-7 months?  Or you're planning on creating one? [skirting around asking personal questions] If it's the latter, I think it'd be a bit disingenuous to claim a larger family size than you actually have.

[MSooner]

We have 2.5 years left of training--so the goal at this point is to pay as little on REPAYE as possible without having to go back into forbearance. We're lucky to have moonlighting income helping pad the years, but there are so many other things to spend that money on right now. Like the preschooler that apparently has $800 worth of cavities... :roll:

As for future babies, no this is a future creation. I will definitely be reverifying income now based on our 2017 tax return, but wanted to know if we could do it again as soon as he/she was...uhhh...firmly in existence   . It actually costs $500 to have a baby at the teaching hospital here, so being able to change the plan ASAP would basically pay for the birth!

[MSooner]

Just an update...#4 is due next summer and today I received a letter from FedLoan that our request for the monthly payment for our PAYE plan to be recalculated has been approved. The new amount is ~$60 lower per month. Go baby.

For anyone else wondering, I called and asked awhile back and they literally said you just have to be pregnant and they don't need any sort of medical certification. We simply submitted a recalculation request.