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New-And-Improved IBR: Do You Qualify?

July 24, 2012 | Adam S. Minsky, Esq. Income-Based Repayment

If you recall, the Obama administration launched a student loan initiative several months ago. One prong of this initiative was to accelerate the date on which “improved” Income-Based Repayment (IBR) was slated to take effect.

IBR, if you don’t know, is a fantastic repayment program for federal student loans where borrowers pay approximately 15% of their income towards their federal student loans, and whatever remains of the loan balance after 25 years is forgiven. The “new and improved” IBR (which is now being called “ICR-A”) would reduce monthly payments to 10% of discretionary of income and would reduce the repayment period to 20 years. This is a fantastic improvement. Of course, not everyone is eligible.

Last week, the U.S. Department of Education released new regulations governing who is eligible for this “new” IBR (aka, ICR-A). Here’s what the new regs say:

  • You must have had no outstanding federal student loans as of October 1, 2007, AND
  • You must have received a new federal student loan on or after October 1, 2011

This effectively cuts out many borrowers, unfortunately, which makes sense since the program is designed primarily for “new” borrowers. Moreover, the way the regulations are written, consolidation loans will not be sufficient to qualify someone for the new IBR program if the borrower did not already meet the above criteria prior to the consolidation. That said, this is a new, great option for students who will be graduating in the coming years and meet the eligibility criteria.

Income-Based Repayment

It’s Unofficially Official: U.S. Dept. of Education Servicers Will Not Automatically Keep You on IBR

July 3, 2012 | Adam S. Minsky, Esq. Income-Based Repayment

I’ve blogged about Income-Based Repayment (IBR) several times over the past couple of years. It’s a fantastic program for federal student loan borrowers, where your monthly payment is calculated as a percentage of your adjusted gross income, regardless of how much you owe. For many borrowers, it’s the only affordable payment plan available.

Borrowers who are on IBR will see their payments adjusted annually based on income changes, which makes sense given that the plan is income-sensitive. In the past, the Dept. of Education would automatically keep borrowers on IBR and would simply get updated income information directly from the Internal Revenue Service. As I’ve blogged about extensively, since the Dept. of Education has outsourced federal loan servicing to private contractors, there have been numerous problems recently where borrowers are being kicked off of IBR because these servicers are no longer automatically getting income information from the IRS.

The bottom line seems to be this: for most people who have federal loans and are on IBR, you are going to have to affirmatively re-apply for IBR on an annual basis in order to avoid being kicked off and placed on the Standard repayment plan. Sometimes, the servicers will not even send you notice; you have to keep track of everything yourself. I have confirmed this with at least two servicers: www.MyEdAccount.com andwww.MyFedLoan.org (which handles borrowers potentially eligible for Public Service Loan Forgiveness). I do not know if this is the case for other servicers (such as Mohela), but I would bet it is. You should find out when your IBR “year” is up by contacting your servicer, and then plan ahead by submitting the appropriate forms and income documentation before your year is up.

Income-Based Repayment

Thank You For Sharing Your IBR-Nightmare Stories- Keep ‘Em Coming

January 24, 2012 | Adam S. Minsky, Esq. Income-Based Repayment

Following my recent article about the new federal student loan servicer arbitrarily kicking borrowers off of IBR, I have been receiving lots of emails from you all about your experiences. Thank you! The National Consumer Law Center (NCLC) is working hard to try to get the Department of Education to fix these problems.

Please keep the stories coming! Every single one is helpful. If you’ve experienced problems with the new federal student loan servicer (www.myedaccount.com), let me know. Please provide the following info:

  1. A detailed description of the problems you experienced, as well as your attempts to correct them.
  2. Your name and occupation.
  3. Whether you are willing to share your name and email address with the Dept. of Education (through NCLC’s efforts to collect stories and correct the problems).
  4. Whether you are willing to speak directly with the Dept. of Education, with NCLC’s support, about your specific experiences.

Again, thank you all, this is enormously helpful.

Income-Based Repayment

MyEdAccount Causing HUGE Problems for Borrowers on IBR

December 21, 2011 | Adam S. Minsky, Esq. Income-Based Repayment

For borrowers on Income-Based Repayment (IBR) who use the new loan servicing system for federal loans atwww.myedaccount.com, your life may be getting a little more stressful.

Here’s the way IBR is supposed to work. When you get onto this repayment plan, which caps payments at a percentage of your income, the Department of Education is supposed to contact the Internal Revenue Service each year to get borrowers’ income information to re-caluclate their annual monthly payment amounts. Once you’re on IBR, you stay on IBR unless you decide to switch repayment plans or you are no longer eligible due to your income.

Well apparently, the Department of Education is no longer contacting the IRS to obtain borrower income information, and is instead requesting income verification directly from borrowers. If borrowers do not respond, or borrowers never receive the request in the first place (which has been occurring), borrowers are bumped off of IBR, or they experience substantial and seemingly arbitrary hikes in monthly payment amounts. The payments will be reduced once the borrower “re-applies” for IBR, but the “gap” for processing time may mean temporarily higher monthly payments, or the borrower will have to go into temporary forbearance.

This is causing a lot of problems for borrowers- including me, since I am also on IBR. The National Consumer Law Center (NCLC) is trying to collect information on these problems in an attempt to work with the Department of Education to correct this. If you are experiencing problems of this nature, please email me at asminsky@minsky-law.com. Include your name, your occupation, and a synopsis of your problem, and I will pass your information on to NCLC.

Income-Based Repayment Income-Based Repayment

Old-School IBR vs. New-School IBR, and the Obama Student Loan Initiative

December 13, 2011 | Adam S. Minsky, Esq. Income-Based Repayment

Income Based Repayment (IBR) is one of the most beneficial programs for federal student loan borrowers. The basic premise is that no matter how much you owe in federal student loans, your monthly payment will be calculated based on a small percentage of your annual adjusted gross income. After 25 years of payments, whatever balance remains will be forgiven by the federal government. If you work in public service, that repayment period can be dropped to only 10 years under the Public Service Loan Forgiveness Program.

Recently, the Obama administration announced a new student loan initiative that purported to change IBR in a real, concrete, beneficial way. Unfortunately, these changes do not apply to everyone, and there’s been a lot of confusion out there about what the benefits are, and who is eligible to receive them. Let me try to clarify things.

Old-School IBR. Under the current IBR plan (which is still a fairly new program, so I have mixed feelings about calling it “old school”), payments are capped at 15% of your discretionary income, and any remaining balance is forgiven after 25 years of payments (10 years if you work in public service). Anyone who has federal Direct or FFEL loans can qualify for IBR (but only Direct loans can be forgiven for working in public service).

New-School IBR. The original legislation that created IBR provided for an IBR “improvement” in 2014. That improvement would lower the payment cap to 10% of annual adjusted gross income, and reduce the repayment period to only 20 years of payments (the 10-year public service loan forgiveness program remains the same). What the Obama administration did this year was to bump up the IBR improvement date so that it takes effect in 2012, instead of 2014.

The Catch. There’s always a catch, isn’t there? Unfortunately, not everyone is going to be eligible for the New-School IBR; in fact, most people aren’t. In order to be eligible, students must have first borrowed federal student loans in 2008 or later, and also must borrow a federal student loan in 2012. This effectively cuts out from eligibility most graduates prior to the class of 2012.

The Tiny Silver Lining. The regulations governing New-School IBR have not yet been written, so nothing is necessarily set in stone. But all indications (so far) say that New-School IBR will generally not benefit people who are already out of school and in repayment.

Income-Based Repayment

Why A Low-Paying Public-Interest Job Can Really Pay Off

July 13, 2011 | Adam S. Minsky, Esq. Income-Based Repayment Loan Forgiveness

For some people, money buys happiness. I don’t mean that in a judgmental way. I mean truly, for some people, the accumulation of wealth is the key to their satisfaction in life. These particular individuals will try to attain the highest-paying jobs in business, law, or medicine to pay down their student loans (if they have any) as quickly as possible so that they can buy that nice house, get that nice car, and live the dream. If that’s you, and that model works for you, that’s great. Go for it.

For many others, however, life is a little more complicated. We all want to be financially secure, but many of us want to be doing work that not only brings us some level of challenge and excitement and happiness, but also makes some sort of positive difference in the world. Unfortunately, this occupational idealism can be at odds with the realities of market forces and the American higher education system. In other words, a good education here is astronomically expensive, and many jobs that serve the public interest just don’t pay well.

The traditional ways of dealing with this reality was either sacrificing your ideals and “selling out” in order to get that high-paying job that you hate so you can pay down those loans and switch careers later, or alternatively, being the idealistic martyr by obtaining your dream job in government or at a non-profit, but living in a cardboard box with Ramen for dinner every night so you can pay your monthly student loan bills. Well, it really doesn’t have to be that way.

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Income-Based Repayment Loan Forgiveness

Income-Based Repayment: What it is, and how it saves you money

March 23, 2011 | Adam S. Minsky, Esq. Income-Based Repayment

Income-based repayment (“IBR”) is a relatively new option available for federal student loan borrowers, and it can save you literally thousands of dollars. Unfortunately, many people who are still paying off their student loans don’t know about this program. Even if you are currently on a different repayment plan, you may be able to switch.

IBR is exactly what it sounds like it is: repayment plan that is based on your income; specifically, your adjusted gross income (AGI). The Department of Education uses a formula to calculate your monthly payment that takes into account your AGI, your family size, and your total federal student debt, and comes up with an payment amount for you that is generally between 10-15% of your monthly income, even if you have a large loan balance.

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Income-Based Repayment

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Books by Adam S. Minsky

The Student Loan Handbook for Law Students and Attorneys

The Student Loan Handbook for Law Students and Attorneys

Student Loan Debt 101

Student Loan Debt 101: The Definitive Guide to Understanding and Managing Your Student Loans

Student Loans for Parents and Cosigners

The Student Loan Guide for Parents and Cosigners

617-936-2788
asminsky@minsky-law.com
By Appointment Only 265 Franklin Street, Suite 1702
Boston, MA 02110

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