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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
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Boston, MA 02110

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