Thank you for helping everyone out, and for answering a question I had posted earlier. Here’s another question I am very confused about:
I have $200K in federal student loans. I currently earn $150K and my wife earns $90K (she has no loans).
1. I was on IBR from 2013-2015. However, I forgot to re-apply this year, and I have been on the standard repayment plan for the last 4 months. When I do apply now for the IBR, do my payments from the previous 3 years not count toward the 25 years forgiveness period? Would this mean I start 25 years all over??
2. Would I qualify for IBR if under my current salary, my standard payment amount is less than IBR amount?
3. If in the future, I am not earning anything, would my IBR drop to $0 and would that count towards 25 years?
4. I took out my first loan after 2007. Do i qualify for PAYE and do my previous years of (IBR+Standard) payments count toward the 20 years forgiveness period?
5. On IBR/PAYE, my loans may balloon to $1 million. What are the chances that I do not have to pay taxes on that?
Thank you so much for your help!
May 3, 2014
Great questions Ani… happy to help.
1.) This is a great question. I have not seen any materials where it stated that the 25 years worth of payments had to be consecutive. The public service forgiveness program for example only requires 10 years worth of payment, with no consecutive requirement.
2) You would not. You can only sign up for IBR if it would result in payments lower than the standard 10-year plan
3) Yes. The $0 payments count towards the 25 year forgiveness.
4) Another great question. This will require some investigation before I’m comfortable responding.
5) That all depends on what Congress decides to do. There is a lot of support for removing the taxation of the forgiveness, but we are over a decade away from having to face that issue.
Thanks for the answers!
Let me know about number (4) above when you know more.
Lastly, when I mistakenly got off the IBR, did my interest capitalize and is there any way of getting them to reverse it?
1. In order to apply for PAYE, do I need to consolidate my FFEL loan? I have 2 Direct loans and 1 FFEL loan. OR can I do PAYE on 2 out of my 3 loans, and IBR on my FFEL loan?
2. Under our income last year, we would qualify for PAYE. This year in August, I joined a new job in which my income is significantly higher. When applying for PAYE, can I still use my 2014 income, OR 2015 income (which includes half of the lower salary and half of the higher salary), OR do I have to use my “Current” higher salary?
3. If I don’t qualify for PAYE or IBR, should i continue paying standard monthly payments and apply for REPAYE in December or continue paying standard monthly payments until I plan to quit my job 2 years from now and then apply for PAYE/IBR?
4. In the application do I need to apply for IBR versus PAYE or it that automatic? There’s no option to select one or the other.
May 3, 2014
1.) PAYE eligibility should not be any different than IBR elgibility. If you can do IBR on a loan, you should be able to do PAYE, so long as you are eligible for PAYE. I can’t think of a circumstance where you would be on PAYE for some loans and IBR for others.
2) When you apply for an income based plan, you have the option of submitting your most recent tax return. As long as you have not filed your 2015 income tax return, they will base your payments on 2014. One year later, when the time comes to renew, your increased income will be used in the calculation.
3) This answer depends upon your finances and budget. PAYE, IBR and the standard plan are not the only options and what works best for your situation depends upon your income, expenses, goals, aversion to risk, and a number of other factors. I’d suggest you make a spreadsheet of what your different options are and what your payments will be and decide what works best for you based upon that.
4) If you are eligible for PAYE, it should be processed automatically. That being said, it is the type of thing that is easy for a loan servicer to screw up, so I would suggest you get on the phone with your individual servicer both before and after they process your paperwork to make sure it is done right.
Just one more question:
When applying for IBR, I am entering my 2014 tax return. However, is it then asking me “If my income has significantly changed since 2014” which it is.
If I say yes, I will not qualify for IBR with my current income. Is there any way around it?
May 3, 2014
If you say your income has changed significantly it means that you will have to document you income in a way different than your tax return, such as two recent pay stubs.
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