Author Topic: Student Loan Questions: Refinance, income-based repayment, and forgiveness  (Read 1541 times)

mtn

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My wife and I, apparently living under a rock, found out that her student loans may be eligible for student loan forgiveness since she works (and has always worked) for a non-profit since she graduated college. Wow! Yay! This is amazing!

Well, I look into it. Turns out, it is after 10 years. When she started payments, she had the option of repaying in 10, 15, 20, or 30 years. (May have been different options—I’m not sure). We went with the 10 year plan, because why would you carry an unsecured loan at 6% longer than you need to? Oh. Right. That whole forgiveness thing. Damnit.

I look into it, and it looks like if you refinance, you lose your option for forgiveness. But I'm not giving up quite that easily:
-Does anyone know if it is possible to go on an income-based repayment plan and still get the forgiveness?  Does that count as a refinance?
-What about your taxes—other than not getting the deduction, does the forgiven amount count as income?
-Does the clock reset when one goes on the income based repayment plan, or would we still only have 7 years to go before the forgiveness (if it is possible)?

Hope somebody can help. Kinda really annoyed that we were doing what was the financially responsible thing, and it might have been a poor move.

economista

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Hi!  I'm on an income-based repayment plan and I am eligible for forgiveness.  I just started to pay back my loans a little over a year ago and the first thing I did was consolidate the loans (with Nelnet/Dept of Ed) and then I chose one of the income based repayment plans.  I work for the federal government and I knew that would be eligible for forgiveness so I chose the plan with the longest repayment period and the lowest initial payment amounts, so the maximum amount will be forgiven.    Since I am on one of the income based repayment plans I have to send in my adjusted gross income each year and they re-calculate my payment amount based upon my income.  The downside to this plan is that if you have a high enough salary to loan ratio you will end up with payments equal to the 10-year repayment plan (and thus there will be no balance to forgive).  I have a lot of loans so even though I have a relatively high salary my payments are still only around 1/2 what they would be on the standard 10-year repayment plan. 

I know that one of the stipulations is that you have make 120 qualifying payments, while working for an approved organization, after 2007 - so any payments made prior to 2007 don't count toward the 120 qualifying payments.  How much longer does she have on her 10 year term?    If I were you I would have her call them and ask about switching to an income based repayment plan.  The payments you already made should still count toward the 120 needed, and by extending the term and decreasing your payments you will decrease your monthly payments now while also decreasing the overall amount you will end up paying back. 

notactiveanymore

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Good info from above. Just want to add that for Public Service Loan Forgiveness, the remaining balance after 120 qualifying payments is forgiven with no tax penalty. Currently you can be on IRB or PAYE or whatever and your remaining balance after 20 or 25 years of good payments is cancelled. The amount cancelled is taxed as income. Forgiveness vs. cancellation is kind of the key for this. Also, of course, it is subject to change with political whims. Although it certainly seems that the winds will move toward more generous forgiveness options rather than removing the existing options.

No one has gotten the PSLF yet since the 120 qualifying payments couldn't start until 2007, so it should be interesting to see what it looks like and how the mechanics will play out through the IRS and Dept. of Education. The one thing you definitely want to do now is make sure you have documentation from your wife's employer and also that you know when you will hit 120 qualifying payments. It's not automatic at all, you will need to apply and prove your own way.

Finally on the consolidation. If you are consolidating loans of the same interest amount and type, then it doesn't restart the clock. If you do other types of consolidations, it may restart your clock.

Here is all the info: https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service
« Last Edit: October 25, 2016, 09:26:09 AM by theotherelise »

NoStacheOhio

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Just fill out the application with your lender, and they'll come back with how many qualifying payments they think you've made.

Be prepared to argue with them.

Edit: my understanding is that you may need to consolidate in order to be eligible. Older FFEL loans need to be converted to Direct Loans.
« Last Edit: October 25, 2016, 09:33:05 AM by NoStacheOhio »

thingamabobs

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Edit: my understanding is that you may need to consolidate in order to be eligible. Older FFEL loans need to be converted to Direct Loans.

This! You had to have consolidated with the gov't and the payments only count after this is done.

notactiveanymore

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Seems like OP's loans in question are only 3 years old (said they would have 7 years to go), so they would not be the older FFEL loans requiring consolidation.

Direct sub and direct unsub both qualify. Perkins do not. Changing from 10-yr repayment to IBR does not restart the clock. Payments made under 20+ year repayment do not count towards the 120.