Two Ways to Save a LOT of Money in Paying Back Student Loans
Used with permission of document creator: Captain David Tubman, USAF – Lackland AFB, TX
Income Based Loan Repayment (IBR) Program
Basic Idea
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New payment option for federal student loans (Direct and Guaranteed (or
FFEL) loan programs; does not apply to private loans).
Monthly payment capped based on taxable income and family size.
IBR loan payments will be less than 10 percent of income .
IBR will also forgive remaining debt, if any, after 25 years (see PSLFP
below) of qualifying payments.
IBR Payment Calculator: (www.ibrinfo.org/calculator.php)
DO IBR if
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You have federal student loans in either the Direct or Guaranteed (FFEL)
Loan program.
Your loans include Stafford, Grad Plus, and federal Consolidation loans
that do not include Parent PLUS loans. Perkins loans are eligible if you
consolidate them into a federal Guaranteed (FFEL) or Direct loan.
You borrowed before or after IBR was created, for either graduate or
undergraduate study.
Your debt-to-income ratio qualifies you for reduced payments (use
calculator to determine).
HOW do I do this?
1) Step 1: Gather information on your loans:
a. Visit the National Student Loan Data System (NSLDS) website to get
information on your federal loans: http://www.nslds.ed.gov/nslds_SA.
b. Review bills, statements, etc.
c. Write down the names of your lenders, type of loan, interest rates,
amounts of loans, etc.
2) Step 2: Simplify and consolidate your loans:
a. This will make it so you have only one payment and one person
that you owe money. Note: this will give you a single interest rate
for ALL your loans.
b. Consolidate all your loans at: http://loanconsolidation.ed.gov.
3) Step 3: Contact loan agency and request IBR
Public Service Loan Forgiveness (PSLF) Program
Basic Idea
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A new program for federal student loan borrowers who work in certain
kinds of jobs (see below).
It will forgive remaining debt after 10 years of eligible employment and
qualifying loan payments.
During those 10 years, the Income-Based Repayment (IBR) plan can help
keep your loan payments affordable.
Eligibility
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Bottom line: Military and VA count (see website for details on other types
of jobs that count).
DO PSLF If
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You have federal student loans in the Direct Loan program. Covered loans
include Stafford, Grad PLUS, or Consolidation loans through the Direct
Loan program (If your federal loans are not in the Direct Loan program,
you may be able to switch – see website).
While working in an eligible job, you make qualifying payments for a total
of 10 years (120 monthly payments which do not have to be consecutive).
As long as you are in the Direct Loan program, these payments can be
made through the Standard (10-year) repayment, Income Contingent
Repayment (ICR), and/or Income Based Repayment (IBR) plans.
You are still working full time in an eligible job and have debt remaining
after 120 qualifying payments.
Do NOT Do PSLF If
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Your debt would be paid off before 10 years anyway
Public service loan forgiveness is all or nothing; you will not get any
forgiveness if you work less than 10 years in a public service job.
HOW do I apply for public service loan forgiveness?
“Forms for canceling the remaining debt are not yet available, since the soonest
any borrower would obtain public service loan forgiveness is 2017. It would be a
good idea for borrowers to preserve documentation of their full-time employment
in a public service job each year, in case it is necessary. For example, keep a
copy of your W-2 statement and/or the last pay stub of the year in a file folder”
(Reference: http://www.finaid.org/loans/ibrfaq.phtml#howtoapply).
References
1-800-4-FED-AID
www.ibrinfo.org
http://www.finaid.org/loans/
http://www.loanconsolidation.ed.gov
Example
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Projected Salary (w/o government raises, w/o BAH, including lic bonus
and TIS bonus):
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S:1) O-3 Base Pay, year 1: 44,582/year
S:2) O-3 Base Pay, year 2: $49,532
S:3) O-3 Base Pay, years 3, 4 & 5: $59,504
S:4) O-4 Base Pay, years 6 & 7: $72,064
S:5) O-4 Base Pay, year 8, 9, 10: $75,959
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Hypothetical Loan Amount: 80k @ 6.8%.
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Payment w/o IBR:
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Monthly Loan Payment: $920.64
Number of Payments: 120
Cumulative Payments: $110,477.25
Total Interest Paid: $30,477.25
Example Payment Scenarios w/IBR:
o 0 Dependents:
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S:1) $350/month
S:2) $410/month
S:3) $540/month
S:4) $700/month
S:5) $750/month
Number of payments: 120
Cumulative Payments: $72,360
Savings: $38,117
o 2 Dependents (spouse and child, spouse w/no income):
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S:1) $210/month
S:2) $270/month
S:3) $400/month
S:4) $550/month
S:5) $600/month
Number of Payments: 120
Cumulative Payments: $54,960
Savings: $55, 517