Friday, April 2, 2010

Angry Future Expat Discusses IBR

at his own blog in response to a comment to his guest post from yesterday that accused us of fear mongering:

Everyone is conveniently forgetting about IBR, which caps the students payments at 10% of their income. (or 15% of their "disposable" income, which is usually roughly the same).

Nobody will be starving or homeless because they are paying all their income to loan repayments.

In addition, although loan balances cannot be discharged in bankruptcy, they will be forgiven in 20 or 25 years, or even 10 if your work qualifies.

People going into higher ed nowadays have nothing to worry about on the loan repayment front. Absolutely nothing.

Stop the fear mongering. If you want to counter any IBR arguments, please do so. I personally think that there is indeed an oversupply of PhDs, MBAs, JDs, etc. But they will not be screwed over because of loan repayments. It'll be a grand waste of their time and all, but loan repayments are not an issue anymore. Aside from the possibility that Republicans take over and reverse IBR, I dont see any problems with taking out 100k in federal loans to fund school. At least not for the student himself. For the govt, well, that's another story.

AFEP's response :

Hmmm…where to begin…Let’s start here:

Income-based repayment is only available for federal student loans, such as the Stafford, Grad PLUS and consolidation loans. It is not available for Parent PLUS loans or for consolidation loans that include Parent PLUS loans. (IBR is not available for Perkins loans, but it is available for consolidation loans that include Perkins loans.) It is also not available for private student loans.

These programs are designed, kind of, to help the “average” graduate. But the “average” graduate only rarely needs help. The average graduate comes out of college with 23k in student loan debt, and the average graduate does not have parents on the hook for student loans. But there are plenty of students and graduates – usually grad students from middle class families – that cannot pay their tuition and living expenses without private loans. Here’s one:

When Michelle Bisutti, a 41-year-old family practitioner in Columbus, Ohio, finished medical school in 2003, her student-loan debt amounted to roughly $250,000. Since then, it has ballooned to $555,000.


But as tuitions rise, many people are borrowing heavily to pay their bills. Some no doubt view it as “good debt,” because an education can lead to a higher salary. But in practice, student loans are one of the most toxic debts, requiring extreme consumer caution and, as Dr. Bisutti learned, responsibility.

But the biggest kick to nuts with the IBR program is this (.pdf):

Only non-defaulted federal loans made through the FFEL Program or the Direct Loan Program (excluding PLUS loans made to parent borrowers or consolidation loans that repaid parent PLUS loans) are used to determine eligibility for IBR and only those types of federal loans may be repaid under IBR. [January 5, 2010]

I would bet my left pinky toe that the vast majority of student loan borrowers who might benefit from IBR, or its predecessor programs ICR and ISR, only look into these programs after they’ve defaulted. And that’s the real point isn’t it – it helps to minimize the cost of the program.

What’s needed is a program that helps, not only in the most average case, but also the slightly abnormal case – the Michelle Bisutti’s of the world. But IBR isn’t designed to work in such situations. The reality is that for many students, student loans are their first real experience with debt – real mortgage-sized debt where the payments have an effect on your lifestyle. For the most part, they simply don’t know what they’re getting in to, and have no illusions about the student loan paperwork - This. shit. is. complicated.

But IBR is also complicated, and not just a little. It’s a clusterfuck of of restrictions and eligibility requirements. If you’ve consolidated your and your parents’ loans, you’re screwed. If you’ve signed up for IBR, but want to do the faster public service repayment, you’re screwed. If you paid on a private loan but let a Direct loan go into default, your screwed. Traps for the unwary are built into it at every turn.

Will IBR help some people? Probably. Is it some kind of panacea that will ensure that “Nobody will be starving or homeless because they are paying all their income to loan repayments?” Hardly.

AFEP has done a great job over here this week so visit his blog, bookmark it, and comment. His MBA degree and experience as a businessman makes him much more knowledgeable on these issues as well as finance and the economy than myself or most people with a JD who know squat about anything dealing with numbers.


  1. Are you implying that you cannot combine IBR with Public Service Loan Forgiveness, because that simply isn't true?

    You make your payments under IBR and after 10 years of doing that you qualify for Public Service Loan Forgiveness. The IBR forgives the balance of the loan for EVERYONE after 25 years, but the programs are not mutually exclusive like some of the other Federal loan forgiveness programs.

    And, for anyone with only qualifying loans who does work in public service, the combination of the two programs does basically make the amount of your loans irrelevant.

    I'm a prosecutor and my loan payments under IBR don't even cover half the interest on my loans. After my 10 years, the amount forgiven will be more than $30K than the amount I originally borrowed.

    On the other hand, it basically forces me to stay in the government after a couple of years when I've actually become valuable, or as I like to call it, a win-win situation.

    All of a sudden, those of us who wanted to work for the government aren't so stupid after all, huh?

    Also,for obvious reasons I always like to point out it was George Bush who signed IBR and PSLF into law.

  2. excellent post on IBR.

    I myself am on my second deferral for 24K of stafford loans consolidated with nelnet. So come next january when the deferral runs out, I should hopefully be able to go IBR......

  3. 2:28: Do you know how many people would love to take a government job?

    Nobody takes a $35k toilet law shit job because they think it's stupid to go into government work, they take it because the government won't hire them. And the government generally has not been doing much hiring the past couple of years.

  4. Lemmings still believe that the government is hiring. (One wonders if they also believe in Santa Claus?) Also, good luck getting IBR if your spouse works. The cutoff level is not that high. For example, my wife and I make not much more than $60K - and I did not qualify for this program.

    Everyone is out for their own interest. This is basic human nature. However, how much more will it cost this already- financially bankrupt nation to pay off law students' remaining balances?

  5. I agree. AFEP had done a great job. I wonder what he has to say about the value of getting an MBA and the job market for MBAs. Are their TTT business schools?

  6. Frank, I must ask if you jest.

    There are potentially 5 business schools worth attending (but probably not), and hundreds, maybe thousands, where they should pay you.

    By way of example, the University of Phoenix has an MBA program.

  7. I know people who have attended Wharton, UChicago, and UMichigan business schools who are unemployed it looks like MBA students even from the best schools are facing a tough job market too.

  8. AFEP, I am the original commenter from the last post.

    Your response seems detailed and well thought out. I did not know about the various restrictions and eligibility requirements.

    However, I do feel that throwing out the possibility of private loans is a red herring. Does anyone even take private loans out anymore?

    Please tell me your understanding of what the maximum limit to a Grad Plus loan is. My understanding is that it's basically limitless. Or, the exact quote: "The yearly limit on a Graduate PLUS Loan is equal to your cost of attendance minus any other financial aid you receive."

    It is possible I am misinformed. And I'm sorry if I came off strong for saying it was fear mongering. But at the least, I believe you are overexagerating in two respects: (1) the amount of private loans future law school lemmings will need to take out and (2) the amount of people who will be ineligible for IBR.

    As a sidenote: why would anyone wait until after default to go on IBR? I know the future lemmings may be not be as informed as they should be, but I would think law school financial aid offices would basically tell all their students to jump onto IBR immediately upon graduation. Is that not allowed?

    Have a great Easter holiday.

  9. Wow look at you backtrack.

    Of course law schools don't tell their students anything. Have you actually attended law school?

  10. "Wharton, UChicago, and UMichigan business schools"

    How dare you include Michigan with the elite B-schools.

  11. I am 5:31

    I do not believe I have backtracked. I tried to tone down the animosity.

    My points remain these:
    - Right now, Stafford loans cover a little over 20k a year (maybe up to 30k if legislation is changed.) Any cost of attendance above 20k a year can be covered by a federal Grad Plus loan. There is seemingly no reason for anyone going into lawschool now to be taking out private loans.

    Private loans are a thing of the past

    - Because private loans are a thing of the past, IBR will effectively cap a law student's repayment to 10% of their income for 25 years and then forgive the remainder.

    - There is no reason for someone to default prior to going to IBR. I know of no restriction of going into IBR "too soon."

    - There is no incentive for law schools to "hide" IBR. Yes, maybe they are less than forthcoming with employment statistics. But how does hiding IBR help them? How does telling their students about IBR hurt them?

    Look, I don't want to be mean. I'm trying to have as civil a discussion as possible while also strongly disagreeing.

    Future students going to law school:
    (a) may very well waste their time and energy.
    (b) will not go starving or homeless due to loan repayments. They should not have to take out private loans.

    If there is a reason to take out private loans, provide them. If there are monetary ceilings to Grad Plus loans, tell me what they are or direct me to a source.


  12. Reported by: Newsroom Solutions

    Friday, Apr 2, 2010 @07:40am CDT

    Many Americans are fighting to pay down their debt, but students appear to be headed the other direction taking out a record number of loans.

    Newly released data from Equifax says outstanding student loans have increased about 50-percent since 2007 and have now reached 562-billion dollars.

    The figures show students have taken on 55-billion dollars in debt just in the past year.

    The spike is being blamed on the recession which has kept students in school due to lack of work.

  13. "People going into higher ed nowadays have nothing to worry about on the loan repayment front. Absolutely nothing." and "but loan repayments are not an issue anymore." um. am I missing some huge contextual thing, because, wow.

  14. IBR isn't suddenly going to get you a decent job. IBR also doesn't erase the debt, for 20 years you're sending in forms every year hoping they don't end the program and they actually process your paper work.

    If you have a decent job then IBR never mattered anyway. There were plenty of loan repayment plans already that would have lowered your payments, and loans were always supposed to be forgiven after 25 or 30 years. The new legislation reducing it to 20 years isn't actually contingent on the IBR plan, it's just the most likely way to spend 20 years without paying off your debt.

    Now if you can't be employed at all, and you don't want the loans, you can just go off grid or leave the country. IBR didn't make your life any better. You're still not going to get a loan for a mortgage and you're still under crushing debt. Paying 15% of your income until most of your adult life is already over.

    People are far better off not going into debt for a useless degree in the first place, and using that 15% of their incomes either for joy or for investments. That could be the difference between maxing out your IRA and 401k every year and having nothing.

    1. This is old, But I have to say how wrong you are. Without a degree I would have a 35-40K/year job. With my 165K degree I now have a 60-70K/year job. If you do the math, it makes no sense for me to pay off 2000/month for 12 years or IBR 350/month for 20 years. Which would you do? 2k/month for 12 years or 350/month for 20 years? his is what IBR did for me. i now get to have a house, a retirement, a wedding, vacations, children. ALL BECAUSE OF IBR.

  15. Where is it written that one can not go in to an IBR payment plan if their loan is in default? I see it in many places, but only after I applied for IBR. Is there actually a law that states this? I am absolutely certain it is a figment of someone's imagination at DOE, Sallie Mae and/or USA Funds. They realized they could squeeze a few more bucks from a student by denying IBR on the basis of their imagination.

    I sent the application to USA Funds as they hold my loan. I was told by them that I had to send the applicating to the Department of Education. DOE does not have my loan. DOE has my application but since they have no boiler plate to past up in a response letter they will not tell me that they can't process my application. They will only process IBR Applications for direct loans. I do not have a direct loan. They would not even send a letter telling me that if I consolidated my loan in to a direct loan they could consider my IBR application. But, I have to make payments on the consolidation loan for six to nine months before they will accept an IBR application.

    Have you read that USA Funds is a non-profit organization? Well, it is but that does not mean they can not make a profit. No way. No how. It simply means that USA Funds convinced the IRS that they did enough charitable work and spent enough money on charities and benefits that they qualify under IRS rules. So much for that goody-two-shoes advertising on their part.

    The entire student loan industry is a scam and a conspiracy.

    Lye Peterson

  16. Every living soul is out for their particular investment. This is essential liberated intelligence. In any case, what amount more will it require this as of now monetarily bankrupt country to pay off law scholars' remaining equalizations?



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