Tuesday, November 10, 2015

A Quick "Guide" to Income-Based Repayment

The process to enter income-based repayment on US federal student loans is so simple that it is hardly worthy of a post. I previously assumed that the procedures and rules associated with the various programs would be a rather daunting thing to learn about, much less apply for, and I was shocked by how easy it was. Admittedly, I don't even have perfect knowledge of what I've signed up for, particularly the crucial details of whether and when part of my loan balance could be forgiven. Because I plan to remain in a fairly high-earning white-collar professional field for most of the next decade, it makes more financial sense and actually saves me money to repay my loans in full within 10 years rather than pay the minimum for, say, 25 years, and have the rest forgiven, a treatment that is likely only available for part of my loans (and potentially results in a large tax burden later). 

Income-based repayment is not an absolute necessity for me, to the point where I feel sheepish about entering it. My minimum monthly payment was always going to be around $2000/month. I could afford it, and even planned to pay a fair bit extra on top of it. Even so, when my loan repayment terms demanded about $200/month more in minimum payments than I expected, I just got nervous. (I'd used the US government's repayment calculators, but I think I'd neglected how interest would continue growing in the last few months. Also, I think they made a mistake about giving me a shorter repayment term on one or two loans.) 

Long story short, the US government crunches the numbers for you and puts you on the lowest monthly payments you qualify for if that's the option you elect, and my new monthly minimum is $108/month. I still plan to pay as much per month as I originally counted on, but having that much more flexibility is reassuring nonetheless. 

Without further ado, here's the process I followed: I had already created a Federal Student Aid (FSA) login ID (which is separate from any prior FAFSA login or pin number that you might previously have had or your account with your loan servicer). Following this link takes you to a portal that gives you the option to "Complete Income-Driven Repayment Plan Request" in the sidebar after you log in with your FSA id. I filled out the form, provided basic information, and checked the box for letting the loan holder determine what plans I was eligible for such that they would put me on the plans that give me the lowest possible monthly payment. The hardest part was looking up enough information from last year's tax return (which is how they determine your income and the resulting payments) so that they could pull that information from the IRS. My federal loan servicer notified me a week or two later with my new terms. It was almost absurdly easy. 

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