New Student Loan Legslation Starting Soon!

[mispoken]

I have been doing some research that I thought might benefit the board here especially if you find yourself in my situation with a high student loan burden and a mid level salary job in the public sector. Visit ibrinfo.org.

Here is what I have learned over the past 8 hours of my research.
The government will be starting a program July 1st 2009 called income based repayment which essentially caps the % of monthly income that can go toward student loan repayment. There is a chart on the website which indicates your payment cap % based on income and number in household. It is similar to Income Contingent Repayments, however, I believe you will end up with a lower payment using IBR.

The HUGE thing I noticed on that website was the Public Service Loan Forgiveness program. Essentially if you work in public service i.e. a public school, like I do, if you are on an ICR, IBR or Standard 10 year repayment plan after 10 years the remainder of your loan is forgiven. In order to be eligible you have to make 120 payments and work in an approved public service job for 10 years. Extended repayment plans graduated payment plans are not eligible.

My loans are federally guaranteed through citicorp. They offer income sensitive repayment plans but do not qualify as income contingent payments and thus do not count towards the 120 necessary payments. Standard 10 year payments through citicorp are to high for me to afford with all loans in repayment. That being said, I just completed a consolidation application to roll my loans from citi to the department of education and put them under an income contingent repayment plan (which to my knowledge is the only way to get ICR) AND they count towards the 120 payments for the loan forgiveness. With all loans consolidated and in repayment under an income contingent plan I will pay about $390 a month. When July 1st rolls around I will switch to an IBR plan which should lower it further. Normally I would frown on this as the payments likely will not keep up with interest accruing or only very little would go to principal. However, given the 10 year loan forgiveness program that will fall into place in July, I am not longer worried (but maybe I should be still?). Right now the plan is to get the payments as low as possible while keeping them eligible for the 120 payments towards the loan forgiveness program and then be done with them. This way I can focus more money on paying the private loan which has a variable interest rate, which at present happens to be my lowest interest rate.

Please let me know if my new mindset is flawed. Thanks again!

[wnlbutterfly]

Student loans...I don't trust anything they say. We have done this twice, where they told us, "make these payments and put the loan back into good standing and we will...", once it was reduce fees, and the last time it was forgive the debt. What they did was once it was in good standing they sell it to another company and that company can tack on fees. We knew that last round that they would not forgive the debt, but we just wanted to get it back into good standing. Right now we are doing the full payments and have things on track, but it wasn't until this year that we could really afford to handle it.

I do think there is some shady things going on with student loans, but it is one of those debts that people don't want to talk about because we know we signed up for the debt and feel obligated to pay it, but when they have managed to double what the loan was originally for due to tossing it back and forth, I just don't think it is on the up and up.

[mispoken]

I didnt know the government sold their direct loans on the secondary market? Either way I figure its worth keeping the loans in good standing for the next 10 years as opposed to your method and maybe they will forgive the remainder of the debt, if not, I avoided a bunch of BS and fees for not being current on my payments.

[wnlbutterfly]

I agree....we had a lot of other things that happened that caused the issues. One was National Guard Student Loan reimbursement that was tied up due to paperwork and ended up them sending the payment to the student loan after student loan sent it to default. That really didn't help things.

Job losses, no income...etc etc, not saying this was a "method" nor was it a "game" to be played. I have no idea how our student loans ended up "on the secondary market". I know that when we took out the first one, it was sold before we even got 2 yrs through school.

My mother had a student loan (went back to college later in life) and she was saying it only had about a year left and was shuffled over to another company as well.

But as I said, we are on the straight and narrow path. DD won't have any student loans.

[mispoken]

I know selling debt is a common thing. Were these direct loans through the department of ed and not federally backed student loans held at a bank?

[neguy11]

Direct Loans does not sell loans -- in fact they want to increase their volume as much as possible so that this program (the Democrats pet project!) looks more favorable than FFELP...but I digress.

mispoken -- your mindset is correct! Just use the calculators on Direct Loan Servicing website and choose Income Contingent or Income Based Repayment. Go with whichever is lower and make your payments on time for 10 years! I would sign up for the Direct Debit as well so you can get a .25% interest rate reduction and not worry about late payments.

Student loans are bought and sold all the time and it ABSOLUTELY critical that you keep your address and phone updated at all times. I can't stress this enough. I've seen too many people default because the lender cannot get in touch with the borrower.

Student loans are not inherently bad -- but they are a big responsibility. If you're not willing to read your mail, keep your contact information updated, routinely check your balances, etc. basically stay on top of it, then don't take them out. You need to be willing to do a little research and check up on them from time to time. For too many students they are an afterthought "Oh I'll worry about this once I graduate." Believe me, lenders do NOT want borrowers to default -- they lose money and it hurts their standing with the Department of Education.