I had what I thought was a couple quick questions concerning Income Based Repayment (IRB) and the Guaranteed Loan program. This is what I sent to our state USDA Specialist:

I believe my underwriter misunderstands the IBR rule in the matrix. The figure she came up with (to go toward my debt to income ratio) is over twice what my monthly payment would be if I *wasn’t* in the IBR program. 

My current IBR payment is zero and 1% of my total loan balance is greater than $100, so I fall under provision 1 in the IBR section of the matrix. My underwriter is applying the 3 provisions in the IBR rule to each sub-loan rather than my total loan balance. Instead of $100 she has calculated over $1,500. (According to a January letter from my lender, if I were to leave IBR my payments would be $607, starting in May.)

The government student aid site is very specific in its treatment of the sub-loans, going so far as to say if you have sub-loans spread between multiple lenders and your payment under IBR is $140, the payment is split. Each lender is paid according to the percentage of the total outstanding principle amount they hold.

(See Q22 on http://studentaid.ed.gov/sites/default/files/income-based-repayment-q-and-a.pdf)

Have you had many Guaranteed Loans come through with school debt in IBR? How were they treated?

(Her reply follows.)

Ms. ___:  IBR payments are not fixed payments and may increase annually.  I have never heard of sub-loans.  It sounds like you have several student loans.  Our regulations do not say to combine the loans.  The payments are calculated on each loan.  This calculation method is to help guarantee your ability to repay your mortgage as your student loan payments increase.  In addition, IBR may not cover the full amount of interest that accrues on your loans each month.  With IBR, the government may pay the remaining unpaid accrued interest on your subsidized loans for up to three consecutive years from the date you begin repaying the loans and then you are responsible for the additional interest which is capitalized – meaning it’s added to your principal balance.  Because of this, your principal balance could increase during the repayment plan and you will pay more interest which will equate to higher payments, than if you had chosen the 10-year Standard Repayment Plan.  Having a lower monthly payment normally means that payments will be made for a longer period of time.

Our lenders know our regulations and if not, they will contact us.  The underwriter is correct.  The guidelines you reference pertain to your student loan repayment and not how a lender for a 30 year mortgage has to look at it.  This is how we’ve treated all other IBR loans.

___, Rural Housing Specialist/GRH Coordinator

I can provide her government links that explain that IBR will never result in having higher payments than if I had chosen the 10 year standard payment. And I can try again to explain that yes, the loans are combined, but she sounds so defensive.

I don’t know whether to address her misconceptions and save the next person the hassle or keep looking for a lender who understands how IBR works.

Have any of you worked with USDA on a home loan? How were your loans treated and, if you care to share, what state were you in at the time? We are in a state with a low population and it is likely there haven’t been many go through. I was my broker’s first IBR case.

Any ideas for who would be next in the chain of command would be helpful.