Hi Heather,

Thank you very much in advance for your assistance.

If the PSLF law (or the 25 year loan forgiveness plan) is repealed or changed (or if the amount to be forgiven is capped) in the future, what is the likelihood that those of who are already participating in the program will be grandfathered into the forgiveness program (ie that we will not automatically lose this benefit)?

Also, you have provided very helpful resources regarding the benefits of selecting the Income-based Repayment plan.  I am still trying to select between the Income-based repayment plan and the Income-contingent Repayment plan.  Aside from the likely higher amount of interest that you would pay under the IBR plan, are there other benefits/downsides to selecting one or the other of these plans?

Thank you very much again,

Abbey

Abbey, for my thoughts about possible changes to PSLF, see this blog post:
http://askheatherjarvis.com/blog/will-proposed-cuts-to-public-service-loan-forgiveness-impact-existing-borro

As for the differences between ICR and IBR, BR and ICR are different in important ways:

Monthly payments are typically higher under ICR than under IBR, sometimes a whole lot higher.  And ICR payments can be potentially even higher than under a 10-year repayment plan. 

IBR payments are not based on how much you owe, just on your income and family size.  But under ICR, how much you owe does affect how much you pay.

IBR is available for both FFEL and Federal Direct loans, but ICR is only available for Federal Direct Loans. 

Under IBR, the government pays the remaining unpaid accrued interest on your subsidized loans for up to three consecutive years from the date you begin repayingthe loans under IBR.  But under ICR, if you pay less than the interest that is accruing, you end up paying that interest back later.  Score another one for IBR.

Under IBR, your unpaid interest does not get capitalized (or added to the principle of your loan) until you no longer have a “partial financial hardship”, or if you choose to leave IBR.  But under ICR, unpaid interest is capitalized annually, however, capitalization is capped at 10% of the principal balance.

To qualify to choose IBR, you have to demonstrate a particular debt to income ratio, called a “partial financial hardship”.  You don’t have to do that for ICR.  OK, ICR avoids the shut out, but that point doesn’t much matter, because qualifying to choose IBR isn’t tricky for borrowers with either high debt or low income.

IBR and ICR are similar in many ways:

Both look to a borrower’s income and family size to determine the monthly payment amount.

Under both IBR and ICR, you can pay even less than the interest that is accruing each month.

Both include a forgiveness provision after 25 years.

Thank you very much for your assistance!

Heather - 27 May 2014 05:07 PM

Under IBR, the government pays the remaining unpaid accrued interest on your subsidized loans for up to three consecutive years from the date you begin repayingthe loans under IBR.  But under ICR, if you pay less than the interest that is accruing, you end up paying that interest back later.  Score another one for IBR.

Under IBR, your unpaid interest does not get capitalized (or added to the principle of your loan) until you no longer have a “partial financial hardship”, or if you choose to leave IBR.  But under ICR, unpaid interest is capitalized annually, however, capitalization is capped at 10% of the principal balance.

Heather, please help! Nelnet has capitalized over $1,000 in unpaid interest after my first year in IBR. I submitted my annual documentation for IBR year two on time and was still found to have a partial financial hardship (PFH). No warning, no citation of legal explanation, and no explanation of the calculation - they sent me a simple email saying they were capitalizing the interest!

Do they have something wrong or is there some loophole that will cause my principal to balloon over my time in IBR?? I am very concerned and have gotten NO response from Nelnet, FSA, or the Ombudsman (who told me to contact my servicer)....I have no idea who to turn to next?!