Maybe I’m being overly simplistic - so please help me:

I am a teacher married to a teacher - we both have debt (me: 51,000, her 41,000) and our incomes are about the same as our debt (me: 56,000 and her 41,000).

According to the calcuators:  IBR would have us paying (me: 510, her: 400) a month.  ICR comes up to about (me:420, her: 370) a month.

My question is - since we are both eligible for the Public Service Forgiveness program - why wouldn’t we go with ICR which is the cheaper of the monthly payments so we pay less in 10 years?  Is there some unseen benefit of IBR I haven’t figured out yet?

I understand the interest compiling to the capital situation, etc.  However if it’s all forgiven in 10 years, it doesn’t really matter.

Thanks so much for your help, everyone!

Monthly payments are typically higher under ICR than under IBR, sometimes a whole lot higher, so I’m surprised at your calculation.  Which calculators are you using?

Here are some of the ways ICR and IBR differ.

• Under ICR, how much you owe affects 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 repaying the loans under IBR.  But under ICR, if you pay less than the interest that is accruing, you end up paying that interest back later. 
• 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, but capped at 10%.

For the ICR I was using:  http://www.direct.ed.gov/RepayCalc/dlentry2.html

For IBR I was using:  http://studentaid.ed.gov/PORTALSWebApp/students/english/IBRPlan.jsp

So if the ICR is cheaper per month - and we will both be eligible for public service forgiveness after 120 months, shouldn’t we be trying to make our monthly payment lower, regardless of anything else?  The rest of that stuff is pointless as long as we pay the least amount possible for those 120 months, right?

I guess my question is - if ICR right now is cheaper - why would I pick IBR over that?

Thanks!

Assuming you do earn PSLF after 120 months, you are certainly better off if you pay less over the course of those 120 months.  That said, I’m not entirely sure that a lower payment in ICR right now will necessarily result in less paid over the entire 120 month period.  It might, but it seems like it would depend on interest accrual and the timing of capitalization (which is going to be different under IBR and ICR and depending on income).  That’s why I mention the available interest subsidy under IBR and the different capitalization rules in each program.

Check out the calculators Mark Kantrowitz kindly makes available here: http://www.finaid.org/calculators/ including IBR and ICR calculators.  Choose to display the full amortization schedule so that you can see what happens if and when your income rises, especially if you anticipate reaching an income level where you no longer have a Partial Financial Hardship at some point during the 10-year period.

I’ll also ask one of the experts over at GLAdvisor to weigh in on this one to see if we can get more clarity.

I’m also interested in learning what is special about your circumstances that put you in the group of borrowers for whom ICR is cheaper than IBR.  Am I correct in gathering that you and your wife both have loans, both are in public service, and file joint tax returns?