Episode 06: IDR, IBR, PAYE, REPAYE, Deferment, and Forbearance All Mean One Thing
Minute 00-[1:00] All of these acronyms are used to describe Income-Based Repayment programs for federal student loans. And the one thing they all have in common is that they stretch out loan repayments for decades.
Minute 2-3: I am a lawyer, but I am not providing legal advice here just general information about student loans. This podcast isn’t and won’t be affiliated with any lenders.
Minute 3-4: This first Season is devoted to providing information to people who are contemplating taking out student loans. I think people are incredibly nonchalant about what it means to be burdened by a significant amount of debt. The acronyms and names for repayment programs and plans have created confusion and led people to believe that a great deal of their debt will be forgiven by one mechanism or another.
Minute 4-5: Millions of people are burdened by student loan debt that they are finding difficult if not impossible to repay According to a January 2017 Wall Street Journal article, as many as half of all borrowers of federal student loans have not made a payment in seven years. Perhaps you are thinking this is because they are the beneficiaries of the loan payment programs having all those interesting initials.
Minute 5: At least half of all people owing student loans aren’t repaying the loans.
Minute [5:30]-[6:30]: As is discussed in my forthcoming book, Shun Student Loans, there are only 4 ways of getting rid of loans:
(i) paying them in accordance with their terms, which typically means paying them back over 10 years;
have a portion of the loan forgiven by complying with complex and ever-changing loan forgiveness rules and regulations:
having a portion of the loans forgiving after paying a fixed percentage of one’s income for 20-25 years; and
Minute [6:30]-9: To begin, don’t be misled by all the acronyms, PAYE, REPAYE, IBR, IDR, they all serve to hide some degree of bad news, perhaps the most egregious, hidden bad news is that you have absolutely no way of knowing that any or all of these programs will be available to you for handling your debt. The government giveth and the government taketh away. You have zero guarantees that any or all of these programs will be available to you to deal with your debt. Zero. You might, but the situation is that you’ll definitely owe the money and some repayment plan might or might not be available to provide you a modest assistance (or none whatsoever) to deal with your debt.
Minute 9-12: Your federal student loan servicer needs to cooperate with you in order for you to enroll. It is in their interest to not cooperate with you, but to cause you to miss payments and to go into default. This creates a huge income opportunity for them as they can add fixed fees and an increased interest rate. How much could these fees be? As noted in the case Bible v. United Student Aid Fund, Inc., 799 F.3d 633, 321 Ed.Law Rep. 712 (7th Cir. 2015) (further discussed in the Harvard Law Review), one lender charged a defaulting borrower more than $4500 in fees prior to allowing the borrower to enroll in an IBR when the borrower’s original loan was only $18,000 (sic; in the episode, I say the original loan amount was only $15,000, but it was actually $18,000. Still, she was charged more than $4,500 in fees prior to being enrolled in an IBR. Loan servicers are not your friends.
Minute 12-17 High Risks Loans:
(i) The programs may go away. You have no guarantee that the program will be available to you. The programs are only available for federal, direct student loans.
(ii) You won’t be in control of whether you qualify for any of the programs. The loan servicer is in control.
(iii) You cannot appreciate what it means to owe debt for 20-30 years.
(iv) Finally, if a debt that is actually forgiven near the end of your working life may result in a huge tax bill.
That’s right. Debts that are forgiven create a thing called “forgiveness of indebtedness income.” You may owe more in taxes than you originally borrowed. This sounds like the path to hell forever.