Wednesday, June 11, 2014

Expansion on Income Based Repayment

President Obama announced this week an expansion of the Income Based Repayment (IBR) plan for qualified loans prior to 2011.

This program's expansion will be a great asset to many student's but still doesn't fix the problem of having student loan debt to begin with, but it does make it more manageable for many. Nick and I have some of our loans in the Income-Based Repayment Plan.

The Department of Education, actually does a really good job, at the link above, of describing the process for Income-Based repayment.  The basics of the program include: a monthly payment capped at 10% of your income based on your previous tax return, they are adjusted annually, and after 25 years any outstanding loans are forgiven. Upon re-reading this link today, I was reminded of the blessing this payment option was to us as a newly married and fresh out of college couple.

Each year, Nick and I must turn in our previous years tax return to help determine what our monthly payments will be for the next 12 months. This past year we received an increase of $67/ month, roughly 45 days before our first payment was going to be due. I was happy with this years increase, but the process of receiving an adjusted yearly bill for the next 25 years seems daunting. Nor does it guarantee that you will actually repay your student loans.

When asked as a young adult, "where do you see yourself if 5, 10, 25 years?" I don't think any of us think, I'll (still) be paying off my student loans :) I certainly don't plan on owing Sallie Mae or the Dept. of Education a check in 10 years, let alone 25 years!!!

This week the Senate will be voting on a Bill by Sen. Elizabeth Warren to allow students to refinance their loans at today's interest rates. If this would help you to repay your student loans quicker, email or call your Senator.

You can view a Tumbler conversation at the White House on the expansion program and advice to high school students currently looking at their upcoming college education here.

Fun Take Away from the a tutorial in the NY Times here
This tutorial highlights that students paying back debt are not able to spend money to bolster the economy, creating a domino effect which leads to a lack of employment opportunities and economic growth.

Nick and my participation in the Income Based Repayment plan has allowed us to have additional income to put back into the economy, which we are happy to do! However, by deciding to take this "extra" income and make additional payments toward our student loans we are not, in the short term, funneling money into the economy!

Therefore, by making additional payments to our student loans we are part of the economic problem created by a generation of student loan debt!! I guess this calls for a "splurge" on a expensive 6-pack of craft beer! Drink Local to help boost the economy :)

In the long-term, the collateral effect of 25 year repayment plans will still have a greater impact on the economy. I guess I would rather be part of the economic problem now, rather then still have debt in 20 years and not be able to save for a down payment on a house! 

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