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branchandroot: pocket watch on leaves (watch)
[personal profile] branchandroot
So there's this thing called Income Based Repayment, a program available to US citizens carrying student loan debt, which can a) reduce your monthly loan payment and b) limit your repayment period to 25 years.

If your student loan debt is greater than your yearly income, you probably want to do this.

Figuring out if it's immediately profitable is easy, though the forms make it sound hard. The question to answer is: are you paying more than 15% of you Alleged Disposable Income yearly, in loan payments?

To find that out do this simple math.

1) Find the poverty line (PL) for a household of your size this year and multiply it by 1.5; this will give you your Somewhat Stingy Cost of Living (SSCL) figure. PL x 1.5 = SSCL

2) Look at your latest tax form and find your Adjusted Gross Income (AGI). Now subtract your Somewhat Stingy Cost of Living figure from that. This gives you your Alleged Disposable Income (ADI). AGI - SSCL = ADI

3) Multiply your Alleged Disposable Income by .15 to get fifteen percent, or your Target Loan Repayment (TLR) figure. ADI x .15 = TLR

4) Divide your Target Loan Repayment by 12 to get the Monthly Payment figure. TLR / 12 = MP

5) Compare the Monthly Payment figure to your current monthly loan payment amount (CP). If the Monthly Payment is lower than your current payment, you are eligible for the Income Based Repayment program, and the MP will be your new monthly payment. CP > MP = IBR

Your IBR payment will always be 15% of your Alleged Disposable Income (divided in 12). If, at any point, that figure becomes equal to what your payments would be on the Standard 10 year repayment plan, you will be automatically switched over to that plan.

If you reach 300 payments (25 years) without being bumped into the Standard plan, any remaining balance of your student loans is forgiven. You're quits, the loan holder can't screw any more out of you. And, since they will very likely have made back at least one and a half times your loan by that point, you need feel absolutely, positively no guilt whatsoever.

Me? My retirement present to myself is going to be being able to tell Direct Loans to kiss my ass, they're never getting another cent from me. I wish I'd known about this program ten years ago, I would be able to stop paying this absolutely usurious rate a lot sooner.

If you are on the Extended repayment plan, that's a really good sign that you should apply for IBR. The Extended plan has no cap on the repayment period, and if all you can afford is to pay off the interest... well that's some pretty easy math too, if a lot more depressing.
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