Everyone who wants to pursue the Public Service Loan Forgiveness program eventually realizes that it can be a big pain. That said, I’d accept some major pain for six figures of loan forgiveness.
FedLoan Servicing income-based repayment (IBR) is an option, as well. My goal is to make Student Loan Planner® reduce the pain as much as possible by arming you with knowledge and information to fight back as a smart borrower.
Were you denied for FedLoan income-based repayment?
I’m getting reader feedback emails all the time right now saying some variation of the following:
I was told yesterday that I no longer qualify for IBR and will have to utilize REPAYE as my annual application was denied for IBR due to a higher AGI. My IBR payment would be over the standard payment; REPAYE will be a slight increase but still below standard.”
Here’s another email from a financial planner who deals with a lot of physicians:
I’ve had quite a few clients telling me that the folks at FedLoan have been telling them they no longer qualify for IBR since they don’t meet the financial hardship guidelines (even though they did when they originally applied in residency). Clearly, this is wrong and made worse by the fact that they’re trying to push them out into (in some cases) the standard consolidated repayment and telling them directly that they do not/will not qualify for PSLF.”
We’re going to address
- Why FedLoan is kicking people off IBR
- Why getting pushed off IBR could cost you thousands
- How to fix the problem and still qualify for PSLF
If you read this and it makes your head spin, we’d be happy to make a custom plan for you to help fight back against federal student loan servicer incompetence.
FedLoan’s incompetence clearly demonstrated with this IBR qualification problem
Let me be clear that when I say IBR, I also include PAYE (another income-driven repayment plan) into this discussion. Either one of these two plans allows you to cap your monthly student loan payments at no more than what the amount would have been on the Standard 10-year monthly payment.
Here’s an explanation drawn from the PSLF Q&A released by the government.
“16. If I’m repaying my Direct Loans under the PAYE or IBR Plan and my monthly payments are no longer based on my income, will my payments continue to count for PSLF?
Yes. Although you will always initially have a payment based on your income in the PAYE and IBR plans, under certain circumstances your monthly payment under those plans may no longer be based on income. However, your monthly payments will continue to qualify for PSLF if you remain on the PAYE or IBR plan.”
What are the certain circumstances that they outline?
Here’s the cap on IBR payments cited in the FedLoan income-based repayment Q&A:
[Your payment is] Never more than what you would have paid under the Standard Repayment Plan with a 10-year repayment period, based on what you owed when you entered the IBR Plan.”
Clearly, you can pay based on IBR or PAYE based on your income until you no longer have a partial financial hardship. Then your payments are no longer based on your income. Rather they’re based on what the Standard 10 Year payment would have been when you entered IBR for the first time.
Why FedLoan reps are telling everyone to switch to REPAYE
Put yourselves in the shoes of the FedLoan customer service reps. They get paid poorly, their job is terrible with people yelling at them all the time because of their company’s problems and they just want to avoid getting bothered by their bosses because their phone conversations are too long.
Hence, it would be great if you had a single go-to piece of advice you could always use with customers. A convenient way to get them off the phone without much fuss.
The Revised Pay As You Earn Plan (REPAYE) is often a great federal student loan repayment plan. It meets the criteria for PSLF, it’s based on your joint income as a married couple but that percentage is only 10% and there’s no repayment cap.
- Easy to explain
- Allows for shorter phone conversations
- Helpful for many people
That’s why FedLoan reps and other federal loan servicers are just blindly telling everyone to switch to it.
When is REPAYE a terrible choice if you’re doing PSLF? When you:
- Have a REPAYE payment that’s larger than the Standard 10 Year
- Make a large income relative to your debt
- Have a spouse with super high income and low or no student debt
In these cases, the repayment cap could be super important.
Imagine an orthopedic surgeon fresh out of training with $200,000 of student loans. Let’s assume he has 6 years of qualified payments for PSLF and needs four more.
On IBR, he might be able to pay $2,000 a month thanks to the Standard 10-year cap. With REPAYE, assume his high income would require payments of $4,000 a month. Over 4 years, that’s a $96,000 difference. A simple phone call with a FedLoan rep suggested a repayment plan switch would have cost him almost six figures.
Consolidation loans pose extra risks for being kicked off FedLoan income-based repayment
You might not know this, but the Standard Repayment Plan for consolidation loans is different from the Standard 10-year repayment plan. When you consolidate, your repayment amount is based on a 10-30 year scale depending on your debt amount.
Here’s a guide for how the government determines this:
As you can see the Standard Repayment Plan for Consolidation loans results in a 30-year repayment length for loans larger than $60,000, which is the vast majority of borrowers’ PSLF loan balances they want forgiven.
Here’s the catch though. The PSLF program only counts the Standard 10-year repayment plan if you’re not on IBR, PAYE, REPAYE, or ICR.
However, the Standard 10 Year Plan does not exist for consolidation loans. It became the Standard Repayment Plan instead, which if you owe more than $7,500 is not a 10-year Standard plan. That means the Standard Repayment Plan for Consolidation loans does not count for PSLF.
Reps at FedLoan often know this, so they tell a borrower incorrectly that they no longer qualify for PSLF at all, which is not the case.
How to get PSLF when FedLoan says you don’t qualify
When you are told that you no longer qualify for IBR, you need to immediately escalate the conversation to a supervisor. This is your financial future on the line. You can’t risk that just to be nice to a phone associate.
This is a business transaction, and you deserve the correct information. If you do not receive that, then you need to be firm and request to speak to someone else.
Your argument simply needs to be this.
“I know that I no longer qualify to pay based on my income. However, I do qualify to remain on the IBR [or PAYE] plan and make payments equal to what my amount would be on the 10-year Standard Repayment plan.”
This is true even for consolidation loans as we’ve seen FedLoan adopt this cap and apply it in other environments. After all, we’ve had thousands of clients with many complex scenarios. So, we are familiar with FedLoan income-based repayment as an option.
Here’s who should fight FedLoan to retain their PSLF eligibility:
- If you work at a nonprofit or other qualifying employer and plan to stay on full-time for the full 10 years needed
- You already have a couple years or more of qualifying payments
- You owe more than $50,000 of student debt (your time is worth something)
I’ve had a city attorney stay on track for PSLF despite her Big Law husband making over $400,000. No need to file separately for taxes. Just take advantage of the IBR cap.
In another case, a surgeon making $500,000 a year is still on track for PSLF with $300,000 of student loan debt.
I saw on a Facebook group recently that a financial advisor told a high-income couple to pay off their loans in two years since they “made too much for IBR.”
It’s true that you have to have a partial financial hardship to qualify in the first place. However, if you already have one and you will stay working in the right kind of employer, go for PSLF and put your money into a side account at a place like Betterment or Vanguard.
Then realize the financial advisor that gave you that advice is clueless about your number one financial obstacle, fire him, and hire us instead to outline the options for your student loans. We can provide you with some of the top smart borrowing tips today. Once you’re in good shape with that part of your life, consider hiring a fee-only fiduciary financial planner who understands what they don’t know.
Did FedLoan try to kick you off of IBR? Tell us in the comments!