Has anyone with student loans in IBR successfully qualified for a mortgage?

[Ravin]

This process is proving to be more daunting than I expected.

[SparklyUnicorn]

I haven't, but that whole process is always rather daunting (unless I guess one is loaded, but most of us aren't).  I hope you work it out. 

[teachermom2834]

Yes. It was not an issue here at all.

[BooksandBoys]

I have. We've always paid the minimum, though many times that minimum was zero, but IBR status didn't affect our mortgage. Mortgage qualification is a crazy, daunting process regardless.

[Kathryn]

We refinanced with my loans in IBR.

[Janeway]

What is IBR?

[StephanieZ]

IBR = Income Based Repayment. Your monthly payments are based on your income and are maxed out at x% of your pay (10%??) and if you pay as scheduled for Y years (15?) then the remainder is forgiven. Google it up for current rules. (I've never used it, but I hear vet professionals talk it up a lot for graduating vets with large debt burdens. General advice seems to be to get in it ASAP to start the clock ticking. Seems especially advantageous for moms/PT workers/etc . . .

 

NOTE: The forgiven amount will be TAXABLE INCOME in the year of forgiveness. Loan/tax experts advise folks in IBR to start a savings account just for the purpose of paying off those taxes. If you are forgiven 100k+, the taxes could be very large, especially if you aren't used to high tax rates . . . Not only will you owe substantial extra income taxes that year, it'll also pop you into a higher tax bracket. I think most advisors (looking at professional school loans in the 100-400k range) advise you to save for a 40% tax hit on that forgiven amount. So, anyway, if you are in IBR, don't forget about the ultimate tax consequences (assuming that isn't changed someday). 

 

(I see it now . . . When the IBR taxes start to hit in a decade or so . . . there'll be a whole new industry of student loan hawks selling loans for paying the taxes on your forgiven loans . . . Student debt never ends . . . )

[AmandaVT]

DH is on the IBR plan for his loans (still $600/month, ugh) and we had no problem getting a mortgage. 

[Kathryn]

IBR = Income Based Repayment. Your monthly payments are based on your income and are maxed out at x% of your pay (10%??) and if you pay as scheduled for Y years (15?) then the remainder is forgiven. Google it up for current rules. (I've never used it, but I hear vet professionals talk it up a lot for graduating vets with large debt burdens. General advice seems to be to get in it ASAP to start the clock ticking. Seems especially advantageous for moms/PT workers/etc . . .

 

NOTE: The forgiven amount will be TAXABLE INCOME in the year of forgiveness. Loan/tax experts advise folks in IBR to start a savings account just for the purpose of paying off those taxes. If you are forgiven 100k+, the taxes could be very large, especially if you aren't used to high tax rates . . . Not only will you owe substantial extra income taxes that year, it'll also pop you into a higher tax bracket. I think most advisors (looking at professional school loans in the 100-400k range) advise you to save for a 40% tax hit on that forgiven amount. So, anyway, if you are in IBR, don't forget about the ultimate tax consequences (assuming that isn't changed someday).

 

(I see it now . . . When the IBR taxes start to hit in a decade or so . . . there'll be a whole new industry of student loan hawks selling loans for paying the taxes on your forgiven loans . . . Student debt never ends . . . )

I'm on original IBR. 25 years and 15%. And we have no extra income to save for the tax hit at the end. I assume I'll have to declare bankruptcy at that point. I know that doesn't work on the loans, does it work on the tax bill? My loans have already gone from $80k to $120k in the nine years since I've been out of school. I don't want to think about what they'll be by the time the program ends.

[teachermom2834]

I'm on original IBR. 25 years and 15%. And we have no extra income to save for the tax hit at the end. I assume I'll have to declare bankruptcy at that point. I know that doesn't work on the loans, does it work on the tax bill? My loans have already gone from $80k to $120k in the nine years since I've been out of school. I don't want to think about what they'll be by the time the program ends.

We were on the old deal but they changed it to let older borrowers get the 10% rate instead of 15%. I believe it is called REPAY. We just switched a couple months ago and it was not difficult. You probably are aware but thought I would mention it.

[SparklyUnicorn]

I have. We've always paid the minimum, though many times that minimum was zero, but IBR status didn't affect our mortgage. Mortgage qualification is a crazy, daunting process regardless.

 

I have gone through so many processes in my life and hands down buying a house was the absolute stupidest process.  Even worse than immigration.

[SparklyUnicorn]

IBR = Income Based Repayment. Your monthly payments are based on your income and are maxed out at x% of your pay (10%??) and if you pay as scheduled for Y years (15?) then the remainder is forgiven. Google it up for current rules. (I've never used it, but I hear vet professionals talk it up a lot for graduating vets with large debt burdens. General advice seems to be to get in it ASAP to start the clock ticking. Seems especially advantageous for moms/PT workers/etc . . .

 

NOTE: The forgiven amount will be TAXABLE INCOME in the year of forgiveness. Loan/tax experts advise folks in IBR to start a savings account just for the purpose of paying off those taxes. If you are forgiven 100k+, the taxes could be very large, especially if you aren't used to high tax rates . . . Not only will you owe substantial extra income taxes that year, it'll also pop you into a higher tax bracket. I think most advisors (looking at professional school loans in the 100-400k range) advise you to save for a 40% tax hit on that forgiven amount. So, anyway, if you are in IBR, don't forget about the ultimate tax consequences (assuming that isn't changed someday). 

 

(I see it now . . . When the IBR taxes start to hit in a decade or so . . . there'll be a whole new industry of student loan hawks selling loans for paying the taxes on your forgiven loans . . . Student debt never ends . . . )

 

It's also advantageous for those who take on lower paying jobs (social workers, preschool teachers, some public defenders, etc.).  Really, I think we need this to encourage people to still go into these professions. 

 

Amen, I'm still paying my freaking student loan debt.  And I was recently offered a pretty terribly loan shark piece of crap thing.  I did not bite. 

[Kathryn]

We were on the old deal but they changed it to let older borrowers get the 10% rate instead of 15%. I believe it is called REPAY. We just switched a couple months ago and it was not difficult. You probably are aware but thought I would mention it.

I looked into it, but my loans are not Direct loans (they're FFEL), so I would have to refinance into the Direct program, which would start over my clock.

[teachermom2834]

I looked into it, but my loans are not Direct loans (they're FFEL), so I would have to refinance into the Direct program, which would start over my clock.

Bummer. Just wanted to make sure you knew. I actually never heard about it until I read about it here.

[Amy in NH]

I couldn't. Stupid logic on the lender's part about what the payment would be if my income increased. If it increased that much, I'd have enough money to pay it. Derp.

[LucyStoner]

Ravin, IIRC you work in public service, correct? Your discharged loans after 10 years are not presently considered taxable income. The law could change but I think it is more likely changes made will be to extend the types of IBR which are not taxable income on forgiveness rather than to take away the the pslf exemption.

 

I have many friends with loans in IBR who secured mortgages fairly recently but I don't know the ins and outs. Lenders are fairly different through so shop around if you aren't getting anywhere with one lender.

[purplejackmama]

I'm on original IBR. 25 years and 15%. And we have no extra income to save for the tax hit at the end. I assume I'll have to declare bankruptcy at that point. I know that doesn't work on the loans, does it work on the tax bill? My loans have already gone from $80k to $120k in the nine years since I've been out of school. I don't want to think about what they'll be by the time the program ends.

I'm not sure you can file bankruptcy to discharge tax obligations.

[SparklyUnicorn]

Ravin, IIRC you work in public service, correct? Your discharged loans after 10 years are not presently considered taxable income. The law could change but I think it is more likely changes made will be to extend the types of IBR which are not taxable income on forgiveness rather than to take away the the pslf exemption.

 

I have many friends with loans in IBR who secured mortgages fairly recently but I don't know the ins and outs. Lenders are fairly different through so shop around if you aren't getting anywhere with one lender.

 

That is so awesome!!!

[SparklyUnicorn]

I looked into it, but my loans are not Direct loans (they're FFEL), so I would have to refinance into the Direct program, which would start over my clock.

 

Yep, same here.  I've been paying so long now that I really do not want to reset the clock.  That would probably not save me any money.

[StephanieZ]

I'm on original IBR. 25 years and 15%. And we have no extra income to save for the tax hit at the end. I assume I'll have to declare bankruptcy at that point. I know that doesn't work on the loans, does it work on the tax bill? My loans have already gone from $80k to $120k in the nine years since I've been out of school. I don't want to think about what they'll be by the time the program ends.

 

To my understanding, taxes are not forgivable with bankruptcy, and neither are student loans . . . Unfortunately. Hope for a political solution . . . If you're aiming for bankruptcy upon forgiveness, it might be wise to research your options and possibly strategize to pay off those taxes with consumer loans . . . that could be forgiven . . . You'd need to strategize long term, though, for this to work. 

 

I am actually very glad that IBR wasn't a option for us when we finished school. I don't know if it existed back then (2000), but if it did, we never considered it seriously for some reason, maybe because the forgiveness element wasn't there? Whatever, I am very grateful we didn't use it, because at least now we're paying them off and will eventually be totally done. It would be very easy to dig the hole too deep to EVER climb out of with IBR.  We struggled enough as it is; with IBR, I am sure we'd have gotten into big trouble and it would have taken even longer to dig out. 

[Ravin]

Ravin, IIRC you work in public service, correct? Your discharged loans after 10 years are not presently considered taxable income. The law could change but I think it is more likely changes made will be to extend the types of IBR which are not taxable income on forgiveness rather than to take away the the pslf exemption.

 

I have many friends with loans in IBR who secured mortgages fairly recently but I don't know the ins and outs. Lenders are fairly different through so shop around if you aren't getting anywhere with one lender.

 

This is good to know!

 

I ran in to needing to get a document from my student loan lender stating what my IBR payment would be based on my income for the 2016 tax year, because otherwise the VA loan rules required comparing my CURRENT income to a 300-month projection of IBR payment using the assumption of a 5% per year increase in salary--which is ridiculous because if my payments were that high, my income would be proportionately higher as well.

 

Fortunately Great Lakes came through with what they asked for.

[goldberry]

I'm on original IBR. 25 years and 15%. And we have no extra income to save for the tax hit at the end. I assume I'll have to declare bankruptcy at that point. I know that doesn't work on the loans, does it work on the tax bill? My loans have already gone from $80k to $120k in the nine years since I've been out of school. I don't want to think about what they'll be by the time the program ends.

 

That is insane.  I do know that the IRS is pretty lenient about payment plans, etc.  But others are correct that you might want to start pre-planning to convert that tax debt to consumer debt.

 

I am glad we have made it very clear to our DD that debt is not the way to go.  She plans on a teaching career that won't let her pay off high loan payments.

 

:grouphug:  to all struggling with this.  

[LucyStoner]

This is good to know!

 

I ran in to needing to get a document from my student loan lender stating what my IBR payment would be based on my income for the 2016 tax year, because otherwise the VA loan rules required comparing my CURRENT income to a 300-month projection of IBR payment using the assumption of a 5% per year increase in salary--which is ridiculous because if my payments were that high, my income would be proportionately higher as well.

 

Fortunately Great Lakes came through with what they asked for.

This is a good document to familiarize yourself for PSLF and to make sure you document your eligibility as you change jobs. Working for local, state, federa or tribal governments, and most 501©(3) organizations is qualified as public service. Depending on what loans you have now, you may need to do a DIRECT consolidation to make your loans eligible. One caveat is that private student loans are not eligible.

 

https://studentaid.ed.gov/sa/sites/default/files/public-service-loan-forgiveness-common-questions.pdf