Friday, September 4, 2009
Why I'm not excited about the new IBR Program
The Income Based Repayment program does not impress me. Recently, Sandra Baum from the College Board was asked to inform people of how financial aid has changed. I take issue with the fact that Baum says again that "borrowing for college is sensible." We'll get to that in a moment. First, let's discuss why IBR is unimpressive.
Realistic Scenario - John and Jane, a married couple with student loan debt. (See them above, sipping wine and adoring one another).
If a married couple both have debt, the spouse's income counts in determining the person's monthly payment, but the spouse's debt doesn't count.
So, John and Jane both have 100k in student loan debt.
John makes 45k a year. Jane makes 35k a year. Yikes! (They really are being reckless in their spending - I mean, they're drinking red wine and their clothes look awfully smart. Those irresponsible borrowers!)
In any event . . .
In determining John's payment, his household income is calculated at 70k a year, but his student loan debt is only calculated at 100k, and the same goes for Jane. Therefore for each of them, their household is calculated at 70k in income, but their total debt burden is only seen as 100k. When it fact it's 200k. (Remember: John owes 100k and Jane owes 100k).
Hmmm . . . should John and Jane, even though they're madly in love, divorce?
Here's an IBR calculator - have fun with that!
I filled it out. Here's what I was informed:
"Unfortunately, current IBR rules use your and your spouse’s combined income to determine what monthly payment you can afford, but do not consider the burden of your combined student debt. This results in higher payments for both borrowers, a type of double-counting that is unfair and inappropriate for your situation.
The US Department of Education has agreed to revisit this rule and factor in both spouses' debts when calculating one applicant's IBR payments, but that change would not go into effect until as late as July 2010. In the meantime, the current rules will apply. Please sign up for our mailing list so we can keep you updated on these and other changes. More information is available here."
Hmmm . . . I'm glad I got married, but this news is not good.
Let's talk (again) about Baum's claim that "borrowing from college is sensible." To be cont . . .