Two weeks ago, my colleague Rachel described the “baffling, scary, frustrating, and stressful” process of figuring out how to repay her student loans. Like her, I took out loans to pay for my graduate education. Unlike her, I had never taken out a loan and knew absolutely nothing about the student loan program. But I filled out my FAFSA and promptly received a financial aid package. With relative ease, my tuition was paid every semester.
The repayment process is a different story, and ease is the last way I would describe it. I only have direct loans: 2 Graduate PLUS loans, 2 Stafford subsidized and unsubsidized loans, and 1 Perkins loan. Like Rachel, I had many questions about repayment. Should I consolidate? Should I apply for income-based repayment? Does President Obama’s new proposal affect me? (sidebar: ‘no’ is the answer for folks like me that have already graduated and only have direct loans). I ultimately decided to choose the IBR option, but not consolidate my loans right now. Because it was surprisingly difficult to figure out exactly what my monthly statement would be under IBR, I didn’t know if the payments would be so manageable that I could afford to pay more towards my PLUS loan. To me, the biggest downside of the IBR program is that it takes longer to pay off the terms of the loan than with the 10-year standard plan. That means I would pay less each month, but more in the long-run. I liked the idea of paying more on my high-interest loans if I could, but I wouldn’t be able to do that if my loans were consolidated into a single interest rate.
I dutifully applied for IBR and prepared a detailed letter for Great Lakes, the servicer of my student loans. I say detailed because it included several pages of labeled attachments to explain each source of my income (in addition to my day job at Education Sector, I work part-time as a teaching assistant). And why was this level of anal-retentiveness necessary? Because I want to pay back my loans. For most borrowers, an IRS 1040 is sufficient to verify whether they are eligible for IBR. But because I was a full-time student last year, my 2010 adjusted gross income – which would be used to calculate my IBR payments – is not representative of my current ability to pay. That’s a euphemism for: “it looks like I make less than I spend on my iPhone each month.” Based on my 2010 tax return, I live in abject poverty, and my loan payments under IBR would be $0. Thus, the 12 page fax.
A few days later, however, I got a call. Great Lakes needed my 2010 tax return. I was confused: “What about the alternative documentation I submitted? My 2010 adjusted gross income is not reflective of my current income. I was a student and not working full-time.” Yet this didn’t seem to bother the jovial staff at Great Lakes: “That’s a good thing. Your payments will be lower!” There was no discussion about how paying less now would mean accruing more interest and paying more over the lifetime of the loan, the unfortunate consequence of IBR. I knew about the pros and cons, but would every student borrower have done the research I did and know to ask the right questions? Being a rule-follower, I gave Great Lakes what they asked for: my 2010 tax return. And yesterday, my first monthly statement arrived online. For $0.
The current student loan system doesn’t work for me, and it certainly doesn’t work for the federal government since, you know, I don’t technically have to pay them anything right now. Because I know the cons of deferring payments, my bill may say $0 but I still plan on paying the government $600 per month, the rough amount I should be required to pay under IBR if my actual income had been taken into account. Instead, I was basically encouraged to deceive the federal government about how much money I earn and pay back my loan as slowly as possible. Now don’t get me wrong, I appreciate the IBR option, as it makes repayment more affordable and reasonable. But the process is complicated and absurd, and it doesn’t have to be this way. I just want to pay back my loans… and I thought the federal government wanted me to pay them back too. Silly me.