Celebrating 10 years! 2007-2017

IBR issue

A few weeks ago, I got an email from fedloan with my new IBR orange905/17/17
Yes. When I first enrolled in IBR, I called to report a subs quantamacro05/17/17
Well, it's backed by the U.S. government. They want your int thirdtierlaw05/17/17
[deleted] anonattempt05/17/17
I think it's simpler than that. The servicers don't care if onehell05/17/17
Yes. Pretty similar - Several years ago, before I refinanced 6figuremistake05/17/17
The practice you describe is universal. The servicers have a onehell05/17/17
You can also use the tax extension deadline, October 15th, t loblawyer05/17/17
If you're on IBR and you expect to benefit from loan forgive shitlawsf05/17/17
orange9 (May 17, 2017 - 11:31 am)

A few weeks ago, I got an email from fedloan with my new IBR amount. I just got an email yesterday for my upcoming direct debit and noticed the amount was off by about $2000, and the capitalized my interest.

I called them this morning and the guy said that I recertified too late. I had to recertify in February, and submitted the application, and then had my wife create an account since it required that she sign too. At the time, it was asking for mine and my wife's 2016 returns, which were not yet ready.

The guy today tells me that I could have used my 2015 return if I just clicked that my income did not change, however, between getting married and a new job, my income was not similar to last year. My response was "oh, so I should have just lied then?" He then told me I could have submitted a paystub, meanwhile the directions clearly told me 2016 returns.

Anyone ever deal with anything similar?

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quantamacro (May 17, 2017 - 12:45 pm)

Yes. When I first enrolled in IBR, I called to report a substantial increase in my income a few months after first certifying (pretty sure it was Sallie Mae). Person acted like I was dumb and asked why I wanted to pay more (yeah, who pays their debt, honestly...). When I told him that I was told to report this, he basically said who cares and to just certify annually. When I asked if I could increase my payments because I could now afford to pay more, he again acted annoyed and said I could recertify but they might not accept it since I didn't need to do this for many more months. Told me that I could pay more than my payment online and then call after each extra payment to tell them to remove pay-ahead status. It's actually a little funny how hard they make it to give them money.

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thirdtierlaw (May 17, 2017 - 12:57 pm)

Well, it's backed by the U.S. government. They want your interest accrued to be as absolutely high as possible.

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anonattempt (May 17, 2017 - 1:29 pm)

[deleted]

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onehell (May 17, 2017 - 2:02 pm)

I think it's simpler than that. The servicers don't care if you pay or not now that the gov loans the $$ directly. A servicer just provides a service: They process the paperwork on contract with the DOE and get a fee for their efforts. The less staff and technology they need to process that paperwork, the less their overhead, which means more profit on the servicing contract. Tax return data is already electronic and annualized and always on the same form, so you can calculate an IBR payment in seconds. Alternative documentation forms, OTOH, require human review of paychecks and letters from unemployment offices and who knows what else people might send in, making it difficult to run through optical character recognition. That means human staff, the highest-cost thing you can add.

It's in the servicers' interest to get as few alternative documentation cases as possible simply because they want to do as little work as possible, and it's in the borrower's interest to keep payments as low as possible if forgiveness is the likely eventual result. So the servicers interpreted "reasonably reflective of current income" to mean "last 2 stubs or last 1040, whichever is less." That interpretation is a win-win for the servicer and the student, so long as DOE doesn't later decide to disagree and punish the student for the servicer's mistake.

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6figuremistake (May 17, 2017 - 3:57 pm)

Yes. Pretty similar - Several years ago, before I refinanced, I had some loans with Sallie that they were fed backed but technically owned by SLM. Most of my others loans had been bought by DOE and had become direct.

I faxed the paperwork in and the Sallie loans were renewed for IBR, but the DOE ones (still managed by Sallie) weren't. I called a few times to see what was up, but they insisted everything would be fine and it just took more time to process or something.

As you probably suspect, the DOE loans were never renewed for IBR; the amount due was calculated on a 10 year payoff plan and the interest capitalized. In fairness, I don't think it was that hard to get switched back to IBR and they never forced me to pay under the 10 year plan, but it was still annoying. They also didn't reverse the capitalization of the interest.

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onehell (May 17, 2017 - 1:12 pm)

The practice you describe is universal. The servicers have all interpreted the income verification process to be that you use your current income or your most recent filed tax return, whichever is less. If your IBR anniversary is between January 1 and April 15, they know you have an opportunity to use some pretty out-of-date income information, and they don't care. When you have an anniversary date in that range and your income has gone up, you recertify before filing your taxes. If it's gone down, you could use alternative documentation or you could just file your taxes early. It's whatever is most advantageous.

You can get them to base the payment on paystubs if you didn't file for some reason, or if your last-filed return doesn't "reasonably reflect" your current income, but in practice the servicers don't like dealing with alt doc forms, so they tell people to file them only if their income has dropped, never if it has increased.

I understand the anxiety. DOE could always say they were doing it wrong and try to ding borrowers later when they apply for forgiveness, for not supplying accurate income information. But there is little guidance on what "reasonable" means here, i.e. how much your income has to rise before it triggers some duty to use alternative documentation. So the servicers have all said "use your current income or the income from your last tax return, whichever is less." With the sheer volume of income calculation they have to do, especially since everyone has a different anniversary date (making this a year-round lift, unlike with tax returns) I can't imagine any other interpretation being logistically feasible.

Simply put, the servicers are servicing; they aren't the lender and they have no skin in the game. They provide a service to DOE. They don't care if you pay or not. They get their fee for processing the paperwork and payments, and the less work that involves the more profit they can make. Processing alternative documentation is much more complicated than just basing payments off tax return data.

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loblawyer (May 17, 2017 - 8:39 pm)

You can also use the tax extension deadline, October 15th, to take advantage of onehell's strategy above.

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shitlawsf (May 17, 2017 - 9:38 pm)

If you're on IBR and you expect to benefit from loan forgiveness, who cares. If last year's income was lower, recertify early. If this year's income is lower, recertify late, take a month's forebearance, and let them capitalize the interest. It's all funny money anyway.

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