How to calculate amortization for income-based student loan repayment

Post date: 2022-01-18 04:11:08
Views: 84
I am interested in the nuts and bolts of an income-driven plan on an LRAP (Loan Repayment Assistance Program).

After much research and two meetings with a financial aid counselor, I believe I understand the basics of the program for the particular school in question: First, the school determines the student contribution on the basis of the student's income. Then the school, in effect, lends the student the money to make the payments (the school writes the student a check for the payments every six months, and the student uses that money to make the payments).

FIRST, the idea of "vestment" after 3 years:

If the student stays in the program for 3 years (36 payments)(a kind of "vestment"), these loans are forgiven by the school (but that is not called forgiveness, so the student does not have to pay taxes on that forgiven money).

If the student leaves the program before the 3 years are up, the student must not only pay the school back for all the money the school has laid out, but also must pay additional interest to the school (rather than the gift it is after 3 years, it is now a loan).

NEXT, what happens after the first 3 years?

The student continues to get twice-yearly checks from the school for the amount of the income-based payments. This continues if the student stays in the program for the full 10 years of the loan. At that point, the Federal Government steps in, under their PSLF program, and, one hopes, decides that the student has met all requirements and forgives the loans completely. (I know that PSLF has been extremely screwed up, but we're operating for the purposes of this question as if the problems have been fixed and PSLF will come through).

Okay, all of that was background. Here is where my question comes in:

The student has been making their required payments (using the school's money) all along. However, the student decides at some point between years 3 and years 10 to LEAVE the income-based LRAP program to do something that does NOT qualify for this income-based forgiveness program (if we must say, it's public interest work that is required, and now the student doesn't want to do that anymore).

*The student has been making the proper payments, but really they have been INADEQUATE payments. They have been payments in an amount determined by their INCOME (hence, the name), which is considered a SMALL income (because they are in public service) rather than determined by what is actually OWED to the government. Therefore, as every month has gone by, they have been paying LESS than what would be necessary to stay on track with their loan repayment.

This has been considered a fine thing to do, because the assumption is that, after ten years, the loans will be forgiven, INCLUDING all the principal AND this excess interest that has been accumulating throughout the years.

HOWEVER, NOW, the student is leaving the program EARLY -- BEFORE all this accounting, after ten years, would have settled him up.

And, not only is there excess interest that has been accruing, there is also the fact that, in this plan (like a mortgage), you only start paying off the principal of the loan in earnest after a number of years have gone by. Therefore, if the student leaves the plan early, the student may not have paid back much or any of the principal of the loan!

Now, back to the additional interest that has accrued. This, I understand, is called NEGATIVE AMORTIZATION. The school in question says that, if the student leaves the program early (but AFTER the 3-year "vestment" period), they will help "settle up" the student by writing a one-time check for the amount of that negative amortization so that the student can pay it back (however, the counselor was a bit UNCLEAR about whether that check would be for the FULL amount of the negative amortization, but suggested that the student's part would not be too terrible (not the way you want to go into a loan assistance program, but okay).

HOWEVER --- and here my question is actually coming!! ---

I want to have a schedule of how much principal vs interest the student is paying back, month by month (or even year by year), WITHIN this income-based program. In other words, I have a mortgage, and I can easily look up my amortization schedule, telling me every month for 30-gulp years how much of my monthly payment is principal, and how much is interest. I can also easily look up an amortization schedule for a regular student loan repayment schedule (with no forgiveness). They tell you, month by month, for the ten years, how much of your payment is principal and how much is interest.

When I asked the school financial aid counselor where I could find such a schedule for the income-based repayment plan, he said it depends on the student's contribution and, of COURSE, on the student's income, which would probably CHANGE from year to year, so he couldn't tell me. I understand this, BUT I want to have SOME idea of what's going on regarding principal vs interest for an income-based repayment plan, even if it is going to be yearly ESTIMATES and we can't predict the future entirely.

WHY?? because I want to know that, if the student left this repayment program after, say, 5 years, would he have made even a DENT in the principal of the loan? how about after 6 years? In other words, I want to answer the question, "How many years does the student have to stay in the income-based repayment program in order to have a CHANGE of it being worth it?" Because if he stays in the program for, say, 6 years, and leaves, and is left with MOST (??how much??we can't say) of the excess interest being paid off by the school BUT NONE of the principal having been paid off, what has he gained other than a DELAY in paying back the loans?

So my question is: how can I look up various salaries & various student contributions and play around with numbers to get SOME KIND OF A BALLPARK ESTIMATE of how many years the student would have to remain in this program to get ANY benefit in paying off his loans IF he does NOT remain in the program for the full 10 years?

THAT'S the question. Thank you.

(I have a subsidiary question, too, am I allowed? okay, the student has a "student contribution," which the school is paying, but who is paying the difference between the student contribution and the FULL monthly payment? If, on a regular 10-year repayment program, the student would have to pay, say, $2000 a month, but now his student contribution is, say, $500 a month, and the school is lending him the money to pay that, WHAT'S HAPPENING with the OTHER "$1500 a month of the monthly payment? I ask this because the fact that I don't understand this suggests to me that I really know NOTHING about how this (LRAP, actually), income-based program works (after two long meetings with a counselor and reading the school's LRAP website and doing a LOT of research).

TL;DR obviously
Number of Comments
Please click Here to read the full story.
 
Other Top and Latest Questions:
Trying to recall British TV drama from 2000s about teen model
Resident Alien: Avian Flu
Movie: Knox Goes Away
Gamified SAT Words
I need a database app that will let me do this specific thing
Top Chef: Chef's Test
FEUD: Hats, Gloves and Effete Homosexuals
~How~ to search for a seasoned therapist & psychiatrist?
Multiculturalism in Slovakia c. 1900: Melting Pot or Salad Bowl?
Sell all my stuff in NYC?