“Talking IBR with Wes Huffman” from NerdWallet

August 16, 2012 · by COHEAO · Spark Notes

NerdWallet (www.nerdwallet.com), a new website which provides consumer finance comparison tools and personal finance information has recently been exploring the issue of the income-based repayment (IBR) plan in the federal student loan programs. As part of these efforts, NerdWallet interviewed Wes Huffman  of Washington Partners, who serves as Legislative Director for COHEAO, for his thoughts on the topic. Given that IBR is such a hot topic in student lending and student debt management, we thought many COHEAO members, particularly members of our Financial Literacy Task Force, might be interested in this article. Excerpts from the interview are below:

IBR, to put it simply, ties your monthly loan payments to your income. This will lower the payments required of an individual if their income is proportionally low. The benefits of this are that these payment plans provide “a great safety net for borrowers who are struggling,” says Huffman, because they should help make it difficult for the borrower to default or be forced into bankruptcy through things like high credit card debt. IBR also allows for debt forgiveness after 10-years if you work in public interest, and 25-years no matter what. However, says Huffman, “it is very easy for all involved (students, families, politicians, and campus officials) to see these reduced payments as a means for making college more ‘affordable.’ Those who make these claims are either very short-sighted (perhaps until November?) and/or are suffering from a tremendous case of wishful thinking. At the end of the day, the debt remains and the note must still be paid by someone, somehow.”

Taxpayers and students alike should be aware of the extent of IBR’s benefits. They offer safer avenues for students to work towards repaying their loans, necessary in tough economic times. This is not a fix for everyone. Make no mistake, people carrying high balances for 20 or 25 years is a problem. Prospective still need to consider this when choosing their loans and their schools when making higher education decisions, rather than looking to IBR to make it all OK. “Even with IBR and ICR, many financial aid experts argue a good “rule of thumb” is to keep your total debt load below your expected started salary when you graduate. Unfortunately, in some fields (such as legal education), this is becoming nearly impossible for a very large subset of students.”

Huffman offers students advice that we think they should sincerely take to heart: “prospective students should independently research the employment and debt outcomes for their programs, particularly at high-cost professional schools.” IBR and federal loans can help individuals fight off default, but there is more to the student debt crisis that still needs to be addressed.

Huffman’s interview, which is part of a series, is available online: http://www.nerdwallet.com/blog/finance/prof/talking-ibr-wes-huffman/

NerdWallet has been talking with multiple people on the topic of IBR. We would encourage you to read the interviews and share your feedback. NerdWallet IBR interviews include:

Talking IBR with Wes Huffman

Christopher T. Lawson on IBR

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Student Loans, an Interview with Dean Paul Schiff Berman

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