Borrower Receives Misinformation about IBR from Sallie Mae

A distressed borrower named Amy called me today for help on her student loans. She was very distraught, because she and her husband are having a great deal of difficulty making ends meet. She is unemployed, and her husband is a nurse who travels around the country for work. Amy is also the mother of two children. She home schools them and the family currently lives in Texas.

She and her husband were thinking that it might be best for her to default on her student loans, so she wanted to talk to me about the plan of action. They have medical bills and credit card bills, as well as two growing children to feed.

When Amy and I first got off the phone, she was in tears. I did encourage her to look into IBR as a way to lower her payments. As it stands, Amy has subsidized and unsubsidized loans. Sallie Mae is the servicer of a portion of her debt. Since she has not defaulted on her loans, she is eligible for IBR.

Amy thanked me for the information, and I hung up.

A few minutes later, she called back and was more frustrated.

"They told me that my payments would go down to $105.31 for the first 12 months. However, after those twelve months are up, I was told that my payments would go up to $696 a month."

We were both puzzled. At this point, Amy pays around $500 a month, so how could IBR possibly be helpful if (a) the repayment program only lasted a year after which (b) her payments would shoot up to something even higher than what she is paying now?

"That makes no sense to me," I told her. Since my expertise is not on repayment plans, I told her that I would have to ask some of my sources about this information. Amy was distraught again, and for justified reasons.

I made it very clear, however, that she would be worse off by defaulting. I assured that I would have answers for her soon.

We hung up again.

After I sent out some questions about this situation, Amy called me a third time.

The news was much better this time.

Amy still hates Sallie Mae, but at least she cleared up the confusion about IBR. Here's what she found out:

In order to keep her monthly payments at $106.31, she will need to refile her paperwork with Sallie Mae every year. 

The first person with whom she spoke did not provide her with that important detail! 

Amy is much more relieved. She currently owes around $62,000. The good thing about IBR is this - it lowers your payments, and if you continue to pay for 25 years, the remainder of your debt is then cancelled.

So, folks, make sure you know all the information about IBR before deciding it's not a good option.