NYU LRAP: please walk me through

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WashedUpProdigy
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NYU LRAP: please walk me through

Post by WashedUpProdigy » Wed Jan 05, 2022 10:35 am

NOTE: I've spoken to a counselor, read the website, still Flummoxed and need a "walkthrough" of the actual NYU LRAP scenario from a clear perspective. I will say what I seem to understand as my hypothetical future situation:

I have graduated from NYU Law (yay me). But I have a bunch of loans (boo). I also have begun working at a job in public interest that qualifies for LRAP (yay). Okay. So I enroll in LRAP, on the income-driven plan that is tied to PSLF (because, somehow, I don't qualify for the NYU-only plan (why? not sure)). What happens now?

FIRST, Let's Set The Financial Stage to understand this better: Let's say I was NOT in LRAP. I went on a regular 10-year repayment program. My payments were $1500 per month. The first three years, that might be about $1000 a month interest and $500 a month principal (obviously each month more of the 1500 would be principal and less would be interest -- I could clearly see this in the amortization schedule that would be transparently shown to me, say, on Navient). But now, because I am in the NYU LRAP income-driven plan, my monthly payment is (hypothetically) $400 a month (because, according to NYU's formula, that's just -- what it is). So, I pay my $400 a month.

OKAY, moving ahead: Let's say 3 years have elapsed. I've made 36 payments of $400 each. I decide that I don't want to be a lawyer anymore. This is not so bad, because NYU LRAP "vests" you after 3 years! But what does that actually mean in dollars? It means, apparently, that they begin the actual forgiveness. BUT -- what do I actually still owe on my loans?? THIS is what's so hard to figure out!

I've made 36 payments, but what did those payments consist of? How much principal and how much interest? ANY principal? Just SOME of the interest? Apparently this is the case, because on the website they go into the nasty subject of "negative amortization" -- meaning that those 36 payments of $400 each I've made did not even cover all the interest, let alone any of the principal. Is that correct? So, am I correct in thinking (based upon information I have gathered so far) that, at that 36-month point, NYU will write me a check for --- well, that's just it --- for WHAT? If I'm going to be really "forgiven" at that 36- month point, I would think they would write me a check for the $400X 36 payments I've made ($14,400) PLUS the check to cover that ugly "negative amortization" -- right? So that, at that 36-month "good-bye to LRAP" point, I would be left with 70% of my principal (is that right? would I have been forgiven 30% of my principal at the 30% mark of the ten years?) and start a new, 10-year repayment schedule at 5% interest (that's what I read on the website -- you start again, get a new 10 years at 5% -- is that right??)

OR -- am I left with some strange amount of interest? more than 70% of the principal? some other horrific and possibly mysterious balance of -- something?

[And Now, here is another, worse scenario -- what if I have to leave LRAP BEFORE the three years are up? UNVESTED. Is there any way to find out what I'd owe at any point? In other words, is the interest that I have NOT been paying (because I've been on the income-driven plan, wildly underpaying my loan) COMPOUNDING in some diabolical way?]

And now, the worst scenario of all: I make my payments for 10 years. NYU has been paying me back every six months (according to their website). But -- is it true that Now I have to do a final settling up with the Federal Government? What if it doesn't work out because of a technicality, but NYU LRAP never told me I was in danger? Do I have to pay NYU BACK the money they've been forgiving me (paying me back) for all those years? AND with a miserable penalty of interest that has been compounding in that diabolical way for all TEN years now?

AND -- what about the TAX BOMB situation at the end of the 10 years? Is the "forgiveness" taxable, or not? Supposedly, if I'm staying in LRAP, NYU is paying me back every six months (according to the website. Is THAT forgiveness taxable each year? (I don't think it is, actually. I think NYU has worked that part out -- but I'm not sure)

The thing is, I have all these questions, but I don't necessarily want to present them to NYU in this sort of adversarial/paranoid fashion! I want to enter law school as a fairly reasonable, trusting, yet on-her-toes person! Therefore, any assistance you can give me, boy would I appreciate! Thank you.

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Hennessy
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Re: NYU LRAP: please walk me through

Post by Hennessy » Wed Jan 05, 2022 11:06 am

WashedUpProdigy wrote:
Wed Jan 05, 2022 10:35 am
I want to enter law school as a fairly reasonable, trusting, yet on-her-toes person!
Good start.

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BlendedUnicorn
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Re: NYU LRAP: please walk me through

Post by BlendedUnicorn » Wed Jan 05, 2022 11:06 am

these are exactly the sort of questions you should be asking NYU, it's not adversarial at all (except to the extent you've added color commentary to the questions, which I'm sure you did for the purpose of forum posting). these are all probably a little too specific for you to get advice from here, except for very general states like as a general rule PSLF forgiveness isn't tax bombable (not sure about the NYU part but, again, that's something they should be able to tell you).

WashedUpProdigy
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Re: NYU LRAP: please walk me through

Post by WashedUpProdigy » Wed Jan 05, 2022 1:04 pm

The problem with bringing my questions to NYU is, I think, that I am so risk-averse that I am presenting all of these Doomsday scenarios that involve me LEAVING the law, and I think that may not be a very appealing presentation to these loan counselors (although maybe they couldn't care less? Do I have to appeal to them?) Anyway, I appreciate your responses!

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Nony
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Re: NYU LRAP: please walk me through

Post by Nony » Wed Jan 05, 2022 1:08 pm

The loan counselors won’t care. You’re just being thorough - there are lots of reasons someone might choose/have to leave law. But you could also just couch it as “becoming ineligible for LRAP” as I think even the best LRAP programs have some requirements re employment (like they don’t apply if you’re working in biglaw/making above a certain salary). So just say, “what if I enter employment that’s not LRAP eligible?” rather than “what if I leave law?” Again, they won’t care, but if it makes you feel better about asking.

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Stranger
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Re: NYU LRAP: please walk me through

Post by Stranger » Wed Jan 05, 2022 1:10 pm

Pretty sure the protection against negative amortization just keeps you from owing more than when you started. Still, better to have an LRAP than none at all. Definitely dig down on these details with the fine folks at NYU. And yeah, like Nony says, the worst case scenario stuff won't bother them.

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Nebby
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Re: NYU LRAP: please walk me through

Post by Nebby » Thu Jan 06, 2022 12:51 pm

First, you really need to talk to NYU about all of this. You're all over the place so it's not clear what's a question and what's a rhetorical question.

If your monthly income-based payment is less than the monthly accrued interest, then your overall loan balance will go up. Whether this will happen in your instance isn't something we can answer because we'd need to know your actual total loan balance, it's blended interest rate, and your income based repayment. Based on the post, a 150k balance at an assumed blended interest rate of 6% will accrue $700 in interest per month. So if you're paying $400/month, the balance will go up over time because you are paying less per month than accrued interest. This is "negative amortization" (as opposed to "amortization," aka paying down debt).

So if you have a $400/month payment on a starting balance of 150k @ 6% interest, after 36 months the balance will be around 163k. So if you stopped LRAP after 3 years, you'll owe more than you started.

How much their negative amortization protection you might qualify for is a complex calculation we can't do right now because we lack the variables to do the calculation.

On the topic of what will be forgiven, it'll be the LRAP benefits paid out to you over that 36 month period. Twice a year (usually January and July), NYU will electronically deposit your LRAP benefits into the account you designate. Those benefits are a forgivable loan (you'll sign a promissory note as part of your LRAP benefits). So what would be forgiven is $400*36.

One thing you should look into is whether forgiveness is complete after 3 years or only partial. Under the CLS LRAP (the one in on), forgiveness begins at year 3, but only a portion of it is forgiven. Each year until year 6, more is forgiven. By year 6, all is forgiven: each year after 6 is automatically forgiven so long as you remain in good standing until year 10 when you should qualify for PSLF.

If you leave before 36 months under the $400/month scenario with a starting balance of 150k @ 6%, you loan balance will be more than when you started AND you'll to pay NYU back for some or all of the benefits they paid out over the period you were in the program.

If you've done 10 years in NYU LRAP, you won't have to pay any of that back if (for whatever reason) you can't get your debt forgiven under PSLF (you'll just be stuck with more debt than when you graduated).

Neither NYU's forgiveness nor PSLF's forgiveness is taxable.

SpeciallySpecious

Re: NYU LRAP: please walk me through

Post by SpeciallySpecious » Sun Jan 09, 2022 10:27 am

Thank you so much!! that was VERY helpful.

SpeciallySpecious

Re: NYU LRAP: please walk me through

Post by SpeciallySpecious » Tue Jan 11, 2022 12:18 pm

Is there not a contradiction here, though?
NYU refunds the entire 36 months of payments but has not "forgiven" those 36 months of payments? And then after the first 36 months, NYU refunds what you've been paying in but that's not total forgiveness of those payments?

Is "forgiveness" not "forgive as you go"? This is what I don't understand!

I also have an appointment to talk to the counselor again. I hope I understand what she says this time! (It's like traveling in a foreign country where you don't speak the language -- you can ask "ou est le Louvre?" but then they answer and you have no idea what they said)

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Nony
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Re: NYU LRAP: please walk me through

Post by Nony » Tue Jan 11, 2022 2:23 pm

I don’t know NYU’s plans specifically, but I’m confused by what you’re saying based on my general understanding of how LRAPs work.

I think if you do the income-based plan, you don’t make your own payments - the benefit you receive is that NYU gives you money to make those payments. That money is in the form of a forgivable loan.

If you drop out of LRAP before you’re vested/before you reach forgiveness on the NYU loan, you’d have to pay back some/all of the money that NYU loaned you for the payments. That’s between you and NYU - the federal government isn’t a party to that.

If you drop out of LRAP after you’re vested/after forgiveness on the NYU loan, you don’t have to pay back the money that NYU already loaned you for your payments, but you don’t get any more money from NYU going forward. It sounds like NYU offers “payment assistance” at this point but the public web page isn’t clear what this is (maybe intended to address some of the impact of negative amortization?). At that point you’re responsible for all of the rest of your payments. Those might continue to be income-based (but your income is high enough to have kicked you out of the LRAP), or they might be the standard 10 year payment - it’ll depend on your employment and personal circumstances.

None of this should entail NYU refunding anything that you’ve already paid or forgiving your actual law school debt. You only get forgiveness on the federal loans you used to pay for school from the federal government, after you’ve made 120 loan payments while in qualifying employment. (Nebby talked about NYU “forgiving” the money they loan you to make payments on your federal loans, but that’s different.) The 120 payments don’t have to consecutive - you can dip in and out, so it might take you more than 10 years - but that’s what matters to the feds.

If you move from PSLF-eligible employment to ineligible employment, that doesn’t change anything about your loan balance or forgive any payments. You’ve paid what you’ve paid and you still owe whatever’s left.

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Nebby
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Re: NYU LRAP: please walk me through

Post by Nebby » Tue Jan 11, 2022 7:39 pm

SpeciallySpecious wrote:
Tue Jan 11, 2022 12:18 pm
Is there not a contradiction here, though?
NYU refunds the entire 36 months of payments but has not "forgiven" those 36 months of payments? And then after the first 36 months, NYU refunds what you've been paying in but that's not total forgiveness of those payments?

Is "forgiveness" not "forgive as you go"? This is what I don't understand!

I also have an appointment to talk to the counselor again. I hope I understand what she says this time! (It's like traveling in a foreign country where you don't speak the language -- you can ask "ou est le Louvre?" but then they answer and you have no idea what they said)
Yes, it is forgive as you go, AFTER 36 months. Assume you get $400/month in LRAP benefits, here's the timeline:

May 2022: Graduate NYU
September 2022: Apply for LRAP
January 2023: LRAP deposits $2400 into bank account designated by you.
January-June 2023: You pay your student loans monthly using the LRAP funds.
July 2023: LRAP deposits $2400 into bank account designated by you.
July-December 2023: You pay your student loans using the LRAP funds
November 2023: Reapply for LRAP benefits for 2024.

Repeat for years 2024+2025.

By December 2025, you will have received $14,400 in LRAP benefits.

If you're still in qualifying employment on January 2026, then you will have surpassed the required 36 months and the entire $14,400 will be forgiven (i.e., you could change jobs to non-qualifying employment and not have to pay anything back to NYU). https://www.law.nyu.edu/financialaid/lr ... 0REPAYMENT

Each additional year is subsequently forgiven so long as you remain in qualifying employment. So at the beginning of January 2027, the LRAP benefits paid out in 2026 are automatically forgiven. This annual forgiveness continues until you've hit 10 years in the program (by then you can apply for Public Service Loan Forgiveness and the federal government will forgive your remaining student loan balance).

Bottom line: you should plan to spend at least 3 years in LRAP to avoid having to pay benefits back if you change jobs.
Also, since (except in unique circumstances) you're required to enter income based repayment (e.g., PAYE) as a condition of the LRAP program, it's possible that your monthly income-based repayment is less than monthly interest, so after 3 years your student loan balance will be higher than you started, so you should probably try to stick it out for the whole 10 years unless your debt loan is low enough that you'll still make a dent in your loans on an income based repayment plan.

SpeciallySpecious

Re: NYU LRAP: please walk me through

Post by SpeciallySpecious » Thu Jan 20, 2022 9:24 am

Thank you/ Regarding this: "since (except in unique circumstances) you're required to enter income based repayment (e.g., PAYE) as a condition of the LRAP program, it's possible that your monthly income-based repayment is less than monthly interest, so after 3 years your student loan balance will be higher than you started, so you should probably try to stick it out for the whole 10 years unless your debt loan is low enough that you'll still make a dent in your loans on an income based repayment plan."

Where does it say that you're required to enroll in PAYE? I don't see anything about that on the NYU Law LRAP website. I thought you're in the NYU LRAP program.

Also, do you have any idea how low the debt should be in order to "make a dent" in it if you stay in for fewer than 10 years? (I'd love to see an amortization schedule but I guess that only becomes available after one is accepted into the LRAP program.

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Nebby
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Re: NYU LRAP: please walk me through

Post by Nebby » Thu Jan 20, 2022 10:33 am

SpeciallySpecious wrote:
Thu Jan 20, 2022 9:24 am
Thank you/ Regarding this: "since (except in unique circumstances) you're required to enter income based repayment (e.g., PAYE) as a condition of the LRAP program, it's possible that your monthly income-based repayment is less than monthly interest, so after 3 years your student loan balance will be higher than you started, so you should probably try to stick it out for the whole 10 years unless your debt loan is low enough that you'll still make a dent in your loans on an income based repayment plan."

Where does it say that you're required to enroll in PAYE? I don't see anything about that on the NYU Law LRAP website. I thought you're in the NYU LRAP program.

Also, do you have any idea how low the debt should be in order to "make a dent" in it if you stay in for fewer than 10 years? (I'd love to see an amortization schedule but I guess that only becomes available after one is accepted into the LRAP program.
"LRAP integrates with PSLFP and requires participants to use IBR if they qualify." https://www.law.nyu.edu/financialaid/lr ... am-details

I'm on the CLS LRAP option that operates similar to NYU's.

On your second question, it depends on your monthly payment and blended interest rate. If you assume you'll be paying $400/month once you start repayment with a blended interest rate of 6%, then the balance needs to be very low.

If you mean "make a dent" to mean payoff at least 25% within 5 years, then your starting balance needs to be about $46,000 under the $400/month & 6% interest scenario.

Here's a spreadsheet I made that shows the above. You can download it so you can run your own scenarios. https://docs.google.com/spreadsheets/d/ ... sp=sharing

If you want to pay off 25% within 5 years under a $550/month & 6% interest scenario, the starting balance needs to be about $63,000.

As you can see, the starting balance needs to be relatively small in order to pay down part of the debt if you intend to leave LRAP before the 10 years is up.

One caveat, since you'll be on an IBR plan (like PAYE), your payments will change each year (assuming your income changes each year). Generally, because IBR requires application each fall, it's based on your previous year's taxes. As a result, there's about a two year delay between your actual annual salary and your IBR payments. So under IBR, most people's monthly repayment is either $0 or very low the first two years (less than $100 per month). So you won't actually start out at a set amount like you would under a standard 10-year repayment plan. In reality, you'll start out at zero and could end around $600-700 depending on how your salary changes over 10 years until PSLF forgives the remaining debt.

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Nony
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Re: NYU LRAP: please walk me through

Post by Nony » Thu Jan 20, 2022 11:11 am

So to be eligible for PSLF at the end of your ten years, your payments have to have been made under a qualifying federal income-based repayment plan (for example, PAYE - there are a couple but PAYE is probably the most common one). You enroll in this program with the government and that’s what caps your payments at a percentage of your income. You then enroll in NYU’s LRAP separately and NYU provides you the money to make your payments to the government. NYU isn’t paying the loans directly, but you’re agreeing with NYU that you’ll use the money they give you to pay the loans.

Your loans are all from the feds, and you make loan payments to the feds. That’s independent from NYU. NYU just gives you money to help you make those payments.

Pre-PSLF/income-based plans, LRAPs would just give you the money to cover your payments under the standard 10 year plan so that if you were on the LRAP for all 10 years, your debt would be fully paid off. (That’s why those LRAPs tended to have lower income caps.) Now, under PSLF, you’re not getting money to pay of the entire debt, but to make the 120 payments required for the government to forgive the rest. And the government requires you to be on a qualifying plan (like PAYE) to be eligible for forgiveness after 10 years.

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