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Income Based Repayment For Student Loans
Income Based Repayment Means Less Financial Stress
Student loan Income-Based Repayment (IBR) is a student loan repayment option designed to make payments universally affordable based on income and family size. IBR was introduced in 2009. And in 2010, in response to economic conditions, the IBR payment formula was modified to reduce monthly payments to 15% of discretionary income, and to schedule an additional reduction to 10% of discretionary income for 2014.
Amazing Changes Ahead
On October 25, 2011 the White House introduced the “Pay As You Earn” proposal, that moves the 2014 reduction to 2012 and adds a feature forgiving any debt remaining after 20 years of payments.
Student Loans and Credit Repair
Our typical credit repair customer has surmounted the financial challenges of the past and is building a foundation for the future. During the rebuilding stage we often suggest making a regular contribution to a savings account; a hard task when the budget is tight. Pending changes aside, the current version of IBR has plenty to offer anyone that feels budgetary stress.
Handy Links:
Big Cash Flow Savings
Here is an example from the White House website of savings available under the current plan, and the additional savings possible under the proposed “Pay As You Earn” plan:
“A nurse who is earning $45,000 and has $60,000 in federal student loans. Under the standard repayment plan, this borrower’s monthly repayment amount is $690. The currently available IBR plan would reduce this borrower’s payment by $332 to $358. President Obama’s improved ‘Pay As You Earn’ plan will reduce her payment by an additional $119 to a more manageable $239 — a total reduction of $451 a month.”
Liberate Your Cash Flow
There are several things to consider when deciding on IBR versus a regular 10 year repayment plan. IBR will extend your repayment, meaning that you will pay more interest over time. On the other hand IBR means liberated cash flow. And if extra cash flow means you can live comfortably within your budget, meet your commitments, and maintain your good credit, the benefits of IBR may far outweigh the costs.
IBR Limitations
If your student loans are in default you will need to get them out of default before you can qualify for Income Based Repayment. Here is a great article on resolving student loan problems: Student Loans and Credit Repair.
Will New Mortgage Refinance Rules Help You?
Are You Upside Down on Your Mortgage?
On October 24th, 2011, the Federal Housing Finance Agency, along with Fannie Mae and Freddie Mac announced a modification to the Home Affordable Refinance Program (HARP). The new version of HARP is designed to help people who were previously unable to refinance due to an excessive loan-to-value. The new HARP rules eliminate all limits on the amount of your mortgage relative to your property value.
Late Payment Rules Eased
In addition, there are easier mortgage payment history guidelines. You cannot have had any 30-day delinquencies in the last six months, and no more than one 30-day delinquency in the six month period prior. If you have recent late payments there is still hope! The end date for the HARP program has been extended to December 31st, 2013, so there is still time to qualify.
The Benefits
The benefits are potentially amazing. Your new mortgage will be at today’s low rates, which are in the 4% range. As an example of potential savings, if you owe $300,000 and have an interest rate of 8%, amortized over 30 years, your P&I payment would be $2,201. The same loan with a rate of 4% would have a payment of $1,432, a savings of $768 per month. You may also have the opportunity to switch to a shorter term loan (allowing you to reduce your principle balance sooner).
Bankruptcy and Foreclosure Seasoning Requirements Lifted
Of special interest to our credit repair customers will be the elimination of bankruptcy and foreclosure seasoning requirements. Prior bankruptcy and foreclosures on your credit report will not disqualify you, regardless of their age. In fact, you should not have to meet any credit or income qualifying requirements unless the refinance produces an increase in your principle and interest payment of more than 20% of your current payment.
To Qualify
To qualify, your mortgage must owned by Fannie Mae or Freddie Mac. Normally you would not know who owns your loan (it is rarely the same as the servicer to whom you send your payments). You can find out if you have a Fannie Mae or Freddie Mac loan by going to:
We are not mortgage experts! Please contact a mortgage professional for details and more specific qualifying information.
Mystery of the Vanishing Credit Score
Up and Gone
So there you are, right in the middle of an otherwise wonderfully effective credit repair program and your credit score vanishes. Up and gone. Your first reaction is that something must be wrong. The whole point was to improve your scores, not make them vanish.
No Worry
Chances are there is nothing wrong at all. You probably just fell off the FICO radar screen due to a lack of open active accounts, and your lack of a score is just a brief respite on the way to your credit goals.
The Minimum Requirements
FICO has certain minimum requirements you must meet in order to have a score. If you fall short of these requirements, even by a little bit, your credit report will not generate a score.
From myFICO.com:
There’s really not much to it; in order for a FICO® score to be calculated, a credit report must contain these minimum requirements:
- At least one account that has been open for six months or more
- At least one undisputed account that has been reported to the credit bureau with in the past six months
- No indication of deceased on the credit report (Please note: if you share an account with another person this may affect you if the other account holder is reported deceased).
The Tipping Point
If the removal, or dispute, of an account causes you to fall short of the minimum requirements you will (at least for the moment) have no score! The good news is that as soon as the content of your report includes the necessary requirements your score will instantly return.
Getting on the Right Track
If you are a customer of ours you already know that we emphasize the importance of building open active accounts. If you start our program with no open credit cards we will ask you to open two new small secured cards to insure you meet FICO’s minimum requirements, and more importantly, are on your way to great credit scores!
Bye-Bye Federal Tax Liens
The Trouble with Tax Liens
Federal tax liens can depress your FICO scores and keep you from getting approved for most types of loans. Recently, the IRS announced a number of policy changes that allow taxpayers to remove federal tax liens from their credit reports, and, as they put it, “get a fresh start”. These changes should be very exciting for anyone with IRS trouble who is attempting credit repair.
New Policies
Prior to these policy changes, the IRS would release a tax lien when it was paid in full, but would continue to report on your credit report for seven years from the payment date. Now the IRS will withdraw tax liens (and notify the credit bureaus to cease reporting) upon request under the following circumstances:
- The lien is paid in full
- The taxpayer enters into a Direct Debt Installment Agreement
- The taxpayer converts a regular installment agreement into a Direct Debit Installment Agreement
Liens in Direct Debit Installment Agreements will be withdrawn on request – after a probationary period demonstrating the ability to honor the payment arrangement.
You Must Ask
The IRS does not withdraw liens automatically. Here is the form that must be used to apply for withdrawal of tax lien: http://www.irs.gov/pub/irs-pdf/f12277.pdf
Future Changes
Another point of interest, currently the IRS will automatically file a lien when the amount owned is greater than $5,000. The IRS now plans to increase this threshold to $10,000 sometime in 2012.
Auto Lenders Use Special FICO Scores
Yet Another Score
As a follow up to our previous post (FICO Scores and FAKO Scores) where we chatted about the difficulty consumers have distinguishing between authentic FICO scores and the scores peddled by the bureaus and their offshoots, we thought it would be useful to bring up another score; one that is a legitimate FICO score, is in common use, and yet may differ from the FICO scores you can buy from MyFICO.com.
The FICO Auto Industry Option Score
When a car dealer or auto finance company runs your credit, they pull a unique version of the FICO score, one that has been created just for them by Fair Isaac. This is usually called the, “FICO Auto Industry Option Score”, or more concisely, the “Auto Option Score”. The Auto Option Score is a version of the Classic FICO score (the one you can buy at MyFICO) with additional weight put on your auto loan history.
The Formula
As with their other products, Fair Isaac does not reveal the formula, but we speculate that the Auto Option Score (aside from putting extra weight on your auto history) also shifts extra weight to your other non-auto installment loans, and possibly even considers your revolving balances in a different way from Classic FICO; we have seen several cases recently where the Auto Option Score has varied from the Classic FICO – where there is no auto history at all.
No Access
The Auto Option Score is yet another score that affects your life that you do not have access too. It is not as bad as not having access to your Experian FICO score, but unfortunate nevertheless. Only the auto industry has access to these scores. So what does it mean to you?
No Worry
In our opinion it is no big deal. If you are part of the Sky Blue Credit Repair program, everything we do is designed to improve your FICO score. Whatever we do (or ask you to do) will help your case whether you are planning to buy a car or a home. Focus on the basics of credit improvement and you will be fine. Whatever helps your Classic FICO will help your Auto Option Score.