Loan refinancing vs repaye vs paye

[mommybaby18]

Hi everyone.

Thanks in advance for taking the time to read my post. I was fortunate to attend my state school in Texas and will be graduating in May with only 60k in debt. I will be moving to the west coast for residency and have gotten conflicting info regarding loan repayment.

Because of my low debt burden, it was recommended that I refinance my loans and aggressively pay them off. However, I'm not sure that I won't be practicing in an academic center post residency and am not sure if I should give up the PSLF option yet. I also was given advice to do REPAYE to get the interest break and to save money in the long run by switching to PAYE after I graduate. I've appreciated all the info so far but it has done nothing but conflicted and ultimately confused me more. So any thoughts about which would be better?

For reference I am single for tax purposes with no intentions of marrying in the next 4 years (length of residency). I have about 6k in credit card debt which I will pay off asap. No other debt (mortgage or car).

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[RangerBob]

What you owe is small enough I highly doubt you could benefit from PFLF, and even if you could, I think you'd still come out ahead by refinancing and paying off ASAP rather than dragging things out an additional 6 years past residency (and thus paying 6 more years worth of interest). $60k is small enough you can even pay that off entirely while in residency if you're disciplined enough, and you could certainly pay it off within one year of being an attending. If I were in your shoes I wouldn't entertain the thought of PSLF.

Sign up for REPAYE while you're a resident so that if you just want to make the minimum payments you get the interest subsidy benefit, and pay off that loan within one year of practice. There's really no reason to have student debt past one year of practice if it's that small. Honestly though, I'd try and pay off at least half while in residency. I've paid off about $30k to date, but I don't live in CA.

The only reason to refinance now would be if you want to aggressively pay off the loans while in residency, though maybe others can chime in if they feel differently. But even then you may still be much better off with REPAYE due to the interest subsidy and the federal loan flexibility (you could always put your loans in forbearance or make the minimum REPAYE payment if you fall on hard times, etc). Remember, you can pay more than what REPAYE asks you to pay (and you can target just the highest interest-rate loans if you have loans at different rates)

 

[SigmaFS]

The REPAYE 50% interest subsidy may be minimal or non-existent given your loan amount and resident income. Your REPAYE payment may be sufficient to cover the interest due assuming a resident income of $53,000. For example, if loan balance = $60k @ 6.5% results in annual interest due of $3,900. And, if AGI = $53K, then REPAYE annual payments = $3,535 resulting in an interest subsidy of $182.50. I would probably refinance.

 

[RangerBob]

I guess SigmaFS ran the numbers and REPAYE actually doesn't make as much financial sense...

In that case, it's probably worth pointing out that if you refinance, with DRB (and CommonBond I think) you will actually have lower payments while in residency. If you chose the shortest repayment plan (typically 5-years) then you can get a rate as low as 2.7%. You do lose the protections of IBR/REPAYE (forbearance, etc.), but with DRB you only pay $100/month, which will be a lot cheaper than any IBR/REPAYE payment. And you of course have the option to pay more if you want. So it could be a win-win--lower interest rate and monthly payments, and then you pay it all off in 1-2 years of practice.

That is probably the smarter way to go.

 

[Debt Free Doctor]

Hi everyone.

Thanks in advance for taking the time to read my post. I was fortunate to attend my state school in Texas and will be graduating in May with only 60k in debt. I will be moving to the west coast for residency and have gotten conflicting info regarding loan repayment.

Because of my low debt burden, it was recommended that I refinance my loans and aggressively pay them off. However, I'm not sure that I won't be practicing in an academic center post residency and am not sure if I should give up the PSLF option yet. I also was given advice to do REPAYE to get the interest break and to save money in the long run by switching to PAYE after I graduate. I've appreciated all the info so far but it has done nothing but conflicted and ultimately confused me more. So any thoughts about which would be better?

For reference I am single for tax purposes with no intentions of marrying in the next 4 years (length of residency). I have about 6k in credit card debt which I will pay off asap. No other debt (mortgage or car).

These 2 charts may help with your decision.
Generally someone with low debt/income ratio don't need PSLF. Refinancing to lower rate and pay off aggressively is usually the way to go.
Remember, with PSLF, much of the debt that's forgiven in the end is Interest (from 10 year of interest accrual, 10-training years of interest capitalization, and a high interest rate).

Let me know if you have any question

 

[ISuckAtLife]

When you refinance your loans, does that new loan (with sofi or drb) capitalize every year?

Or does it not capitalize like IBR etc?

 

[Debt Free Doctor]

When you refinance your loans, does that new loan (with sofi or drb) capitalize every year?

Or does it not capitalize like IBR etc?

great question.

with DRB, the interest does NOT capitalize during residency. they give you a break during training knowing that it's tough to pay the entire accrued interest. so DRB doesn't capitalize until 6 months after fellowship. that was the most updated policy DRB had when my friend recently signed a contract.

i believe LinkCapital has similar policies.

but since LinkCapital has been out of money to lend (which does happen with banks when there's too much business: as many PGY's jump on the first historical chance to refinance high interest student loans to lower rates during training), I have not checked their policies recently.

however, since LC offers $0/mo minimum payment during PGY, which allows for even greater cash flow for retirement savings and other higher return investment, it will be good idea to learn more about LC policies. That way, you will be ready to refinance with them as soon as they announce that they have more money to lend. I'm touch with them and they will inform me when they have money again. I will definitely bring that good news back here, SDN.

sorry i haven't checked SDN for awhile due to some negative comments. feel free to email me future questions.

 

[ISuckAtLife]

If interest capitalizes annually when you refinance, why do people do it? Using repaye seems better.

When you consider the capitalization and loss of other benefits you would get with the government, it seems that refinancing saves much less than one might think.

 

[Debt Free Doctor]

If interest capitalizes annually when you refinance, why do people do it? Using repaye seems better.

When you consider the capitalization and loss of other benefits you would get with the government, it seems that refinancing saves much less than one might think.

good point, each individual scenario is totally different, i have friends with attending spouses who make too much income, therefore they don't get any REPAYE interest subsidy, so their effective interest rate even though they are on REPAYE is still the same old 6.8%
so refinancing works for them because the rate could be much lower... than 6.8% depending on the terms they choose.
every individual should run their own specific numbers based on AGI at the fed online calulator to see if REPAYE vs. refi makes more sense for his/her unique circumstances.
once you refinance, interests Do not capitalize again UNTIL 6 months out of fellowship (according to DRB).