REPAYE or IBR?

[SKPharmD]

I have $205,000 in consolidated student loan debt from pharmacy school. I have been on IBR for 3 years now and am thinking about switching to the REPAYE plan.

I have weighed a lot of the pros and cons (combined income with my wife being the biggest).

I think I want to aggressively pay them off (not eligible for PSLF myself, but my wife is (she is a RN)).

I can pay them off in 4-5 years, by throwing a large chunk of our disposable income at them.

If I switch to REPAYE, will my 3 years of payments count towards the 25 year forgiveness of the REPAYE program, in the event that I change my mind about aggressively paying them off?

If I understand correctly, 100% of my interest will be paid for for the first 3 years on REPAYE and then 50% for the life of the loan? If this is accurate, I can basically convert my student loans into a 0% interest loan for 3 years, no?

Any tips and answers to my questions would be greatly appreciated.

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[Mad Jack]

I have $205,000 in consolidated student loan debt from pharmacy school. I have been on IBR for 3 years now and am thinking about switching to the REPAYE plan.

I have weighed a lot of the pros and cons (combined income with my wife being the biggest).

I think I want to aggressively pay them off (not eligible for PSLF myself, but my wife is (she is a RN)).

I can pay them off in 4-5 years, by throwing a large chunk of our disposable income at them.

If I switch to REPAYE, will my 3 years of payments count towards the 25 year forgiveness of the REPAYE program, in the event that I change my mind about aggressively paying them off?

If I understand correctly, 100% of my interest will be paid for for the first 3 years on REPAYE and then 50% for the life of the loan? If this is accurate, I can basically convert my student loans into a 0% interest loan for 3 years, no?

Any tips and answers to my questions would be greatly appreciated.

I think you misunderstand- 100% of interest above your minimum payment is forgiven for three years, in the event that your minimum payment does not cover the interest on your loan. After three years that coverage drops to 50%. Don't know if your IBR will count toward REPAYE tho.

 

[SKPharmD]

I think you misunderstand- 100% of interest above your minimum payment is forgiven for three years, in the event that your minimum payment does not cover the interest on your loan. After three years that coverage drops to 50%. Don't know if your IBR will count toward REPAYE tho.

Thanks for clearing that up for me, I read up on it some more and understand it better.

Still a tough decision to make with paying them off quickly or holding off. What if I get a hospital job that makes me eligible for PSLF in a year or two and I already paid off $50-100k of my loans? That would be frustrating.

 

[Mad Jack]

Thanks for clearing that up for me, I read up on it some more and understand it better.

Still a tough decision to make with paying them off quickly or holding off. What if I get a hospital job that makes me eligible for PSLF in a year or two and I already paid off $50-100k of my loans? That would be frustrating.

What if the program never comes to fruition or is capped prior to your collecting? No one to date has collected on PSLF, and I doubt the government is going to hold up their end of the bargain in that regard, particularly ten plus years out from now.

 

[RangerBob]

What if the program never comes to fruition or is capped prior to your collecting? No one to date has collected on PSLF, and I doubt the government is going to hold up their end of the bargain in that regard, particularly ten plus years out from now.

If you can pay the loans off within 4-5 years that seems like the best way to go. As Mad Jack points out, PSLF has not yet been claimed by anyone and there's a strong chance there will be changes. And if you haven't made any PSLF-eligible payments, then you'd still have a minimum of 10 years left before you could claim it. Get rid of your debt now if you can.

IBR/PAYE forgiveness is even worse, because it's also not guaranteed, and as of now is taxable. So your loan balance will climb unless you're paying off the accumulating interest, and then you're looking at (in a best case scenario), 25 years of payments and then paying ~30% in taxes on the final amount that gets forgiven. And there's the possibility that the forgiveness will be taken away, in which case you spent 25 years making payments in hopes of forgiveness but now owe more than you did when you graduated.

All these forgiveness programs may be the smart way to go, but generally they're not the smart way to go if you have the means to pay off your loans within a few years. If you had made 4 years of PSLF-eligible payments it'd be a bit different, and I'd say keep making the minimum payment through Winter 2017 as Fall/Winter is when the first cohort of people will be eligible for forgiveness and I think we will know either by then or shortly after what will happen to PSLF.

As far as the 25-year forgiveness, I'm pretty sure if you change to REPAYE then you start all over, as IBR and REPAYE are two separate programs. Both are PSLF-eligible programs, but they are still separate so their own loan forgiveness programs are not interchangeable.

Keep in mind your interest will also capitalize if you change from IBR to REPAYE. I was in the same shoes as you--already 3 years into IBR, but I switched to REPAYE because the interest subsidy will save me more within 1-2 years than extra cost from interest capitalization.

 

[glow worm]

If I switch to REPAYE, will my 3 years of payments count towards the 25 year forgiveness of the REPAYE program, in the event that I change my mind about aggressively paying them off?

If I understand correctly, 100% of my interest will be paid for for the first 3 years on REPAYE and then 50% for the life of the loan? If this is accurate, I can basically convert my student loans into a 0% interest loan for 3 years, no?

A couple of corrections:
Under REPAYE, 100% of your interest on SUBSIDIZED loans is covered for 3 years.
Under the interest subsidy of REPAYE, 50% of the unpaid interest (that which is not covered by your monthly payment) on Subsidized, Unsubsidized, and Plus loans will be covered throughout the entire time period of the loan.

Under IBR, 100% of the interest on Subsidized loans is also covered for 3 years, but IBR does not help cover any accumulating interest on the rest of your loans (Unsubsidized and Plus).

As I understand it, switching from IBR to REPAYE or vice versa a) causes your interest to capitalize, and b) resets the clock on loan forgiveness for those programs (20 years for IBR, 25 years for REPAYE).
It does not, however, reset the clock on the 10 year PSLF - both of these programs would qualify you for that. It doesn't sound from your post like that's part of your game plan though.

 

[SigmaFS]

A couple of corrections:
Under REPAYE, 100% of your interest on SUBSIDIZED loans is covered for 3 years.
Under the interest subsidy of REPAYE, 50% of the unpaid interest (that which is not covered by your monthly payment) on Subsidized, Unsubsidized, and Plus loans will be covered throughout the entire time period of the loan.

Under IBR, 100% of the interest on Subsidized loans is also covered for 3 years, but IBR does not help cover any accumulating interest on the rest of your loans (Unsubsidized and Plus).

As I understand it, switching from IBR to REPAYE or vice versa a) causes your interest to capitalize, and b) resets the clock on loan forgiveness for those programs (20 years for IBR, 25 years for REPAYE).
It does not, however, reset the clock on the 10 year PSLF - both of these programs would qualify you for that. It doesn't sound from your post like that's part of your game plan though.

Glow - 3 out of 4. Your REPAYE interest subsidy description and the capitalization of interest are correct, but the clock does not reset when you switch repayment programs. The clock resets if you consolidate.

 

[SigmaFS]

OP - need additional information to provide better guidance:

• What's your income? your wife's income? What was your 2015 AGI?
• What's the composition of your federal loans (screen shot from www.nslds.ed.gov)? And, your wife?
• Any children?

 

[glow worm]

Glow - 3 out of 4. Your REPAYE interest subsidy description and the capitalization of interest are correct, but the clock does not reset when you switch repayment programs. The clock resets if you consolidate.

Thank you. You are totally right. My school-designated financial aid person has officially given me no useful/correct information.

 

[RangerBob]

When I spoke with FedLoan they said the clock does restart when you switch repayment plan, unless you're referring to PSLF in which case it doesn't matter as long as you remain on an eligible plan.

 

[SigmaFS]

When I spoke with FedLoan they said the clock does restart when you switch repayment plan, unless you're referring to PSLF in which case it doesn't matter as long as you remain on an eligible plan.

I don't have much confidence in FedLoan Servicing. I suggest you call back and speak to manager / supervisor.

 

[glow worm]

When I spoke with FedLoan they said the clock does restart when you switch repayment plan, unless you're referring to PSLF in which case it doesn't matter as long as you remain on an eligible plan.

https://studentaid.ed.gov/sa/sites/default/files/income-driven-repayment-q-and-a.pdf
Page 17: "For example, if you began repayment under the 10-year Standard Repayment Plan and later changed to one of the income-driven repayment plans, the monthly payments you made under the 10-year Standard Repayment Plan will generally count toward the required 20 or 25 years of qualifying monthly payments for the income-driven repayment plan. Similarly, if you were previously in repayment under one income driven repayment plan and later switched to a different income-driven repayment plan, payments you made under both plans will generally count toward the required years of qualifying monthly payments for the new plan."

 

[RangerBob]

I don't have much confidence in FedLoan Servicing. I suggest you call back and speak to manager / supervisor.

Their "supervisors" are almost as useless as the representative. It took me 3 months and about 20 phone calls to get a consolidation loan mis-hap fixed (and it ultimately got fixed because I started my advanced PGY-2 year and the financial aid director at the medical school offered to help me out and knew one of the administrators at FedLoan).

 

[RangerBob]

https://studentaid.ed.gov/sa/sites/default/files/income-driven-repayment-q-and-a.pdf
Page 17: "For example, if you began repayment under the 10-year Standard Repayment Plan and later changed to one of the income-driven repayment plans, the monthly payments you made under the 10-year Standard Repayment Plan will generally count toward the required 20 or 25 years of qualifying monthly payments for the income-driven repayment plan. Similarly, if you were previously in repayment under one income driven repayment plan and later switched to a different income-driven repayment plan, payments you made under both plans will generally count toward the required years of qualifying monthly payments for the new plan."

Very interesting, and quite helpful.

Either way, despite my ridiculous loan burden, I don't intend to keep them around 25 years. I figure at the least I should have most of my loans paid off by then. I'd be fine getting $50k forgiven and paying taxes on that, but I really don't want to rely on the programs for ultimate pay off and make the minimum monthly payment and allow my loan balance to balloon out of control. It'd be depressing to owe the same or more in 25 years.