REPAYE Plan - Feds pay 50% of interest?

[ace_inhibitor111]

As I understand it, under the new REPAYE plan, the government pays 50% of the accrued interest if the minimum monthly payment is not enough to cover it (negative amortization). This greatly reduces the final tax bomb compared to PAYE or IBR. If this is true, does anyone know if this stipulation is written anywhere in the master promissory note? I am worried the government could pull this out at anytime if it is not written there and I'm kind of banking on this plan in order to attend the school I want to go to.

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[RangerBob]

As I understand it, under the new REPAYE plan, the government pays 50% of the accrued interest if the minimum monthly payment is not enough to cover it (negative amortization). This greatly reduces the final tax bomb compared to PAYE or IBR. If this is true, does anyone know if this stipulation is written anywhere in the master promissory note? I am worried the government could pull this out at anytime if it is not written there and I'm kind of banking on this plan in order to attend the school I want to go to.

This is true--Uncle Sam pays 50% of unpaid unsubsidized interest. So if you have a very low income, the your effective interest rate could be almost half your stated rate.

Obama started REPAYE through executive order. That means it can be changed with an executive order. It is certainly not in my MPN (I graduated before REPAYE was started), but it's possible it's in new borrowers' MPNs.

I would make any financial decisions regarding graduate studies/schools with the assumption that PSLF (or any forgiveness programs) won't stick around, and that you may not get any subsidy benefit from REPAYE. We just can't predict the future. I do think it's safe to say income-based repayment programs are here to stay, so you're likely not going to be required to pay more than 10-15% of you AGI (minus poverty level) towards your loans.