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Can wife refi a school loan from Nelnet?

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  • Can wife refi a school loan from Nelnet?

    Wife has a 90k student loan from her Master's in Psychology, she was on the IBR program but because we have a combined income over 120k for 2015, her monthly payments are now $920 a month.

    Her current Direct Consolidation loan is with Nelnet and is at 6.88%.  What are the alternative to reduce the insane monthly payments?

  • #2
    $920/mo on student loans is insane?  Perspective, I guess...

    If a low monthly payment is all you're after, filing taxes separately and doing PAYE can do it (10% of disposable income as opposed to IBR's 15%), especially if she makes the lesser of you two.  Be sure that filing taxes separately would be acceptable for you as you lose eligibility for direct Roth IRA contributions (backdoor sitll works) and for several tax deductions/credits.  Even if you file jointly, if IBR is $920, PAYE should be $613.  If your income goes up so far as to be greater than the 10-yr standard payment, the payment is capped at that amount.

    If you need a good balance of lower payments and less paid off over the life of tha loan, RePAYE can good from keeping too much interest from accruing (half of unpaid interest each month is subsidized).  I don't think it would help you much, though, because it always includes spouse's income and there's no subsidy if your payment is greater than monthly interest accrual (6.68%/12 * $90,000 = $501),  If your IBR payment is $920 based on your combined income, it should be around $613 (same as RePAYE).

    You can refi with a private lender to a lower interest rate.  A 10-yr refi of $90,000 at 4% (just throwing numbers out there, idk what rate you'll qualify for, some are in the 2s) is still $911, so hardly different at all from your current IBR.  I wouldn't recommend a longer term - that's going to end up with more paid off over the life of the loan.

    It seems like the best thing for you as far as lowering monthly payments while trying to limit total paid over the life of the loan is:

    • File taxes separately

    • Do PAYE now

    • When you have better income, do a private refinance to the lowest interest rate (consider a variable rate) and pay it off as quickly as possible (ideally 5 years or less).


    Always run your numbers and discuss it with a financial professional before pulling the trigger.

    Comment


    • #3
      Although I would add that if $920/month out of a gross income of $10,000/month is considered to be insanely high, then I would scrutinize your cash flow and spending patterns quite thoroughly.  Every reduction of monthly payment now is more money that you're going to have to pay back later.

      Comment


      • #4




        Although I would add that if $920/month out of a gross income of $10,000/month is considered to be insanely high, then I would scrutinize your cash flow and spending patterns quite thoroughly.  Every reduction of monthly payment now is more money that you’re going to have to pay back later.
        Click to expand...


        Thank you for the tips.  I just can't believe and I'm  :x ) how the lender is throwing the $920 monthly payments. My wife's payments were $200 before we got married and now it's much more because of my income.

        I'm reading up on Repay, filing separately may not be an option for next year.  My goal is to lower the payments to a reasonable amount $400 to $600 a month.

         

        Brought to you by Carl's Jr

        Comment


        • #5
          RePAYE:

          • Payment = (AGI - poverty level for fam size) / 120     [2/3 of IBR]

          • 50% of unpaid interest each month is subsidized

          • Interest does not capitalize while in the plan (but it still accrues, you just don't pay interest on interest)

          • Spousal income is always counted in AGI

          • No monthly payment cap


          PAYE:

          • Payment = the lesser of 10-yr std at time of entering plan or (AGI - poverty level for fam size) / 120     [2/3 of IBR]

          • Interest does not capitalize until you no longer have a partial financial hardship (if calc'd payment > 10-yr std)

          • Interest capitalizion is maxed at 10% of intial principal (e.g. if prin was $150,000, its max at capitalization is $165,000)

          • Can exclude spousal income by filing taxes separately

          • Monthly payment capped at 10-yr standard


          You have prin $90,000 and int 6.68%, meaning you would accrue at most $501/month in interest, and slightly less thereafter since you will be slowly eating away at principal.  If your IBR payment is $920 with joint income, then your PAYE and RePAYE payments should be $613 with that same income.  Since that is greater than the monthly accruing interest, none those interest-related aspects seem to apply to you.

          RePAYE is usually the better way to go, especially if filing separately isn't right for you, but you won't get its biggest benefits (50% interest subsidy and no capitalization while in plan), and the payment isn't capped at 10-yr standard like PAYE is.  At this point, they're very similar to you, unless you have a significant income drop - in which case the RePAYE interest subsidy would benefit you.

          However, in the next few years once you are stuck paying a higher monthly payment approaching the 10-yr standard with either RePAYE or PAYE, you should be able to afford a private refi at that point which will save you more money over the life of the loan given the horrific 6.68% interest rate that they stuck us with.  Criminal, really...

          I still think, however, that at that income level and monthly payment, there should be other areas in which you could optimize your monthly spending so as to lessen the impact of the loan payments.  If you haven't already, I'd go back 3 months and scrutinize every transaction in and out of your account to see where all your money's going.  Some banks' online interfaces can mostly do this themselves. You might be surprised - we sure were when my wife and I did it.  That's the first step in becoming not broke - stopping the bleeding.

          Comment


          • #6




            RePAYE:

            • Payment = (AGI – poverty level for fam size) / 120     [2/3 of IBR]

            • 50% of unpaid interest each month is subsidized

            • Interest does not capitalize while in the plan (but it still accrues, you just don’t pay interest on interest)

            • Spousal income is always counted in AGI

            • No monthly payment cap


            PAYE:

            • Payment = the lesser of 10-yr std at time of entering plan or (AGI – poverty level for fam size) / 120     [2/3 of IBR]

            • Interest does not capitalize until you no longer have a partial financial hardship (if calc’d payment > 10-yr std)

            • Interest capitalizion is maxed at 10% of intial principal (e.g. if prin was $150,000, its max at capitalization is $165,000)

            • Can exclude spousal income by filing taxes separately

            • Monthly payment capped at 10-yr standard


            You have prin $90,000 and int 6.68%, meaning you would accrue at most $501/month in interest, and slightly less thereafter since you will be slowly eating away at principal.  If your IBR payment is $920 with joint income, then your PAYE and RePAYE payments should be $613 with that same income.  Since that is greater than the monthly accruing interest, none those interest-related aspects seem to apply to you.

            RePAYE is usually the better way to go, especially if filing separately isn’t right for you, but you won’t get its biggest benefits (50% interest subsidy and no capitalization while in plan), and the payment isn’t capped at 10-yr standard like PAYE is.  At this point, they’re very similar to you, unless you have a significant income drop – in which case the RePAYE interest subsidy would benefit you.

            However, in the next few years once you are stuck paying a higher monthly payment approaching the 10-yr standard with either RePAYE or PAYE, you should be able to afford a private refi at that point which will save you more money over the life of the loan given the horrific 6.68% interest rate that they stuck us with.  Criminal, really…

            I still think, however, that at that income level and monthly payment, there should be other areas in which you could optimize your monthly spending so as to lessen the impact of the loan payments.  If you haven’t already, I’d go back 3 months and scrutinize every transaction in and out of your account to see where all your money’s going.  Some banks’ online interfaces can mostly do this themselves. You might be surprised – we sure were when my wife and I did it.  That’s the first step in becoming not broke – stopping the bleeding.
            Click to expand...


            Thanks for the info.

            How did you calculate the $613 monthly payment under RePAYE?  With RePAYE the monthly payments will remain the same (reapply each year) and then what happens after 15 years?

            What about those refi marketplaces like Credible.com?  Is it considered a private loan?

            Comment


            • #7







              RePAYE:

              • Payment = (AGI – poverty level for fam size) / 120     [2/3 of IBR]

              • 50% of unpaid interest each month is subsidized

              • Interest does not capitalize while in the plan (but it still accrues, you just don’t pay interest on interest)

              • Spousal income is always counted in AGI

              • No monthly payment cap


              PAYE:

              • Payment = the lesser of 10-yr std at time of entering plan or (AGI – poverty level for fam size) / 120     [2/3 of IBR]

              • Interest does not capitalize until you no longer have a partial financial hardship (if calc’d payment > 10-yr std)

              • Interest capitalizion is maxed at 10% of intial principal (e.g. if prin was $150,000, its max at capitalization is $165,000)

              • Can exclude spousal income by filing taxes separately

              • Monthly payment capped at 10-yr standard


              You have prin $90,000 and int 6.68%, meaning you would accrue at most $501/month in interest, and slightly less thereafter since you will be slowly eating away at principal.  If your IBR payment is $920 with joint income, then your PAYE and RePAYE payments should be $613 with that same income.  Since that is greater than the monthly accruing interest, none those interest-related aspects seem to apply to you.

              RePAYE is usually the better way to go, especially if filing separately isn’t right for you, but you won’t get its biggest benefits (50% interest subsidy and no capitalization while in plan), and the payment isn’t capped at 10-yr standard like PAYE is.  At this point, they’re very similar to you, unless you have a significant income drop – in which case the RePAYE interest subsidy would benefit you.

              However, in the next few years once you are stuck paying a higher monthly payment approaching the 10-yr standard with either RePAYE or PAYE, you should be able to afford a private refi at that point which will save you more money over the life of the loan given the horrific 6.68% interest rate that they stuck us with.  Criminal, really…

              I still think, however, that at that income level and monthly payment, there should be other areas in which you could optimize your monthly spending so as to lessen the impact of the loan payments.  If you haven’t already, I’d go back 3 months and scrutinize every transaction in and out of your account to see where all your money’s going.  Some banks’ online interfaces can mostly do this themselves. You might be surprised – we sure were when my wife and I did it.  That’s the first step in becoming not broke – stopping the bleeding.
              Click to expand…


              Thanks for the info.

              How did you calculate the $613 monthly payment under RePAYE?  With RePAYE the monthly payments will remain the same (reapply each year) and then what happens after 15 years?

              What about those refi marketplaces like Credible.com?  Is it considered a private loan?
              Click to expand...


              IBR is 15% of your disposable income.  PAYE and RePAYE are 10%.  Since your IBR payment is $920, then 920 * 10 / 15 = $613.33.  That's all assuming all the numbers used for the second calculation are the same as the first.  You may get slightly different numbers if your income has changed since you re-certified for IBR.

              Credible has variable results but is usually worth checking; you only see a few lenders up front.  The numbers their lenders offered my wife were rubbish, like a variable rate starting in the mid-4s.  SoFi offered her in the 2s for variable and 3s for fixed.  Some people get awesome offers from them.

              You've just got to shop around to see who gives you the best results.  Be aware that most of what you will get are "pre-approvals" based on the info you provide and doesn't include a "hard" credit pull, which means you can shop around; if they do check your credit, it dings your score a little bit.

              Comment


              • #8
                Yes, Direct Consolidation loans are eligible for private refinance. The interest rate is based on credit ratings among other issues. It's my understanding that the 2% and 3% rates mentioned above were offered prior to April 2016. Today's rates are approximately 4% and higher. You can expect payments of $670/mo on a $90k loan at 4% for 15 years. You can expect payments of $911/mo on a $90k loan at 4% for 10 years.

                Does your wife plan to pursue PSLF? If so, do not refinance her student loans.

                 

                Comment

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