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Continue student loan forbearance?

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  • Continue student loan forbearance?

    Current PGY-4. Have 3 years left in training. So far I've had my student loans in forbearance. Original principle of 190k now with an additional 35k in interest (6.8% interest). Just finished paying off my wife's student loans so we are now going to tackle mine. With our current plan we will have the interest paid off well before I finish training (likely in the next 12 months), so that it doesn't ever get capitalized. That said, is there any reason not to continue with forbearance (such as switching to an income-driven repayment plan)? I'm not going for PSLF and the amount we are paying each month is greater than the minimum payment with the income based plans.

    I got a quote from DRB for refinance but the interest rate they gave me was only marginally better than what I'm paying now, and I didn't want the interest to capitalize yet.

    Every way I look at it I figure I'm better to get the interest paid off first before doing anything different with the loans, unless I can refinance for a substantially lower rate - which doesn't seem to be possible.

    Thanks for the help!

  • #2
    Are these Federal Direct Loans?  What plan are you in now?  Why did you need to forbear?  Forebearing is pretty un-good and should usually only be used as a last resort if you absolutely cannot afford income-driven payments (which is rare), especially since your interest capitalizes when forebearance ends.

    Given $190k prin and 6.8%, you'd accrue about $1067.67 in interest each month.  If your $35k interest capitalizes, then your monthly accrual would be $1275.

    Do you and your wife have disparate incomes?  What would your calculated monthly payments be for RePAYE (always includes spouse's income) and PAYE (can file separately and only count yours)?  Those would probably be acceptable temporizing measures until you get those attending dollars and can annihilate your loans in 5 years.

    Usually, the most beneficial pathway is to do RePAYE while in training and then private refi once you can afford it (e.g. finishing training) to the lowest rate possible.  RePAYE subsidizes 50% of unpaid interest each month which keeps the total amount owed down when you refi (it capitalizes when you leave the program).  This usually provides the best balance between low-ish monthly payments and less owed over the life of the loan.

    If your spouse makes a lot, then your monthly payment might be higher (meaning less interest subsidy) and might not be as worth it for you, in which case the alternative is to file taxes separately, exclude spousal income, and do PAYE (which has no interest subsidy and allows more interest to accrue).  Clearly this is less good with regard to total amount paid over the life of the loan, but this does allow you to lower your monthly payment as a temporizing measure.

    If you could give some numbers, such as yours and spouse's income, your expected term of training, and what you expect your income(s) to be once you finish training, then I could give you much more exact numbers as to what might be the best mathematical way to proceed.  Of course, what makes the most dollar sense might not be the best thing for you holistically, but no one can determine that except for you.