Switch to REPAYE and Married Filing Jointly for Two Physician Couple?

[ID Doc]

Hi everyone - love the site and the forums and would love some feedback to make sure I'm thinking through this correctly.

My wife (attending for 1.5 years) and I (finishing fellowship in June) have been on IBR and have done Married Filing Separately since intern year, and I'm considering switching to REPAYE and Married Filing Jointly.

Some details:

Her:
Current federal debt: ~$345,000
2016 AGI: ~$190,000
Expected future AGI: ~$190,000
Eligible for PSLF in 2022
Current monthly federal loan payment: ~$1,750

Me:
Current federal debt: ~$360,000
2016 AGI: ~$42,000
Expected future AGI: ~$190,000
Eligible for PSLF in 2022
Current monthly federal loan payment: ~$75

From a tax standpoint, this year if we file jointly, we'll save around $6,000 if we file jointly compared to filing separately.

For estimates going forward, I used the Repayment Estimator on studentloans.gov, and came up with the following assuming an AGI of $190,000 for each of us. We have two kids, so a family size of 4.

Married filing separately, IBR:

--Me: $1,919/month

--Her: $1,919/month

Total: $3,838/month

 

Married filing jointly, REPAYE:

--Me: $1,463/month

--Her: $1,400/month

Total: $2,863/month

So, if the calculator there is reliable (is it?), we would save ~$1,000/month on student loan payments, and get the tax benefits of married filing jointly. In terms of drawbacks of REPAYE, I know there is no longer a cap on the monthly payment, but it looks like we would need a combined AGI of around $600,000 before our REPAYE payment would get to the standard repayment, and I don't see our AGI being that high anytime soon.

One more consideration. Here's what I came up with if we use our 2016 AGIs and switch to REPAYE now:
--Me: $827/month
--Her: $791/month
Total: $1,618/month

My conclusions/plan:

1. File taxes now as Married Filing Jointly, and plan to file jointly going forward.
2. Switch her to REPAYE now (lowers her current monthly payment).
3. Switch me to REPAYE in ~October at the time of IBR recertification (would keep my payments at $75/month until then).
I had been so used to IBR with Married Filing Separately being the clear winner for us that I didn't give the REPAYE program a hard look until now. But for a two physician couple going for PSLF with high debt and in low paying specialties, it seems like the clear winner. Right? Please let me know if I'm missing something. I would greatly appreciate any feedback / thoughts on the above plan.

[DMFA]

I just threw up in my mouth a little bit looking at your mountain of debt.  Thank God for PSLF, right?

PAYE won't be any more helpful than RePAYE since you'll never come close to your 10-year standard.  In fact, you won't ever stop interest from accruing, and your amount forgiven in 2022 will be more than you even borrowed in the first place from so much accrued interest.  IBR for borrowers prior to 2014 is rubbish.

MFJ, RePAYE, PSLF should be best for you.  Here's an image showing my work.

...you *have* properly certified all your PSLF payments to this point, right?

[ID Doc]

Wow, thanks! Really appreciate you taking the time to run our numbers yourself. We're not eligible for PAYE, so REPAYE is the only real option other than IBR.

Sorry for making you ill - that's how we feel when we consider the possibility that PSLF could dissolve before we need it. We're among those who have been conscious of the debt along the way, but allowed ourselves to choose the (lower-paying) specialties that we wanted to do because of PSLF. We've definitely been certifying payments along the way (annually), so hopefully that helps in case the program does change.

Thanks again.

[Joy Sorensen Navarre Navigate]

I'm glad you reached out to the forum community with your situation. Although difficult to think about, many physicians today carry $250k to $500k in student debt. Most of the physicians who consult with us fall in this range.

DMFA, as usual, thanks for your good advice. Your last comment "…you *have* properly certified all your PSLF payments to this point, right?" resonates with me.

The federal repayment and forgiveness programs are complex. One small oversight can cause problems. Please call us or another of WCI's recommended providers to review your current plan. With a 15-minute review, we can can tell you if you've missed anything. Plus, Navigate waives our fee if your repayment plan is complete.  In about 9 of 10 cases, we find opportunities for savings.

A quick story: Last fall we had the opportunity to partner with the Family Medicine Education Consortium. In a 2 week period we consulted with many of their physician members and found an additional $3 million dollars in student loan savings.

 

[Travis @ Student Loan Planner]

As a student loan consultant, I wish more folks would forgo married filing separately as if PSLF is a 100% certainty. It's surely more likely than not, but I'd always prefer hedging my bets. REPAYE carries interest subsidies and usually results in lower loan balances long term than IBR except in very high income scenarios.

I like MFJ w REPAYE assuming your accrued interest balance isn't massive.

[pedsneuro]

This post is extremely helpful as I am considering switching from IBR to REPAYE as well. Thanks to ID Doc and DMFA for lining it all out so well. I hadn't considered the switch much before because I was afraid of losing the cap that IBR offers, but I don't think I fully understood how the payments were calculated. I was also afraid of the capitalization of interest that has accrued. I have $190K loans with $27K interest and my husband has $250K loans with $40K interest. We both will be in residency/fellowship training for another 3 years. We plan to work for Academic hospitals after graduation (pursuing PSLF, we have been submitting our EC forms) and expect to make a combined income around $400K. We don't have kids now but would like to start having them in the next 2-3 years. So, it seems our payments actually won't exceed the original 10-year standard repayment plan unless we make dramatically more than expected (and if that is the case we may just pay them off without dealing with PSLF). It seems that saving the interest for the next 3 years is probably worth it.

One question I have is about having to make one payment under the standard repayment plan when switching from IBR to REPAYE. I saw in a comment on one of the blog posts that this is the case. Just want to be prepared if I am going to have to make a $4500 payment as a consequence of switching. Anyone know the answer?

[ID Doc]

Glad the post helped - I figured there were others out there in similar situations - thanks again to those who commented, especially DMFA, with thoughts on the plan. You guys are in a very similar situation to us, just a few years behind where we are. I also don't love the idea of the interest capitalizing - the loan amounts I cited above were inclusive of that interest, which all together now is > $110k. However, if PSLF comes through as planned, it really shouldn't matter. If PSLF doesn't come through, it obviously hurts us, though I hope we will get a sense of what's going to happen with PSLF within the next 6 months or so, since the initial loans will start getting forgiven in October 2017, and if it all comes crashing down and we refinance, it also doesn't make that much of a difference.

To your question, I actually had called fedloan and got an unusually helpful rep with whom I walked through our entire situation, and she agreed with the switch to REPAYE in our situation as well. I asked about the requirement to make one payment under the standard repayment plan. You do have to do this, but she said you can also put your loans in forbearance for that month and pay something like $5 instead of the full payment. She said that month DOES NOT count toward your 120 PSLF payments, whether you make the full standard repayment or not. So, if you're going for PSLF, it seems just putting the loans on forbearance for a month makes the most sense. If anyone else out there has heard anything confirming or conflicting on that detail, I would appreciate hearing about it.

[pedsneuro]

I agree, I can't wait until there is just some more clarity so we can know for sure how best to proceed (wishful thinking that will happen in the next three years before we become attendings?). Thanks for the information about the forebearance option, that is very helpful!

[Joy Sorensen Navarre Navigate]

Confirming the $5 minimum payment:

From the 12/2015 Income-Driven Repayment Plans: Questions and Answers

"If you choose to leave this plan, you will be placed on the Standard Repayment Plan. If you want to change from the Standard Repayment Plan to a different repayment plan, you must first make at least one payment under the Standard Repayment Plan, or one payment under a reduced-payment forbearance." Emphasis mine.

Yes, the minimum payment amount is $5. If you plan to pursue PSLF, pay $5, no more.

Note: We've seen that loan servicing companies require you call them to make the $5 payment manually. They will not automatically deduct the payment from your account. If you fail to make the manual $5 minimum payment, your application will remain 'pending'.

[ID Doc]

Great, thanks! We'll plan on the $5 - appreciate the heads up about the need to make this payment manually.

[anoyes]

.......