REPAYE, Refinance, or Forbearance

[def_1]

I am trying to figure out how to best handle my student loans. I will be starting residency in July. My goal for after residency is to pay off my loans in 3 to 5 years. This is why I am thinking of forbearance as an option since the additional interest I gain in residency will end up being paid off quickly.

I currently have $122,000 in loans, all direct unsubsidized at 6.9%.

Two reasons I am worried about using REPAYE is because I would like the opportunity to have $0 payments. I will likely pay with what I have extra each month into my loans but it would be nice to not have to worry about a monthly payment if things get tight. The second reason I am concerned about REPAYE is that my wife is also a medical student and 1 year after me she will be starting her residency. I may not understand REPAYE correctly, but won't this affect both of our monthly payments since our combined salary will be much higher.

That is why I have also started to consider refinancing through one of the programs that offers small minimal monthly payments, e.g., LinkCapital has $75 minimum payment during residency.

Just interested in hearing others opinions.

Ideally, I am hoping that my wife will match her residency in the same city as me so we can live together and combine our salaries to start paying off our loans during residency. But since this will not be a for sure thing until next year, I am worried about locking myself into a repayment plan.

[Craigy]

If you're going to pursue forgiveness, you want to get started making qualifying payments as soon as possible.  If you're not going to pursue forgiveness, you want to refinance as soon as possible.  Forbearance might keep some options open but it seems like it is probably the worst of both worlds.

Any reason in particular you want to have $0 or near-zero payments?  Planning to live large?  Trips or something?  As a resident you should make decent money, which should double when your wife starts.

 

[DMFA]

def_1 wrote:

I am trying to figure out how to best handle my student loans. I will be starting residency in July. My goal for after residency is to pay off my loans in 3 to 5 years. This is why I am thinking of forbearance as an option since the additional interest I gain in residency will end up being paid off quickly.

I currently have $122,000 in loans, all direct unsubsidized at 6.9%.

Two reasons I am worried about using REPAYE is because I would like the opportunity to have $0 payments. I will likely pay with what I have extra each month into my loans but it would be nice to not have to worry about a monthly payment if things get tight. The second reason I am concerned about REPAYE is that my wife is also a medical student and 1 year after me she will be starting her residency. I may not understand REPAYE correctly, but won’t this affect both of our monthly payments since our combined salary will be much higher.

That is why I have also started to consider refinancing through one of the programs that offers small minimal monthly payments, e.g., LinkCapital has $75 minimum payment during residency.

Just interested in hearing others opinions.

Ideally, I am hoping that my wife will match her residency in the same city as me so we can live together and combine our salaries to start paying off our loans during residency. But since this will not be a for sure thing until next year, I am worried about locking myself into a repayment plan.

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Why would your payments not be zero?  Did you have income in 2016?  If not, then your payments are $0.  After that, it won't be much anyway, which you should definitely be able to afford.  RePAYE gives you the best blend of low payment, prevention of interest accrual, and PSLF eligibility (though you're not going for that).  Its downside is that it always considers spouse's salary, but assumes both spouses' debts as well.

Forbearing is almost certainly a bad idea.  That's a lot of interest accruing at a high rate without any payments.  Just because you can waste money on accrued interest as an attending doesn't mean you should.  You should be able to budget enough to make your couple hundred of RePAYE while the government does its share of eliminating half your unpaid interest each month.

Just because you don't have as much debt as most of your peers doesn't mean that it's OK to waste money in interest on it.

The 50% unpaid interest subsidy from RePAYE will cut your rate in half first year ($0 payments for an effective rate of 3.45%) and bring it down significantly low the following year, probably to a better effective rate to which you'd be able to refinance as a resident.

Once you are out of training and can afford larger payments, refinance to the lowest rate (low 2s are available now) and shortest term available (5 years, prob) and eliminate it that way.