Another RePAYE vs Refinancing Question

[scubadude90215]

First time poster and extreme novice to things financial.

Will start PGY-1 in a few weeks and am trying to figure out RePAYE vs Refinancing.  I will be starting a residency in anesthesia with no intention of going the PSLF route.  My current loan numbers. All are from medical school, no other debt.

Direct Unsubsidized Loans: $194,431 (interest b/w 5.3-6.2%)

Direct Plus Loans: $50,830 (interest b/w 6.3 and 6.8%)

Federal Perkins Loans $7800 (interest @ 5%)

Total: $253,061

PGY-1 Salary 56000

PGY -2 Salary 60000

 

I have a long time significant other in tech who has about  $35000 in student loans and whose income is $65000 annually. We were planning on getting married in the next year or so.

 

As I've been reading about the RePAYE option, it seems like it might not be the best option for people who are married, but I wasn't sure if my significant other was really earning enough for it to impact us? I also obtained a quick quote from DRB, and they were willing to finance my loans at a fixed 10 year rate of 5.85%. Uncertain what's the best path and just looking for some input. Should I consider RePAYE for a year until we're married, then consider refinancing then?

Thanks!

[DMFA]

scubadude90215 wrote:

First time poster and extreme novice to things financial.

Will start PGY-1 in a few weeks and am trying to figure out RePAYE vs Refinancing.  I will be starting a residency in anesthesia with no intention of going the PSLF route.  My current loan numbers. All are from medical school, no other debt.

Direct Unsubsidized Loans: $194,431 (interest b/w 5.3-6.2%)

Direct Plus Loans: $50,830 (interest b/w 6.3 and 6.8%)

Federal Perkins Loans $7800 (interest @ 5%)

Total: $253,061

PGY-1 Salary 56000

PGY -2 Salary 60000

 

I have a long time significant other in tech who has about  $35000 in student loans and whose income is $65000 annually. We were planning on getting married in the next year or so.

 

As I’ve been reading about the RePAYE option, it seems like it might not be the best option for people who are married, but I wasn’t sure if my significant other was really earning enough for it to impact us? I also obtained a quick quote from DRB, and they were willing to finance my loans at a fixed 10 year rate of 5.85%. Uncertain what’s the best path and just looking for some input. Should I consider RePAYE for a year until we’re married, then consider refinancing then?

Thanks!

Click to expand...

K, so income now is just $65,000 (spouse only since you prob didn't earn in med school), 1.5x poverty for fam of 2 is $24,360, so RePAYE is $338.67.  Monthly int on $253,061 at est avg APR 6% is $1,265.31.  Since RePAYE subsidizes 50% of accrued minus calculated payment, you'd accrue $463.32/mo, meaning you'd actually owe more.

...but you're not married yet, right?  You filed taxes as single in 2016 with $0 AGI?  You'll recertify each July with your prior year's filing status and AGI.  Then your RePAYE is zero each month, and you'd accrue $637.65 a month.  In year two, you'd pay based on half a year's PGY-1 income ($28,000) plus your spouse's income, meaning 2017 MFJ AGI $93,000 (assuming no pre-tax retirement contributions).  RePAYE on that is $572/mo, and you'd accrue $346.65/mo.  PGY-2, AGI $129,000, payment $383.67, and assuming PGY-3 you make $64,000, your payment would be $872.  You probably wouldn't recertify in 4 years with PGY-4 income because that's when you would likely refinance with your attending salary to a lower rate.

Even if you don't, based on those salaries (not assuming for annual increases, etc), you'd pay $27,392 over those four years of residency, and you would have had $18,831.15 of unpaid interest accrue (had you only paid the minimum).  Now, say you refinance a new principal of $271,892 to a 5-year fixed rate (idk what it will be in the future, say 3.5%), you'd have a monthly payment of $4,946.19, paying another $296,771.56 over the life of the loan...adding in what you paid in residency, $324,163.56 over the life of the loan.

5.85% is a very lousy student loan interest rate, honestly probably not much better that you've got right now.  Monthly payment on $253,061 at 5.85% over 10 years would be $2,790.57.  Do you really want to pay $33,485.66/year of post-tax income? Over 4 years, you'd pay $133,947.36, and have $169,091.91 principal left after 4 years.  Refi that with the same terms (3.5% 5-yr fixed), that's another $3,076/mo, $184,564.62 to pay over the life of the loan, for a total of $318,512.

So, because of the lousy rate, in those two scenarios, you'd pay at least $1,900 month more while you're making significantly less for the sake of saving $5,651 over the span of 9 years. Personally, I'd rather live slightly less frugally as a resident (but still frugally, mind you), invest in my tax-advantaged retirement accounts, and have a solid cash reserve of 6 months' expenses than try to crush my student loans as a resident.  You wouldn't be wrong to do so, since it's never wrong to pay your debts, but I think, given the numbers above (and forecasting income with RePAYE can be a bit fuzzy, AGI and payment go up if you moonlight, might lose income from parental leave, etc), it demonstrates that the bad rate of the DRB refi may not be worth it.

Especially if you can maintain your $130,000/year standard of living after residency on an anesthesiologist's $300,000 income, then you should be able to tackle the student debt in no time once you're out of training.