Switch from IBR to REPAYE

[ibgrad400]

Hey everyone, late to the REPAYE party. Sorry about the long post but I definitely need some help. I am about to start being an attending and want to now aggressively pay my loans back with this newly found pocket change.

I have parent PLUS loans (under my parent's name) 80k @6.5 that I cannot change to any reasonable payment plan. For this reason I am thinking I start with paying that off first (I've made a lofty goal of paying it off in 1.5yrs and will try refinancing to a private loan if I can, but my parents have awful credit and are retired.)

In the meantime my own loans 315k @ 6.3% are on Income Based Repayment which I've been on since 2012. (I can't refinance to a private loan because I won't be able to afford the 1k+ payments as my income supports 6 people).  My thoughts were to go from IBR to REPAYE for the 1st two years of being an attending while my federal tax AGI will still show as low income.  This will allow REPAYE to pay partial interest that my payments do not cover.

Now the questions....

1. Is it a good idea to switch from IBR to REPAYE this late in the game? My interest would capitalize (60k) anyway if I refinanced to a private loan. This way while I am unable to refinance to a private loan, some of my interest is still being paid off. I used the debt calculator on  https://www.whitecoatinvestor.com/i-switched-to-repaye-and-i-like-it/#comment-454916  and despite the capitalized interest, I come ahead on REPAYE.

 

2. I was on IBR for 3 years and the government paid my interest on my subsidized loans for those 3 years. If I switch, will REPAYE pay my interest again for another 3 years? What happens after 3 years?

 

Thanks everyone in advance for your responses!

[DMFA]

ibgrad400 wrote:

Hey everyone, late to the REPAYE party. Sorry about the long post but I definitely need some help. I am about to start being an attending and want to now aggressively pay my loans back with this newly found pocket change.

I have parent PLUS loans (under my parent’s name) 80k @6.5 that I cannot change to any reasonable payment plan. For this reason I am thinking I start with paying that off first (I’ve made a lofty goal of paying it off in 1.5yrs and will try refinancing to a private loan if I can, but my parents have awful credit and are retired.)

In the meantime my own loans 315k @ 6.3% are on Income Based Repayment which I’ve been on since 2012. (I can’t refinance to a private loan because I won’t be able to afford the 1k+ payments as my income supports 6 people).  My thoughts were to go from IBR to REPAYE for the 1st two years of being an attending while my federal tax AGI will still show as low income.  This will allow REPAYE to pay partial interest that my payments do not cover.

Now the questions….

1. Is it a good idea to switch from IBR to REPAYE this late in the game? My interest would capitalize (60k) anyway if I refinanced to a private loan. This way while I am unable to refinance to a private loan, some of my interest is still being paid off. I used the debt calculator on  https://www.whitecoatinvestor.com/i-switched-to-repaye-and-i-like-it/#comment-454916  and despite the capitalized interest, I come ahead on REPAYE.

 

2. I was on IBR for 3 years and the government paid my interest on my subsidized loans for those 3 years. If I switch, will REPAYE pay my interest again for another 3 years? What happens after 3 years?

 

Thanks everyone in advance for your responses!

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PLUS loans are lousy and hard to refinance, since they're not really yours.  Try refinancing them under your parents' names, like you said...but if you pay that $80k @ 6.5% off in 18 months ($4,676.65/mo), you'll "only" waste $4,179.67 in cumulative interest paid.  5.2% of original principal; not horrible.

...I'm confused, though.  You're not "aggressively" paying off loans if you're doing income-based repayment, which minimizes payments.  Also, if you can't afford $1,000/mo payments, then how will you afford nearly 5 times that to pay off the PLUS loan?  Or were you referring to being unable to do both it and your other loans?

IBR is almost universally rubbish compared to RePAYE and PAYE, especially if yours is the only income.  The payment is 1.5x as much, and there's no interest subsidy.  I literally have no idea why people do IBR other than simple name recognition.

RePAYE is going to take a very long time to pay them off with a family size of 6 reducing the payment due.  I don't know what your payment will be since I don't know your income.  How do you actually plan on paying the loan off?  PSLF?  Will there be some point in time that you'll actually try to make up the difference, like snowballing in your PLUS payments, or are you going for 25-year taxable forgiveness (prob a very suboptimal idea)?

Once your subsidized loans had their interest covered for 3 years, their obligation's done.  They're not going to re-subsidize them (other than the RePAYE benefit).

I don't know how much cutting back can really be done with a family size of 6 and one income, but I'd do what you can to avoid lifestyle creep, and minimize the total amount paid over the life of your loans either by getting a partial interest subsidy and then refinancing to the lowest possible rate/term once you can afford it.

[ibgrad400]

 

 

…I’m confused, though.  You’re not “aggressively” paying off loans if you’re doing income-based repayment, which minimizes payments.  Also, if you can’t afford $1,000/mo payments, then how will you afford nearly 5 times that to pay off the PLUS loan?  Or were you referring to being unable to do both it and your other loans?

Correct, I am unable to do both...aggressively pay back the PLUS loan while paying back mine if I refinanced it. My plan is to take all my unpaid accrued interest on MY loans (so that it does not become principal when I switch from IBR > RePAYE)  AND my mother's PLUS loan and refinance it together to one private loan. Pay that off as fast as I can then snowball the money into paying my loan balance (I will refinance it at that time)

 

RePAYE is going to take a very long time to pay them off with a family size of 6 reducing the payment due.  I don’t know what your payment will be since I don’t know your income.  How do you actually plan on paying the loan off?  PSLF?  Will there be some point in time that you’ll actually try to make up the difference, like snowballing in your PLUS payments, or are you going for 25-year taxable forgiveness (prob a very suboptimal idea)?

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I don't think the 25-year or PSLF taxable forgiveness are reasonable options for me. My residency/fellowship was at a non-profit so I've accumulated 5 years in PSLF however given the disparity between income in public and private practice for Anesthesiology, the loss of income isn't worth it to stay in public.

 

I don’t know how much cutting back can really be done with a family size of 6 and one income, but I’d do what you can to avoid lifestyle creep, and minimize the total amount paid over the life of your loans either by getting a partial interest subsidy and then refinancing to the lowest possible rate/term once you can afford it.

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This is hopefully the plan!! Thanks for your continued input!

[amck]

Actually I have a similar question because i'm still confused with the difference between IBR and REPAYE. I've had IBR since 2012 and still have 1 more year of training. I'm hoping to be able to use PSLF in another 5 years or so. My loans are pretty high ($340,000) at 7.25% so everything is going towards interest and it just keeps growing obviously. Would it be better to change to REPAYE option? I can't refinance privately because would loose the PSLF option. So I'm trying to make the smartest decision until hopefully those loans get forgiven (if program continues!)... any suggestions? (My income is still training income.. around $65000)

[amck]

Another question.. if the interest gets capitalized, then would I still be able to write off any of that interest when filing taxes in the future like I do now?