PSLF and refinancing

[daman42886]

I have kind of a specific question regarding IBR.  I have made almost 5 years of payments under IBR while working at a PSLF eligible employer during residency. Unfortunately, not all of my Federal loans are Federal Direct loans as I have two FFELP Stafford loans that are not eligible. I have chosen to privately refinance just these two ineligible Stafford loans while staying the course with the Federal Direct loans for PSLF and working at a 501(c)3 employer.

My question is since my income will increase when I recertify soon, my monthly payment will be capped at the required monthly payment under the 10-year Standard Repayment Plan, based on the loan amount owed when I first began repayment. Since the ineligible Stafford loans have been refinanced, will that monthly payment cap now be based on the loan amount owed when I first began repayment minus these Stafford loans? For example, if I owed $180,000 including these Stafford loans when I first began repayment and about $130,000 if you don't count these Stafford loans will my new monthly payment be $2050 or $1500?

I hope that makes sense and sorry for the specific question. Just trying to plan my finances a little.

[Chase_WrenneFinancial]

The cap is on a per loan basis.  So each loan is capped at 10 year standard, based on what the balance/interest rates were when you entered the plan -- If you have 20+ loans, you will have 20+ caps. The maximum you will ever pay is a sum of each loan's 10 year standard.  So your total payment should technically be reduced by taking loans out of the federal system, as long as you will for sure hit the cap.

 

However, refinancing part of your loans just allocates a higher percentage of the IDR payment to each remaining loan. If you haven't yet refinanced those loans, you may want to run some quick math to see if there is any benefit to keeping them in the federal system.  By keeping those Stafford Loans in the federal system, it attracts a portion of the IDR payment, therefore reducing the amount paid on the PSLF eligible loans.  (If you are going to hit the caps no matter what, then there is no advantage to keeping them in).

 

Hope this answers your question!

[daman42886]

Thank you! I asked my question because the FedLoan rep on the phone told me that my monthly payment cap would be the same regardless of whether or not I took loans completely out of the federal system.

Your second paragraph is an interesting perspective. I will have to try to run the numbers if I can and see how it turns out. Thanks again for the help.