Loan Repayment Question

[yspower]

Hello, I have questions:

228k total fed loans with 6.08%, single status
Radiology Residency training = 6 yrs (1 intern, 4 rad, 1 fellow)

Which one of the options will work the best for me if I am willing to make an extra monthly payment close to $1,100 monthly (interest accrued monthly, currently)? If I have to choose among one of IDR options, what would you still recommend?

1) Refinance now for lower interest rate up to 4.5% with DRB and continue that for 6 yrs and then re-refinance when becoming attending and trying to pay off within 2-3 yrs.

2) PAYE with or without PSLF for 6 yrs and then refinance thereafter to pay off within 2-3 yrs.

3) RePAYE with or without PSLF for 6 yrs and then refinance thereafter to pay off within 2-3 yrs.

4) PAYE without PSLF for 6 yrs and continue to stay on PAYE for 2-3 more years to pay aggressively to pay off.

5) RePAYE without PSLF for 6 yrs and continue to stay on RePAYE for 2-3 more years to pay aggressively to pay off.

Is there a penalty or something I should know if I switch from PAYE (or RePAYE) into refinancing (option 2 and 3)? Also, when I re-refinance the previously refinanced one, is there any penalty or anything I should know?

 

Thanks!

Thank you for your time and feedback!

[mvenus929]

Well, when you refinance, your interest on your loan capitalizes. So while you aren't currently paying interest on the interest that has accrued on your loans (just the interest on the principle), your total loan amount goes up if you refinance. Or if you switch payment plans (from PAYE to REPAYE, for instance).

[Bott1637]

You'd have to really churn the numbers to find the "right" answer to the question.  That answer being what gets you to pay the least amount of money.  However there is peace of mind and simplicity to factor in as well I think.  Your future income as a specialized radiologist will be quite high I presume.  I think most high paying specialists end up better paying off the loans rather than going for forgiveness as the income based payments on a large salary are big.  When you add the peace of mind of not worrying about the program being changed or if your employer meets the requirements to me its easy.  Get the lowest rate you can now and refi it again when you can get a lower rate.  These refinances don't cost you any money upfront like refinancing a house would so there is no issue with doing it multiple times.

[yspower]

Yeah, I agree. I am awaiting from DRB what kind of interest rate they can offer.

 

In the meantime, I am leaning toward RePAYE/PSLF just during residency period (6 yrs). I may as well apply to PSLF each year just in case if I will get a job in academic setting (why not). But, if I find a better private market at the end of residency or during the fellow year, I will refinance at that point since my resident income may rise with decent moonlighting income (of course, PSLF option is gone if I choose to refinance).

 

If you happen to pay a bit of extra payment monthly or anytime during your RePAYE period, do you know how that extra funds will be used up and what kind of effect it will bring to your subsidy? No one including fedloan rep is sure, but they said extra funds should go toward outstanding unpaid interest amount. Even though I will be on RePAYE, I may be able to afford extra funds to student loans.

[yspower]

You are exactly right.

 

Under RePAYE, if I can afford extra payment to student loans during residency, then those extra (hopefully) will start to reduce some of unpaid outstanding interest amount so I can prevent the interest accrual before I switch to refinance. That is my plan if I decide to go with refinance around PGY4 or 5 since my PGY 4 or 5 income can rise up to 90k (moonlight added).

 

For radiology, it is better to consider refinance unless you are deadly sure to pursue a job that is eligible under PSLF. Even under PSLF, the income for radiologists are fair, so if you stay on RePAYE, you will likely to pay a lot before you fulfill 120 monthly payments. (i.e. not much forgivable amount left after 10 yrs of being on RePAYE). Also, under RePAYE, there is no cap for monthly amount whereas IBR/PAYE does.