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Idea to enter REPAYE early

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  • #16

    Just want to add that I think the posters in this thread have the right idea.  Consolidate loans to enter REPAYE ASAP for the benefits below:


    Enter REPAYE ASAP to 1) Decrease capitalization of additional interest from June-November, 2) Increase benefit of interest subsidy by applying it to additional months when you are a low income intern, 3) Start the clock on PSLF payments 4-5 months earlier.


    Additional thoughts: They calculate your intern year REPAYE payments on 10% of your discretionary income of your projected monthly salary as you must answer yes to significant income change when going through the consolidation process ($0/mo -> $4200/mo).  Make sure you will be able to make the REPAYE payments intern year if you pursue this consolidation –> early REPAYE strategy.
    Click to expand…

    I chose to answer no, specifically to avoid the $4200/month calculation. My income at the time of application (and currently) is still zero, so I felt comfortable putting that down. Time will tell though if it is going to cause any problems.
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    When I was talking to the myfedloan rep today she said that you had to put the projected intern salary, but you could always not and see what happens.  Mamead, I'd be interested if you'd report your experience with putting $0 and see if they approve that.


    • #17
      I didn't see any input on the either consolidation or IDR plan application that you are required to put the projected salary information. They just asked whether you have a taxable income. If you put NO, then your AGI will be considred $0.


      • #18
        See question 24 - you should be able to use $0 AGI:


        • #19

          I didn’t see any input on the either consolidation or IDR plan application that you are required to put the projected salary information. They just asked whether you have a taxable income. If you put NO, then your AGI will be considred $0.
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          Yeah I see the same thing. In fact, on the paper application, if you say "no" to whether your income has changed significantly, it has you skip ahead to later sections of the application, skipping any current employer/monthly income/paystub sections.

          See question 24 – you should be able to use $0 AGI:
          Click to expand...

          I think that is relevant, but you can arrive at a $0 monthly payment with AGI above $0 (up to 150% the poverty level based on family size). See also #22! Exactly what we are trying to do. Makes me feel better to read that they had thought of it already and say it is fine. Thank you for posting (and for your IBR calculator!).


          • #20
            Just to chime in a bit, the knowledge of the various fedloan phone representatives varies dramatically.  Especially if you take care of everything before residency starts, you have no current income and if you filed taxes you have proof of your AGI of 0.

            Also, even if you want to give them your "residency" number, remember that you will only be working for six months of the first year as an intern, and you have a huge number of tax deductions available to you as an intern.  Your AGI is probably not going to be much over 20 thousand, unless you have a spouse who is making money, so it doesn't make much of a difference anyway.



            • #21
              Mamead, Great post about REPAYE! Few people I consult with are aware of the new repayment plan and it can be a great option. Thanks for raising awareness.

              You asked if you had overlooked anything. Borrowers intent on keeping their payments low may find two details worth considering:

              1) Federal regulations allow a borrower to use his/her most recent tax return in the past 2 years to document their income. When a borrower starts an income-driven plan, at certain times of the year it makes sense to pay attention to the IRS tax filing dates. For example, if applying in March 2017, a borrower may apply for an income-driven repayment plan and use her 2015 tax return if she hasn't yet filed her 2016 taxes.

              2) Regarding family size: Family size includes unborn children who will be born during the year the borrower certifies family size.

              All the best,



              • #22

                I just applied for consolidation of my loans for this very reason. However, I was confused as to whether or not I should indicate that I was employed yet – I did put this information down, but I also put that my income had not changed since my last tax filing (filed taxes this year for this exact purpose haha). Wondering if this will raise any flags, when they see I am employed but that my income has not changed (it technically hasn’t since I won’t get a paycheck until mid-July). Trying to get the lowest possible payment for this year (preferably 0). Any advice would be super helpful!
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                I applied for consolidation a few days after graduating. I also indicated that my income had not changed significantly since last year (haven’t started residency yet). I was reassigned from Nelnet to Fedloan for the consolidation. I had to call and clarify one of the addresses on my references. As I was hanging up, the lady mentioned something about needing 2 paystubs and that I can upload them online. However, she didn’t give clear instructions and I haven’t received anything official stating that I need to submit paystubs, so I’m just riding it out to see what happens. When I check the status online it says it is processing normally. If I receive something official requesting them, then I’ll call and let them know that I won’t have income until mid-July (hence the “not changed significantly”).

                Glad to hear WCI has a guest post coming on this. I’ll check back in to let you guys know how the process goes for me.
                Click to expand...

                My income as a fourth year was zero and forgot to still file tax return for 2015. So, I will file it this week and upload it on FYI, you can still apply consolidation/repaye without having filed tax return. But, I will file it anyway just so that I have a proof of zero income and can be used to have $0/monthly payment for a year until I renew repaye next year with PSLF. Fedloan also mentioned about submitting pay stub once I earn the income, but since a monthly payment is based on the AGI from the previous tax return, I do not see the point of submitting the proof of income by submitting the paycheck, personally. If PSLF route doesn’t look good down the road, my plan is to save up the cash amount of interest accrued a month after subsidy into my banking saving account. So, if in case that I will have to pay loans on my own, I can use up these saved cash to pay the interests before I refinance with bank down the road.

                mamead, did you have taxable income in 2015? If you didn’t and have filed tax with AGI of $0, I don’t see the point of submitting the pay stub. You are just gonna ride along until they require, right?
                Click to expand...

                Any update regarding having to submit pay stubs or just using your tax information?


                • #23
                  MBP, The rules allow a borrower to document income by submitting their most recent tax return (within two years). If the borrower submits a tax return, he/she is not required to submit pay stubs. Message me for advice on your specific situation. --Joy


                  • #24
                    My application went through without any requests for pay stubs or the like, because I had my tax info. The only bump in the road I encountered was that all of my direct loans were still in "in-school" status until yesterday (after calling all of the loan companies and my school to get it fixed). Therefore they were excluded on the first loan summary statement I got- FedLoan said they will be able to add them on now that they're in grace. On the payment end though, looks like I will be paying 0 for the first year.


                    • #25
                      Does anyone know how paying extra monthly on top of minimum required affects the interest subsidy under RePAYE plan? Most people assume including me suspect that if you pay more than minimum required monthly, the interest subsidy you will get decreases. Anyone who attempted to pay extra and see what happened to the interest subsidy?



                      • #26
                        Here's an update:

                        May 13th: Graduated

                        May 16th: Submitted a consolidation request to Nelnet

                        May 23rd: Recieved letter stating that consolidation request received and that my consolidated loan would be assigned to Fedloan

                        June 2nd: Recieved message that Fedloan had not recieved my Income Driven Repayment Plan Request form. Called in and got a different answers. One person said they did have it, the other said they did not. I tried refilling the form out online, but the student website kept wanting to send the form to Nelnet. I ultimately just filled out the paper form with last year's tax info and mailed it to FedLoan.

                        June 13th: Recieved messages that consolidation is complete and confirmation that I am in REPAYE. First payment of $0 is due 7/16/2016. My $0 monthly payments will go until 7/16/2017, after which my payment will be recalculated. They stated they will contact me sometime in April to update my income and recalculate my REPAYE monthly payment.

                        So far everything has gone as planned. There is a 0.25% interest deduction if you have automatic payments. I'm going to link my bank account and report back with whether they end up letting me have that as well. I'll also report back with how the interest subsidy works. Once I have an understanding of how the interest subsidy works, I'll make a small pay,met and see whether the subsidy gets reduced.

                        In summary: If you are a recently graduated medical student about to enter residency, I can think of few reasons why you would not pursue this and enter REPAYE early.


                        • #27
                          Paying extra monthly on top of the minimum required reduces the government REPAYE interest subsidy.

                          For example, imagine the interest due is $800 and the borrower wishes to pay $1,000 extra. Always, the servicer applies the payment first to the interest ($800). The remainder ($200) goes toward the principal. $0 interest subsidy.

                          The “Work Around” is to make two payments each month. For example, on the first of the month you make your REPAYE payment. The remaining unpaid interest due is $800. The government subsidy pays $400. You make an extra payment on the second of the month --$400 goes toward the interest and $600 goes toward the principal. If you make the extra payment on the same day as the REPAYE payment, the interest subsidy will be lost.

                          CAUTION: EXTRA PAYMENTS CAN DELAY FORGIVENESS IF YOU PLAN TO PURSUE PSLF. Paying extra will cause your loans to be ‘paid ahead’. When you are paid ahead you will not receive a bill for the monthly payment. Only on-time billed monthly payments count toward the 120 payments required for Public Service Loan Forgiveness.

                          The information contained herein is for informational purposes only as a service to the public, and is not legal advice or a substitute for financial counsel. Since student loan advice must be tailored to the specific circumstances of the individual, nothing on this post should be used as a substitute for the counsel of a competent student loan adviser. 


                          • #28
                            I'm confident the REPAYE interest subsidy is determined on the payment amount due, not the actual payment made.  But, keep in mind, interest does not capitalize while in REPAYE.  Given this, your optimal strategy is to save/invest that additional payment amount in an interesting bearing vehicle.  Remit the amount saved/invested at point you leave REPAYE.  This accomplishes; 1. interest growth on your savings, and 2) delays the same payment into the future.

                            To support my 1st statement, this is language from EdFinancial Services, a loan servicer:

                            Revised Pay As You Earn (REPAYE) - Edfinancial Services

                            Also, if you have unsubsidized loans, your unsubsidized interest will be subsidized at 50% for any period(s) of time that your REPAYE monthly payment due is not sufficient to pay the monthly interest.



                            • #29
                              Thank you for your valuable inputs, Joy and Sergio!

                              Quick follow-up question though:

                              I will be on REPAYE plan at least during my residency training PGY 1-5 (will start PGY 1 this July) for sure. After Joy's and Sergio's inputs, I will save the leftover cash flow into the interest bearing vehicle. What do you recommend to invest these leftover cash flow into? My original plan was to save these cash in to BoA Savings account that has an interest growth. Do you recommend putting them rather into Vanguard, for example? Any example of investment account I can take a look at for me to invest for short period of time (5-6 yrs) and be able to withdraw original+interest with tax benefit to pay off the loan interests before I will leave REPAYE 5-6 yrs from now?

                              I plan to max out IRA Roth (Vanguard) annually and contributing 6.2% match into 403b non-Roth (TIAA) spaces during intern year and investing into 403b Roth space (Vanguard) during PGY 2-5 (No match at my advanced program). I will roll over 403b non-Roth (TIAA) into Vanguard and convert into Roth after internship is done. Which type of investment account should I look at just for the sake of saving/investing leftover cash amount that I will intend to withdraw after 5-6 yrs to pay off loan interests before I leave REPAYE and refinance with bank?

                              Huge thanks!


                              • #30
                                My position is you don't want to put your principal at risk. Having said that, I suggest Ally Bank.