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Idea to enter REPAYE early

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  • #31
    Thank you, Sergio! I will take a look at Ally bank. You meant a regular online saving account, correct? Not IRA account?

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    • #32
      Yes, savings as a Traditional IRA may be subject to an early withdrawal penalty.

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      • #33
        Tried posting this yesterday but it didn't seem to work. 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: Received 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 studentloans.gov 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. Thanks for the clarification about the interest subsidy Joy and Sergio.

        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

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        • #34
          Mamead, let us know as well when your first interest subsidy applied to your account. I assumed the gov will take care of an interest subsidy at monthly basis? Is there anyway for us to know/track how and when the interest subsidy is applied on myfedloan.gov?

          Out of curiosity, are you hedging on PSLF route or you will be on Repaye just during the training and refinance after training to pay off on your own?

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          • #35
            In addition to the above, I forgot to mention to you that if our payments are going to be $0/month, fedloan rep told me we are not eligible for signing up for direct debit to get 0.25% interest off benefit. Monthly payment should be more than $0 to be eligible to sign up. Were you able to sign up for direct debit?

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            • #36
              I'll add a wrinkle to this discussion for those eligible for PAYE: Should you no longer qualify for PAYE or opt out, there's a PAYE provision that caps the accrued interest to 10 percent of your original loan principal balance at the time you entered the PAYE Plan.  For example, $300k when you enter PAYE limits the interest capitalization to $30,000 when you opt out.

              I'll assume the following for REPAYE comparison:

              • Loan Balance of $300k @ 6.75% and 1 in family

              • You enter REPAYE immediately after MS via consolidation

              • AGI for 6 year residency

                • $0 year 1

                • $25k year 2

                • $52k year 3

                • $54k year 4

                • $56k year 5

                • $58K year 6




              The REPAYE interest subsidy is ~$51k, but $51k is capitalized when you opt out of REPAYE.

              Here's the language re: the PAYE interest accrual limitations:

              (A) Except as provided in paragraph (a)(2)(iii) of this section, accrued interest is capitalized—
              (1) When a borrower is determined to no longer have a partial financial hardship; or

              (2) At the time a borrower chooses to leave the Pay As You Earn repayment plan.

              (B)

              (1) The amount of accrued interest capitalized under paragraph (a)(2)(iv)(A)(1) of this section is limited to 10 percent of the original principal balance at the time the borrower entered repayment under the Pay As You Earn repayment plan.

               

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              • #37
                I have a follow-up question, Sergio. Appreciate the insight as usual!

                I also think of PSLF route if possible. So, for my first 6 yrs (PGY1-6), I will be on Repaye. After PGY6 into attending hood, since the income jumps, I won't be eligible for PAYE or IBR (I believe over 150k AGI won't let you sign up for IBR/PAYE plus I won't get any subsidy benefit under REPAYE). In this case, to fulfill the rest of 4 yrs of the 10 yrs term for PSLF, I have no choice but to take a risk for capitalization of interest when switching to Standard 10yrs plan? Is there other plan I can switch into that requires less monthly payment other than Standard 10yr payment?

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                • #38
                  I plan to refinance with a private lender once my income reaches attending levels, so the interest capitalizes whether I switch to a different program or not.

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                  • #39
                    Hi all, Here is a link to a description of the income-driven repayment plan options. See page 3 for a chart that describes the details mentioned in this post.

                    https://studentaid.ed.gov/sa/sites/default/files/income-driven-repayment-q-and-a.pdf

                    I'd like to correct the statement, 'over 150k AGI won’t let you sign up for IBR/PAYE'. If the PAYE or IBR plan monthly payment amount is less than the 10-year Standard Repayment Plan monthly payment amount, you would meet the eligibility requirement. For example, if the loan balance is $230k at 6% with a family size of one, the 10-year Standard Repayment would be approximately $2,550. If the borrower's adjusted gross income is $315k, the REPAYE/PAYE payment would be approximately $2,450--an amount lower than the 10-year Standard payment. In this example the borrower would be eligible.

                    When I consult with physician borrowers in similar situations, they find it helpful to run the numbers with a variety different scenarios. When we have clear data, we can make solid decisions. Often the attending physician is surprised to find that the REPAYE payment is not much higher than the standard payment, and if they are pursuing PSLF, it makes financial sense to continue in the REPAYE.

                    As always, every situation is different. Please check with a tax or financial adviser to know what's best for you.

                    All the best,

                    --Joy

                     

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                    • #40




                      I have a follow-up question, Sergio. Appreciate the insight as usual!

                      I also think of PSLF route if possible. So, for my first 6 yrs (PGY1-6), I will be on Repaye. After PGY6 into attending hood, since the income jumps, I won’t be eligible for PAYE or IBR (I believe over 150k AGI won’t let you sign up for IBR/PAYE plus I won’t get any subsidy benefit under REPAYE). In this case, to fulfill the rest of 4 yrs of the 10 yrs term for PSLF, I have no choice but to take a risk for capitalization of interest when switching to Standard 10yrs plan? Is there other plan I can switch into that requires less monthly payment other than Standard 10yr payment?
                      Click to expand...


                      As a very general rule to thumb, to no longer demonstrate a partial financial hardship in PAYE, your AGI would need to be approximately 1.5x your student loan balance when you entered PAYE.  It's approximately 1.0x for IBR.  And, there's no AGI threshold for REPAYE.

                      RE: PSLF - Interest capitalization is not a concern because (currently) any forgiveness realized with PSLF is non-taxable.  The concern is will there be a cap on the PSLF non-taxable forgiveness.  The 1st cohort to realize PSLF will be in 2017.  I think there will be significant public blowback when the 1st neurosurgeon (please feel free to insert any high paid specialty) receives $400,000 PSLF.  This may be lead to a PSLF cap, some have already suggested $57,500 (the undergrad borrowing max.).

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                      • #41




                        I plan to refinance with a private lender once my income reaches attending levels, so the interest capitalizes whether I switch to a different program or not.
                        Click to expand...


                        Yes, that's why you want to minimize your interest capitalization.

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                        • #42
                          The only way to minimize interest capitalization when switching to different plan is to pay off the interest amount capitalized when switching OR to pay extra beyond minimum required while on Repaye, right? I am leaning toward saving leftover cash and use them to pay off interests right before leaving Repaye to prevent interest capitalization.

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                          • #43




                            The only way to minimize interest capitalization when switching to different plan is to pay off the interest amount capitalized when switching OR to pay extra beyond minimum required while on Repaye, right? I am leaning toward saving leftover cash and use them to pay off interests right before leaving Repaye to prevent interest capitalization.
                            Click to expand...


                            In both situations you're describing the same circumstances, switching repayment programs.  Interest will capitalize whenever you switch, whether within the federal repayment options or refinancing with a commercial lender.  I suggest save and make payment just prior to switching/refinancing to avoid interest on interest.

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                            • #44
                              So I followed the advice in this thread and I'm really excited about it working out well. I submitted my loan consolidation toward the middle of June and it has gone through and been finalized. My monthly payment is $0 and starts the middle of August and runs for 12 months in Repaye. I will have to submit paperwork in April of next year to stay in Repaye. Depending on how much money my wife makes in the coming years I will probably stay in Repaye throughout residency and refinance just before starting as an attending. My goal is to pay off my loans within 3 years out. Shooting for one year but that might be ambitious as I do owe $150K. The interest on my consolidated loans is 5.85% so my effective interest rate for the next year with the 50% interest subsidy should be 2.925%. Hard to beat that. Also, I took out about 15k extra just before graduation for moving costs, etc. We used some of that money to max out my wife's and my roth IRAs. I don't like the idea of purchasing on margin but the ability to max out this space that we might not be able to access if the future with tax free growth was to hard to pass up. Especially since we have the goal to pay off our loans so quickly while my IRA will have the chance to grow tax free for another 30-40 years.

                              Has anyone actually received the government subsidy? How does that part actually work?

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                              • #45
                                Congrats on your (relatively) LOW loan balance! In my loan consulting practice I consult with physicians and residents. Most physicians I see have $280k-$380k in student loans. Medical residents have $220k and more. How did you manage to keep your loan balance at $150k?

                                For unsubsidized loans with REPAYE, 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. For example, if your monthly interest is $800 and your payment is $0, $400 interest accrues to your account.

                                I'm curious, why do you plan to submit paperwork in April?

                                 

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