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Idea to enter REPAYE early

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  • #91
    Future Doc thanks for responding.
    I will not be planning on PSLF. I plan to refinance as an attending (Ortho) and pay it off ASAP. My scenario is suppose you have 200k in debt at 6% interest, and cant quite afford 2200 per month in the standard payments. So you sign up for RePAYE, consolidate early, and get the $0. But you are willing to pay ~ 1800 every month during residency, in order to cover the interest and hopefully reach the principal.

    Is that a good idea, especially if the goal is to help your attending self?
    Especially if you enlist the “Work Around” posted by Joy Sorensen earlier

    Work Around
    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.

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    • #92
      Is there any negative to consolidating federal loans and starting REPAYE if I'm a single dental school resident who has no income (and won't) until residency graduation in 1.5 years? I feel like I haven't found a lot of similar cases because the other medical residents are paid.

      It would only benefit me to take my loans out of "in-school deferment" and have the government pay some of my interest with the REPAYE program, correct? Or is there a benefit to keeping all my loans in this deferment period until I graduate and have an income?

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      • #93
        "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."

         

        Can anyone confirm that this "work around" works? I'm trying to decide if I should refinance or do REPAYE for PGY1 year. My wife and I will both be making ~53k next year but didn't have jobs this past year. If I apply for REPAYE in May, I should have a $0 dollar payment but would nevertheless like to put as much money towards loans as possible. Could I do the "work around" above and take advantage of the government interest subsidy AND start paying down my principle or would it be better to refinance with a private company? I am not interested in loan forgiveness.

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        • #94
          I see the benefit of entering REPAYE early so as to have the government pay half the unpaid interest accumulating on loans. However, when you consolidate after graduation, isn't all interest that had accumulated throughout school immediately capitalized? So by entering REPAYE early, you are missing an opportunity to pay off as much accumulated interest as possible before it is capitalized at 6 months. Thoughts?

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          • #95
            I am planning to consolidate my loans to enter REPAYE upon graduation, but was wondering if it is worth it to include Subsidized and Perkins Loans in the consolidation if not planning on PSLF?

            One of my subsidized loans qualifies for having all grace period interest covered by the government (so no reason to consolidate it for REPAYE early as only half interest would be covered for the grace period). For the other subsidized loans without grace period subsidized interest, I could consolidate at graduation with no capitalized interest and initially half interest covered through $0 monthly REPAYE payments, or let them accrue interest during the grace period which would then capitalize, but benefit from REPAYE covering 100% of unpaid interest for the first 3 years on subsidized loans.

            With some rough math, consolidation would give me 6 months of 1/2 interest with $0 monthly payments and then 2/3 interest under REPAYE after that. Not consolidating would have 6 mo of full interest which then capitalizes, followed by 1/3 interest for 3 years under normal REPAYE payments. Using $10,000 and 4.5% full interest rate, consolidation would accrue $112.50 interest in the first 6 months and then $1350 total in the next 3 years for about $1450 interest in 3.5 years. Not consolidating would capitalize at 6 months for a principal of $10,225 and then accrue $460 interest in the next 3 years for a total of $225 principal capitalization and $460 interest in 3.5 years. After the 3.5 year mark, both loans would be at 2/3 interest through REPAYE, albeit with a slightly higher principal on option 2.

            Additionally, how do Perkins loans factor into this? Do they have grace period interest fully subsidized? If so, I would likely not want to consolidate them, but then they could not be used for REPAYE after the grace period, so I am not sure what payment plan would work best for them in that case.

            For unsubsidized loans, REPAYE early through consolidation saves a few thousand in interest during the period of $0 monthly payments and also avoids capitalization of accrued grace period interest, so it seems consolidation is the best option for those.

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