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IBR guy, recently awoken to idea of REPAYE

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  • IBR guy, recently awoken to idea of REPAYE

    I've been on an IBR plan since 2011 when I started internship.  Since my loans were >$240K when I graduated in May 2011 and my residency training was a non-profit, IBR/PSLF was most logical.  I have hopes of applying for PSLF in 2021.  I've recently accepted a job at an academic institution as an attending once fellowship ends, so it's looking like PSLF may indeed happen!

    Despite the changes to pay as you earn plans over the years, I've just had my head down and selected IBR because I knew the most about it.  Also, because some of my loans were taken out before October 2007, I was not eligible for the 10% capped plans.  Wife and I file married but filing separately to avoid unnecessarily increasing IBR payment.

    Recently I learned about the REPAYE program which I would be eligible for despite the loans prior to Oct 2007.  It looks like a no brainer to switch with one exception-- wife and my salary will HAVE to be added up for the 10% payment calculation.  Is this the only downside that you guys see as well?  Is there anything I am missing?  Obviously depending on wife's salary, it may still be beneficial to stay in IBR.

     

    If there are big fluctuations in wife's salary, can you switch from REPAYE to IBR, and vice versa, from year to year?

    Thanks!

  • #2
    Dear pslfhopeful,

    Congratulations on your faculty position...and your progress toward loan forgiveness!

    Yes, the Revised Pay As You Earn (REPAYE) repayment plan became available in December 2015. Payments are 30% lower than the IBR payments for one-salary households. As you noted, the REPAYE payment amount is based on both spouses' income.

    Lots of physicians with student loans prior to 2007 are in a similar situation. At times, the REPAYE payment turns out to be the better option. Of course it depends on the specific situation.

    For example, if a faculty physician earns $250k and his teacher spouse earns $40k, the IBR MFS payment is about $2820 and the REPAYE payment is about $2210.

    Alternatively, if the spouse is also faculty and earns $250k the REPAYE payment is approximately $3960.

    If you choose to leave a repayment plan, you may change to any other repayment plan for which you are eligible. However, remember the IBR requires a Partial Financial Hardship.

    Best,

    --Joy

     

    Comment


    • #3
      Just a couple of points:

      1. Only Direct Loans are eligible for REPAYE and PSLF.  You can verify loan type at www.nslds.ed.gov.

      2. Interest capitalizes when you switch repayment plans.  Not an issue if you realize PSLF, but could add to the cost of the loan otherwise.


      Providing more income detail should result in more specific guidance.

      Comment


      • #4
        IBR vs PAYE: IBR payment is 1.5x greater than PAYE, still capped at 10-yr standard.  If pmt < 10-yr std, no interest capitalization (still accrues) for both.  Interest capitalization is maxed at 10% of principal.  They are very similar to one another, yet PAYE has lower monthly payments (therefore more interest accrual).

        IBR vs RePAYE: IBR payment 1.5x greater than RePAYE but is capped at 10-yr standard and can be reduced by MFS; RePAYE always includes spouse and is not capped at 10-yr std.  No interest capitalization in RePAYE, and 50% subsidy on unpaid interest each month (if monthly pmt < interest).

        PAYE vs RePAYE: same monthly payment calculation, except RePAYE not capped at 10-yr standard.  No interest capitalization in RePAYE, maxed at 10% in PAYE.  50% subsidy on unpaid interest in RePAYE.  Can reduce payment by using MFS in PAYE (not in RePAYE).

        PAYE and RePAYE are generally better for PSLF especially given the 33% lower monthly payment.  The capitalization of the interest when you switch plans may not matter if you don't plan on repaying the whole thing anyway (PSLF).

        Whether you'd pay less over 10 years by consolidating, getting lower interest, and killing the ****************************************** or getting the lowest monthly payment possible and letting it vanish into the ether after 120 payments requires some calculation.  Depends on your income and the amount you owe.

        Did you consolidate at med school graduation?  Did you certify your residency employer as PSLF-eligible?  When you consolidate, your PSLF clock resets.  IF you already did those things, or you can retroactively certify your prior employer (can be done), then you can count them toward your 120.

        Comment


        • #5
          @pslfhopeful any insight gleamed from making the switch.  I too am contemplating switching from IBR to REPAYE.  Entered repayment in 2011 and have loans prior to Oct 2007.  Current PSLF certified count is at 58.  MFJ, single income.

          If PSLF sticks around in its current form, switching to REPAYE now would be hands down the best option. projected cost savings ~11K.  The only way IBR comes out ahead is if my income exceeds the 10yr standard monthly payment.

          But the elephant in the room is what happens if PSLF changes, would it be better to be in the same plan since 2011?

          Comment


          • #6
            Just found this in my internet "research":  http://studentloansherpa.com/dangers-switching-repaye/

            Given the election rhetoric this gives me great pause in switching from IBR to REPAYE, even with it being the better financial path (at this time!)

            Anyone have any definitive references to show REPAYE is, in fact, an executive order??

            Issue 3: REPAYE was created by executive order.


            This election season, President Obama’s use of the executive order has been a frequent source of discussion.  One way in which he issued an executive order was in the creation of the Revised Pay As You Earn Plan.  Because a stroke of the President’s pen created REPAYE, a stroke of the President’s pen can also eliminate it.

            This aspect of REPAYE is much different than IBR.  Unlike REPAYE, IBR was passed into law by an act of Congress and signed by the President.  Thus, if a new President wanted to immediately eliminate REPAYE, it could be done.  However, a plan like IBR would take help in the form of an act of Congress if the President wanted to get rid of it.  As a result, IBR should be seen as a more stable plan.

            The possibility of elimination should especially be considered in light of the fact that standard forgiveness starts a new countdown when you sign up.  Conceivably, a borrowers could be on IBR, give up his progress to sigh up for REPAYE, but then get sent back to IBR because the new President eliminated REPAYE.  All those months on REPAYE would not count towards the IBR forgiveness and would essentially be a waste.

             

             

             

            Comment


            • #7
              I think you might be trying a bit too hard here.  Are you certain that it was created by an executive order?

              https://www.whitehouse.gov/the-press-office/2014/06/09/presidential-memorandum-federal-student-loan-repayments

              https://studentaid.ed.gov/sa/about/announcements/repaye

              http://www.ed.gov/news/press-releases/us-department-education-announces-availability-additional-flexible-repayment-plan-help-borrowers-manage-their-student-loan-debt

              Sounds like he said "you need to fix something by October of next year," and the DoE did.  Doesn't really sound like it was "created by an executive order."

              Comment


              • #8




                The possibility of elimination should especially be considered in light of the fact that standard forgiveness starts a new countdown when you sign up.  Conceivably, a borrowers could be on IBR, give up his progress to sigh up for REPAYE, but then get sent back to IBR because the new President eliminated REPAYE.  All those months on REPAYE would not count towards the IBR forgiveness and would essentially be a waste.

                 

                 

                 
                Click to expand...


                AFAIK, the foregiveness countdown is only reset when you resconsolidate, not when you switch repayment plans.  After your loans are consolidated with Direct Loans, you can switch between income based repayment plans at will without resetting the clock.  Feel free to correct me if you find evidence showing otherwise.

                Comment


                • #9







                  The possibility of elimination should especially be considered in light of the fact that standard forgiveness starts a new countdown when you sign up.  Conceivably, a borrowers could be on IBR, give up his progress to sigh up for REPAYE, but then get sent back to IBR because the new President eliminated REPAYE.  All those months on REPAYE would not count towards the IBR forgiveness and would essentially be a waste.

                  Click to expand…


                  AFAIK, the foregiveness countdown is only reset when you resconsolidate, not when you switch repayment plans.  After your loans are consolidated with Direct Loans, you can switch between income based repayment plans at will without resetting the clock.  Feel free to correct me if you find evidence showing otherwise.
                  Click to expand...


                  That's correct.  Any payment made under a standard or income-driven repayment plan over the life of a loan counts toward PSLF.  If you started IBR, then went PAYE, the RePAYE, all those payments count if you paid them on the same loan(s).

                  If you consolidate a loan on which PSLF-eligible payments have been made, that loan no longer exists and a new loan with zero payments takes its place.  That's how you lose PSLF payments.

                  I would find it a most unlikely scenario for payments which once were PSLF-eligible become retroactively ineligible; even more unlikely than any coming change to PSLF not to apply to people already in the program (i.e. being grandfathered in without some sort of mitigation clause).

                  We need to stick to official statements from the appropriate authorities (DoE, basically) when trying to make these decisions instead of trying to speculate based on a change in the administration.  If you want to "hedge," that's fine and decently reasonable, but it doesn't make much sense for anyone to make drastic changes to their loan repayment schedule (which is a major component of our overall financial plans) based on what is, at this point at least, gross speculation.

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