Enroll spouse in RePAYE when I'm already in PAYE?

[Illinigrad]

I'm a PGY-2 and have been enrolled in PAYE for the past year (current payment is $157/month). My wife just started her PGY-1 year and we're evaluating her options for loan repayment. Our student loan total is approximately $400K (all federal). From the research I've done, it looks like RePAYE may be a better option for her loans, as we could take advantage of the interest subsidy and would be able to afford the possibly higher payments (from not being able to file MFS) on our double resident income. My question would be, does my current enrollment in PAYE complicate her enrollment in RePAYE? Would we be better off switching my loans to RePAYE as well (though I believe I've read that your interest capitalizes on the principal when you switch from PAYE to RePAYE)? Thanks in advance for the advice.

[DMFA]

If you both have similar debts and similar incomes, it won't make that much of a difference paying half the debt with half an income twice, or both debts with both incomes, since they *should* account for spousal debt and spousal income when calculating your repayment.

The interest will capitalize when you leave any income-driven program, e.g. switching PAYE to RePAYE.

Quoted from the Q&A: https://studentaid.ed.gov/sa/sites/default/files/income-driven-repayment-q-and-a.pdf

32. If my spouse also has federal student loans, how will this affect the determination of my eligibility for an income-driven repayment plan or my monthly payment amount?

This depends on the plan, as explained below.

REPAYE Plan: Generally, your servicer will automatically adjust your payment amount proportionally, based on each spouse’s share of the total loan debt. For example, if the calculated REPAYE Plan payment amount for you and your spouse (based on your joint income) is $200 and you owe 60 percent of your combined loan debt and your spouse owes 40 percent, your individual REPAYE Plan payment would be $120, and your spouse’s individual REPAYE Plan payment would be $80. If you and your spouse have loans with more than one loan servicer, your payment amounts will be further adjusted.

PAYE Plan and IBR Plan: If you and your spouse file a joint federal income tax return, your servicer will use your combined eligible student loan debt when determining your eligibility for the PAYE Plan or the IBR Plan, and will automatically adjust your payment amount proportionally, based on each spouse’s share of the total loan debt. If you file separate federal income tax returns, only your eligible student loan debt will be used when determining your eligibility for the plan, and there will be no adjustment to your payment amount if your spouse also has eligible loans.

All IDR Plans: Unless you and your spouse choose the joint repayment option under the ICR Plan, your spouse is not required to request an income-driven repayment plan in order for the adjustments described above to be made. Your spouse may choose a different repayment plan but may need to provide authorization for your loan servicer to access his or her loan information in the National Student Loan Data System (NSLDS®).

 

[Sergio Estavillo]

You're probably both better off in REPAYE.  The immediate concern with migrating from PAYE to REPAYE is interest capitalization.  Assuming you have $180k principal and $20k in accrued interest at 6.75%, you would otherwise avoid $1,350 interest by not switching.  But, the REPAYE 50% interest subsidy will likely more than offset the additional interest accrual.  Assuming you alone with AGI = $50K, student federal debt = $200k, your REPAYE interest subsidy is ~$5,130 for the year.  If we include your spouse, AGI = $100k, federal debt = $400k, REPAYE monthly payment = $634, and REPAYE interest subsidy ~$9,700.

[Illinigrad]

Thanks for the replies! Yeah, looking at the math, with the interest subsidies factored in, it looks like it might make the most sense for me to switch to RePAYE as well. Unfortunately, we have different loan servicers (FedLoan and Great Lakes), so hopefully the process isn't too painful.

I do have one additional question. A few of my wife's loans are FFEL and one is a Perkins (from undergrad). Do we need to consolidate these indirect loans with the other direct loans before enrolling in RePAYE? I did not consolidate my loans last year before entering PAYE, as I had read that the consolidated interest rate would be slightly higher, but all of my loans are direct.

[Sergio Estavillo]

Illinigrad wrote:

Thanks for the replies! Yeah, looking at the math, with the interest subsidies factored in, it looks like it might make the most sense for me to switch to RePAYE as well. Unfortunately, we have different loan servicers (FedLoan and Great Lakes), so hopefully the process isn’t too painful.

I do have one additional question. A few of my wife’s loans are FFEL and one is a Perkins (from undergrad). Do we need to consolidate these indirect loans with the other direct loans before enrolling in RePAYE? I did not consolidate my loans last year before entering PAYE, as I had read that the consolidated interest rate would be slightly higher, but all of my loans are direct.

Click to expand...

Only direct loans are eligible for REPAYE.  Your wife could consolidate (via studentloans.gov) just her FFEL and Perkins leaving her current direct loans outside the consolidation.  No need to consolidate your loans as they're all direct loans.

[Joy Sorensen Navarre Navigate]

Dear Illinigrad,

In theory the loan servicers are supposed to communicate with each other. In practice, it's rare that they take into account a spouse's loans thru a different servicer and adjust proportionally the payment amounts. The 'Work-Around': When a spouse consolidates, she/he will have the option to select a loan servicer. She/he may select the same servicer that services the other spouse's loans.

All the best,

--Joy