I just started my intern year of residency and have $240,000 in medical school loans (~208,000 principal, 32,000 interest). If your REPAYE payments are never able to cover interest while in REPAYE, you’d stay in REPAYE until you near the 240 needed for PAYE and then switch right before. If you're pursuing PSLF, you don't have to worry about this; loans forgiven through PSLF aren't taxed as income. Private student loans aren't eligible for any of the four income-driven repayment (IDR) plans, including PAYE and REPAYE. So that’s the long-term scenario in which PAYE beats REPAYE for a single filer or non-working spouse: purely due to the 5 fewer years to qualify. Generally, PAYE is better for married borrowers in cases where both spouses have an income. We are both on income driven repayment plans. With PAYE and IBR plans, the government will pay the interest on your subsidized loans for up to 3 consecutive years if your monthly payment does not cover the interest on your loans. To be eligible for PAYE, you must meet all of these requirements: Have received a federal loan on or after Oct. 1, 2007, and had no outstanding federal loans at that time. , which increases the total interest you pay over time. In future years, you may decide to opt for pretax retirement contributions instead of a Roth option: but are valid, but a pretax contribution will reduce AGI and thus reduce your REPAYE payments further, helping you save even more money while working toward PSLF. » MORE: REPAYE: How it works and whom it's best for. Ben, My wife and I are both PTs who are 2 and 3 years out of grad school. With either one, you’ll need to save for years just to pay the taxes that will come due with the forgiveness (and even with your loans “forgiven,” you’re still spending a ton of money on them). The capitalized interest from the switch will be irrelevant if it’s all forgiven after 10 years. The reason the above question is basically never is because REPAYE interest never capitalizes unless you leave the plan. Otherwise, the repayment period on REPAYE is 20 years. The tool also shows total interest costs and loan forgiveness potential on each plan. PAYE vs. REPAYE: Which is right for you? When your income rises beyond the “cap.” For a $200k loan at 6.8% for example, that amount is around ~$295,000 a year for a single filer. Doctors, for instance, might want to make payments on PAYE or REPAYE during residency and refinance when they become an attending. REPAYE sets student loan payments no more than 10% of the borrower's income just like PAYE but it offers an interest subsidy that it is not offered with PAYE. For single people or married people filing jointly, PAYE and REPAYE payments will be the same (10% of AGI) until income rises high enough such that 10% of your income is greater than the 10-year standard payment calculated based on your original loan amount when you enter repayment, at which point PAYE caps at that amount while REPAYE continues to grow with growing income. All financial products, shopping products and services are presented without warranty. REPAYE would have me pay $32k over the course of my 5 year residency, whereas PAYE (and thus filing separately) would have me pay under $11k with monthly payments reaching $235/month during PGY5, at the expense of accruing $100k. After that, they'll cover 50% of the interest that accrues. I’m guessing with your salary your REPAYE payment for the next year falls like $100 short of your interest amount, which means you’re talking about forgiveness of $50 bucks a month. I’m looking for advice for my situation: I am fortune to have only about 70k in unsubsidized loans, about to start repayment. How Student Loan Income-Based Repayment Is Calculated. Given the amount of my loans, I would assume that my REPAYE interest subsidy would be considerable, and, thus, contributing towards my loans wouldn’t be as advantageous as putting money into my Roth IRA/403b? My best estimate of monthly payments projected to 20 years I could end up with a 200k tax bill in 20 years. My guess is that the program will still be available to current students and residents who’ve already borrowed money and made plans that rely on it. After three years, they will pay for half of the accruing interest. For many residents and fellows, this interest subsidy will lower your effective interest rate during training from 7%, to 4-5%. I’d love to chat if you wanted to reach out to me by email to set something up: travis AT studentloanplanner DOT com. Impact of losing PAYE eligibility: If your income increases to the point where you no longer qualify to make payments on PAYE, you'll technically remain on the plan but your payment won't be based on your income; it will be equal to what you'd pay on the standard plan. 10% of discretionary income, but never more than you’d pay on the standard, 10-year plan. Using REPAYE during training yields an effective interest … #3 Interest Subsidy Our partners compensate us. Three such plans — the REPAYE, PAYE and IBR plans — include an interest subsidy. This can be when your loans are forgiven or if you … But yes, if you’re in REPAYE, extra money toward loans means less unpaid interest accrued and thus less subsidy. My goal is to get the debt forgiven through PSLF since I am a teacher. However, this does not influence our evaluations. then just ill renounce my citizenship lol but not kidding it’s impossible. So that 10k before capitalization would save you $680/year if your interest rate was 6.8%, but that $680 would be forgiven by PSLF so who cares? So, we made $88,000 this year – so we each made $44,000. There are reasons PAYE can be a better choice for many borrowers, but the interest capitalization cap isn’t really one of them. The cap refers to a limit on capitalization that occurs as a result of losing your partial financial hardship. The federal loan repayment calculator has my payment going down into the mid $100’s for PAYE using the $44,000 AGI. In the above example, your salary is never big enough to pay more than the accrued interest, so you’d think REPAYE wins. In this case, you’d get the best of both worlds: your months in REPAYE should still count toward the 240 needed for PAYE forgiveness, but you’re also decreasing the amount of interest accrued as much as possible. Ah, yes, the super long term baked-in forgiveness that sounds perfect for someone with $500k in student loans who wants to work part time making $150k forever. If you're not pursuing PSLF and can afford to make payments on the standard repayment plan, you should. I’m a public school teacher in Texas. Choosing Between PAYE and REPAYE. I make around $54,000 after taxes (and no hope for any kind of wage growth since I’m a teacher) and she makes about $34,000 after taxes – so about $88,000 combined after taxes. You’ll accrue less interest on REPAYE because of the plan’s expanded interest subsidy. REPAYE is different than other IDR plans such as PAYE because it incorporates an interest subsidy. But making sense of PAYE and REPAYE’s nuanced differences can make your head spin: Must have received a federal loan on or after Oct. 1, 2007, and have had no outstanding federal loans at that time. you’re probably in the 15% tax bracket). The monthly payment at a $150k salary is $1102 ($13,224/year), meaning your loan continues to grow big time forever. Anyone with qualifying federal loans is eligible. You should max out the employer match on your 403b if you have one. Physics Explains Why Time Flies as We Age, Osteopaths Settle Class Action Against American Osteopathic Association. So, I’m greatly considering moving over to PAYE which my loan servicer did say I qualify for. If your balance is 4x your income, then you probably shouldn’t be in PAYE. Because REPAYE takes longer, you pay $158k more with REPAYE. The consistently most read post on FPMD has been PAYE vs. REPAYE for more than 1 year now. Anyone seriously considering a 20 or 25-year plan needs to double check their math or consider professional advice. It would just be a wasted effort toward reducing an amount that would be forgiven anyway. In that case, choosing the plan that gives you the lowest monthly payment would maximize the amount you get forgiven but increase your future tax burden. This is actually good from the perspective of minimizing the amount of interest that accrues while paying your loan off and thus saving money overall but bad from the perspective of minimizing payments for possible loan forgiveness or to fund your high-rolling lifestyle. Teddy Nykiel is a former personal finance and student loans writer for NerdWallet. In that case, choosing the plan that gives you the lowest monthly payment would maximize the amount you get forgiven but increase your future tax burden. Use Federal Student Aid’s Loan Simulator tool to compare monthly payments for PAYE vs. REPAYE, as well as all other federal student loan repayment plans. But I did the math, and taking into account another two years of residency/fellowship, the interest subsidy of REPAYE ended up more than making up for the capitalized interest in my case. If you don't fit PAYE's requirements, your decision is easy: Choose REPAYE. So extra payments means you’re raising your effective interest rate. I am trying to decide between PAYE and REPAYE. Unpaid interest will capitalize, but the capitalized amount is limited to 10% of your original loan balance when you entered PAYE. You’ll accrue less interest on REPAYE because of the plan’s expanded interest subsidy. 5 strategies for paying off medical school debt. REPAYE and PAYE will both ding you 10% of your "discretionary income." The main reason is the 50% interest subsidy available under REPAYE that WAS NOT available under IBR and PAYE. I think in 10 years, future borrowers will have access to a limited version, most likely with the $57,500 that has been floated around in the budget proposals for the past couple of years. What's your average interest rate and did you tell the calculator that your income would be rising at an exceedingly high rate? The rest (up to 5,500) can go into the Roth IRA. The PAYE interest cap is essentially never better than the REPAYE interest subsidy. It's also totally fine to go on income-driven repayment temporarily. Our opinions are our own. Swapping plans twice could easily delay your eventual forgiveness by a couple months. Ok thank you very much for this information, more help than I’ve gotten with multiple calls to loan servicer referring me back to an accountant that I don’t have. I am an intern (3 year program) that plans on marrying in the next 1.5 years (her income about 80k, no loans). Revised Pay As You Earn, introduced in 2015, is a type of income-driven repayment plan available to select federal student loan borrowers. I would also like to start a Roth IRA and get as close to maxing it out as I can afford. You'll save on interest and become debt-free faster by sticking with the standard plan. From your other post “The exceptions to using that income to pay down your loans is if you’ve already saved up a 2-3 month emergency fund and are making supplemental income you don’t need but are attempting to qualify for PSLF or are getting a nice interest subsidy from the REPAYE program. There a few chapters in my free book that you should read about IDR, REPAYE, and PSLF: https://www.benwhite.com/studentloans/. So my understanding is a little interest would be subsidized with REPAYE, or a little adding-up with PAYE? Also must have received a loan disbursement on or after Oct. 1, 2011, or consolidated on or after that date. If you have to you have to, but this is not the ideal scenario. If so, since I’m only 1.5 (2.5 as of next year when the government looks at my income again). We both earn grossly 65k each. After 3 years, you’re responsible for the interest that accumulates. The Revised Pay As You Earn (REPAYE) plan was recently created to further ease the burden of student loan debt. See an analogous verbiage within the actual REPAYE regulations (page 67222): The statutory provisions that govern the ICR plans (which include the Pay As You Earn repayment plan, the ICR plan, and the REPAYE plan) and the IBR plan specify the types of payments that may be counted toward loan forgiveness under these plans. » MORE: PAYE: How it works and whom it's best for. Your servicer may not agree, but servicers are often completely wrong. 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