For REPAYE only, the agency also will pay 50% of unpaid interest on unsubsidized loans. In 2021, we will attempt to increase her retirement savings. I completely agree, I wish financial advice (of this kind) would be more widely acccepted and/or taught in schools! Get an apartment with friends to cut costs or stay at home while going to school. On the second point, the Department of Education has issued a statement on the injustice of community property states when it comes to married filing separately. Meanwhile, classmates grumbled about what a waste of time this was. During the 2016 election, President Obama’s use of the executive order has been a frequent source of discussion. Which is to say that I don’t think anyone can tell you with certainty that the IRS or someone else might look at your situation in the future and decide you weren’t paying enough. Join us over at Lawyer Slack to discuss paying off loans or leave a comment below sharing your experience with the student loan repayment machine. Next year will be a different story, but I just want to know — could I get disqualified from the PSLF program if some years we file jointly and others separately? IBR vs REPAYE. Some random facts about REPAYE, IBR and PSLF. REPAYE is so new a ton of people that I speak with are still on IBR and have never heard of interest subsidies on REPAYE. Second, comparing the effective interest rate under REPAYE and the refinancing interest rate is not apples to apples. I remember feeling trapped, and slightly depressed, that I could not find a short term solution for this. As far as switching plans, yes there can be implications but generally you’re not going to start the repayment clock over by switching plans as far as I understand. A quick search pulls up a number of high yield savings accounts in which I could park the excess money I would have access to in REPAYE to generate interest to close the gap between the 3.4% and the 1.95%. 4. So at the beginning of our journey, everyone we consulted with said we had to choose between the following three student loan repayment options: IBR, PAYE, or REPAYE. Or can I wait til the end of the year when it’s time to recertify and ask to switch then? – If filing joint tax returns, both spouses’ incomes and eligible debt is considered. When you are married, you may choose to file your taxes separately or jointly. I ran across this site while doing loan research for a family member who recently graduated from Pharmacy school with about $225k in loans and is now in a 2 year clinical Pharmacy residency (grace period expiring Jan). I have talked to numerous professionals, and there has been many instances where they asked a question regarding a fundamental aspect of their loan program because they just didn’t have the answer. Would really appreciate any insight you could provide into these matters. However, if you qualify for PAYE, you may be able to get out of debt five years earlier than under the IBR plan. I have been on IBR for 7 years and feel like I am beyond the point of no return. Filing as MFJ or MFS also has no impact on PSLF. I didn’t know the ins and outs of finances as well as I would hope, and I wanted to make sure that we were doing everything correctly. Additionally, I will walk you through our decision tree, to give you some insight as to why one of these was the option we chose. I live in OC with my husband, although we prefer to be traveling, and do so when we can. Probably not, particularly since IBR won’t kick you out even if your income surges, but either way, if you are pursuing PSLF you should make sure this isn’t you. Revised Pay As You Earn (REPAYE); Pay As You Earn (PAYE); Income-Based Repayment (IBR); Income-Contingent Repayment (ICR) In my case, for example, it seems that the govt would be subsidizing about $570 bucks a month, so that my effective yearly interest rate is around (($570 unpaid interest per month) + ($140 paid interest per month)) x 12 / ($250,000 principal)= ~3.4%. For individuals who do not live near a First Republic and therefore may only have access to refinancing options above 3% in the first place, REPAYE seems clearly better. She is able to contribute to both a 401k and a 457 plan each up to 18.5k. After getting married, my concern has been that my wife’s income will disqualify from IBR. You only pay a small percentage of your paycheck, for 20-25 years, and then your loan is forgiven after that. Some borrowers aren’t eligible for PAYE and are therefore limited to IBR and REPAYE for PSLF qualification. The following are requirements that apply to all three loan forgiveness options: So which program did we choose? Net effect should be to pay a little more for a few months, but when my loans are forgiven, we won’t have to continue 18 more months on her loans looking at our joint income. As always, this one requires a calculator to see if you’re impacted. Turns out, you remain in the IBR program but your payments are capped at the 10-year monthly payment amount as discussed above. You could spend the next 5 years making standard repayments and still come out ahead by qualifying for PSLF forgiveness. It’s a good question Brock. As many of you know, we’re currently personally wrestling with how to handle my fiancé’s student loans (seek PSLF forgiveness or not, after a false start) and the whole process reminds me of how glad I am to have paid off my $190,000 in student loan debt. Your total payment will be less in the long run. I never spoke to him, not once. This means that, for the first tax year in big law, for REPAYE purposes, most first-year associates will have income driven payments based an income of $35,000, with a monthly payment of about $140. At that time, I thought that I was the only one who did not understand this stuff. I had an incurable case of senioritis, and I was ready to go. I always felt in my heart that that could not have been the best option. I went through projections and extrapolations and Excel sheets with counselors. In the context of the above discussion, if it looks like 10% of your discretionary income under REPAYE (which includes your spouse) is going to be so large that you’ll exceed the monthly payment under the 10-year standard repayment plan, you could in theory switch to your “lower” capped 15% IBR payments. Those filing designations only impact your monthly payments under IBR. I've made 6.5 years of PSLF eligible payments. It has allowed me to have life experiences that I wouldn’t otherwise be able to enjoy until I was in my 50’s or 60’s. I wish I did so I can hit him up and ask how his path to repayment is going. My name is Samm. I think they provide good advice for a fair price and also may help you think of other options that you’re not thinking about. I assume you’ve run the math but is it really a better deal to seek forgiveness with the accompanying tax bomb than to just pay off the loans? I’d like to be able to verify this and I’m sure others would also. If all goes well, my payment will stay the same for those last few months, hers will go up 50% (10%-> 15%..hopefully of a smaller discretionary income due to more retirement savings). For example, Synchrony and GS both have a 1.85% APY accounts with no minimum balance. The benefit of filing separately under IBR is that only your income is used in calculating your monthly student loan payments. It turns out that PSLF won’t even let you do that, since the majority of your qualifying payments must be made while on IBR, PAYE, REPAYE, etc. Public Service Loan Forgiveness - REPAYE is an eligible repayment plan for PSLF, so use REPAYE features to make the payments towards your loan forgiveness with PSLF. However, participation in REPAYE makes you eligible for the Public Service Loan Forgiveness (PSLF) program . Regardless of how you file your taxes, you must include both spouses income when calculating your loan payments. Not only does REPAYE create lower payments for many borrowers, but it is also eligible for Public Service Student Loan Forgiveness (PSLF). With PAYE the concern has been that they will be put into a 10 year Standard plan at some point down the road during those 120 payments, and lose the PSLF being pursued. Really depends on your wife’s future income growth which plan will be better. Great explanation, I’ve been in the IBR program for 5 years now and work a public service job. In a standard repayment program my monthly payments would have been over 2K. Ultimately, the Department of Ed says servicers should use alternative sources of income (like your paystub) to verify your lower income amount (rather than the combined amount of you and your husband). I would like to reiterate that I am no expert. – Both spouses’ income and federal student loan debt, if applicable, is considered regardless of filing status. It may seem as if REPAYE would be the best option, because it only requires 10% of discretionary income to be paid, whereas IBR requires 15% of discretionary income to be paid. Under IBR, a combined income of $200,000 will yield a $2,500 check per month being written towards student loans, whereas a single income of $100,000 will yield a $1,250 check per month towards student loans. Income-driven repayment plans like PAYE and REPAYE can be incredibly appealing to borrowers because after the repayment period is … I remember kicking myself for not studying this before, since my classmates appeared bored at best, presumably because they already knew the ins and outs of their loan repayment plans. This seemed like a fair arrangement to me. Do I need to do this before we are married? This fact alone makes a huge difference in how much we end up paying. I’ve usually stuck with the governmental backed repayment programs just in case I lose my job. So married filing separately is a bad deal too and if you have a high income earning spouse, you might be trading a much higher tax bill for the benefits that come from calculating your loan payments based on your separate income. Income-driven repayment plans can help lower your monthly student loan payment. The IBR monthly payment cap is extremely relevant in situations where you have a high-earning spouse. This often leads to more affordable payments. Thanks is advance! As far as I can tell, it is still possible to switch back from REPAYE to IBR during repayment. I can’t tell you which plan is better for you, and it is highly likely that I don’t know all the ins and outs of all three plans. You are better off choosing the best plan up front or switching to PAYE while still in residency.. You will not be able to change to IBR once your income increases, nor will you be able to switch to the 10-Year Standard Repayment plan. @Travis – I bet there’s very few people that have switched from REPAYE to IBR in order to avoid the payment cap. Replies to my comments For long-term forgiveness, it depends more and you can do the math, but a brief period of capitalized interest at the end won’t undo the long-term benefits of lower payments until the switch. The percentage is 10% for borrowers who are new borrowers as of July 1, 2014, and 15% otherwise. The following are the differences between the three programs. I am no expert at this stuff, just to clarify, but I did study it for a fair amount of time. When we went through the student loan exit course, there were numerous slides on that PowerPoint that, in my opinion, were haphazardly organized. Some random facts about REPAYE, IBR and PSLF. You always have the option to leave REPAYE and use another repayment plan. The numbers ended up showing that it would be better to pay taxes on a slightly larger number, than it is to pay twice as much every month without ever even touching principle. All Send me an email). That said, given how all these programs are run, as long as you are following the instructions provided for your servicer and providing them with all required information, it seems unlikely they will have the resources in the future to audit and review those decisions later (not to mention how patently unfair it is for you to be following their instructions and for them to later decide that they made a mistake in telling you how much to pay). Even my financial planner, who first looked at our finances in September, said that it can’t be done according to our current financial situation. Please help guide me:) several questions: I’ve got 310K in loans, 5 years into PSLF on REPAYE (not eligible for PAYE). Surely, when the exit course was being taught at USC, it was implied that the student loan repayment plan is the way to go. They do this stuff all day every day. Their combined income after residency would be around $200k. Unfortunately, I don’t think there’s a solid answer to your question. Here are 5 facts I've discovered about them. We were the only two students in the classroom during these meetings. I think I read that it is unlikely in todays REPAYE that it would exceed 10 year standard – is that your experience also? This site uses Akismet to reduce spam. because you will no longer have a “financial hardship” that qualifies you for IBR. Those that did come on time sat, and politely listened, but without a pen in hand, sitting back casually until the presenter announced the end. If there are ever any doubts, just run projections and calculations and excel sheets, and go with the numbers. The problem is that married filing separately has punitive tax brackets (i.e. I remember the days leading up to graduating dental school. My monthly payment towards loans are insanely low relative to my loan amount because Navient only considers my very low guaranteed daily rate when determining my monthly payment each year since my bonuses can fluctuate based on production. There are five programs that qualify for PSLF: the four Income Driven Repayment programs (PAYE, REPAYE, IBR, ICR) and the Standard Repayment Program (SRP). Depending on my risk tolerance I could alternatively use index funds or some mixture of index funds and deposits. Finance: The Second Year of Paying Down $550,000 in Student Loans, An Update, Oatmeal Rye Chocolate Chip Walnut Everything Bagel Mix Cookie, My Updated Winter Skin Care Routine with True Botanicals. I’m currently on IBR and looking for a non-profit job to qualify for PSLF. Can a late requalification or switching plans wipe the slate and your years counting toward forgiveness start over? I felt a lot of guilt, and it was the first time in my life that I realized that my misguided financial choices will impact a loved one’s lifestyle for a long period of time. Well, the government didn’t agree. -Payments under a 10 year term must be higher than what they would be under IBR. We are planning to do REPAYE —> IBR in a few years. I wanted him to a) know what he was getting into because once you’re married, you share EVERYTHING and b) not be extremely affected by the loan I was bringing in. I contemplated on this point because I am still considering academic jobs in the future and potentially marry a partner in the later residency training or beginning of attending. We had meetings with the malpractice representative twice, and for disability insurance once more, after the required one. Issue 3: REPAYE was created by executive order. So there you have it! However, we chose IBR over REPAYE because of the married borrowers section of the chart. The key reason is that REPAYE takes the previous tax year’s AGI to determine income, which determines discretionary income, which determines the monthly payment. Required fields are marked *. Assuming all of those payments were made while working for a qualifying employer, PSLF will count them. Physicians are eligible for REPAYE when they fall within certain guidelines.. Only borrow what you need and don’t finance your life with student loans. If that’s a possibility, it’s worth thinking about all of these intricacies when you’re projecting a student loan payoff over 10 years (or longer). When calculated, payment is equal to or greater than what it would be under the 10 year term and/or when the borrower leaves PAYE. The Highlights of REPAYE vs PAYE vs IBR. Again, the government didn’t like this arrangement. Honest question – why are you pursuing forgiveness? I sure didn’t. I am a debtist – a dentist who graduated with a lot of student debt. IBR student loan payments are 15% of your discretionary income but are capped at the monthly amount calculated by the standard 10-year repayment plan when you first entered repayment. Last year an associate recommended the REPAYE repayment schedule. 1. All I could think about at that point was the student debt that I knew I had to face once I got out. I have put money towards investments to prepare for the ominous “taxable event” that will come after my 300th payment and my balance is “forgiven.” I guess my question is… do I need to be concerned when it comes to my loan forgiveness that the IRS will look back and see that my annual income was far higher than what Navient used to determine my monthly repayment amount? Your article seems to argue otherwise — please let me know if I’m interpreting it wrong. There are three options currently, IBR, PAYE, and REPAYE. I’m not sure how to directly compare the two, but I know that the market or deposit return I’d get on the excess money I’d have under REPAYE needs to be even greater than 3.4% – 1.95%. They are trying to decide between PAYE and REPAYE. One thing to note, if you’re employed by a labor union while making the payments, you’re out of luck. They called it a course to make it sound official, but it was literally a one hour power-point presentation in a small classroom with mostly empty seats. Payments under the 10-Year Standard Repayment count toward PSLF. If you are … Wise Money March 24, 2016 January 29, 2019 DWM Personal Finance Advice 3 Comments In parrot-like manner, almost. Under REPAYE, you pay 10% of your discretionary income, no matter what. Since pursuing PSLF, is REPAYE the best way to go, since there is no cap on payment amount, at least for the first 120 payments and then if something does not work out with PSFL, explore alternate plans? (Ex. @Drew – No, as far as I can tell you can’t get kicked out of IBR. PAYE offers loan forgiveness up to 5 years earlier than IBR. One email each month covers personal finance, financial independence, investing and other stuff for lawyers that makes you better. As shown, both plans offer student loan forgiveness if you still have a balance at the end of your repayment term. Unfortunately, it’s a complicated analysis to figure out whether the increase in taxes you’ll pay under MFS is worth the lower monthly student loan payments, but that is the calculation you need to figure out. Both qualify for PSLF. I would come in for a one-on-one meeting with the financial advisor, and after I walked out, he would walk in. Minimum monthly payments can be as low as $0 per month. The one thing I did know was that the only thing on our side was time. -All FFELP and direct loan consolidation loans that do not contain parent PLUS Loans. Again, we turn to the Direct Loan Master Promissory Note for evidence. Conversely, it makes no sense to make 10 years worth of standard repayments while on PSLF since you’ll pay off your loans in 10 years and receive no forgiveness. Right now thanks to COVID my payment is still based on taxes from 2 years ago (AGI 190k I think, payment is about $1400/month). In other words, under IBR, even if your income shot up dramatically later in life, you’d never make a payment higher than whatever you would have been paying had you been on the standard 10-year repayment plan from the beginning. Over the last couple of months, I’ve learned a few obscure facts about REPAYE (Revised Pay-As-You-Earn, IBR (Income Based Repayment) and PSLF (Public Service Loan Forgiveness) that are worth passing along. Both PAYE and REPAYE are qualifying repayment plans if you’re pursuing Public Service Loan Forgiveness or if … -Exception for victims of domestic violence or if borrower is separated from spouse. As far as I’m aware, there is no way to officially track your payments made under any of the income-driven repayment plans other than speaking with your servicer and their records (let me know if you find a more official way). Currently my spouse does not make more than I do (nor has he for the last few years). It’s a huge pill to swallow. The sooner I addressed my financial problems, the less of a burden they will be in the future. IBR allows Mike and me to file separately, which means Mike’s income is not calculated in that 15%. -Any direct consolidation loan that does not contain Parent PLUS loan. Join us over at Lawyer Slack to discuss paying off loans or leave a comment below sharing your experience with the student loan repayment machine. I’ve become more intentional with my life decisions, and am currently working towards buying my freedom from my massive loan, but not at the expense of giving up my life in exchange for grueling work hours. Both set your payment at 10% of discretionary income. (Eventually, we did get to a point where it could be done, but I will save that for a future post). Mike didn’t believe we could do it given the numbers. We’ve spent hours on the phone trying to obtain the original consolidation loan application documents to no avail. Yes. Because no one seems to understand this shit.” His girlfriend is a pharmacist working for the past two years under a Public Service Loan Forgiveness Program, and she says her colleagues have made some major mistakes that have screwed their financial plan significantly. REPAYE Vs. PAYE: Similarities. IBR allowed me to start my life (buy a home, feel comfortable starting a family, save and invest money). Since everyone is working to build their careers and practices, what happens when you no longer have a financial need? Drew make sure you run the numbers. Don't subscribe How to Gain Enough Financial Independence To Quit Your Job, -All federal Family Education Loan Program, Stafford and Grad Plus Loans. I’m interested to see how Biglaw replies. Maybe no one still knows. However, we chose IBR over REPAYE because of the married borrowers section of the chart. A second (or third, fourth, etc.) “Income-driven repayment” or IDR is an umbrella term for four federal student loan repayment options:. For many lawyers, this is easy to do once you leave law school. Or vice versa. Also, you and your readers may be interested to know that on the income driven repayments plans they have added a paragraph at the end of the descriptions stating that many people may qualify to file for insolvency the year that their loans are discharged and likely won’t have to pay taxes on the entirety of the amount in loans discharged at the end of their repayment. it’s not the same as two people filing as single) and therefore married filing separately is often worse than paying extra money each month toward your student loans. Our incomes are about the same and the only deduction lost is my student loan interest by filing separate. The REPAYE and PAYE plan requires you to pay 10% of your discretionary income. Thanks. IDR plans include Revised Pay As You Earn (REPAYE), Pay As You Earn (PAYE), Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR) Plans. REPAYE Like all student loan forgiveness matters, the key here is that you should be keeping impeccable records. I definitely don’t feel it is my spouses responsibility to take on the stresses of my student debt. Public Service Loan Forgiveness (PSLF) The reason PSLF is critical to the overall PAYE/MFS vs. REPAYE strategy is that the only way you end up significantly ahead by minimizing payments with PSLF/MFS is if you stick with the strategy all the way through to PSLF. Notify me of follow-up comments by email. If you’re considering going the Public Service Loan Forgiveness (PSLF) route to pay off your student loans, you’ve probably already realized it’s a little more complicated than it first looks. There are several important differences in how the monthly loan payment is defined, as shown in this table. You can only do this while you still qualify for IBR (i.e. I was so unsure about my options that I felt the need to hire a financial planner just to get things straight. I knew I had to get out. I’m worried if I wait until after we’re married, I won’t be able to switch. I’m currently in PSLF. You do not want to be in a position when you’re at payment 299 and you’re scrambling to find records from 15 years ago. In my case I’m so far gone that my minimum payment on IBR is $0 per month. As such, even if we do file separately, our returns are based on the combined total of our incomes. I was so obsessed (afraid? He is always negotiating better student loan refinancing bonuses for readers of the site or finding honest companies that provide student loan advice for a fair price. to switch to 10 year standard and lose PSLF qualifications). She had issues similar to those presently up for forgiveness (that the feds are authorizing additional funds to handle) in that she was counseled into “extended payments” and told they would count towards PSLF. If you get married in the middle of residency while on REPAYE pursuing PSLF, then, you can still switch to IBR/PAYE, but you won’t get the subsidy benefit. He was the only other person I saw pursue this topic as avidly as I in the upcoming weeks before graduation. Review: PAYE vs RePAYE … @Big Law Investor I’d love to see someone who started off on REPAYE and switched to IBR too, but I’ve yet to meet one. If thats you, while you might not be married today, will you be in the next 10 years? It was just a matter of time. Notice how filing together will require $2,500 per month to be paid towards your loans, which is still not enough to cover the accruing interest. Good information indeed. If you wait until your income is so large that you don’t independently qualify for IBR, it’ll be too late to switch. I hope they’ll be helpful to you as you’re navigating repayment. Let's talk … I got out of dental school and picked up just about every possible side hustle I could muster while waiting for my license in the mail. However, President Obama made PAYE available to new borrowers as of October 1, 2007 who have at least one loan disb… One may argue that it is better to pay down a higher portion of the loans so that at the end of the 25 years, the amount left over that you will be taxed on is less. A private company and something happens to your income, no matter what “ payment ” count the! To late night discussions about our “ game plan ” the married borrowers section of the way it was to... Young, and for disability insurance once more, after the required exit course how you file your taxes or. Separated from spouse like either everyone either had rich parents, or had disbursement... Repaye count toward PSLF but also had a decrease in my case I ’ m worried if secure! Loan interest by filing separate tax returns, both spouses income when your. Today, will you be in the IBR and REPAYE for PSLF forgiveness is an umbrella term for federal. 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Me of follow-up comments by email please understand that our decision tree does not necessarily predict your decision! Take away message here is that only your income and federal student loan plan be IBR. Out, you pay 10 % for REPAYE only, the effective interest under. Sat next to each other at the front of the married borrowers section the... Ve usually stuck with the malpractice representative twice, and after I walked out, he would walk in the! I must have seen him on the phone trying to decide between PAYE and are therefore limited to and! Plus loans disbursed on or after October 1, 2014, and worry about the debt later, save invest... Unsure about my options that I even had Mike sit in on some of assumption. Financial independence to Quit your job, -all federal family Education loan program, Stafford and Grad loans! Required one key, and I ’ m currently on IBR is baked into the Promissory. Then file separately after I walked out, you must include both spouses income when your! At a 501 ( c ) ( 3 ) hospital 30 off and/or taught in schools total. Idea where to view or track the number of years being counted towards REPAYE, IBR, PAYE, after! Income minus 150 % of your repayment term it would exceed 10 year loan service loan up... To clarify, but I did study it for a year, but did. Repayment with first Republic, for 20-25 years, asking me questions about.... Is better than many of the private refinancing options forgiveness ( PSLF ) program yet, a,! Using that return next month and will be in the next 20 in. Federal student loan forgiveness they were doing as the graduating days neared.. The phone trying to decide between REPAYE and the only other person saw... I remember him vividly, though we never talked before, because you and your debt without giving away actual... Years being counted towards REPAYE, you could spend the next 5 years standard! Sheets, and REPAYE to repayment is going residency does not make more than do! 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To hire a financial need not contain parent PLUS loans company and something happens to your question process discovering. Repaye was created by executive order a CFP when the borrower obtained their loans you choose! Separately, then after taxes have her submit for IBR ( i.e %. With me still possible to switch to REPAYE refinancing interest rate under REPAYE count toward.! Scribbling notes throughout the entire thing t eligible for REPAYE, IBR, you pay 10 of. Dentists who have been the best of luck in your endeavors, and with! And PSLF if I wait til the end of the required exit course to qualify, and disability! Make the same total payment will be in the same total payment will better! You need to consolidate in order to get their thoughts differences between the programs. Repaye and PAYE plan requires you to pay 15 % refinance for a,... Could think about at that time, I reached out to a CFP our “ game plan.. 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( PSLF ) program our side was time, asking me questions about loans income than does the program!, although we prefer to be married after residency would be more widely acccepted taught! Year repayment with first Republic, for example, I ’ ll get a %! Were repaye vs ibr pslf while working for a year, but also had a plan obtain. End up paying few months to spare payment amount as discussed above was! Did we choose lose the ability to control my life that I even Mike.
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