My student loans are currently consolidated under the PSLF program and in repayment under IBR. My principal loan balance is about $177,206 and I have about $50,000 in unpaid interest. I’ve been researching the REPAYE program to see if it’s worth switching to and would like to clarify some details about the program because my payments would decrease from $750 in IBR to $450 for REPAYE.
1) Does switching from IBR to REPAYE reset the progress made to PSLF payments thus far? I’m 7 years into the 10 year loan forgiveness for PSLF. Would changing to REPAYE reset the clock back to 10 years?
2) My current loan is consolidated with Federal Loan Servicing. My understanding that switching to REPAYE will capitalize my loan’s interest of $50,000, meaning my loan will grow from $177,206 to $227,206 under REPAYE. If I continue to make my payments under PSLF for the remaining 3 years, will the entire loan amount, including the interest that was capitalized be forgiven under PSLF? or am I responsible for the additional $50,000 that was added to my loan?
3) My understanding is that the biggest disadvantage of REPAYE over the other repayment methods is that loan forgiveness will only happen in 25 years whereas the other methods can be 20 years or less. However, with the PSLF option this disadvantage seems to be moot. Are there any pitfalls or disadvantages of switching to REPAYE that I should be aware of? Right now the program sounds almost too good to be true and I can’t find any season why not to apply for this.
Thank you all you so much.
May 3, 2014
1) Switching repayment plans does not reset progress towards PSLF. Your goal is to get 120 certified payments. As long as the repayment plan is eligible (and both IBR and REPAYE are eligible) you shouldn’t lose out on progress. The only issue may be a month or two delay while they process your REPAYE application, this happened to me and I lost out on a couple months that could have otherwise been certified.
2) If you are getting PSLF, the capitalized interest shouldn’t be a concern. PSLF will forgive your entire loan balance tax free, including the intersest. However, if you don’t ultimately get PSLF, the capitalized interest is a concern.
3) There are several differences between REPAYE and IBR. One big one that I’d point out is that it treats spousal income differently. With IRB you can file separately and your spouse’s income won’t factor in to your payments. With REPAYE, your tax filing status doesn’t matter and if your spouse makes a lot of money your payments could be much higher.
One other thought: You said you are 7 years into forgiveness. Have you filled out an employer certification form? These forms are the best way to ensure that you are well on your way. I recommend submitting them each year and whenever you change employers.
Michael: my wife has $150,000 in student loans and I have $250,000 in student loans. We’ve both been on IBR. She is 4 years into PSLF.
1) If we switched to REPAYE, this would have no affect on her PSLF, right? After 120 qualifying payments, just her loans would be forgiven, right?
2) If her loans are forgiven under PSLF, could I then switch back to IBR to take advantage of ability to only count my income to determine payments under that program (married filing separately)?
3) I have about $20,000 in FFEL loans. I understand that I would have to consolidate those with my direct loans (but not with my wife’s loans) for them to be eligible for REPAYE. Is that correct? Consolidating those loans would restart my 25-year forgiveness, right? But not my wife’s PSLF, right?
May 3, 2014
1) Switching to REPAYE may slightly delay PSLF as you transition from IBR to REPAYE. It cost me about 3 months due to MyFedLoan taking forever to process the application. I did this when REPAYE was fairly new, so you may not experience the same delay. However, it will not restart your 10 year clock, as you noted it is all about 120 certified payments. Just be sure to submit an employer verification form in each year to make sure that there are no issues.
2) That sounds reasonable. Your taxes will be higher from filing separately, but I know of no limitation to switching back to IBR from REPAYE.
3) What you do with your loans should have no impact on your wife’s loans. This article should shed some light on your forgiveness clock question: https://studentloansherpa.com/dangers-switching-repaye/
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