My student loan debt is $420,000, all federal loans. Interest rate is 6.5%. My degree is in medicine, and I’m currently a resident making $56k per year. In 1.5 years I’ll graduate residency and earn about $260-325k per year, gross income. Married, filing jointly; husband just immigrated to the US and is job hunting now; at most I’d expect him to make $30-50k/year for the foreseeable future, but right now his income is 0.
I’ve been on the PAYE plan since starting residency 2.5 years ago. Monthly payment is a little under $200 per month, somehow, which seems low to me… it’s about all I can afford right now though. Interest is accruing rapidly of course, and by the time I graduate residency in 1.5 years the loan total will be ~$462k.
My questions are…
1) Should I have gone for REPAYE from the beginning, for the interest subsidy? Watching the interest accruing is killing me!
2) I’ve read that once I start making the bigger salary, the financial hardship disqualification will lead my interest to capitalize under PAYE. What does this mean, and how can I find out how much my loan amount will balloon to once that happens?
3) Can I save myself any money by switching to REPAYE now instead of in 1.5 years and taking the plan-switch capitalization hit now rather than later?
I’m so confused, and I’m upset with myself for putting myself in this position and being so financially illiterate and naive.
My plan is to pay down loans extremely aggressively over about 5 years once I’m in practice (basically living off $50k per year (net) and putting a minimal amount toward retirement in order to make drastic monthly loan payments). I do know about PSLF but am worried it will be taken away… I’m only 2.5 years of payments in.
I feel like this is pretty complicated and an extreme situation, so if anyone has any insight I’d appreciate it! I’ve posted this on another site as well but am not sure if I’ll get any responses over there.
May 3, 2014
The accruing interest is definitely a big issue and your consideration of REPAYE for that reason makes a ton of sense.
One thing that has not been discussed is Public Service Loan Forgiveness. Is PSLF a goal, a possibility, or not an option for you? If your debt will eventually be forgiven, the accrued interest will also be forgiven.
Your third question is really just a math question. By switching plans now, interest will capitalize, so your loan will generate more interest each month. However, REPAYE will reduce the amount of interest that accrues. I suspect that REPAYE is the better choice, but you will have to run the numbers based upon your salary.
This tool from the Department of Education should help you run numbers about various options: https://studentloans.gov/myDirectLoan/repaymentEstimator.action
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