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Loan Payoff Date When Switching Repayment Plans

Loan payoff date calculations get complicated for borrowers switching to Income-Driven Repayment plans like REPAYE.

Written By: Michael P. Lux, Esq.

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We received an interesting email from Don, a reader who is switching his federal loans from the Extended Repayment Plan to the Revised Pay As You Earn Plan (REPAYE).

Don is getting some confusing information from Navient and wants to know when his loans will be paid in full if he switches repayment plans.

Don’s Question About REPAYE and His Payoff Date

I’m currently on an extended loan repayment looking to switch to REPAYE. When I fill out the information on Navient, it estimates that my new payoff will be in 2029 (20 years from when I originally borrowed my loans). However, when I called them, they told me REPAYE’s 20 year term doesn’t start until I actually apply so my payoff will actually be more like 2039 or 2040. Why does Navient estimate 2029 when I fill out the questions and is there a way to get credit for my historical payments? i.e. “time served.” I’ve never been late and have been paying every month for the past 10 years. If I apply for REPAYE now, does the timeline for paying on time reset? I’m wondering if, when I actually apply, how the govt will determine my payoff date.

Determining Loan Payoff Date

For some repayment plans, figuring out the loan payoff date is pretty simple.

If you are on the 10-year repayment plan, your loans will be paid off in 10 years. Likewise, if you are on the extended repayment plan, it will be a total of 25 years to pay off the debt. These timelines all assume only the minimum payments are made.

Income-driven repayment plans, such as REPAYE, make the payoff date calculation much more difficult. This is because income-driven plans charge borrowers based on what they make rather than what they owe. If Don loses his job next week, he could pay nothing until he finds a new job. During a time of $0 payments or really low monthly payments, a loan balance may actually grow due to the accumulation of interest.

Because income can change from one year to the next it is impossible to say how long it will take to pay off a loan on an income-driven repayment plan.

However, because income-driven repayment plans have student loan forgiveness provisions, we can determine the maximum amount of time on the repayment plan. The various income-driven repayment plans will trigger student loan forgiveness after 20 or 25 years, depending upon the plan selected. With REPAYE, Don would be eligible for forgiveness after 20 years.

Navient should know better than to tell Don a payoff date for his loans if he enrolls in an income-driven repayment plan. It would be much more accurate to say the earliest possible student loan forgiveness date.

Getting Forgiveness Credit for Time on Extended and Graduated Repayment Plans

If student loan forgiveness can come after 20 years, Don is wise to want that clock to start running as soon as possible.

Unfortunately, time spent on the extended repayment plan and the graduated repayment plan does not count toward forgiveness.

If Don starts repayment on the REPAYE plan next month, the clock will start next month… not when he first borrowed the loans.

The one exception to this rule is for applicants to the Public Service Loan Forgiveness (PSLF) Program. Last year Congress passed a law that temporarily expanded PSLF for borrowers who were mistakenly enrolled in an ineligible repayment plan. These ineligible repayment plans include the Extended Repayment Plan, the Graduated Repayment Plan, and the Graduated Extended Repayment Plan. However, funding for this program is limited and awarded on a first come first serve basis. More information about the temporary expanded loan forgiveness can be found at the Department of Education’s website.

If Don finds a PSLF eligible job, his prior payments could conceivably count toward forgiveness. Otherwise, his “time served” on the extended repayment plan counts for nothing.

The Bigger Picture

The real question that Don needs to figure out is not when his loans will be paid off, but how his loans will get paid off.

For some borrowers, this means paying off the student loans as quickly as possible. For others, it means saving for a house and then attacking the student debt. Letting the specific terms of a repayment plan dictate payment amounts is a recipe for spending more than necessary on interest.

When evaluating repayment options and strategy, it is critical to think about how student loan repayment fits within the bigger picture.

About the Author

Student loan expert Michael Lux is a licensed attorney and the founder of The Student Loan Sherpa. He has helped borrowers navigate life with student debt since 2013.

Insight from Michael has been featured in US News & World Report, Forbes, The Wall Street Journal, and numerous other online and print publications.

Michael is available for speaking engagements and to respond to press inquiries.

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