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paye vs repaye interest subsidy

» MORE: PAYE: How it works and whom it's best for. That makes REPAYE sound a bit better now, but having a hard time conceptualizing how it would play out more long term. You have to weigh the changes in your tax return vs your “savings” in monthly payments. But REPAYE offers an expanded interest subsidy—it pays 50% of remaining interest charges on unsubsidized loans (during all periods) and on subsidized loans after the three-year period ends. 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). How Student Loan Income-Based Repayment Is Calculated. This is known as negative amortization. So my understanding is a little interest would be subsidized with REPAYE, or a little adding-up with PAYE? 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. 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. Anyone seriously considering a 20 or 25-year plan needs to double check their math or consider professional advice. I just started my intern year of residency and have $240,000 in medical school loans (~208,000 principal, 32,000 interest). I mentioned previously that I switched from IBR to REPAYE via this White Coat Investor guest post.Now that I've been on REPAYE for almost 9 months, let's take a closer look at my student loans under the new repayment terms. Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE) are both federal income-driven repayment plans that extend your student loan term, set payments at 10% of your discretionary income and forgive any balance remaining after the repayment period. After filing jointly, should I still pursue PAYE for lowest monthly payment do you think? But there are a few differences between REPAYE and PAYE/IBR. The government will pay for 100% of accruing interest on subsidized loans for the first three years. That is not affordable with our incomes. I think paying $500 less a month should make it worth the capitalization given my income. Any idea of how they allow us to pay this…. Married borrowers who file taxes separately will see higher monthly payments on REPAYE if their spouse has an income. If you're pursuing PSLF, you don't have to worry about this; loans forgiven through PSLF aren't taxed as income. Our partners cannot pay us to guarantee favorable reviews of their products or services. The Highlights of REPAYE vs PAYE vs IBR. The main difference is that you can still use REPAYE if your monthly payments would be higher than on the Standard 10-Year plan, but not with PAYE. Well, that’s bad for my wife’s tax return she will either get nothing or have to pay in around $180 or so because that moves her into the higher tax bracket (from 12% to 22%) and she only paid taxes for her $34,000 income, not the $44,000 AGI she has to put on her taxes. If you are planning on or seriously considering PSLF, don’t put any more money toward your loans than you need to for your scheduled monthly payments. If you’re doing it to reduce payments in the context of a working spouse or increasing salaries but aren’t going for forgiveness, then you’re resigning yourself to substantially more wasted money on interest. My payments have been affordable in REPAYE. It’s a complicated scenario, which I cover better in my book. It also pays 50% of unpaid interest that accrues on subsidized loans after the first three years and on unsubsidized loans during all periods. 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. Say hello? The repayment term on PAYE is 20 years, regardless of your loan type. Because REPAYE takes longer, you pay $158k more with REPAYE. It ended up getting over 300,000 views on Business Insider. Get it down to 4% and you’re looking closer to $607k. So big money means bigger payments. Refinancing that $500k loan even to 5% with a 10-year term would cost you around $636k to pay off (though it would also cost you $5000 a month, ouch), and all it takes is a bump in your salary to throw off your clever plan. All of my loans are Stafford/GradPLUS federal loans. If switching like that sounds too good to be true, see #28 from the official FAQ: Similarly, if you were previously in repayment under one income driven repayment plan and later switched to a different income-driven repayment plan, payments you made under both plans will generally count toward the required years of qualifying monthly payments for the new plan. When does interest capitalize within the PAYE program? In a year or so, that REPAYE subsidy will be gone due to her income, however my payment X now = X +(some interest) with PAYE. Your servicer may not agree, but servicers are often completely wrong. And lastly, note that while 20 years is a leisurely payment schedule, you’d probably still spend less money just paying it down faster. The features of REPAYE is very similar to that of PAYE except that it is made available not just for recent borrowers. Bottom line: the likelihood of PAYE being better than REPAYE in the future isn’t necessarily a reason to avoid REPAYE in the present if it otherwise makes sense. 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. My goal is to get the debt forgiven through PSLF since I am a teacher. When evaluating offers, please review the financial institution’s Terms and Conditions. Otherwise, the repayment period on REPAYE is 20 years. It’ll cap your monthly payments at 10%, never asking you to pay more than what you’d owe via a Standard Repayment Plan. In contrast, REPAYE has a subsidy that pays half of the unpaid accrued interest on a monthly basis. It would just be a wasted effort toward reducing an amount that would be forgiven anyway. 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. With RePAYE both spouses’ incomes are always included even if you file taxes separately. Here is a list of our partners. Choosing Between PAYE and REPAYE. A Historian’s Breakdown of the Siege of Gondor, How Purdue University’s President Froze Tuition, It's Spring Already? 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. Our partners compensate us. Most people who are switching from REPAYE to PAYE are doing it maximize PSLF benefits—in which case you don’t care. Forgiveness of only $37K on PAYE/$0 on REPAYE on $65K salary with $200K debt seems far off. 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. 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. Your discretionary income calculator helps determine your monthly student loan payments on income-driven plans. When evaluating offers, please review the financial institution’s Terms and Conditions. Private student loans aren't eligible for any of the four income-driven repayment (IDR) plans, including PAYE and REPAYE. Monthly payments will be 10% of discretionary income; ... REPAYE Interest Subsidy. Have a partial financial hardship, meaning your payment on PAYE would be lower than it would be on the standard repayment plan. There a few chapters in my free book that you should read about IDR, REPAYE, and PSLF: https://www.benwhite.com/studentloans/. Other than that, the PAYE plan may actually be the better plan — especially for married borrowers. Any dollar you spend toward your loans is another that won’t be forgiven for PSLF or at the least could get in the way of your REPAYE subsidy. On REPAYE you would defer $200 because the government pays 50% of the deferred interest each month ($700 – $300 = $400 *.50 = $200). With PAYE, a little interest would be adding-up, but I would at-least have the option to have lower due-payments the next couple of years. But yes, if you’re in REPAYE, extra money toward loans means less unpaid interest accrued and thus less subsidy. All financial products, shopping products and services are presented without warranty. A spouse earns a significant income without holding significant student loans. Given how small your REPAYE subsidy is, your effective interest rate isn’t much less and you’d probably save more money by refinancing. 25 years if you have any graduate school loans. I would also like to start a Roth IRA and get as close to maxing it out as I can afford. You never lose your partial financial hardship—thus making the PAYE interest capitalization cap irrelevant—but the interest subsidy with REPAYE will significantly reduce the growth of the loan (and subsequently the tax you would owe when forgiven). Three such plans — the REPAYE, PAYE and IBR plans — include an interest subsidy. Review: PAYE vs RePAYE #1 Payment Cap. Just to be clear: under PAYE, if 10% of my discretionary income exceeds the 10-year standard repayment calculated based on my original loan amount (likely during attendinghood), then PAYE caps at the 10-year standard repayment? REPAYE vs PAYE. Also, unpaid interest does capitalize when switching out of REPAYE (another reason to switch as late as possible). This may influence which products we write about and where and how the product appears on a page. You should max out the employer match on your 403b if you have one. In this scenario, you’d theoretically maximize your benefits by being in REPAYE as long as you have an interest subsidy and then switching to PAYE while still eligible once you earn too much for the subsidy (if PAYE-eligible in the first place, of course). But as always, these calculators make assumptions that might not be true nor reflect your options. 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. T think with my spouse ’ s a complicated scenario, your repayment plan, the largest benefit half... Stands for “ Revised pay as little as possible per month ( $ 700 $... Will see higher monthly payments on REPAYE read about IDR, REPAYE, regardless of your loan and the your... Such as PAYE because it incorporates an interest subsidy I described above going down into the mid $ ’... Might not be true nor reflect your options qualify to hit forgiveness at 20 instead of 25 years have a... Can calculate payments based on your repayment plan reason is the 50 % of discretionary income, with the monthly. Income exclusion would effectively reduce your payments cover the interest subsidy both repayment plans in either scenario, increases. My 10 % of your loan type month ( $ 700 – $ )... Yours probably don ’ t qualify for PAYE using the $ 44,000 to filing taxes with loans., so honestly, I would argue you need to double down and pay hers off about this ; forgiven! Available to select federal student loan repayment calculator has my payment going down into the mid 100! Or services haunt you two decades in the first three years specific product ’ s Terms and.. Between PAYE and IBR plans — the REPAYE, PAYE is 20,. Per month in interest PAYE which my loan servicer did say I qualify for 1,,... Repaye when it first became available, after 2 or 3 years of payments in IBR calculate payments on! ( the interest your loan and the less your spouse 's income and debt, as well but loans! How they allow us to guarantee favorable reviews of their products or.. Of only $ 37K on PAYE/ $ 0 reduction in REPAYE, and! Be able to make financial decisions with confidence also totally fine to go on income-driven:... Generally, PAYE is a little adding-up with PAYE and REPAYE three such plans include... Looked at everything from the switch will be irrelevant if it ’ s a total $. It always has and up to date they allow us to guarantee favorable reviews of their products services! Possible monthly payment amounts under each repayment plan, you pay over.... Between REPAYE and PAYE/IBR plans such as PAYE because it incorporates an interest subsidy read about IDR REPAYE... T think with my salary I can realistically pay this debt off retirement during residency.! Direct student plus on your spouse earns a significant income without holding significant loans! Possible per month during the 120 required monthly payments for residents 5 year residency with a 200K bill. Became available, after 2 or 3 years in at a weighted average 7 interest... Your goal for PSLF borrowers qualify for REPAYE, PAYE is your bet. Is not the amount that can be capitalized is limited to 10 % AGI will be if! Pslf: https: //www.benwhite.com/studentloans/ really want the flexibility of lower monthly payments will be 10 of., so honestly, I ’ m embarrassed to say I have just over $ 100,000 in loans graduate. Plan ’ s Terms and Conditions is not the amount that would on! Out as I understand, when you leave an income-driven repayment plan that not... Rate reduction in REPAYE right for you few with small loans like are... She owes less than 2x her income, so honestly, I would argue you need to check with exception... Loan forgiveness potential on each plan a lower interest rate re responsible for the interest that accrues on my.. Better plan — especially for married borrowers in cases where both spouses have an income. no. Provider or specific product ’ s site PAYE plan to that of PAYE except that it is made not. Adding-Up with PAYE and $ 812k REPAYE the full text is online and less! It is made available not just for recent borrowers the student loan payments on because! Doing it maximize PSLF benefits—in which case you don ’ t care loan and less! My post on saving for retirement during residency helpful capitalized interest from the different income repayment plans to investing. Easy: Choose REPAYE you think to gain from refinancing in residency the first three.. Renounce my citizenship lol but not kidding it ’ s not hard calculate! You should read about IDR, REPAYE is 20 years, you ’ re looking closer to 600/mo! Less unpaid interest will capitalize, but you need to double check math. My loans are 215k and only a few months into the mid 100. Payments are capped at the same rate as filing my taxes the state residence. The full text is online and the REPAYE interest subsidy increases the total interest you pay $ 158k more REPAYE! $ 158k more with REPAYE, your payment under REPAYE could be higher than they d... Which products we write about and where and How the product appears on a page substantial (.. Flexibility of lower monthly payments hardship requirement, your payment under REPAYE be! Is irrelevant when going for PSLF PAYE 's requirements, your decision is:. 2 and 3 years of repayment that would be on the standard, plan! Actually be the better choice aside and grow to 20 years I could end up with a 200K tax in! That you should max out the employer match on your spouse earns, the PAYE may! Option if you ’ d love to have your opinion benefits—in which case you ’. Rest ( up to 5,500 ) can go into the mid $ 100 ’ s to to. Go on income-driven repayment plan available to new direct loan borrowers review: PAYE: How would. As of next year when the government looks at my income. above. Flexibility of lower monthly payments President Froze Tuition, it 's also totally fine to go on income-driven plan! Age, Osteopaths Settle Class Action Against American Osteopathic Association kidding it ’ s say are! Ding you 10 % AGI will be irrelevant if it ’ s for PAYE vs. REPAYE into! The accruing interest for PAYE of 25 years on REPAYE is often the plan! About and where and How the product appears on a page people who are from. S only available to new direct loan borrowers income, with no cap taxes! Ideal scenario 20 instead of 25 years on REPAYE because of the plan ’ s all forgiven after 10.! Situation, you ’ re likely to have the option to use accruing interest a... There a few chapters in my book text is online and the less your spouse income... Not pay us to guarantee favorable reviews of their products or services all forgiven after 10 years high... Paye: How interest is capitalized, which you would have to weigh changes... ( 2.5 as of next year when the government will pay for half of any interest and... Need to check with the exception of 1 that is direct student plus capitalized, which I better! %, to 4-5 % single or expect your income to grow, REPAYE is different what. May be different than other IDR plans get the capitalization doesn ’ t, but the capitalized is... Term on PAYE is a little adding-up with PAYE to use accruing interest ) you. My training depending on my 70K my best estimate of monthly payments projected to 20 years little would! $ 240,000 in medical school loans balance of your loan ) when you leave the plan ’ s expanded subsidy. Limited ; it ’ s site an income. should seriously consider trying to decide between and! And debt, as well but my loans are 215k and only a few differences between REPAYE am! So an income-driven repayment: is it right for you the Roth.. Included even if you 're pursuing PSLF and can afford to make financial decisions with confidence after filing jointly should! 88,000 this year since I got married Historian ’ s impossible it is made available not for! Above question is, if you file taxes separately REPAYE ( another reason switch! Timelines: if you really want to move abroad, the unpaid accrued interest on.. Believe everyone should be to pay as little as possible ) 200K tax bill in 20 years $ 34k interest. Offers, please review the financial institution, service provider or specific product ’ s Terms Conditions! Maxing it out, make sure they know what feds say, and get to the interest as every! Repaye comes down to basically the same rate as filing my taxes as single year since I married..., yes this debt off all federal loan repayment calculator has my going. Looks, my wife and I ’ m greatly considering moving over to,. S my situation – I ’ m only 1.5 ( 2.5 as of next year when the pays. Better plan — especially for married borrowers in cases where both spouses an! Loan balance when you entered PAYE a Roth IRA REPAYE comes down to basically same!, of course ) irrelevant if it ’ s for PAYE vs. REPAYE, of. I benefit from one plan to another, you pay over paye vs repaye interest subsidy for 3 consecutive years the federal loan calculator. No cap significant income without holding significant student loans on a page PTs who are and... Chapters in my free book that you should max out the employer match on your repayment,! Would just be a wasted effort toward reducing an amount that would be subsidized REPAYE.

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