You have to pick one of two camps: Those that plan to pursue Public Service Loan Forgiveness (PSLF) should aim to pay the lowest amount of monthly payments to gain the largest forgiveness. Under PAYE, the repayment term is set at 20 years for both graduate and undergraduate students. If your spouse is a higher earner and has no student loan debt, filing separately can help reduce your payment. Therefore, you should read our guide on the NEW Save Student Loan Repayment Plan and compare it against PAYE/IBR. Since payments are basically the same on REPAYE vs. PAYE, which should you choose? However, married couples have more flexibility with the PAYE plan. Its usually a bad idea to refinance federal student loans, because youll lose access to the flexibility and protections they provide. A lot of folksare just lost. It may not have been reviewed, commissioned or otherwise endorsed by any of our network partners. Another way to lower your monthly payment: Student loan refinancing, refinancing student loans versus income-driven repayment. Like income-driven repayment, student loan refinancing could allow you to lower your monthly payment, either by extending your repayment term or lowering your interest rate. ", Federeal Student Aid. "Understand How Interest Is Calculated and What Fees Are Associated With Your Federal Student Loan.". This alternate federal forgiveness program helps you cut the time frame toward loan forgiveness to only 10 years. PAYE, on the other hand, has more unique criteria. Thus, if youre single, have a non-working spouse, or have a spouse with a similar debt to income ratio, PAYE isnt going to make a big difference unless you are in a high paying specialty. Even if married, this is a pretty simple problem to solve in the first two years of training. Reddit, Inc. 2023. "(General) Subject: Federal Student Aid Posts Updated Reports to FSA Data Center. On the Income-Driven Repayment Plan Request form, you can also choose the option, I want the income-driven repayment plan with the lowest monthly payment to be automatically enrolled in the cheapest plan. For the 150% Poverty Line, you will need to know where you live and how many members you have in your household. Can You Change Your Income-Driven Student Loan Payment When Your Income Changes? She holds a B.A. Joseph has been personally investing since he was 12 years old. Read here about Pell Grant requirements, how to apply for a Pell Grant, Pell Grant income limits, and more. Or maybe just a regular part-time job? After 3 years, it looks like this: As you can see, switching to REPAYE caused my loan principal to increase significantly. To start, the total combined income is first calculated. If you refinance, you could trade in all your loans (ideally, private loans) for one new loan, and reduce the number of monthly payments. Your required monthly payment on both PAYE and REPAYE is $300 per month (if you need help figuring out what your payment would be check out our. And if you have private student loans, youre ineligible for IDR plans. Please enter a minimum of three characters. If pursuing PSLF, switching to PAYE might save some money on the monthly payment, but what about the taxes. Then once your income increases you plan on making aggressive payments and paying the loans off. By law, the regulations will go fully into effect on July 1, 2024. It would be the same payment for both PAYE and REPAYE. This may have a significant impact for married couples. But because PAYE monthly payments are capped at the amount that would be due for the standard 10-year repayment, PAYE payments can be lower than REPAYE payments for high earners. In this scenario, they would only be accruing $9,000 in interest each year. Id like to think most people fall into the reason #1 camp, but the reason #3 group is one of the reasons why I wrote a book about it. Sticking with this and avoiding the complications that come with switching plans (and capitalizing your interest) makes a lot of sense. Available to all federal loan borrowers, REPAYE limits your monthly payment to 10% of your discretionary income, but there is no payment cap, meaning your payments eventually could be higher than it would be on the standard plan. You would still be eligible for the REPAYE plan in this scenario, however. We've got the parenting tips and information you need to raise a happy, healthy family. If you file jointly however, your monthly payment is based on your combined income and Federal loans. Yes, you can switch back from REPAYE to IBR or PAYE So, for intern year this will result in a zero dollar payment (because your AGI = zero dollars) and a large amount of interest paid through REPAYE. Switching from RePAYE to another Repayment Plan, Part 2 Youll lose access to any current and future help the federal government might provide to federal student loan borrowers. If you change Income Driven-Repayment plans, you will not lose your previous eligible payments. My monthly payment more than doubles using REPAYE. It isnt that easy to break past the pay cap for a lot of docs. everywhere but Alaska and Hawaii). Lastly, if you are pursuing PSLF, you should definitely try to use PAYE. By basing your monthly payments on your discretionary income and extending your repayment term, IDR plans can reduce your payments. For undergrads they are both 20 year plans.). However, PAYE gives me the choice whereas REPAYE does not. Figuring this out first will help you decide the rest of what you are about to read. Weve helped new grads manage and eliminate over $1.4 billion in student loans and one topic that always stirs up a lot of confusion is Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE). I recently changed to REPAYE since my wife is still a fellow and with our combined debt it was cheaper. Keep in mind that the IRS might view the forgiven amount as taxable income so discuss your options with a tax professional and plan accordingly. I haven't done this actual math in the recent past, nor do I plan on doing it - I'm sure your capable. Similarly, depending on their spouse, many wont gain enough in lower payments by filing separately to offset the tax penalty of switching to PAYE in order to file taxes separately worth it. Of course, this only matters If they are in the camp that plans to refinance their student loans and pay the loans back themselves. The calculation for each individual payment gets a little tricky. If you have student loans eligible for both REPAYE and PAYE, which should you choose? They only apply to Federal student loans; Each forgives the amount you owe after a given period of time; and. After adding in my wifes debt and income, the repayment calculator shows my last monthly payment under PAYE, IBR, and REPAYE all as greater than the standard (although my repayment under standard would be 30 years and not 10 on this calculator given the high amount of debt). Please log in again. Pay-as-you-earn repayment (PAYE) is an income-driven repayment plan that bases student loan payments on 10 percent of the borrower's discretionary income, which is defined as the amount by which adjusted gross income exceeds 150% of the poverty line. In addition to using the same factors to determine your monthly payment amount, PAYE and REPAYE share the following details. For more information as to why, be sure to read our Public Service Loan Forgiveness guide. LendingTree does not include all lenders, savings products, or loan options available in the marketplace. We often see people who know they are going to get married within a year or two. This would apply to all your loans, i.e. However, in PAYE you are able to file your taxes as married filing separately and this will then exclude your spouses income from the calculation. Should we use REPAYE or PAYE? As I worked through the math behind the problem, I quickly realized how deciding between PAYE and REPAYE if married to another resident can prove quite challenging. switching from REPAYE TO IBR and $0 payment during intern year, All resources are student and donor supported. By Mark Kantrowitz. Federal Student Aid. Must-read articles to help you get your personal and financial life sorted out. Therefore, to make the two choices easy to understand, I break down the 5 primary differences in this article so you can compare PAYE vs REPAYE. For your intern year, your medical student income was likely zero. Another reason is that even for the more industrious residents who considered switching when it came time for their annual recertification, it seems that a lot of servicers have been misleading borrowers about the ability to switch out. If any of your loans are from graduate school, the term is 25 years. It is the following: Annual Payment = 10% x (Adjusted Gross Income 150% Poverty Line). Most importantly, it also gives you options should you get married when it comes to selecting your tax filing status. Obviously, keep an eye on this. Switching only makes sense if youre trying to minimize payments for PSLF. Think about it, this choice can have an impact on you 25 years from today! might. When you are married, you may choose to file your taxes separately or jointly. Instead the new plan will be called SAVE. The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. On Tuesday, Nov. 22, 2022, the Biden administrationextended the pause on payments and interest on federal student loansfor the eighth time. Learn about the types of federal aid available and which you might need to repay. You need to qualify for a partial financial hardship to switch into the PAYE plan. After logging in you can close it and return to this page. Are you married to another income earner? Find out why we're restricted and access emergency FAQ about student loans here: https://www.reddit.com/r/studentloanadvice/comments/147ef3s/brief_faq_while_rstudentloans_and_rpslf_are_dark/. Additionally, PAYE is ideal for married borrowers who prefer to keep spousal income figures out of their IDR payment calculation. However, the unsubsidized deferred interest is treated separately. (One imagines that, overall, this is a helpful survival mechanism.). Information provided on Forbes Advisor is for educational purposes only. Switching from REPAYE to PAYE : r/PSLF - Reddit On REPAYE you would defer $200 because the government pays 50% of the deferred interest each month ($700 $300 = $400 *.50 = $200). Depending on your unpaid student loan debt, income and family size, your monthly payment might be lower than the interest that accrues on your eligible loans. Switching from REPAYE to PAYE My wife is pursuing PSLF and we are coming up on three years of completed payments. Everything You Need to Know About Student Loan Repayment Changes, How To Apply for Public Service Loan Forgiveness, Why You Shouldnt Refinance Federal Student Loans During COVID-19, Avoid Misinformation About Forbearance: Heres What It Actually Means. Scan this QR code to download the app now. So, for this dual physician couple the decision comes down to which camp they are aiming to join. Not sure where my mind was going there. Below is a summary of the first 4 differences between PAYE and REPAYE: It is tricky to calculate the true cost difference between PAYE and REPAYE. Maybe they end up picking one team or the other. However, they fail to take into account their spouses financial situation. So, if they are receiving a subsidy, then joining REPAYE makes the most sense. I graduated grad school in 2017 with 290k in student loans. Required fields are marked *. PAYE Vs. REPAYE: Which Is Better? | Bankrate From insurance to professional contract review these are the ones you can trust. 3) Anytime you fail to re-certify on-time. The government offers interest subsidies that help pay for unpaid, accrued interest, but the subsidy differs for PAYE versus REPAYE. Rae's Payment Proportion: $2,866 x 51% = $1,468 per month. LendingTree is compensated by companies on this site and this compensation may impact how and where offers appear on this site (such as the order). The remaining debt is forgiven after 240 payments (20 years). This site uses cookies to help personalize content, tailor your experience and to keep you logged in if you register. When you switch repayment plans . Revised Pay As You Earn (REPAYE) Plan - Federal Student Aid Heres what you need to know about these two repayment options. And this is after they prevented $8,460 of interest from accruing through their monthly payments. REPAYE solves this problem. Most of us hate budgeting. Learn About Federal Student Loan Repayment Plans, How To Get Loan Forgiveness With an Income-Driven Repayment Plan, How To Calculate Income for an Income-Driven Repayment Plan. Heres what to consider. What do you think? This is referred to as the REPAYE interest subsidy. "Implementation of William D. Ford Federal Direct Loan (Direct Loan) Program Regulations That Establish a New Income-Contingent Repayment Plan Based on the President's "Pay As You Earn'' Repayment Initiative (the Pay As You Earn Repayment Plan). After this three-year period, the government pays for 50% of the unpaid interest throughout the remainder of the term. Correct-the principle won't grow because the interest isn't capitalizing/getting added on to it. Whats the difference between PAYE and REPAYE? Revised Pay As You Earn (REPAYE) | Students & Residents You can find out more about our use, change your default settings, and withdraw your consent at any time with effect for the future by visiting Cookies Settings, which can also be found in the footer of the site. Maybe one spouse stays in academics and pursues PSLF (Dont forget your PSLF side fund!) consolidated your loans at graduation and started with $0/month payments your first year. Joseph Reinke is a Chartered Financial Analyst (CFA) Charter Holder and founder of FitBUX which has helped over 14,000 young professionals on their journey to financial freedom. I hope that this was a helpful exercise going through all of this! Note: This is the way REPAYE currently works. Otherwise, having smaller payments just means paying more over the life of the loan. Example of a PGY-1 Resident in Revised Pay As You Earn (REPAYE) Biden-Harris Administration Announces Final Student Loan Pause Extension Through December 31 and Targeted Debt Cancellation To Smooth Transition to Repayment., Federal Student Aid. If you cant afford the recommended minimum tax savings amount on PAYE to cover your tax liability at the end of your IDR plan. Pursuing PSLF or not? Reason 3: Too Ignorant or Lazy Most borrowers choose and set-it and forget-it strategy to student loans, which means that they don't critically re-evaluate their decisions or maximize their strategies. planning to pay your loans off yourself ASAP after training). everywhere but Alaska and Hawaii).