By Andrew Paulson, CSLP, Lead Student Loan Consultant and Co-Founder of our partner site StudentLoanAdvice.com
The Department of Education has proposed changes to the existing income driven repayment programs (IDR) for those who have student loans. We thought the department was going to add a brand new plan so we would have had five IDR options, which could have further complicated how to select your repayment plan. Instead, the ED chose to simplify the existing repayment options and improve the REPAYE plan. The new REPAYE plan will be rolled out in late 2023. We anticipate borrowers to become eligible for new REPAYE after student loan payments resume in September 2023 (if they actually do).
The REPAYE or Revised Pay As You Earn plan was created in 2016. The old REPAYE plan had its pros and cons. Most of the cons have gone away with the new REPAYE plan. There are a couple of changes that are basically holdovers from the PSLF and IDR waivers you need to be aware of, as well.
Here’s what you need to know about the changes:
#1 Old REPAYE Becomes New REPAYE
Borrowers will be eligible for the new REPAYE program. Those with direct loans, regardless of when they borrowed or their current income, will be eligible for the new REPAYE program. If you have FFEL loans, you’ll need to consolidate those to enroll in REPAYE.
If you’re already in REPAYE, we don’t think you’ll need to do anything to change from the old to the new plan.
#2 Switching from REPAYE to IBR
The old rule for switching from REPAYE to IBR or REPAYE to PAYE was that the borrower had to qualify for a partial financial hardship (PFH). A PFH is when your monthly payment as calculated in IBR or PAYE is less than what the payment would be in the standard 10-year repayment plan. As long as the borrower qualified for a PFH, they could change repayment plans at any time.
The new rule requires a PFH, and it won’t let a borrower switch from REPAYE to IBR if they already have made 120 monthly payments.
More information here:
REPAYE vs. Refinancing Student Loans as a Resident
#3 Monthly Payments Become More Affordable
Historically, monthly payments in REPAYE were 10% of discretionary income (more on this later) for undergrad, graduate, and professional degrees. The new REPAYE will calculate payments at 5% for undergrad loans and 10% for graduate and professional loans. If you have a mix, a weighted average will be calculated to determine the percentage you’ll pay on a monthly basis. I suspect most of your loans are from your graduate program, so I don’t foresee the monthly payment changing much.
Here's a quick example to see how this would change for a doctor:
A single doctor makes $200,000 per year with a loan balance of $220,000 ($200,000 at 6% interest rate from medical school and 20,000 at 6% interest rate from undergrad).
Old REPAYE = 10%
New REPAYE = 9.55% (weighted average)
This would result in a lower monthly payment for this doctor. These percentages would not be recalculated unless the borrower takes on additional loans.
Now, let’s also talk about discretionary income. Discretionary income calculations are changing from 150% of the federal poverty guidelines to 225%. The federal poverty guidelines are set by the Department of Health and Human Services each year. For single borrowers, the poverty guideline is $13,590. The guideline increases by $4,720 for every person in your household. Here’s an example of how payments can change for a borrower using the prior example.
- Discretionary income is lowered by $10,193 due to 225% of the poverty guideline.
- Monthly payments drop $149 per month as a result of lower discretionary income and lower monthly calculation (9.55%).
- On an annual basis, this borrower saves $1,789 in student loan payments.
The numbers look better if you have a greater percentage of undergrad loans as compared to graduate loans. We will show more case studies at the end of this post.
#4 Unpaid Interest Subsidy Is Increased
In old REPAYE, if your monthly payment was less than the interest accrual (or interest charged), half of the interest would be waived. This was commonly referred to as the interest subsidy and was a huge benefit when selecting REPAYE over PAYE/IBR. With new REPAYE, all the unpaid interest would be waived. This appears to be particularly beneficial to those who are (or will be soon) in training or who have a high debt-to-income ratio. Now, your loans will no longer enter negative amortization—or when your monthly payment isn’t sufficient to cover the monthly interest.
The interest subsidy now waives all the unpaid interest monthly and drops the effective interest rate on the loans when your monthly payment isn’t sufficient to cover monthly interest accrual. Interest is ONLY waived in the REPAYE plan.
#5 Shortened Time Frame for Receiving Loan Forgiveness
This probably isn’t applicable to 99% of you, but if you borrowed $12,000 or less, you would receive loan forgiveness after a decade of payments in IDR. The loan forgiveness we are discussing here is taxable loan forgiveness. The loan balance is taxed as if it were income when you reach forgiveness, unlike PSLF which is not federally taxable.
For every additional $1,000 you borrow above $12,000, you add one additional year of monthly payments. Basically, if you borrow $27,000 or more, you would have 25 years until you reached forgiveness.
Please note: if you reach taxable forgiveness prior to 2026, there is no federal income tax on the loan balance forgiven. This reverts back to taxable in 2026 going forward.
More information here:
6 Tricks Medical Students Can Use for Their Student Loans
#6 Receive Forgiveness Credit for Certain Deferments and Forbearances
Since October 2021, we have had a number of waivers that temporarily granted borrowers forgiveness credit for deferments and forbearances like we’ve never seen before. But due to the temporary nature of these waivers, most of these benefits would expire. The PSLF waiver expired October 31, 2022, and the IDR waiver is set to expire on December 31, 2023. This recent proposal will extend a couple of benefits from the waivers:
- Economic hardship deferment and Peace Corps service deferments.
- 12 months of consecutive forbearance or a minimum of 36 months of cumulative forbearance. Does this incentivize you to enter forbearance? It seems like it does. We assume the ED will tamper down on what it allows as forbearance.
- Cancer treatment deferments, military service deferments, national service forbearances, National Guard duty forbearances, post-active-duty deferments, Department of Defense loan repayment program forbearances.
- Certain administrative forbearances—we think this is your classification for when you switch repayment programs or consolidate your loans.
- Rehabilitation training deferments and unemployment deferments.
- Catch-up payments for borrowers in deferments or forbearances wherein a borrower would have a $0 monthly payment—our initial thinking is this may also include those who left their loans in a grace period right after graduation.
#7 Payment Count Is Not Reset After Consolidation
Typically, when you consolidated your federal loans, any previous repayment history was erased. This was done because the consolidation actually issues a brand new loan in place of the old two or more loans you included in the consolidation.
Instead of resetting your payment history, a weighted average of your existing accounts will be applied to the consolidation loan beginning July 1, 2023.
Please note: if you consolidate loans with differing payment counts before May 1, 2023, you would be eligible to take the loan with the highest payment count. Just make sure that if you’re doing PSLF, to resend your PSLF forms post-consolidation to your servicer.
#8 Help for Delinquent Borrowers
When a borrower misses a payment and they don’t call their servicer to put them into forbearance or deferment, their account becomes delinquent. After 270 days of delinquency, their loans will go into default.
Now, borrowers will be automatically enrolled into the IDR plan with the lowest monthly payment if they are 75 days behind on payments. Also, borrowers’ options can become quite limited when they enter default. They must choose to pay the loan off, consolidate, or complete a rehabilitation process. The new proposal will give borrowers the ability to access an IDR plan to allow for lower monthly payments and an easier exit from default back to good standing.
#9 Phaseout Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE)
To simplify repayment options, borrowers will no longer be able to enter the ICR or PAYE plan. But, borrowers who are already in these plans can stay in them, and they won’t be kicked out. If you are trying to get into either plan, make sure you switch repayment plans before this passes.
REPAYE and IBR will be the only repayment options available to new borrowers. Only Parent Plus Loans borrowers will be able to enroll into ICR after a direct federal consolidation.
More information here:
10 Reasons You Should Pay Off Student Loans Quickly
#10 Ability to Exclude Spousal Income Through Married Filing Separately in REPAYE
A common strategy for married borrowers is to file taxes married filing separately to exclude spousal income to lower monthly payments. This strategy was only available in the IBR, ICR, and PAYE plans. In new REPAYE, you can also exclude spousal income if you file taxes married filing separately (MFS).
This is a huge change for many of you trying to decide which repayment plan is best. Most people, if they were married to another earner and doing loan forgiveness, would avoid REPAYE because of the requirement to include spousal income regardless of how taxes were filed. It was an easy decision to pick PAYE over REPAYE to minimize payments. If they weren’t eligible for PAYE, it came down to running the numbers between IBR or REPAYE—which, if you were making more than you owed, favored IBR.
One other point of emphasis: IBR and PAYE, aside from the past ability to exclude spousal income through MFS, have a payment cap. This payment cap is based on what your monthly payment would be if you were in the standard 10-year repayment plan.
This ceiling does not exist with old REPAYE or new REPAYE. That means there is no payment cap in the REPAYE plan. Further, this may end up being a more costly option than IBR or PAYE in the long run if you do loan forgiveness.
Here are a few scenarios:
New REPAYE beats PAYE
A dual-earning doctor and dentist with no kids. The doc makes $200,000, and the dentist makes $300,000. The doc borrowed $200,000 for med school and $25,000 for undergrad for a total of $225,000 at a 6% interest rate. The dentist paid off their loans already. They file married filing separately.
REPAYE saves the doc $2,096 per year.
PAYE beats new REPAYE
The same fact pattern as above except the doc now makes $400,000.
PAYE saves the doc $4,940 per year. The difference is the payment ceiling that PAYE has that borrowers will run into if they make more than they owe.
IBR beats new REPAYE
Same fact pattern as about except the doc now makes $375,000.
IBR saves the doc $2,554 per year. IBR also has the payment ceiling.
In summary, if you make more than you owe and are currently on track to loan forgiveness, you might be better off staying put in IBR or PAYE. If you make less than you owe, REPAYE would probably be the superior IDR plan.
For those who aren’t graduating until 2024, it is unlikely you’ll be eligible for PAYE. You’ll have to decide between REPAYE and IBR.
This is another huge shakeup for income-driven plans and is helpful to some borrowers. As more details become available, we will continue to update you on changes. The ED's proposal is trying to simplify repayment options for borrowers, and it may sound great on paper. But we see this as another variable that may further complicate your current plan (or potential plan).
Rest assured, we will continue to provide you with relevant information and up-to-date commentary to save you money on your loans. If you need help interpreting these changes, contact our Student Loan Advice team today!
Are you impacted by these changes? Do you plan on switching repayment plans? Does the new proposal make your decision easier or more complicated? Comment below!
Is there any penalty from switching to the new REPAYE from PAYE? I’m currently 6 years into the PAYE plan. Household income about $350k, total loan balance over $500k. My payments do not even cover the interest gained at 7%. Would it make sense to switch to REPAYE now? Or stick with PAYE?
Dentist in Debt,
It depends on if you are doing a forgiveness track and what your income will be in the future. The decision is pretty easy if you’re going for PSLF. If income > debt stay in PAYE due to the payment cap. If income < debt switch to new REPAYE. If you're going for taxable forgiveness its going to be a harder calculation because when loans are forgiven they are taxed as if it were income. I'd need to see a greater breakdown of how your income changes in comparison to your debt over your career. Assuming income goes up a couple % each year here is my initial thinking on it. If income > debt stay in PAYE due to the payment cap and to reach forgiveness in 14 years instead of 19 in new REPAYE. If income < debt stay in PAYE to reach forgiveness in 14 years instead of 19 in new REPAYE. If you're doing taxable I'd highly recommend running the numbers. Andrew SLA
No penalty but you often have to make a full payment as you switch.
Not enough info to answer your other question, but you sound like a perfect person to meet with Andrew for a consultation.
https://calendly.com/studentloanadvice/student-loan-consult?month=2023-01
Third year IM resident, will be starting GI fellowship this Summer. I have around 127k in student loans, currently in REPAYE. My SO (not married, non-physician) has about 25k in student loans which we plan to pay as soon as they start requiring payments and before she starts accumulating interest (she is on REPAYE too). My plan was to continue REPAYE until they asked us to start paying again and before second year of fellowship because during second year of fellowship I’m going to be able to moonlight quite a bit and will for sure be out of the window of “PFH” and change to PAYE to take advantage of the payments cap. With the changes proposed it gets more complicated. If I stay in REPAYE, then I will not have to make any payments until at least 2024 (and with the new REPAYE plan I will not even accumulate any interests until then). The problem is that if I change to PAYE now I will have to re-certify my income and start making payments (vs staying in REPAYE – again, I do not have to re-certify until at least 2024 and right now, my payments are based on $0 income). The other thing is that right now “I’m on the PSLF track” but I am not sure I want to stay on academics, in fact, ideally I would like to move into private practice once I finish private practice although, again the future is uncertain and who knows if I end up staying in a PSLF-qualifying job. I know that as a GI my income will be higher than what I owe (and my payments would be higher than what the cap PAYE provides) and during fellowship (2nd and 3rd) my income will very likely be >200k with moonlighting. So a bit more complicated with the new changes since they will not be allowing people to switch from REPAYE to PAYE.
$127K and $25K….seems like those will be gone by Christmas after fellowship graduation no? Not sure I’d worry about too much of this in your case. I certainly wouldn’t let it influence the job I took.
With your high future income and low student loan balance, I’d probably just pay those off within a year or two out of training. If you have to do PSLF (which I don’t even know if it’s worth the hassle with your future debt to income), then switch to PAYE before they phase it out. It’s your only option to do PSLF. In REPAYE you’d probably pay these off before you reach 120 qualifying payments. Thereby, eliminating the value of PSLF.
Andrew SLA
Two doctor house hold. At the beginning of the pandemic when we got married my wife switched from REPAYE—>IBR. She has $650k in loans and makes $300k. I have no student loans and make $625k. She’s on PSLF with about 75/120 payments counted. Seems like going back to REPAYE is the best thing to do. How hard/easy will it be to make that switch? How permanent are these changes? Also, if democrats don’t get re-elected could this all get reversed? I don’t want her to get stuck in a plan where my income factors into her monthly payments. Thanks for your help!
Your logic sounds right. Switch from REPAYE to IBR
1.) Takes 10 minutes to switch repayment plans, just go on studentaid.gov/idr and switch plans
2.) There will be a 30 day comment period in which there could be minor changes. I do anticipate to be some pushback from the House on this as well. You can just wait to switch in the meantime since no payments are due until at least September (for now).
3.) If the proposal goes through and it gets struck down by our next Administration, I see them not letting new borrowers in and allowing existing borrowers to stay in the “new REPAYE”. Just look at what they did with ICR and PAYE. New borrowers won’t be able to get into it after the proposal passes. But, they specify existing borrowers won’t get kicked out of those plans if the want to stay in them.
Andrew SLA
Has the department of education put a limit on the time in forbearance for the idr waiver? What if I have many more years in forbearance than 3 years? Will they count all the years?
Hi Tracy,
No limit yet. The minimum is just that you have at least 12 months consecutive or accumulated a minimum of 36 months of forbearance. I’ve seen people who put loans into forbearance for 5+ years now get credit for all that time for PSLF or taxable forgiveness.
Andrew SLA
Hopefully that continues. I also noticed on my federal student aid account that my years in deferment aren’t listed. Anyone else notice that issue?
Tracy,
I think until the IDR waiver expires, this will be available, but I’m not sure that would continue going forward. If it did, everyone would go into forbearance. Why pay on your loans at all if you can put them in forbearance for a decade and get them forgiven tax-free via PSLF with no payments? IMO, there will be more monitoring for borrowers in forbearance since servicers are not supposed to allow borrowers to stay in forbearance more than 11 months continuously.
It depends on the kind of deferment you have. In-school deferment, which is the default status for when you are in-school, is usually omitted because it doesn’t count even under the IDR waiver. If you consolidated your loans and the deferment was on a past loan that sometimes won’t show up as well. This would require you keeping more detailed records for past payments, forbearances and deferments.
Andrew SLA
Any news on including deferment from post med school grace period being included for PSLF? I had 6 months of deferment from graduating med school while I was employed as an intern. As far as I know that has not been counted towards PSLF… any news on if this will change or if there is anything one can do to make those months count?
The key is to consolidate so the clock starts ticking as you graduate. You have to make payments, but they should be $0 payments.
Did you consolidate to direct loans by Oct. 22 for the waiver? I I had consolidated many years ago and was in grace period after med school and now those payments are counted for PSLF. It says qualifying with “special waiver” for those months.
I too am in a similar situation but with one technical difference. I entered the PSLF program in November (after graduating in May) but in order to do so, had to move my loans from a great lakes servicing into myfedloans. To do so, I had to make one payment (in November) to great lakes before they would transfer the loans to myfedloans. Previously, none of my repayments until december of that year were counted toward forgiveness. Recently, my payment count was updated to include the november payment (made to great lakes and titled “qualifying – special waiver”) BUT unlike the above poster, the grace period months from june until november (which required no repayments) were still not included.
Is there anything specifically that I can do to have mine adjusted? I thought that during the special waiver period (ending 10/2022,) the PSLF website said grace periods would be automatically updated and no action was required from the borrower.
Also, what specifically makes Andrew/StudentLoanAdvice believe that the grace period may count?
Rob,
That month that counted in November was an administrative forbearance. They commonly put borrower’s loans in administrative forbearance when you’re switching repayment plans or switching servicers. Historically, administrative forbearance didn’t count for loan forgiveness. Administrative forbearance in your case is counting under the “special waiver” which is just the IDR waiver. Months in grace period don’t usually count as credit unfortunately. I don’t remember them making any explicit mention grace periods would count under the PSLF/IDR waiver.
But…The Department of Education announced some changes to PSLF going forward beginning summer (assuming there isn’t a lawsuit to block it) this year that has lead me to believe grace periods could start counting. I wouldn’t think this is retroactive though.
Picture a brand-new intern who consolidates their loans right after graduation and enrolls in IDR. They would presumably have zero-dollar payments their entire first year because payments would be based on the prior year’s income (likely zero unless married to another earner). If this intern didn’t consolidate their loans right after graduation, they wouldn’t enter repayment until six months after graduation, and those months July-Nov/Dec wouldn’t count as credit to PSLF. In summary, both situations required no payment those first six months as an intern. Why wouldn’t they include those months in grace period under the hold harmless option? It sounds like it would fit the bill where they made “equivalent payments”. IMO it looks like this situation may count in the future.
Here’s the factsheet from the gov’t if you wanna dig in https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/futureofpslffactsheetfin.pdf?utm_content=&utm_medium=email&utm_name=&utm_source=govdelivery&utm_term=
Thanks for clarifying and for the good information Andrew. Just odd that “Fruitful” above states their grace period months were now counted when others’ haven’t been… such a terribly managed program.
Ranaan,
I specifically mention this in point #6. Under the current rules, grace period doesn’t count. Under the waiver rules, grace period doesn’t count. Under this proposal with catch up payments, it seems like periods of time like grace period may count. But it’s still unclear.
Andrew SLA
One thing that stands out in the section comparing IBR vs REPAYE is that in the case where the payment cap results in a lower payment, that also means there’s no reason to file separately, which could result in tax savings. If the payment cap is relatively low, the savings could even be more than the sum of the payments.
Per Son,
You are correct for some. If you live in a community property state like CA, WA, AZ (and others) you’d still have to run the numbers because they divide up your AGI differently than common law states. I frequently meet with borrowers who save more on student loans than they pay in taxes to file separately. This is a calculation that each borrower has to review if considering married filing separately to exclude spousal income and reduce payments.
Andrew SLA
Can you be in these repayment plans if you work part time?
Bill,
Existing PSLF rules require you
1.) Work full-time (minimum 30 hours p/wk) or
2.) Work part-time at multiple employers (minimum 30 hours p/wk)
to qualify. This is employment at a non-profit or 501(c)(3).
Aside from this IDR proposal, they are also proposing to simplify the employment requirement for PSLF to require 30 hours p/week. This would allow you to work part-time, at one qualifying employer, for a minimum of 30 hours p/wk and qualify. Implementation is July 1st, 2023.
Here’s the literature if you want to dig into it – https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/futureofpslffactsheetfin.pdf?utm_content=&utm_medium=email&utm_name=&utm_source=govdelivery&utm_term=
Yes.
Hello, Thanks for the very informative post!!
I currently make about $650,000 and my husband is finishing up residency. He will graduate in June. We are going to pay off his loans ($200,000) and I am in PSLF.
When he is done with residency, I plan to cut down my moonlighting and our combined income will probably be $800,000 (400,000 for me + $400,000 for my husband).
I owe $325,000 and I have 3.5 years left of PSLF and I am in REPAYE. Would it make sense for us to do IBR or REPAYE and file separately? I was really worried about the payments being quite high with that combined income. Thanks for your help!!
Additional question: I did just go in and try to change my plan to see what it would do, and it says I’m not eligible for any of them. If you make over a certain amount, are you not eligible anymore?
Thanks!
You’d have to run the numbers, but you’re right that you can make too much to enroll in an IDR. You don’t get kicked out of the one you’re in though.
You can get personalized advice from Andrew by booking an appointment:
https://calendly.com/studentloanadvice/student-loan-consult?month=2023-01
Wouldn’t it make sense to just do 3.5 years of 10 year standard repayments (this qualifies for PSLF) and have the remaining balance forgiven?
You’re right that it might be the exact same payment as IBR, I think the real question here is whether to file MFJ or MFS, and you would have to run the numbers to answer that.
Midwest Dentist,
Your logic is right for some. It’s a question still of looking at MFS vs MFJ. In addition, if you consolidate your loans after med/dental school the standard repayment plan is usually greater than 10 years. Which means, you can’t do the standard 10 yr repayment plan after consolidation typically. If you have at least 60,000 in federal loans and consolidate your loans, post consolidation, the standard repayment plan would be a 30 year plan. This wouldn’t qualify for PSLF.
Andrew SLA
Good to know. Thanks Dentist for bringing up this option. I did consolidate after medical school.
Hello- I have about 220k in loans and make about 70k (still in training). I’m currently in the REPAYE plan. While I would love to stay in it during training to take advantage of the reduced monthly payments in the updated plan, I have concerns about it long term as I will finish training in 2 years and my income is expected to go up to at least 300k. The payment cap in PAYE or IBR would be immensely helpful as an attending as I am going for PSLF, but would I not qualify for the PFH at that time since my income will be greater than my loan balance? Should I switch plans or stay on my current one?
Sounds like you’d be a great candidate to book a meeting with Andrew.
https://calendly.com/studentloanadvice/student-loan-consult?month=2023-01
Ok thanks for the response, so I am probably stuck in REPAYE anyways unless I really cut down my moonlighting. It doesn’t let me run the numbers on studentaid since it says I don’t qualify for IBR.
Right now my payments with REPAYE would be $5,100 a month. If IBR is capped at 10 year standard payment, (at $325,000 of debt), I think it would be $2,700 a month (I divided by 12 and divided by 10).. So that would be much better if I am thinking about this right.
Is the income limit a ratio to student loans or a standard amount? I can’t find this limit anywhere when I search.
I think it’s a ratio, but Andrew would know for sure.
We will think about the consult, maybe we do need that. 🙂
Katie,
There is a payment cap or ceiling based on what your monthly payment would be in the standard 10 year repayment plan. If your monthly payment in REPAYE is above what it would be in the standard 10 year plan, you wouldn’t be able to switch in to IBR or PAYE. That’s probably why you’re not able to try to switch plans.
If you were able to drop your income, then you could switch. Typically, when you make more than you owe you can’t switch from REPAYE to IBR/PAYE.
Andrew SLA
OK, that is super helpful, thank you Andrew!
I don’t think I would drop down that low. I guess maybe the only thing that will help us here is filing separately with REPAYE.
Can you elaborate more on the consolidation piece of the IDR adjustment? I’ve been doing PSLF for about 7 years with multiple loan dispersements. Last year I did the PSLF wavier to have my Peace Corps Service (4 years) count for PSLF. However, I was advised not to consolidate since all my loans are Direct Loans that qualify for PSLF. So I missed last years consolidation wavier without penalty of losing the counts and taking the highest counts. I missed the deadline for consolidation, but I have all direct loans with different disbursement dates so with the limited wavier I’ve ended up with 73 payment counts in 3 loans and 113 on 2 other loans. So im trying to figure out if those loans have always been in IDR plans is there a way to consolidate to get the counts up to the 113? The language is vague on the announcement and both FSAIC and MOHELA haven’t clarified what implications are. MOHELA just says don’t consolidate because you’ll lose all your payment counts. It’s impossible to get clear guidance about this and it seems there are a bunch of people in this situation. Any thoughts?
It’s pretty clear what I wrote in the post. If you consolidate before May 1, they take your loan with the highest count. If consolidate after that, they’ll take a weighted average.
Is there anything in writing that says that from the Ed. Department? I spoke with a PSLF and Student Loan Lawyer, and they reviewed all the current guidance. They said there is not language in the guidance or on the ed department regarding consolidating and not losing PSLF payments and in that way it is unlike the previous PLSF Wavier which clearly stated that. The lawyer’s recommendation was to submit a formal complaint.
File a complaint with the U.S. Dept. of Education’s Ombudsman group to get written
confirmation regarding how the Dept. of Education will handle Direct consolidation loans that repay Direct loans with differing PSLF payment counts under the IDR Account Adjustment. You can explain that you have received incomplete or conflicting information from your loan servicer, and that you are looking to clarify that if you consolidate your existing Direct loans with different PSLF payment counts prior to May 1, 2023, your Direct consolidation loan will be credited with the largest number of PSLF payments associated with the loans that were consolidated, as was the case under the Limited PSLF Waiver.
Correct, it is clearly stated in the PSLF waiver. It is more vague in the IDR waiver. I can say though from experience with some clients who consolidated after the PSLF waiver, they got credit for ALL their past payments under the PSLF and IDR forgiveness tracks. You have to resubmit all your PSLF docs though after consolidation to get credit for all previous qualifying employment.
As to item #7, payment count not resetting after consolidation – I looked over the proposed regulations on this topic and I am unclear if payments would reset for borrowers currently on other IDR plans (IBR or ICR or PAYE) who have previously consolidated their direct loans, and so already have “Direct Consolidated Loans.” The way proposed sec. 685.209(k)(4)(v) reads, it sound like borrowers who already have “Direct Consolidated Loans” and who enroll into the this REPAYE would have their payment count reset to zero. What do you think?
In the old rules, consolidation did erase prior payment count. Under the IDR Waiver, any payments made pre-consolidation would count as long as you do do before May 1, 2023. After that, they’ll take a weighted average of your existing count among the loans you consolidate.
Here’s the link to the IDR waiver https://studentaid.gov/announcements-events/idr-account-adjustment
Ok, I understand the IDR waiver for consolidating Direct Loans into ‘Direct Consolidation Loans’. So my follow up question is this – if an existing debtor whose loans are already consolidated into ‘Direct Consolidated Loans’ and who are currently on IBR or ICR or PAYE, and who want to switch to the new REPAYE, do they have to technically ‘consolidate’ again in order to make that switch? Or would they be able to literally just switch?
I know I’m being rather anal about language, but proposed 605.209, subsections (i), (j), (k) seem not to address the issue of already existing ‘Direct Consolidated Loans’ vis-a-vis loans that aren’t consolidated.
As long as you don’t have any FFEL loans you can switch from IBR/ICR/PAYE to REPAYE anytime and it doesn’t require consolidation.
Thank You
300k in private refinanced loans making 420k a year and my wife works 1/4 time pediatrician with 350k in loans making 30k/yr. Currently on PAYE married filing separately and saving for tax bomb. The new repaye seems like an absolute no brainer, no more negative amortization for my spouse and continued low payments if any at all due to her low income then forgiveness at the end. Tax bomb much much smaller as interest would have been covered under new repaye.
Michael,
Yes, this would make taxable IDR forgiveness more of a viable option due to the interest waiver. You would just take her current loan balance and prepare for a tax on that amount when she hits 20 years of payments.
Hi 1 I am thinking of switching from ICR to PAYE before PAYE gets phased out in 2024 to guarantee I am grandfathered in. I have 20k in interest – will this capitalize on my principal during the current $0 payment period if I switch plans? And will interest capitalization occur regardless for everyone who wants to switch from ICR to the new REPAYE plan next year?
Jennifer,
Switching from ICR to PAYE/REPAYE would cause interest to capitalize up to 10% of original principal balance at the time you entered repayment. Yes, it would capitalize even during the current pause we are in or next year.
The interest capitalization doesn’t really make a difference if you are pursuing loan forgiveness.
I was just credited through the IDR program. My PSLF qualifying payment count went from 64 to 124. However, my loan has not yet been processed for forgiveness and still shows a large balance. Does anyone have experience with how long it usually takes for a loan to show $0.00 balance once reaching >120 PSLF qualifying payments?
Weeks is typical in my understanding.
This new REPAYE is throwing my plan off. Currently a “single” IM resident, but getting married in June. About 250k debt, planning cards fellowship, possibly PSLF so keeping option open. Partner (not a physician) makes ~60k with no debt. Currently in REPAYE but haven’t paid anything due to payment pause, haven’t had to recertify since starting residency. Was planning on recertifying before filing taxes and getting married, to eek out another year on the old REPAYE being considered “single”. Then was planning to switch to PAYE and file married filing separately. But if new REPAYE is much better than old REPAYE (while in training at least), should I just stick with REPAYE for the benefits? Or just switch to PAYE now in case the chance to switch isn’t available if phased out? Trying to balance short term benefits of the new REPAYE vs long term benefits of being on PAYE once attending money hits. Still planning on either doing PSLF or paying off loans aggressively, so perhaps staying with REPAYE is the way to go.
Sounds like you could use an hour with StudentLoanAdvice.com.
https://studentloanadvice.com/
My spouse will have only 2.5 years on PSLF after the limited waiver ends. We just filed our taxes MFS this year so only her income would count. And we requested to be put on the lowest payment IDR. 2 weeks later we got notice we were placed on REPAYE at the monthly payment plan of $230 a month. This seems too good to be true by all logic and mathematics. My wife makes an AGI of $87K. I make an AGI of $145K. 10% of that comes nowhere close to a $230 a month payment. I thought they would place us on ICR or IBR. Do I question this.. or just keep quiet and pay what they ask when payment resume? (FYI.. it doesn’t even cover our full interest on our $100K loan).
We only have 2.5 years of payments left, but I also don’t want to risk messing up our PSLF counts if it is some clerical mistake.
LuckyOrNot,
Wow…this sounds like an error that is in your favor for once. If they placed you in the REPAYE plan your payments should be based off household income still since “New REPAYE” is not live yet. This is a flat out mistake on their end unless you have student loans. I wouldn’t change anything for now and would wait for them to come back with a fix. It shouldn’t jeopardize PSLF at all.
Read on if you have a balance
In old REPAYE they take three factors into consideration when calculating your payments. 1.) Household AGI (~10%) 2.) household size and 3.) your portion of federal debt.
My quick math is you make about $19k per/mo. A rough estimate of your monthly payment is $1.5k. If you both have loans and are in REPAYE they would divvy this up based on your portion of the federal debt. In order for her payment to come out to $230, the debt would have to look something like this.
You owe $550k — portion 550k/650k –> 84% –> 1.5k * 84.6% = $1,269
She owes $100k — portion 100k/650k –> 16% –> 1.5k * 15.4% = $231
Total federal loan balance $650k
Andrew SLA
yeah, we filed separately this year with the plan to be put on IBR or ICR and pay roughly $600-$900 a month based on her income. I have zero in student loans. It’s all her grad school debt and some undegrad loans which is a little shy of $100K total.
It might be corrected eventually, but i guess we just accept our good fortune for now.
Hi, do we know what date will PAYE be phased out? Currently in REPAYE and don’t know what to do and more importantly, how quick I need to act…
Federal loans are $210k. Graduated med school 2019 and filed $0income tax return then. So have been getting free payments since then because of Covid. Haven’t recertified my income since originally doing it to enter REPAYE.
I made $120k in 2022 split between residency / attending. I’m a Hospitalist in a city, cutting down hours because adjusting to the new demand of a new hospital.
I’ll make $180k with reduced hours and my girlfriend (likely will be married in next 1-1.5years) makes around $200-$250k (might increase or decrease in long term depending on our tbd life plans. She is doing well in cooperate world but unclear stability of her job long term). Also not sure if I’ll do a fellowship or if I don’t, if/when I’ll increase my hours to up to 1FTE making $230k.
I feel like my decision point to switch into PAYE is right on the margin and I can’t decide what to do given uncertainties in my future professional / and family plans. Also scary that I don’t know when PAYE is closing.
This weekend I finally got an updated payment count so I re-ran the numbers about how many “free” payments I’ll be able to milk out and was excited (upto 40% of 120 PSLF payments). HOWEVER…If I switch to PAYE, would I need to certify my income and by when? if I have to certify my income, I think I’ll lose about 7/8 “free” payment counts. Would that be worth switching to PAYE if I don’t know if I want fellowship and not sure who will eventually be “breadwinner”?
Thanks!
Also, less important…but is it worth have MOHELA correct that I think they characterized some of my payments as “special waiver” simply because these routine (really typical) payments were tallied at same time when I submitted a document to get other payments qualified under the special waiver?
Given the complexity of your situation, you sound like a perfect candidate to do a consultation with Student Loan Advice.
https://calendly.com/studentloanadvice/student-loan-consult?month=2023-03
Got married late 2022, starting residency this year. Spouse is also a resident making identical salary, with no loans.
It sounds like it may be worth waiting (during deferment) for new REPAYE to be implemented before enrolling? As opposed to choosing between old REPAYE and PAYE immediately after graduation.
RS,
You shouldn’t delay enrolling into a repayment plan during intern year. I would consolidate your loans right when you graduate and enroll into REPAYE/PAYE immediately. If you don’t consolidate, your loans will enter grace period for the first 6 months during intern year. Grace period doesn’t count towards forgiveness. Start your clock to PSLF in July by immediately consolidating your loans.
Here’s a good post to review. https://www.whitecoatinvestor.com/student-debt-consolidation/
Andrew SLA
Hi Andrew,
Thanks for the link. I understand the PSLF benefits of consolidating right away. My concern, however, was my ability to switch from old REPAYE or PAYE to new REPAYE if I start payments right away, as I would like to avoid having my spouse’s income considered in my monthly payments. Would this be an easy switch to make once the policy changes are implemented? I suppose for the first year, it doesn’t matter, as we both had minimal income in 2022. Thanks!
RS,
Why don’t you just start in PAYE right now then? PAYE allows you to exclude spousal income if you file MFS. If/when “New REPAYE” is implemented then you could switch into it immediately. Switching plans is a 10 minute application. https://studentaid.gov/idr/
With minimal income in 2022, you probably wouldn’t save much filing separately over jointly this year. You should consider it going forward though if you’re interested in forgiveness.
Andrew SLA
Thanks for this very informative post.
After consolidating and enrolling in REPAYE, is the assumption that one will transition to new REPAYE automatically?
In new REPAYE, what happens if payment exceeds the monthly required payment? I.e. required to pay 500, but pay 600 – what happens with the $100 delta?
Thanks!
Steven,
Correct. If/when new REPAYE is implemented, they will move everyone already REPAYE into it since it is superior in all aspects to the existing/old REPAYE plan.
Then $100 will go to the next month’s payment. So instead of owing $500 the next month now you owe $400. It would also bring down the interest subsidy since it is assessed on a month by month basis. It is not advisable to pay more than you owe if you’re planning on doing PSLF or IDR forgiveness.
Andrew SLA
Interesting that it doesn’t go toward principal. There must be some way to pay extra on the principal, no?
i have 450k in student debt from undergrad, grad school, and law school. i worked in qualifying Pslf employment for 11 years from 2010-2021. i worked full time in pslf qualifying employment through law school. Since three years were spent in school deferment, they are not counting those months. Would i likely get credit under the IDR adjustment? i applied in time for the pslf waiver and i have since been credited with 95 months. Had i known that i could have opted out of the in school deferment and my payments counted towards PSLF i would have done that. It seems like i should have just done a forbearance or economic hardship deferment instead as those months would have counted also. do you know anything about the hold harmless option?
I wouldn’t be surprised if that counted but I don’t know for sure. Why not call them up and ask?