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  • Repaye Questions

    I am a PGY 1 EM resident principal 354,000 and interest 4,000. I am in the REPAYE option.I chose this due to the 50% interest subsidy. I figured I would stay ahead of the interest by paying a large amount above my monthly payment each month. What I am finding is that it decreases the amount the government subsidizes. I do not plan to do PSLF with most EM groups being private any way.

    My question is if I refinance after I am finished with residency will the interest that has been subsidized each month with the 50% subsidy through Repaye be capitalized on to the principle? Essentially this money the government is paying as interest, will I eventually owe it if I refinance after residency?

    Also if my monthly payment is more than the interest each month, will the government continue to subsidize the interest? Would it be beneficial for me to stay in Repaye if I plan to pay it off as soon as possible or refinance?

    I essentially would like to know if I should refinance now if all this "subsidized interest" will be capitalized eventually anyway.


    Thank you in advance. I have been trying to find this answer.

  • #2
    I'm in a very similar circumstance though not EM. Call your lender. Mine said that me making payments wouldn't decrease the federal subsidy. I'm interested in the answers to the second paragraph.

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    • #3

      Im a bit confused by the wording of the question, but trying to interpret - I believe you are asking if the subsidized (and thus not added to your account) portion of interest comes back from the dead after if you leave the program...that answer is no. Is that the question or is the question whether or not you are receiving the full subsidy? Our loan statements show the actual interest subsidy - does yours and is it what you expected?

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      • #4
        Yes. I am wondering if when I refinance with a private lender will the interest that was subsidized be capitalized back on to the principal for leaving Repaye? You answered no which is a relief. I don’t trust anything from Fedloans.

        If I make payments each month it decreases the average monthly interest subsidy by the government from what I can see. Without paying payments I am getting a total 3.5% interest rate after the subsidy but if I make payments it increase my total interest that I pay.

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        • #5
          I don't understand. You don't choose or not choose to make payments. You submit an income and they calculate a payment. For some people it's 0 depending on what your income is.

          Making extra payments does not affect your subsidy bc it's completely based on whatever your calculated payment is.

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          • #6
            Originally posted by EMresident1234 View Post
            Yes. I am wondering if when I refinance with a private lender will the interest that was subsidized be capitalized back on to the principal for leaving Repaye? You answered no which is a relief. I don’t trust anything from Fedloans.

            If I make payments each month it decreases the average monthly interest subsidy by the government from what I can see. Without paying payments I am getting a total 3.5% interest rate after the subsidy but if I make payments it increase my total interest that I pay.
            If I am not mistaken, if you choose to refinance after graduating residency, the remaining interest is capitalized, however you benefit, theoretically from a lower interest rate. On the other hand, if you don't refinance, its not capitalized, but your interest is higher and the subsidy will hurt you if you choose to make minimum payments. Instead if you graduate and stay on REPAYE and aggressively pay it off, you don't get the subsidy because you're paying aggressively, but you avoid capitalization from refinancing to a lower rate (the trade off being you stay on a higher interest rate).

            East coast Does that sound right?

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            • #7
              Originally posted by asdfgghk View Post

              If I am not mistaken, if you choose to refinance after graduating residency, the remaining interest is capitalized, however you benefit, theoretically from a lower interest rate. On the other hand, if you don't refinance, its not capitalized, but your interest is higher and the subsidy will hurt you if you choose to make minimum payments. Instead if you graduate and stay on REPAYE and aggressively pay it off, you don't get the subsidy because you're paying aggressively, but you avoid capitalization from refinancing to a lower rate (the trade off being you stay on a higher interest rate).

              East coast Does that sound right?
              Yes, I agree for the most part with this comment. But I think I need to clarify on the subsidy - I don't believe I've ever said "you don't get the subsidy because you're paying aggressively". My position is to be careful because there are people that have received it, haven't received it, or somewhere in between (My personal data is the in between bucket).

              Also, the scale of higher interest rate vs. interest capitalizing can be vastly different - everyone needs to pull out the excel to run the numbers to figure out which matters more/less.

              Comment


              • #8
                Originally posted by East coast View Post

                Yes, I agree for the most part with this comment. But I think I need to clarify on the subsidy - I don't believe I've ever said "you don't get the subsidy because you're paying aggressively". My position is to be careful because there are people that have received it, haven't received it, or somewhere in between (My personal data is the in between bucket).

                Also, the scale of higher interest rate vs. interest capitalizing can be vastly different - everyone needs to pull out the excel to run the numbers to figure out which matters more/less.
                Are you saying its possible, in theory, that with a physician's salary making large payments, they might still give you the subsidy?? (thats assuming the loop hole isn't closed). I know its hit or miss it sounds for residents.

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                • #9
                  Depends on your definition of 'large payments', but yes. The reason is that everything is essentially a full year behind when it comes to required payment amounts and thus subsidy level. So someone can be a full time attending in the Fall with an annualized income of 500k, but as far as the federal loans know, your income/AGI from earlier that year is only 60K as a resident. Remember that the questions changed over the past few years on the application/recertification from 'did your income change' to 'did your income decrease since you last filed taxes' - well that opened up quite a few months to the applicant's benefit.

                  As you are probably used to me saying by now - However, this scenario likely doesn't matter!!! By the time you have third or fourth year resident income, your payment (assuming typical income/loan levels) would be up to $400-ish/month and the repaye subsidy would dip quite a bit. At the point you have attending level of income, the private refinancing rates of 2-4% far outweighs any subsidy you would receive if you don't want PSLF. And if you are going for PSLF, you don't care about minimizing subsidy - you care about minimizing payments.

                  Comment


                  • #10
                    Originally posted by East coast View Post
                    Depends on your definition of 'large payments', but yes. The reason is that everything is essentially a full year behind when it comes to required payment amounts and thus subsidy level. So someone can be a full time attending in the Fall with an annualized income of 500k, but as far as the federal loans know, your income/AGI from earlier that year is only 60K as a resident. Remember that the questions changed over the past few years on the application/recertification from 'did your income change' to 'did your income decrease since you last filed taxes' - well that opened up quite a few months to the applicant's benefit.

                    As you are probably used to me saying by now - However, this scenario likely doesn't matter!!! By the time you have third or fourth year resident income, your payment (assuming typical income/loan levels) would be up to $400-ish/month and the repaye subsidy would dip quite a bit. At the point you have attending level of income, the private refinancing rates of 2-4% far outweighs any subsidy you would receive if you don't want PSLF. And if you are going for PSLF, you don't care about minimizing subsidy - you care about minimizing payments.
                    As a general rule (every individual is different), if you are intending to pay off your debt ASAP (1-2 years), would not refinancing, to avoid capitalization be bad? Versus capitalizing from leaving IDR but now having a lower interest rate?? I cant remember if you answered this in another thread...i feel like you may have

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