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Benefit of Consolidation after CARES Act

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  • #16
    Everyone with federal loans should be receiving 0% interest for the next 6 months.

    Since this question has come up a few times, it's probably good to review why consolidation is recommended - Upon graduation you are automatically enrolled in a 6 month grace period. During this period, you are accruing interest, but not required to make a payment.

    There is a 'trick' some eagle eyed resident or student loan adviser saw 10-ish years ago - you can choose to forgo the grace period by consolidating your loans and entering repayment immediately. This also allowed you to answer the question of "do you have income" with a truthful 'no' if you had literally just graduated and not started work (this isn't so important if you file taxes with Zero income earlier - but most of us older folks didn't think that far ahead years ago), thus allowing for $0 qualifying payments and a full 50% interest cut.

    Outside that 'trick' consolidation has zero connection to entering Repaye or any other IDR - they are mutually exclusive events.
    Last edited by East coast; 04-04-2020, 07:24 AM.

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    • #17
      Originally posted by East coast View Post
      Everyone with federal loans should be receiving 0% interest for the next 6 months.

      Since this question has come up a few times, it's probably good to review why consolidation is recommended - Upon graduation you are automatically enrolled in a 6 month grace period. During this period, you are accruing interest, but not required to make a payment.

      There is 'trick' some eagle eyed resident or student loan adviser saw 10-ish years ago - you can choose to forgo the grace period by consolidating your loans and entering repayment immediately. This also allowed you to answer the question of "do you have income" with a truthful 'no' if you had literally just graduated and not started work (this isn't so important if you file taxes with Zero income earlier - but most of us older folks didn't think that far ahead years ago), thus allowing for $0 qualifying payments and a full 50% interest cut.

      Outside that 'trick' consolidation has zero connection to entering Repaye or any other IDR - they are mutually exclusive events.
      THANK YOU. So much more clear. I knew it was simple...but it just wasn't connecting for some reason.
      I can't seem to find the answer clearly, but when is the earliest one can sign up for REPAYE? Could they sign up day one of medschool if they wanted to?
      Also, given the 6 month grace, it sounds like we'd still have to consolidate before the 0% interest rate ends (sept 30) as that date is only 4-5 months into the grace?

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      • #18
        when is the earliest one can sign up for REPAYE? Could they sign up day one of medschool if they wanted to?
        You can enter repayment of any kind once you graduate, drop below half-time enrollment, or leave school (you can pay $$ back before this, it’s just not ‘repayment from a forgiveness standpoint).
        A couple of points to keep in mind - it takes time between applying for an IDR and being granted the payment plan, so it’s not an immediate thing that you click a button and voila! It took about a month if my memory serves me back when we consolidated and entered REPAYE.
        Technically, even if you were able to sign up immediately, the first $0 payment or two aren’t automatically pslf eligible - you need to also be employed by a non-profit for it to count. So if you’re start date isn’t for two months from now, then it may not matter to rush it all that much other than to keep interest down. (This is where certifying employment and the employment dates comes into play).

        For these reasons I’ve said in other threads on this question that people shouldn’t focus too much on the absolute earliest moment to consolidate/enter repayment ASAP - you are at the mercy of the process ultimately.

        given the 6 month grace, it sounds like we'd still have to consolidate before the 0% interest rate ends (sept 30) as that date is only 4-5 months into the grace?
        Based on the question I assume you are not graduating early as many programs seem to be. So if you are graduating in May or so, I suppose you could go into the grace period and choose to consolidate at whatever time best suits you - but remember that you don’t really determine the exact timing of when they process it. I think it’s likely splitting hairs to worry about that, so don’t waste efforts focused on the absolute ‘best timing/moment’. My plan would be - let it go to grace period. In August, apply to consolidate/enter repayment and then by Sept/Oct you will be on REPAYE.

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        • #19
          Wouldn't it be better not to consolidate this year and just enroll in the REPAYE to avoid loan capitalization? (not going for PSFL) We basically have 6 months 0% interest till September so there is no benefit as states above by asdfgghk.

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          • #20
            Originally posted by moattoat View Post
            Wouldn't it be better not to consolidate this year and just enroll in the REPAYE to avoid loan capitalization? (not going for PSFL) We basically have 6 months 0% interest till September so there is no benefit as states above by asdfgghk.
            You don't get to 'skip' interest capitalizing. Your options are - consolidate and enter an IDR (consolidation sparks interest capitalization) or wait out grace period (after which, interest capitalizes). There's no way to say 'no thanks' to interest capitalizing.

            I don't know what you are referring to in the comment "there is no benefit as stated above by asdfgghk", so not sure I can respond, but there's a huge benefit to 0% interest for any period of time!

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            • #21
              Originally posted by East coast View Post

              You don't get to 'skip' interest capitalizing. Your options are - consolidate and enter an IDR (consolidation sparks interest capitalization) or wait out grace period (after which, interest capitalizes). There's no way to say 'no thanks' to interest capitalizing.

              I don't know what you are referring to in the comment "there is no benefit as stated above by asdfgghk", so not sure I can respond, but there's a huge benefit to 0% interest for any period of time!
              Perfect I was confused thanks for clearing this up! Didn't know I was choosing between capitalizing either way.. For some reason, I thought if I forgo consolidation it prevented capitalization for student loans.

              And Was just referring to asd mentioning there is no benefit to consolidating ASAP this year given the 0% interest - but I'll still consolidate around May given that it takes a few months. Thank for the help eastcoast!

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              • #22
                Originally posted by moattoat View Post

                Perfect I was confused thanks for clearing this up! Didn't know I was choosing between capitalizing either way.. For some reason, I thought if I forgo consolidation it prevented capitalization for student loans.

                And Was just referring to asd mentioning there is no benefit to consolidating ASAP this year given the 0% interest - but I'll still consolidate around May given that it takes a few months. Thank for the help eastcoast!
                I posit consolidating ASAP (in may) may not be as helpful as normal given the 0% interest situation because you won't get the subsidy if im not mistaken because interest is 0. Unless you are PSLF, it woudnt make as much sense to get that done May.

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                • #23
                  Originally posted by asdfgghk View Post

                  I posit consolidating ASAP (in may) may not be as helpful as normal given the 0% interest situation because you won't get the subsidy if im not mistaken because interest is 0. Unless you are PSLF, it woudnt make as much sense to get that done May.
                  True I might put it off till June before I start residency just so I could verify my income as $0? Would that be a good idea?

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                  • #24
                    If you filed taxes this year (which you still can), you can consolidate and enter repayment whenever you would like at the $0 income level. If you didn't/don't (since you still can), you will be asked 'do you have taxable income' and need to provide a truthful answer when the time comes.

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                    • #25
                      Originally posted by East coast View Post
                      If you filed taxes this year (which you still can), you can consolidate and enter repayment whenever you would like at the $0 income level. If you didn't/don't (since you still can), you will be asked 'do you have taxable income' and need to provide a truthful answer when the time comes.
                      Do you know approximately when that is? Grace period for me is May-Nov (6 months). To enroll in REPAYE (if you are not consolidating), you must apply within 90 days of entering repayment IIRC.

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                      • #26
                        Combining the questions from a few threads in this one spot:
                        Originally posted by asdfgghk View Post

                        Any search words I should look up to learn how to model that out on excel??
                        I am yet to certify even for the first time (Not in REPAYE yet), so I take the bolded doesn't apply to me, but for anyone who's already working?
                        Unfortunately, I don’t think WCI has any modeling tutorials. But modeling is really just the act of doing math in Excel – as long as you are decent at math, it’s not rocket science and I’d just suggest playing around with it. Other option is to hire a student loan advisor.
                        The bold you are referring to is about recertifying timelines – the same applies to applying for the first time. Your most recent tax filing is always eligible for being your income verification. Thus, if you file 2019 taxes in April 2020, it will be your verification until you file 2020 taxes in March/April 2021. This is why we refer to student loan payment always essentially being a year behind in a way.
                        Originally posted by asdfgghk View Post

                        Whats your take on maxing out your traditional 401k option to barely break to the lower income tax bracket of 12% from 22% (while also reducing your AGI for the next year) versus going the ROTH route to avoid taxes later on, given a resident's lower salary/income tax relative to an attending?
                        I suppose you can do that and I haven’t run the math, but just a hunch – the difference between 12-22% (10%) tax brackets is equal to or smaller than the likely 32 (10%), 35 (13%) or 37% (15%) federal bracket you will eventually be – so it stands to reason that at best, you are coming out equal, and at worst, you could save by paying tax now and going with the Roth.
                        Originally posted by asdfgghk View Post

                        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
                        I wouldn’t worry too much about capitalization. It’s just not that much money relative to things like overall interest rate. Think of it this way, if you have 10k in uncapitalized interest, and you are paying aggressively, just pay 10k in one month and voila! The interest goes away and capitalization disappears.
                        Originally posted by asdfgghk View Post
                        If you didn't/don't (since you still can), you will be asked 'do you have taxable income' and need to provide a truthful answer when the time comes.”

                        Do you know approximately when that is? Grace period for me is May-Nov (6 months). To enroll in REPAYE (if you are not consolidating), you must apply within 90 days of entering repayment IIRC.
                        It shouldn’t matter – file taxes for 2019 at $0 and that’s the verification they’ll want no matter if you do the paperwork in August or November.

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                        • #27
                          Originally posted by East coast View Post
                          Combining the questions from a few threads in this one spot:

                          Unfortunately, I don’t think WCI has any modeling tutorials. But modeling is really just the act of doing math in Excel – as long as you are decent at math, it’s not rocket science and I’d just suggest playing around with it. Other option is to hire a student loan advisor.
                          The bold you are referring to is about recertifying timelines – the same applies to applying for the first time. Your most recent tax filing is always eligible for being your income verification. Thus, if you file 2019 taxes in April 2020, it will be your verification until you file 2020 taxes in March/April 2021. This is why we refer to student loan payment always essentially being a year behind in a way.

                          I suppose you can do that and I haven’t run the math, but just a hunch – the difference between 12-22% (10%) tax brackets is equal to or smaller than the likely 32 (10%), 35 (13%) or 37% (15%) federal bracket you will eventually be – so it stands to reason that at best, you are coming out equal, and at worst, you could save by paying tax now and going with the Roth.

                          I wouldn’t worry too much about capitalization. It’s just not that much money relative to things like overall interest rate. Think of it this way, if you have 10k in uncapitalized interest, and you are paying aggressively, just pay 10k in one month and voila! The interest goes away and capitalization disappears.

                          It shouldn’t matter – file taxes for 2019 at $0 and that’s the verification they’ll want no matter if you do the paperwork in August or November.
                          Under the REPAYE plan, could you manually pay on top of the monthly payment if you could afford it? Or would that kick you out of REPAYE?

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                          • #28
                            Yep, you can pay as much as you want. You cannot be kicked out of a repayment program once you are already in/have qualified for it.

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                            • #29
                              Originally posted by East coast View Post

                              I took those straight from the source - I’ve answered the questions myself having gone through the process before (albeit under different terms), but those are the literal questions from the application. Anyone can play with it through the ‘start demo’ here - https://studentaid.gov/app/ibrInstructions.action

                              also I want to make one clarification here as well - you don’t have to consolidate after the grace period if you don’t want to. You just can apply for an IDR. Consolidation is only recommended up front because that’s what allows you to forgo the grace period (otherwise the rules don’t allow you to say no thanks to grace period).
                              I tried applying for and IDR plan today and it did not allow me to - citing reason as "Your loans are not currently in an eligible repayment status. Your loans must not be in default, and must not be in an in-school or ingrace status."

                              Anyone else have this issue? Seems like the only way to enroll in REPAYE now is to consolidate now which I didn't want to do..

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                              • #30
                                I forget all of your details (if you provided them), but Yes - as stated in the above chain you don't get to just say 'no thanks' to the grace period. Your options are 1) wait it out and then apply for an IDR or 2) forgo the grace period by applying for consolidation, which then allows you to enter repayment and thus going on an IDR.

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