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PAYE – Partial Financial Hardship

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  • Avatar mcneely011 
    Participant
    Status: Resident
    Posts: 2
    Joined: 04/17/2019

    I’m a cardiology fellow and my fiance is a dermatology resident. We’ll be done with training in the summer 2022. I am enrolled in PSLF with PAYE. I reach my 120 payment mark on 12/2025. The problem I have recently realized is that once we graduate from fellowship and have an attending salary, I am estimating I will no longer qualify for PAYE as I will no longer have a Partial Financial Hardship.

    My numbers are such: 253K in debt (This includes interest). Estimating this to be about 270K by the time I finish on current payment plan. Assuming that I will make over 350K as an interventional cardiologist, I will no longer qualify as having a Partial Financial Hardship, according to the calculations I’ve made, and will have to do REPAYE. At this time, both mine and my wife’s income will be combined. Conservative estimates for this would be each at 350K.  This would put monthly payments around 6K month (vs. ~2800 under PAYE). I would be making these payments until 12/2025, when I reach my 120 payments.

    As far as I’ve read, every year you recertify for PAYE, they determine if you have a Partial Financial Hardship. Is this correct? As I’ve seen some people suggest switching from REPAYE to PAYE the year before you become an attending, that way you can still qualify for the Hardship.   Am I correct in my assumption that I would be forced to switch to REPAYE given the above info?

     

    Thanks,

    #207219 Reply
    ChadCFP ChadCFP 
    Participant
    Status: Financial Advisor, Website Sponsor, Small Business Owner
    Posts: 76
    Joined: 10/04/2017

    As far as I’ve read, every year you recertify for PAYE, they determine if you have a Partial Financial Hardship. Is this correct?

    • No, once you are in you should be good. For IBR/PAYE for PFH, yes, you do have to get approved on an annual basis, but once your income rises “too much,” you won’t have a financial hardship, but your payment will be capped at the standard payment which continues to qualify for PSLF.

    As I’ve seen some people suggest switching from REPAYE to PAYE the year before you become an attending, that way you can still qualify for the Hardship.   Am I correct in my assumption that I would be forced to switch to REPAYE given the above info?

    • That strategy is because once you qualify for PFH, you good each year as long as you don’t leave the program (IBR/PAYE). So if you need to use IBR or PAYE, you need to get in there while income is low to get PFH. You would not be forced back, as long as you qualified initially with a PFH.

    Chad Chubb, CFP ® | WealthKeel LLC
    https://wealthkeel.com/wci | Gen X & Gen Y Physicians

    #214783 Reply
    Avatar wa2106 
    Participant
    Status: Physician
    Posts: 177
    Joined: 11/29/2017

    If you no longer have a partial financial hardship then you will just be rolled into standard repayment plan but this still counts for PSLF.  PAYE is capped at the standard 10-year repayment plan monthly payment.

     

     

    #214794 Reply
    Liked by ChadCFP, LizOB, pierre
    Avatar mcneely011 
    Participant
    Status: Resident
    Posts: 2
    Joined: 04/17/2019

    I see. I’ve received a couple pieces of conflicting data here. I met with one of the student loan consulting groups suggested here on WCI. Their opinion was be that I would be rolled into the standard 10 year repayment plan once I no longer qualified for a partial financial hardship. The payment would be based off my incoming loan balance when I started PSLF (not debt once I would transition to the 10 year payment).

    #214839 Reply
    ChadCFP ChadCFP 
    Participant
    Status: Financial Advisor, Website Sponsor, Small Business Owner
    Posts: 76
    Joined: 10/04/2017

    I was waiting to see if there were any better possible strategies based on your wife’s loan balance and your current weighted interest rate. Is she also going for PSLF?

    The amount that would be due under a 10-year Standard Repayment Plan is calculated based on the greater of the amount owed on your eligible loans when you originally entered repayment, or the amount owed at the time you selected the Pay As You Earn plan.

    Chad Chubb, CFP ® | WealthKeel LLC
    https://wealthkeel.com/wci | Gen X & Gen Y Physicians

    #214861 Reply
    Avatar Sergio Estavillo 
    Participant
    Status: Accountant, Other Professional
    Posts: 124
    Joined: 06/16/2016

    Should your income increase to a level that you no longer demonstrate a PFH, you can remain in PAYE (by re-certifying on an annual), with your payments capped at the 10-year standard amount.  Key is to re-certify on annual basis.  The point at which you may no longer demonstrate a PFH is when your AGI is about 1.4x your student debt when you first entered IDR.

    Here’s a Q&A that might be relevant (https://studentaid.ed.gov/sa/repay-loans/understand/plans/income-driven/questions):

    If I’m repaying under the PAYE or IBR plans and my income increases so that I no longer qualify to make payments based on income, but I stay in the plan and make the 10-year Standard Repayment Plan amount, is it still possible for me to receive loan forgiveness after 20 or 25 years?
    Making payments under the PAYE or IBR plan that are not based on income does not disqualify you from receiving loan forgiveness. As long as you remain on the PAYE or IBR plan and you meet the other requirements for loan forgiveness, you will qualify for forgiveness of any loan balance that remains at the end of the 20- or 25-year period. However, if your income remains high and you continue to make the 10-year Standard Repayment Plan payment amount, your loans may be repaid in full before the end of the repayment period.

    #214874 Reply
    ChadCFP ChadCFP 
    Participant
    Status: Financial Advisor, Website Sponsor, Small Business Owner
    Posts: 76
    Joined: 10/04/2017

    You are already in PAYE, you can continue in PAYE. Just make sure you recertify each year (aka don’t get kicked out)! “Recertify” does NOT include PFH anymore since you are already in PAYE.

    FedLoan will likely tell you that you are wrong, however, they are wrong and ask for a supervisor.

    Chad Chubb, CFP ® | WealthKeel LLC
    https://wealthkeel.com/wci | Gen X & Gen Y Physicians

    #215026 Reply
    Avatar BCBiker 
    Participant
    Status: Physician
    Posts: 234
    Joined: 01/10/2016

    It would be a very bad idea to switch to REPAYE in your situation -> dual physician income with modest debt.

    Assuming your job has good retirement plans you will be surprised how high your income has to be before your PAYE payment = standard repayment. This has been discussed in detail before on this forum.

    The optimal strategy would have been to be in REPAYE during training and switch back to PAYE before you enter attendinghood because you would get the interest subsidy during low income years in case you ended up with better private practice gig then your balance would be lower.

    Just stay in PAYE and if your income gets above standard 10 year repayment you are maxed and you will still have good amount forgiven. Follow the same procedure you have done so far. Get status renewed and income verified and they tell you how much to pay. No reason to stress. Even if you had to pay this off on your own you would be fine.

    #215061 Reply
    Liked by ChadCFP

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