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Refinance or REPAYE as newly married resident

Home Student Loan Management Refinance or REPAYE as newly married resident

  • Avatar raddoc06 
    Participant
    Status: Resident
    Posts: 9
    Joined: 02/05/2019

    Current resident physician in year 4 of 6 of training. I recently got married on Jan 1st and my spouse makes low $70s and I made $77k last year. I owe $225,000 in student loans (no spousal loans) with unconsolidated interest rates 6.55% and 5.96% and am currently in PAYE. I have $17,000 in interest accrued currently. I am deciding whether to switch to REPAYE or refinance (interest rate 5.17% fixed 7 years). What is the best option refinance, REPAYE, or remain PAYE?

    #188494 Reply
    ChadCFP ChadCFP 
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    Status: Financial Advisor, Website Sponsor, Small Business Owner
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    Joined: 10/04/2017

    If you are in PAYE, I wouldn’t leave it. Curious, why would you want to switch to REPAYE?

    • PAY vs. REPAYE
      • Same payment formula (10% discretionary)
      • Payment is capped with PAYE, not capped with REPAYE
      • PAYE allows you to file taxes separately, REPAYE will count your wife’s income (with no student loans for her, that will not be good)
      • The only attractive part to REPAYE is that it will allow you to have a better interest subsidy. However, that should only play a part if you decide to NOT go for PSLF.

    It seems like your bigger question should be do you “trust the process” for PSLF or prefer to pay aggressively in the private loan world?

    Assuming you have certified for PSLF the past 4 years and will stay with a PSLF eligible hospital after training for 4 more years, PAYE would be your best route for PSLF. If not, don’t worry about REPAYE, refinance private and attack the loans.

    If you switch to REPAYE or private the $17,000 will capitalize which leads to the “interest on interest” phenomenon.

    Long story short, your “best” option depends on PSLF with PAYE vs. Private with an aggressive payoff.

    Congrats on getting married!

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

    #188554 Reply
    Avatar Panscan 
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    Status: Resident
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    Joined: 03/18/2017

    Paye. Don’t refinance. If it were like 3% different story possibly.

    If you go repaye the interest will capitalize and your monthly payment will be somewhat close to your interest accumulation so your interest subsidy would be small. In reality the difference between the two is going to be small.

    #188569 Reply
    Liked by raddoc06
    Avatar Panscan 
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    If you refinanced at 225k at 5% for 7 years that’s 3.2k a month. Pretty big payment for a resident, but definitely doable with your household income. I guess you could do it but I wouldn’t give up pslf possibility for reduction of 1% in interest.

    #188573 Reply
    Liked by raddoc06
    Avatar raddoc06 
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    Status: Resident
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    Joined: 02/05/2019

    Thanks for your response! I do not plan on going for PSLF and plan to eventually pay off the loans with refinancing at some point.

    #188645 Reply
    ChadCFP ChadCFP 
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    Joined: 10/04/2017

    REPAYE would technically help with the interest rate subsidy but capitalizing $17,000 is not worth the change. Truthfully, if you were not going for PSLF over the past few years, you should have refinanced four years ago and started to pay more aggressively.

    At this point it looks like you have two routes. Route 1, stick with PAYE if you need the security blanket of federal loans, pay more than you should to start to reduce the accrued interest before converting to private at some point in the future.

    Route 2, accept the accrued interest and consolidate to private now and start to pay aggressively. 5.1% is not that attractive, so you might be able to refinance again in a year or so.

    Out of curiosity, why not PSLF? 6 of the 10 years were easy picking, did you know you were headed to non-PSLF after training?

    The longer you stick with an income based repayment plan (PAYE), the more the accrued interest snowball will grow.

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

    #188678 Reply
    Avatar Sergio Estavillo 
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    Status: Accountant, Other Professional
    Posts: 123
    Joined: 06/16/2016
    Splash Refinancing Bonus

    Assuming an AGI of ~$150k, your REPAYE interest subsidy is about $800/year.  I say refi.

    #188701 Reply
    Avatar raddoc06 
    Participant
    Status: Resident
    Posts: 9
    Joined: 02/05/2019

    I would be paying $100/mo through residency and fellowship (2.5 years) then pay aggressively once finished for 4.5 years.

    #188745 Reply
    ChadCFP ChadCFP 
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    Joined: 10/04/2017

    I am starting to get confused by your game plan. In your initial question you said, “or refinance at 5.17% for 7 years.”

    You understand that if you refinance to a private loan, all income based repayment options are no longer an option? So if you are paying $100/m now (which also seems off, see my note below), and refinance $225k @ 5.17% for 7 years, your new payment will be $3,198/m. Also, any accrued interest will also get added to your principal (not sure if your $225k included that or not).

    I am also concerned that you are only paying $100/m on PAYE, you should be over $500/m.

    AGI ($77,000) – 2019 Poverty Guideline for 1 ($12,490) = Discretionary Income ($64,150)

    10% of that gives you $6,451 or $538/m for your PAYE payment.

    I am using a few assumptions, but even so, your payment should be well over $100/m.

    Without knowing your exact breakdown of sub vs. unsub loans, it hard to give you exact figures, but based on $225k of loans with a rate of 6.25% (blending the rates you listed), your accrued interest is $14,000/year (again does not include interest subsidy – but you are more than 3 years in on PAYE which could mean your interest subsidy is gone). Napkin math says you have $12,800 in accrued interest ($14,000 – $1,200 (your $100/m payment)).

    I am trying to help as much as possible via a forum, but it may be worth your while to contact one of the professionals on the Student Loan Advice page. Your numbers are not adding up, and I am concerned that you may be putting yourself in a worse position with each payment.

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

    #188841 Reply
    Liked by wa2106
    Avatar Panscan 
    Participant
    Status: Resident
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    Joined: 03/18/2017
    Earnest refinancing bonus

    Some of the refi plans for residents have 100/mo payment options. So I guess OP could refinance if they’re sure they aren’t doing pslf.

    #188842 Reply
    ChadCFP ChadCFP 
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    Joined: 10/04/2017

    Some of the refi plans for residents have 100/mo payment options. So I guess OP could refinance if they’re sure they aren’t doing pslf.

    Click to expand…

    Yea, I know those options are out there in the private world but from the initial post until now it seems like we went backwards which is why I am confused. It seemed like we were crushing these loans in 7 years and now we are just trying to make sure the ship doesn’t sink until becoming an attending.

    Plus, capitalizing all the accrued interest and then paying $100/m is probably not ideal even if you shave 1% off.

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

    #188843 Reply
    Avatar raddoc06 
    Participant
    Status: Resident
    Posts: 9
    Joined: 02/05/2019

    Sorry I wasn’t as clear. If I refinance, I’d be able to pay $100/mo in residency and fellowship then whatever extra I want/am able to. The loan term is for 7 years at the 5.17% rate. I will be a radiologist hopefully in private practice after fellowship and plan to live like a resident the first 3 years to pay this off. My spouse will make $80s-100s in salary.

    I currently pay $300s/mo with PAYE.

    Additional info: It is very likely that I will be living in a HCOL city during my fellowship year and we are planning to have a child in the next year or 2.

    What would be the best just stay PAYE even if I’m unlikely to do PSLF or refinance? I chose to stay in IBR because I wanted the safety blanket in case residency didn’t work out for some crazy reason and I wasn’t sure if I wanted to do academic or not.

    #189083 Reply
    ChadCFP ChadCFP 
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    Okay, thanks for the additional information! That is helpful.

    Can you swing a $3,200/m payment right now if you refi to a private loan? The household income looks good, and it seems like your spouse is on a great career path plus we know you will see a nice jump after training. So if you can start the fight now, you could be in a very good spot sooner than later.

    My main concern is that you are not going for PSLF which is fine, however, you are now playing the dangerous game of an income-based repayment plan with interest that is accumulating. That accrued interest is probably really picking up speed since you are past the 3-year subsidy with PAYE.

    You can stay in PAYE as long as you want, but with each payment you are kicking the can down the road. Eventually, you have to pay back all the accrued interest. This is why WCI says either commit to PSLF or refi to a 5-7 year private loan and pay aggressively. The longer the indecision, the bigger the problem becomes behind the scenes.

    I think you have two options based on the facts provided thus far:

    (1) If you can swing $3,200/m, refi and get at it! – Also, if that is too much of a commitment, look at a 10-year loan. You can always accelerate your payments once you hit your attending salary and pay it off sooner. If we assume the same facts but move to a 10-year loan, payments would be closer to $2,400.  A 10-year loan will have a higher interest rate, but you should still be in the $2,400 – $2,500/m range. Also, think forward with a baby and HCOL area when you refi.

    (2) If you need the stick with PAYE, you need to crank up your payments as much as you can. This would not be the ideal route, so the main goal is to limit the accrued interest and start to lower the current $17,000 accrued interest. At some point, you will want to refi and get off this track.

    Side note: We just sent this blog post live yesterday – The Ultimate First Year Baby Budget – but it should be a fun and insightful read as you get ready for your future family growth! I tracked all the major expense for the 1st year of our son’s life and put it all together for a blog post.

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

    #189227 Reply

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