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REPAYE to IBR

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  • Avatar gonc 
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    Status: Resident
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    Joined: 08/30/2016
    I am preparing to make a big change to my student loans, and was hoping to get some feedback from others to make sure this is a sound strategy. Thanks is advance!

    I am completing training next month and will be working at a 501(c)(3) hospital. I’ve made 6.5 years of PSLF eligible payments. I have about $250k of loans at FedLoan, $150k of which will be eligible for PSLF forgiveness. My wife and I will have a combined pre-tax income of >$500k. I would like to go for PSLF for our eligible loans.

    I am currently on the REPAYE plan. Given that there is no payment cap on the REPAYE plan, I am thinking it would be best to switch to another payment plan. I have loans that originated prior to 2007, so I will not be eligible for PAYE. I am thinking that my best strategy will be to switch to the IBR plan, which does have a payment cap. I am planning on making the switch prior to completing my training and starting my new position.
    Very much appreciate any feedback!
    #213650 Reply
    Avatar pierre 
    Participant
    Status: Resident
    Posts: 121
    Joined: 02/01/2016

    seems like a decent plan. One thing to make sure of is that you are employed by the 501c3, and not a private group that contracts with the hospital.

    #213719 Reply
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 793
    Joined: 02/11/2019

    Or you could pay them off on your own in 1-2 years.

    “Never let your sense of morals prevent you from doing what is right.”

    #213722 Reply
    ChadCFP ChadCFP 
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    Status: Financial Advisor, Website Sponsor, Small Business Owner
    Posts: 75
    Joined: 10/04/2017

    Hey gonc,

    Based on your cliff notes, that seems correct but I have some questions/comments.

    The one downside will be that the unpaid interest will capitalize (not a big deal when going for PSLF). The other downside is that old IBR (there is new and old IBR) will base the payment on 15%, opposed to 10%, of your discretionary income. However, the payment cap should help. My more pressing concern would be that your income seems high and old IBR does require financial hardship to qualify, that is a requirement that REPAYE did not have. You must continue displaying a partial financial hardship when you recertify your income and family size every year.

    You have a partial financial hardship if your annual payments under the Standard plan exceed 15% of the difference between your AGI and 150% of the poverty line for your family size. There is not enough detail in that post for me to know that for you.

    The other question would be why is only $150k of your $250k in Federal Loans eligible for PSLF?

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

    #214762 Reply
    Avatar gonc 
    Participant
    Status: Resident
    Posts: 8
    Joined: 08/30/2016

    Chad,

    Thanks for the reply!

    To answer your second question, all of my student loans at FedLoan technically qualify for PSLF. Unfortunately I did not realize that about $100k of those loans were FFEL loans until my last year of residency. I did end up consolidating those loans into a Direct Loan when I realized my mistake, but at this point I have less than 4 years of qualifying PSLF payments made on those loans. My plan for those is to refinance with a private lender and pay off ASAP. My wife also has $150k of student loan debt at FedLoan, and we are planning to refinance and pay those off as quickly as possible once I start my attending job.

    With respect to the partial financial hardship required by IBR, we currently qualify given our only income is my fellowship salary. By next year, we would not be able to demonstrate a partial financial hardship. However, my understanding from reading various sources (including this: https://www.studentloanplanner.com/fedloan-is-wrongly-kicking-people-off-ibr/) is that once your income increases to a level where you no longer can demonstrate a partial financial hardship, then your payment is capped at the 10 year standard repayment rate and those payments qualify for PSLF.

    Thoughts?

    #215598 Reply
    ChadCFP ChadCFP 
    Participant
    Status: Financial Advisor, Website Sponsor, Small Business Owner
    Posts: 75
    Joined: 10/04/2017

    Gonc,

    You’re welcome!

    Okay, that makes sense. I assumed there was a story of that nature behind it. May not hurt to make moves sooner than later with non-PSLF loans. With each IBR payment, there is interest accruing which will capitalize once you refinance. Same idea/strategy for your wife’s loans.

    For IBR & hardship, yes, you do have to get approved on an annual basis (hence my last note which seems misleading now that I read it again – sorry!), 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.

    This is the beauty of IBR & PAYE. The link from Travis at the Student Loan Planner is correct and you will likely have FedLoan say you are wrong and try to move you to the wrong plan (REPAYE). It may take more than a few calls (ask for a supervisor), but this is important because if they boot you from IBR, you would likely not have PFH anymore.

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

    #215648 Reply

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