[Update 5/18: Since this post was originally published in 2015, there are now four companies doing student loan refinancing for residents. These include:
- Laurel Road (used to be DRB)
Link Capital (updated 11/20/20)- Splash Financial
- SoFI
Using these links gets you hundreds of dollars in cash back you don't get if you go directly to the companies.
As far as the REPAYE vs Refinancing decision, I think I can simplify it more now than I could in 2015.
- If you have private loans, refinance them now as long as the rate you can refinance to is lower than what you now have.
- If you are going for PSLF and are single or part of a single-earner family, use REPAYE until you finish training then switch to PAYE.
- If you are going for PSLF and part of a dual-earner family, get some professional advice about your student loans.
- If you anticipate refinancing your public loans after residency, weigh your effective rate under REPAYE against the rate you can refinance to and take the lower one.
I hope that update on this post is helpful.]
Earlier this week, blog advertiser and student loan expert Jan Miller explained the newest loan management program from the federal government, REPAYE, which is basically a combination of IBR and PAYE, with a few interesting additions. This post is about one of these additions, and how it should affect your decision about refinancing your student loans as a resident.
I've been pressuring student loan refinancing companies into refinancing student loans as early as possible for several years now. Two of them, DRB and Link Capital, are currently doing so. At least one other company is hesitant to do so because of the issue I'm addressing in this post. This is all a bit of a moving target, of course, but after student loan refinancing as a resident became possible, and prior to REPAYE, as soon as you decided you were not going for PSLF (and if you didn't have an outlandish student loan burden AND a relatively small income making IBR/PAYE forgiveness attractive) you should refinance. DRB and Link Capital offer tiny payments, better than IBR/PAYE in most cases, during residency PLUS, most importantly, the interest rate is much better, decreasing the total loan burden. Obviously, you don't want to pay off loans that would otherwise be forgiven, so until you decided you weren't going for PSLF (by working at a 501(c)3 for a total of 10 years including residency and fellowships) you didn't necessarily want to refinance, since the now private loans aren't eligible for PSLF.But with REPAYE coming into the picture, things become more complicated (and business increases for people like Jan since many more people are going to need his expertise to make the optimal choice.) The main reason is the 50% interest subsidy available under REPAYE that WAS NOT available under IBR and PAYE. Normally, under IBR/PAYE you're paying much less than the interest due on the loan each month and all the interest you don't pay gets tacked on to your total debt. With subsidized loans, that interest was forgiven, but those haven't been available since 2012 for graduate students. Now with REPAYE, 50% of that interest is just forgiven, effectively lowering your loan interest rate during residency.
So it is possible for someone NOT going for PSLF, depending on the rates offered by DRB, Link Capital, and anyone else who gets into the game, that you would accumulate less total debt staying in REPAYE during residency and refinancing as you finish rather than refinancing at the earliest possible moment. If you thought the math was complicated before, wait until you add in this factor!
For example, let's say you have a bunch of 7% federal loans and, just for convenience sake, can have REPAYE payments of $0. You contact Link Capital, and they offer you a 4% fixed loan or a 2.5% variable loan and $0 payments in residency. Your effective REPAYE interest rate is now 3.5%, better than the Link Capital fixed rate, but not as good as the 2.5% variable rate, assuming interest rates don't rise. The other concern, of course, is that if rates rise dramatically during residency, you might not be able to get that 4% fixed rate with Link Capital in 3-5 years when you graduate. Talk about a tough decision! Thank you very much, President Obama, for making optimal student loan management even tougher than it already was and creating an entire industry of student loan advisors.
Let me try to simplify this a bit for you residents out there.
- If you are going for PSLF, then stick with PAYE if at all possible. If not possible, then choose carefully between IBR and REPAYE based on your expected salary and how much more you'll have to pay as an attending under REPAYE, while also considering the resident cash flow issue you'll have staying in IBR.
- If you are not sure yet about PSLF, then stick with PAYE if possible, and otherwise run the numbers with reasonable assumptions and take your best guess between IBR and REPAYE. REPAYE is probably the better way to decrease interest accumulation if you're leaning toward paying the loans off.
- If you are sure you're not going for PSLF, then get refinancing quotes ASAP from DRB and Link Capital and compare them to the effective interest rate under REPAYE. Go with the lower rate, realizing that the variable rate may be the best deal, even with the additional risk.
If you do decide to refinance your student loans, please use the links below. Not only do you get the special WCI deal (usually $200-550 back in your pocket) but I get paid, the refinancing company gets a profit, and the taxpayer gets his money back. Win-win-win-win. I've had great feedback from every one of these companies but would love to hear more about your experience.
New Bonus Disclosure
Earnest Welcome Bonus Offer Disclosure: Terms and conditions apply. To qualify for this Earnest Welcome Bonus offer: 1) you must not currently be an Earnest client, or have received the bonus in the past, 2) you must submit a completed student loan refinancing application through WCI link; 3) you must provide a valid email address and a valid checking account number during the application process; and 4) your loan must be fully disbursed. The bonus will be automatically transmitted to your checking account after the final disbursement. There is a limit of one bonus per borrower. This offer is not valid for current Earnest clients who refinance their existing Earnest loans, clients who have previously received a bonus, or with any other bonus offers received from Earnest. Bonus cannot be issued to residents in KY, MA, or MI.
“*Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. If you choose to complete an application, we will conduct a hard credit pull, which may affect your credit score. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.15% effective Oct 10, 2020 and may increase after consummation.”
The Crack of Lake Powel
What do you think? Am I looking at this right? Is there anything else to consider in this decision? What will do with your loans? Are you a little more hesitant to refinance as a resident knowing about REPAYE? Why or why not? Have you already refinanced? Which company did you use and what has your experience been like? Comment below!
Agree with this approach completely. As a resident with an unclear career path ahead of you, you want to keep your options as open as possible. My approach: enter PAYE as a resident with the intention having loans forgiven under of PSLF. As you near graduation and you enter the job hunt, take the best job for you based on income/benefits/location, etc. If that job is a 501(c)3, then great, continue to pursue PSLF and have loans forgiven. If not, then immediately refinance and pay off loans ASAP. By the time graduation happens, hopefully the precedent with PSLF has been set and we will see if this approach can actually be successful for soon-to-be high earning doctors, which will allow you to make a more informed decision. With this approach you have left your options open. Otherwise, as soon as you refinance, PSLF no longer becomes an option, even if you end up at a 501(c)3 after residency.
My question for WCI is: do you agree with Jan in that this new policy (REPAYE) supports the idea that PSLF will exist in its current form for current borrowers and that people will be “grandfathered” even if the rules change? Does this new policy (REPAYE) help refute the “too goo to be true” approach which involves exiting PSLF and refinancing ASAP?
I suppose it makes grandfathering somewhat more likely, but that’s difficult to quantify. Personally, I thought grandfathering was very likely BEFORE REPAYE came along. No guarantees of course.
I still think that grandfathering in is more likely than not to become a talking point for politicians that want the “rich doctors” to “pay their fair share”. I would be hesitant to take chances on that sort of a promise I was absolutely sure that I was going to take a qualifying job afterward. In today’s market, that sort of job stability doesn’t come easily.
Ugghhhh are you kidding me….. I just refinanced with Link Capital last week as a PGY1 at 4.42%
Don’t beat yourself up too much. What were your loans at? Even if they were all at just 6.8%, and all were eligible to be moved into REPAYE, that’s only 3.4% effective. You got > 2/3rds of the way there with your refinance, and there’s nothing to say you can’t refinance again later to an even lower rate. And if some of your loans were at >6.8% or weren’t eligible for REPAYE, then you’re certainly doing better on those. I mean, this program doesn’t even start for a couple of more weeks.
I suppose you’re right. That’s for the quick reply. I believe most were 6.8 and one was at 5 something so the average was 200k at 6.4% before I refinanced.
Well, 4.4% sure beats 6.4%. On $200K in loans over 6 years, that’s about $20-24K you’ll save. Better than a kick in the teeth. Plus your residency payments will probably be lower.
Anyone know how the 50% interest subsidy work for those of us stuck in IBR? If we switch to REPAYE, is it only 50% of the accrued interest after switching, or does this include 50% of the total interest accrued while in IBR as well (since interest is not capitalized in IBR)?
That’s a good question. I’m not 100% sure, but I suspect it’s only 50% after switching. Of course, no one has ever switched since this doesn’t take effect for two more weeks.
After switching. Once you switch, all accrued interest automagically capitalizes and becomes part of the principal. There is no way to switch plans without this occuring.
I have $250,000 in 9 loans that qualify for PSLF, and $150,000 in 6 loans that do not. I am currently on ICR. I am a PGY3 getting ready to consolidate the 6 loans that do not quality for PSLF. How will the REPAYE option or refinancing affect my options ?
First person I’ve seen in ICR for a while. Sure it’s not IBR?
You should definitely refinance the $150K in loans as soon as possible.
As far as the $250K in loans, you need to figure out ASAP if you’re going to work for a 501(c)3 when you finish training. If so, stay in a federal program (and consider switching to REPAYE). If not, then apply to refinance. If the refinanced rate is less than the REPAYE adjusted rate, then refinance.
Thank you for your response. I am on IBR and will be working for 501c3 next year.
So your real choice is IBR vs REPAYE. Unfortunately, your situation is pretty complicated. You might want to hire someone like Jan for advice on your situation about which way to go. I think you’re actually going to have to make some assumptions and run the numbers carefully.
Hi, thanks for the post. I didn’t realized the REPAYE has been in the making until I first read your REPAYE articles. Once idea I had (I’m currently on PAYE since the start of residency and 1/2 way through a 5 year residency and anticipated 1 yr fellowship and 50/50 on deciding to work at a 501c3 until I job search at the end of training) is to switch to REPAYE to obtain the 50% interest subsidy of the interest not paid during residency while paying my small $202/mon for a $215684 loan with $18553 already accrued in interest. Once I become an attending and plan to work for 501c3 to qualify for the PSLF in 5 years, I plan to switch back to PAYE to have my payments capped by the 10 yr payment plan to pay less per month (than if they were not capped) before my loan is forgiven for the 10 yr PSLF . This way if I choose to not go 501c3 and pay off the loans aggressively as WCI advises, I’ll have saved my self tens of thousands of dollars in interest accrued for the remaining 2.5yrs during residency/fellowship at 6.8% interest rate. Only downside I see for someone like myself is by switching to REPAYE, the $18,553 interest is capitalized. Anyone’s thoughts
I don’t think you can switch back can you?
According to my loan service provider, FedLoan, I can, even after discussing what I discussed above in my original post. I’ve read another forum, “Askheatherjarvis.com” who states it switching back as well is permissable. The only downside is capitalized interest in my scenario. I’ve read https://www.gpo.gov/fdsys/pkg/FR-2015-07-09/pdf/2015-16623.pdf that was posted on the other REPAYE article and couldn’t find language restricting it. The challenge is finding information stating if switching back is an option or not in writing. No rush I guess with WCI hesitation. As always, if anyone has links for update REPAYE regulations, they’d be appreciated.
That’s cool if you can. Seems odd, since it just allows borrowers to play the system though.
Might have missed it, however I didn’t see anything addressing the married component of the REPAYE plan. I’m assuming, if you are married and spouse is making income, that this plan would be an absolute no-go considering the mandatory FILE JOINTLY clause?
Yes, that would make it much less attractive.
Depends on how much your spouse makes and if they have loans
I guess it would make sense if my wife is a resident and having 250k in loans as well?
“1. If you are going for PSLF, then stick with PAYE if at all possible. If not possible, then choose carefully between IBR and REPAYE based on your expected salary and how much more you’ll have to pay as an attending under REPAYE, while also considering the resident cash flow issue you’ll have staying in IBR.”
I would encourage those with high student loan balances to run the numbers before taking this statement as truth. My wife has 315k in student loans and therefore a high standard payment of approx $3630. By my calculations she would need to made at least $460k/yr before she would exceed the standard payment if we switch her from PAYE to REPAYE. I don’t see that happening so then there is really no penalty to leave PAYE for REPAYE (except that the ultimate forgiveness date goes from 25 to 20 years if you don’t do PSLF and still have outstanding balance). This way if PSLF doesn’t work out you still have the interest benefits of REPAYE. Even with lower loan balances in the $250,000 range you are looking at salaries of $350,000+ needed to exceed your standard payment if you are in REPAYE. And this would be in the first few years out of residency before you hit 10 years for PSLF, a time when your attending salary will likely be as low as it ever is.
Please correct me if you see any flaws in this thinking.
Sounds right to me. They’ve made this so complicated there are all kinds of exceptions aren’t there? I always agree you should run the numbers for yourself.
Thanks for your blog, very helpful as always. Regarding REPAYE, do you know if the interest subsidy automatic? I was originally trying to refinance into DRB or Link Capital but have had issues with both because it sounds like they are having trouble handling the current demand. REPAYE sounds like a good alternative and then refinancing into one of the other companies after residency (PGY2 in a 5 year program), but I haven’t been able to find much information regarding the interest subsidy itself. If it really could cut my effective interest rate in half, it’s almost a no-brainer for my current situation.
I think it is automatic, but this thing hasn’t even been in existence 4 weeks yet. I don’t know what it will really look like and how it will really work. Nobody really does.
I am looking for some clarification regarding married couples where both persons are residents with federal loans, and how monthly payments would be calculated in this situation for REPAYE plan. I understand you cannot file separately for REPAYE, and your income when determining monthly payments is based off your combined income (approximately ~$105k per year combined lets say). Compared to an income of $52.5k, this would substantially increase the discretionary income and subsequent 10% payment. Since both my wife and my own payment calculation would be based on our joint income, would this mean that we each would have to pay 10% of our joint discretionary income, for a total of 20% of our discretionary income as minimum payments (10% towards my payments, 10% towards hers)?
I don’t think so. I think it’s 10% total. But that’s still a significant sum.
I just finished refinancing through DRB using your links. I got a 3.9 variable on a 10yr loan for $300k. I will start an attending job in 6 months that is not a 503b. I didn’t plan on doing PSLF from the beginning and so I didn’t do PAYE during residency. I just deferred.
A lot of my resident friends continue to defer or some are doing PAYE and hoping for loan forgiveness in 10-20 years (depending on job or repayment program). My thought is that I would much rather have a lower interest rate now, through as much cash as I can at the loans in the shortest amount of time as possible and pay off the loans quickly. Then they are gone and no matter how government programs change, they can’t take away the fact that mine would be already paid off. Call me cynical, but I just don’t trust the government to “forgive” my loans (or any other “rich doctor’s” loans) 20 years down the road.
I think the REPAYE program is good while you are in residency so that the interest is subsidized and makes the effective interest rate low. If you qualify for PSLF, then do that. If you don’t, then I still advocate to my co-residents to refinance at the end of residency. Even with REPAYE or PSLF, the total amount paid towards my loans is actually less when I refinance and just pay it off myself in 3-4 years.
I worked hard to become a doctor. I will also work hard for my money. I don’t trust the government to pay off my loans 10-20yrs down the road. It might work out for some, I just would rather do it myself and so refinancing was the best way to do that.
Better to refinance (if you need the low payment) or REPAYE (if you want less interest to accumulate) than defer during residency, even if you plan to pay off eventually.
I have just started a pediatric residency and have $85,000 in federal loans which qualify for PSLF. I am currently on the PAYE plan making minimal payments, but I am wondering if I should refinance and be more aggressive with my loan payments? I will likely sub specialize so I will be working for a nonprofit for a minimum of 6 years, after which my starting salary will be approximately $150,000. Any advice on whether to continue with PSLF or just pay them off given my relatively small loan burden? Thank you!
This isn’t an either/or decision. You can do REPAYE and pay them off. You can refinance and pay them off. You can do PAYE and go for PSLF. You can do REPAYE and go for PSLF. Lots of choices there, even if you did a good job keeping your loans down.
Hi WCI, wanted your advice on this. I am finishing residency this year, and will do an additional one-year fellowship. I’m currently on IBR, about 150000 or so in loans (all fed) at 6.8%. I just completed reapplication for IBR this past week. Do you think it’s better to switch to REPAYE, refinance to Link Capital, or stick with what I have? I haven’t had a chance to look at Link Capital yet, but do they allow you to pay more than what is due to speed up paying off? Thanks.
Not enough info. Are you going for PSLF? How big of a deal is payment size during training? What are your current payments? Why aren’t you looking at DRB? Also, I’m having another reader tell me Link Capital isn’t taking applications. I’ve got an email out to them but no response to it yet.
Thanks for your reply. I’m unlikely to do PSLF, I don’t think private practice qualifies, maybe community hospitals. I looked at DRB but they had high payment plans (1200-2000 a month), but I was hoping for something similar to IBR but with the opportunity to pay over. I’ll check Link Capital myself later today.
DRB’s in training plan has $100 a month payments. Link Capital’s are $0. You can “overpay” with either.
Question for you, WCI. I am graduating from medical school in a couple of months with around $165,000 in federal loans. I am going for PSLF and debating between PAYE and REPAYE. I am looking at either 6 or 7 years of residency/fellowship (depending on where I match). I am married (wife’s salary is around 45K, and it will stay there if she continues to work during my training) and have one dependent, and am trying to decide whether to file my taxes jointly (as I did this last year) or separately, which will depend on whether I plan to go for PAYE or REPAYE. I am applying for a surgical subspecialty that is one of the higher paying ones, which makes me think about the potentially high payments I’ll have once I finish if I go the REPAYE route. So there’s that consideration, as well as my attempt to minimize payments during residency. Should I go with PAYE and file taxes separately to minimize payments in residency and after I finish, and hope for a larger loan forgiveness 10 years down the road? I appreciate any advice you can offer.
Has anyone inquired about mortgage rates through any of these loan refinancing companies? I’ve noticed that a number of them advertise this. My wife is finishing contract negotiations for a position that will start this summer after residency, and we are looking to refinance once the contract is finalized. We will also be considering the options for buying a (small, affordable) home in the next 3-4 months. Wondering if we might get a better rate on both the student debt and the mortgage if we can get one company to finance both?
Does anyone know if spousal income is factored in REPAYE if we file taxes separately? My husband has about $250K PSFL-qualifying loans and we are in the process of switching from IBR to REPAYE. Next year I become an attending and if we file taxes jointly would no longer qualify for an income-based repayment program. Therefore I wanted to file our taxes separately so that he can still qualify. But if we stick with the REPAYE program would they still factor in my new salary to our monthly payments? By the way this website is incredibly helpful – thank you for all of the great guidance!!
You can’t do the MFS trick with RePAYE. If you want to do that, you’ll need to go with IBR or PAYE.
Thanks!
Hey WCI, thank you so much for your informative post! I was wondering if you, or anyone else, has the answer to this question. I noticed that DRB allows me to consolidate my loans + spouse’s loans into one. However, if I wanted to keep my loans on IBR/REPAYE/PAYE (probably refinance mid-residency), but wanted hers to get refinanced through DRB with myself as the main holder of the loans, is this possible? Or, would I need to refinance a portion of my student loans and then add hers onto that application? I don’t think she would qualify for refinancing on her own. Thanks again!
Not sure I’d recommend combining your loans. If one of you dies, the other one is then stuck with your loans. Does DRB really allow you to switch her loans to you? I think this is a question for them.
Thanks for this great post!
I’ll be starting residency with the following loans:
Federal student loans: ~$340,000 @ 6.24%
Private student loans: ~$68,000 @ 7.49%
At the start of residency, would I be able to enter the Federal loans into REPAYE and refinance the Private loans (eg, with DRB or a similar company), with the intention to consolidate/refinance the Federal loans (with my private DRB loans) at the completion of residency?
Sounds like a great plan for you.
Is it possible to go to the standard repayment program from REPAYE? People seem worried about the potentially high payment after residency, but it seems like if you don’t renew your REPAYE after residency you will default into the standard repayment like you to with PAYE and IBR. Am I missing something? Thanks
Right now you can go into standard repayment. I don’t know if it happens automatically or not.
Hey WCI,
Any updates on whether the interest subsidy from REPAYE occurs automatically with each monthly payment vs at the end of the year or at the time of forgiveness? I’m primarily asking because I’ve seen several articles about REPAYE that say stuff like this: “The good news is that REPAYE provides a new interest subsidy, and only half of your unpaid interest will be counted as forgiven at the end of the loan,” which makes it sound like it’s at the very end of the loan…which would definitely affect my plan to pay them off early while still maximizing REPAYE during residency (ie making the lower monthly payments and then paying extra whenever possible, preferably towards principal).
Thanks!
My understanding was always that the subsidy occurred with each payment. If there is a reliable source saying that isn’t true, I haven’t seen it.
Okay great, thanks. I just wanted to make sure because I saw several articles mentioning interest being “counted as forgiven” when the rest of the loan is forgiven after 10-25 years and I wasn’t sure if that meant it was actually not forgiven until that point. I really appreciate your response and all your great articles!
I guess I’d look at it like this. It’s never “forgiven.” It’s “subsidized” meaning it is paid, but by the government. So if the interest due in a given month is $900, and your payment is $300, then you pay $300, the government pays $300, and $300 gets added to the value of the loan. That’s my understanding of how it works. If that is wrong, I’d love to hear about it.
LinkCapital is out of money and not offering loans
Yes, it’s been that way for 2-3 months. They’ve promised to let me know when they have funding again. Hopefully they do.
I am a resident and trying to refinance. I am a PGY 2 out of a 5 year program. I put in an application to DRB in January, and it is still with the underwriters. Link Capital is not accepting refinance applications from residents due to excessive volume for requests. I applied to Earnest and they rejected my loan. At this point time is ticking by waiting for DRB to get back to me and Link Capital to possibly re-open its doors. Should I just go ahead and sign up for RePaye?
Just cause you sign-up for RePAYE doesn’t mean you can’t refinance with DRB. Are you expecting a lower effective rate with DRB or RePAYE?
My loan is $180,000 at 6.8%, so REPAYE should lower it to 3.4%. I do not know what rate to expect from DRB.
It doesn’t usually cut it quite in half since only half of the interest your RePAYE payments don’t cover is subsidized. Expect a fixed rate near 5% in residency from DRB.
I ran the numbers with REPAYE and if using the current principle the rate would be lowered to 4.36 and if using the total balance the rate would be 4.54. If I get out of deferment, would my accumulated interest capitalize?
And to complicate matters in 1 year I will be married to my finance who is an EM resident, at which time he will be out of residency with his $150,000 federal loan which is still in deferment. If I do go with REPAYE, I would have to get out of it as my monthly payment would have to take into account his salary and my effective interest would go back to 6.8. Would it be feasible to have both of our loans consolidated with another company and have a lower total interest at a attending doctor salary rate of 2-3%? Or would they balk at the debt to income ratio as it would be near 1:1?
Sounds like he’s going to want to refinance his given that he’s been in deferment and I assume is thus not going for PSLF. If you’re not going for PSLF then it’s worth exploring refinancing yours with him as a co-signer.
Studentloans.gov has a great table at https://studentloans.gov/myDirectLoan/eligibilityRequirementsHtml.action
Under “leaving the plan” it states for both PAYE and REPAYE “At any time, you may change to any other repayment plan for which you are eligible.” and for IBR “If you want to leave the plan, you will be placed on the standard repayment plan. You may not change to a different plan until you have made at least one payment under the standard repayment plan or a payment under a reduced-payment forbearance.”
I believe this means that you can switch from REPAYE to another plan as long as you qualify for the alternative plan. Am I understanding the table correctly?
Hi there!
Soon to be resident this July. Is refinancing my only option with 90,000 in 4 personal loans? I do not know anything about government loans since I have never had them: REPAYE, PSLF, none of this or anything else after residency will ever be available to me correct?
Correct. Those programs are only for federal loans.