Source
r/StudentLoans•
stormdaemon

Questions regarding PSLF/IBR vs. REPAYE

My student loans are currently consolidated under the PSLF program and in repayment under IBR. I've been researching the REPAYE program to see if it's worth switching to and would like to clarify some details about the program...

  • Does switching from IBR to REPAYE reset the progress made to PSLF payments thus far? I'm 3 years into the 10 year loan forgiveness for PSLF. Would changing to REPAYE reset the clock back to 10 years?
  • My current loan is consolidated with Federal Loan Servicing. My understanding that switching to REPAYE will capitalize your loan's interest. Will switching from IBR to REPAYE capitalize my interest even though the loan is already consolidated?
  • Once you have switched to REPAYE, are you allowed to switch to another income-based payment method in the future?
  • My understanding is that the biggest disadvantage of REPAYE over the other repayment methods is that loan forgiveness will only happen in 25 years whereas the other methods can be 20 years or less. However, with the PSLF option this disadvantage seems to be moot. Are there any pitfalls or disadvantages of switching to REPAYE that I should be aware of? Right now the program sounds almost too good to be true and I can't find any season why not to apply for this.

Thank you in advance for any answers you provide.

Posted Dec 30, 2015, 8:14 PM UTC

49
tothr•

Does switching from IBR to REPAYE reset the progress made to PSLF payments thus far? I'm 3 years into the 10 year loan forgiveness for PSLF. Would changing to REPAYE reset the clock back to 10 years?

No, the clock would not reset.

My current loan is consolidated with Federal Loan Servicing. My understanding that switching to REPAYE will capitalize your loan's interest. Will switching from IBR to REPAYE capitalize my interest even though the loan is already consolidated?

Assuming you have outstanding accrued interest, then yes, it will capitalize when you switch from IBR to REPAYE. However, keep in mind that under REPAYE if your payment does not fully cover interest charges, you will be charged only 50% of the unpaid interest.

Once you have switched to REPAYE, are you allowed to switch to another income-based payment method in the future?

Yes, assuming you are eligible for that repayment plan (ie, there may be future plans that do not yet exist for which you would not qualify).

My understanding is that the biggest disadvantage of REPAYE over the other repayment methods is that loan forgiveness will only happen in 25 years whereas the other methods can be 20 years or less. However, with the PSLF option this disadvantage seems to be moot. Are there any pitfalls or disadvantages of switching to REPAYE that I should be aware of? Right now the program sounds almost too good to be true and I can't find any season why not to apply for this.

The increase to 25 years is only if you borrowed for graduate education. If you only borrowed for undergraduate, forgiveness occurs after 20 years of repayment.

Otherwise, the two big disadvantages are that 1) There is no cap on the monthly payment amount. So if your income grew a lot before your loans were forgiven, it could be possible that you'd pay more than you would have paid under a standard 10-year repayment plan. 2) If you are married, your spouse's income will be included in calculating your monthly payments, even if you filed separately.

3
stormdaemonOP•

Thank you for your detailed answer. I wasn't aware of the inclusion of a spouse's income when calculating monthly payments. I'm currently not married but am looking to in the next few years so this may weigh into my decision on whether to apply for REPAYE.

1
SHEAHOFOSHO•

If you are married, your spouse's income will be included in calculating your monthly payments, even if you filed separately.

This is the deal breaker for me

1
Mizzou_Madman•

I wouldn't worry about the interest capping. You're going for pslf anyway. All it would do is make your loan higher and repaye payments smaller.

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Betsy514Compliance, Student Loan Debt Management•

Careful - we don't know how much the OP makes or owes - it's possible they could pay it off before forgiveness happens in which case the capped interest could indeed affect them negatively. On the other hand - the subsidy of the interest on repaye could counteract that, if the income is low enough

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stormdaemonOP•

For your background, my loan balance is at about $125,000 at 4.5% interest. My monthly payments under IBR are currently a little over $500 dollars but will be increasing next year due to an increase in my salary.

One of my biggest concerns is the interest capitalization. Due to size of the loan the monthly payment is going entirely into paying the interest and none of it is deducting from the principle, so your comment about payoff before forgiveness likely won't apply (unless my salary increases significantly in the next few years or something). With the interest capitalization my fear is that, along with the possible lower payments, that it would drive the monthly interest even higher, making tackling the principle balance even more unattainable.

1
Betsy514Compliance, Student Loan Debt Management•

That's certainly a concern. But if you end up with forgiveness it won't matter (other than the tax bomb). Have you looked at your budget to see if you can pay beyond what is owed?

1
stormdaemonOP•

I did try paying overpaying the monthly minimum a few years and it made very little difference. The monthly interest on the loan is such that whatever small margin I reduced the principle by made very little difference to overall loan size. I had to go back to minimum payments when I lost my job at the time.

I'm sorry, but I thought the loan forgiveness under PSLF was not considered taxable? Is there another "tax bomb" that I should be aware of?

1