What do you do when you’re 3 years into income-based repayment and realize there might be a better way to pay off your student loan debts?
Most people would jump at it, but that wouldn’t be the best move. Especially when it comes to Revised Pay-As-You-Earn, the federal government’s newest income-dependent repayment plan for Direct Loans.
Revised Pay-As-You-Earn, or REPAYE, comes with some great benefits – a lower monthly payment, better interest subsidies, and often a shorter time to loan forgiveness. But with those benefits come burdens, such as problems that may arise for certain married couples.
The question of whether to remain in Income-Based Repayment or switch to REPAYE is made all the more difficult when a borrower is also working to pay down private student loan debts while employed in a position that will ultimately lead to Public Service Loan Forgiveness.
On today’s episode we meet Leo, who asks the following question:
Currently, I owe just over $72,000 in Federal Student Loans, plus about $26,000 in private student loans. Right now all of my efforts are going into paying off my private student loans as I am enrolled in Public Service Loan Forgiveness (PSLF) at about the 3-year mark (7 years left of qualifying repayment). I just recertified my income and my payment is almost doubling to $300 on Income-Based Repayment (IBR). Since Pay-As-You-Earn (PAYE) is not an option due to loan disbursement date, if I switch to Revised Pay-As-You-Earn (REPAYE), I can lower my payment to $200 as it requires 10% of income instead of the old 15%.
The other great advantage to switching is the interest would be subsidized, right now I am accruing interest faster than I am making payments.
My hesitation comes from the unforeseeable future and the stipulations that come with REPAYE. The biggest issue is if I get married, I lose the option to file taxes separately and only pay based on my salary. Right now, I have no plans on getting hitched but I am already in Public Service because of my loans and don’t want PSLF to dictate my marital status also. Other drawbacks that I consider but worry much less about is the lack of cap to REPAYE dollar amount and the fact that if you switch to another plan, all of that interest is put back in retroactively.
While I would enjoy a lower payment, the real advantage would be faster payment of my private student loans and not have a higher balance due to unpaid interest standing on my credit report for the next 7 years. I am pretty sure my question answers itself until you put the marriage stipulation in there. Just wondering what your thoughts are on this; do I keep IBR or switch to REPAYE? Any insight you could provide is greatly appreciated.
Listen to the episode and find out what I’ve got to say to Leo about his decision – and why he should take the leap right now.