The Pros and Cons of REPAYE (and what residents should do)

This post is pretty long, but this is an important development on the federal student loan front that’s worth the lengthy discussion. The bottom line is that the new REPAYE program has a lot to offer people currently not just in IBR but also PAYE. I highly recommend putting some numbers into this calculator to see how the repayment options look to you currently as well as how they might change with your career over the near future. Many residents should be doing REPAYE.

First, what is REPAYE?

REPAYE (or “revised pay as you earn”) is the newest federal government student loan payback plan, designed to give older borrowers from the (pre-PAYE) IBR regime a chance to benefit from some features of the newer PAYE plan (10% cap of your discretionary income instead of 15%) while also closing some of its “loopholes.” As a general rule, the feds don’t change current programs; they create new ones and “grandfather” people in the old ones. Rather than extending PAYE to more people (those with loans prior to October 1st, 2007 or without new loans since October 1st, 2011), they made REPAYE.

Here are the main features of the REPAYE program (contrasted with PAYE and IBR as applicable) and how it may affect switching:

Good: 10% AGI payments

Monthly payments are calculated at 10% of discretionary income (adjusted gross income minus the poverty line). If you’re currently under IBR, this effectively cuts your monthly payment by 33%, saving you a good chunk per month and potentially saving you a lot over the course of the 10-year PSLF mark. If you’re in PAYE, the monthly payment will be the same (with some exceptions outlined below).

Good: The 50% unpaid-interest subsidy

Subsidized Stafford loans for medical students are a thing of the past, but the new REPAYE program has actually added back a much more robust interest subsidy. In fact, the subsidy is that one thing that makes staying with federal loans during residency a reasonable alternative to private refinancing if you’re otherwise not planning on trying to achieve PSLF.

The deal is this: half of the interest you don’t pay with the 10% payment is waived and does not accrue. This is a huge perk of the program and should cause even residents currently in PAYE to run some numbers, as it effectively reduces your interest rate while in training (potentially to an effective rate lower than what private companies are able to match).

An example:

Loan: $200,000 at 6.8%
REPAYE payment as a resident making $50,000: $270/month
Annual interest accrued: $13,600
Annual interest paid: $3,240
Annual interest unpaid: $10,360
Amount forgiven: $5,180
Effective interest rate: 4.2%

The more you make, the higher your payment and thus the less interest unpaid and forgiven. In this example, once your monthly payment hits $1133, you’re breaking even with interest and nothing is forgiven (for a single physician, this corresponds to an annual income of around $153,500, so very much in the realm of some academic jobs). Ultimately, this makes REPAYE a viable alternative to private refinancing for non-PSLF-bound residents. For residents (and obviously most attendings) with average debt and a household income above $150k not attempting PSLF, private refinancing will likely supply a better rate and more savings. Obviously, the more you owe, the more interest accrues, and the higher you have to earn before you break even on monthly interest. As I said, you really need to run your numbers! Private college + medical school and suddenly that subsidy could be good for a really long time. Of course, like IBR and PAYE, the unpaid interest you have on any subsidized loans (from college) is still completely covered for 3 years.

Bad: The Married-filing-separately “loophole” is Closed

REPAYE closes the married-filing-separately loophole. Under PAYE and IBR, if your spouse made big bucks, you could file taxes separately, thus calculating your loan payments for your debt based solely on your (lower) income. This was particularly helpful for doctors with high earning spouses who didn’t have big student loans themselves, especially low-earning residents. If you rely on separating the income disparity between you and your spouse to make income-driven repayment work for you, then you don’t want to switch to REPAYE. That said, if you and your spouse both have loans and similar income (i.e. were both medical students around the same time and finishing residency around the same time), this isn’t much of an issue. If you file together despite higher loan payments due to other tax benefits, you aren’t using the loophole anyway. For example, you can only deduct student loan interest (capped at $2500 and only for households earning less than $160,000 in 2015) if you file jointly. 1 You’ll have to do the math with the calculator; it’s possible that it’s still in your favor to switch.

Bad: The Pay Cap is Gone

REPAYE did away with the monthly payment cap. IBR payments are calculated at 15% of your discretionary income and PAYE payments are 10%, but both are capped at the monthly amount calculated by the standard 10-year repayment when you first entered repayment. So even if your salary as an attending is huge, your monthly payments could only rise so much (often referred to as the “Doctor’s Loophole” due to the big salary jump at attendinghood with only a subdued concomitant rise in loan payments). There is no payment cap with REPAYE; your monthly payments keep scaling with income. For some, the IBR/PAYE cap is critical to potentially achieving PSLF, as if your income grows high enough fast enough you could “overpay” quickly and whittle down the forgiven amount. Practically, this change may be less important than it seems. It’s all about the ratio of your loan amount to your income. The bigger your loan and the smaller your income, the less relevant this becomes. Here’s a calculator to run your numbers.

As a quick rule, you definitely need to make more per year than you owed at repayment for this to matter at all. So if you borrowed $200k and are making $150k doing primary care: potentially irrelevant (depending your spouse’s income). You’ll have to do your own numbers, but here’s an example:

Loan amount: $200,000
Loan rate: 6.8%
Payments with annual income: $50,000

  • IBR: $404
  • PAYE: $270
  • REPAYE: $270
  • Standard: $2302

Payments with annual income: $250,000

  • IBR: Capped at standard, $2302
  • PAYE: $1936
  • REPAYE: $1936
  • Standard: $2302

Payments with annual income: $300,000

  • IBR: Capped at standard, $2302
  • PAYE: Capped at standard, $2302
  • REPAYE: $2352
  • Standard: $2302

As you can see, in this example it takes an income of nearly $300,000 for the uncapped REPAYE to finally cost more per month. So for the average single doc, the cap-removal is potentially not a huge deal, and even many married physicians needn’t worry, especially if you can “lower” your income or switch back (see below).

Since loan payments are calculated based on your “adjusted” gross income, which takes into account deductions. If your income jumps, you can potentially “reduce” it by contributing to pretax accounts, such as your (non-Roth) 401(k)/403(b), 457, HSA, or 529 plans.

The switch-back loophole?

Lastly, it is still possible to switch back from REPAYE to IBR (or PAYE if eligible), so in this context, if it looks like your uncapped 10% is finally going to be too big, you could theoretically go back down to your “lower” capped 15% IBR (or 10% PAYE payments) while you still qualify (have a partial financial hardship). So you have to anticipate this and make the switch back before your salary is so high that you no longer qualify, but this would still allow you the training years of lower payments and subsidized interest. Talk with your servicer if this seems relevant to you, as in this context, the only downside of switching from IBR to REPAYE is interest capitalization (which usually eventually happens anyway at high income due to loss of your “partial financial hardship”) and being forced to make either 1) make one big standard repayment and have the month counts towards PSLF or 2) make a reduced payment (like $5), but the month won’t count and you’ll be delaying filing for PSLF by a month. Note this only happens when switching out of IBR. There is no mandatory delay for switching out of either PAYE or REPAYE (some servicers may put you in an administrative forbearance for a month because they are slow and annoying). Unpaid interest will capitalize again when switching out of REPAYE (which would be irrelevant if going for PSLF).

For whom this generally matters:

Group 1: People in IBR who want PSLF

All of this is most relevant for people trying to minimize monthly payments for eventual forgiveness under the Public Service Loan Forgiveness program. The goal for income-driven repayment and PSLF is to pay the absolute minimum possible per month for 120 payments (10 years) in order to maximize the currently unlimited (but untested) tax-free loan forgiveness. This plan starts in residency when income is low, continues throughout training (the longer the better), and ends up with as few years as possible at the higher-earning attending level to eat away at your potential forgiveness. 10% AGI payments under REPAYE will be lower than 15% payments (with the exception being if you were relying on the married-filing-separately loophole to exclude your spouse’s income or you make a lot of money). The downside to switching is interest capitalization, but not only is this mitigated by the interest subsidy, it’s irrelevant if your loans are forgiven (consider the subsidy to be hedging your bets against PSLF). Residents in IBR should mostly be residents in REPAYE.

Group 2: People who can’t afford IBR payments

People forbearing because they can’t afford IBR payments could potentially enter REPAYE in order to lower their monthly payments by 30% and start making some payments. This is a big benefit versus forbearance because of the half-interest forgiveness aspect, which really slows down interest accumulation. The caveat here is that if you have high income but high spending, you still might not be able to afford the payments. If 10% is still not affordable, then you should probably try to refinance privately, as a couple companies have plans for residents that require between $0-$100/month during training with lower interest rates.  Forbeared loans are helping no one and growing fast.

Group 3: People in PAYE who are currently accruing a lot of interest

While your monthly payments won’t change, the amount of unpaid interest accumulating will be cut in half. This could be a big deal, particularly if you have a fair amount of residency left. See take home points below.


A word on non-PSLF long-term forgiveness

Basically no one should really be going for the 20-25 year forgiveness unless you went to private college and med school, racked up an incredible amount of debt, but then went to go on earning peanuts for a non-PSLF eligible job. But if that describes your plan, PAYE is 20 years. REPAYE is 25 years (just like IBR) if you have graduate loans (which you do). So definitely worth switching from IBR to REPAYE; definitely worth not switching if you’re already in PAYE. Unlike PSLF, this forgiven amount is taxed as income for all income-driven repayment plans (the more you get forgiven, the more you owe the IRS as a big tax bomb). If you’re not minimizing payments to get the most out of PSLF, you should instead be maximizing them to get rid of this high-interest debt.


Take home points

REPAYE is a big deal with two big draws: Compared with IBR, it’s lower monthly payments. Compared with both IBR and PAYE, there’s the new unpaid interest subsidy. Some “loopholes” are closed (no married filing separately loophole and no monthly payment cap), but these may not be relevant to your situation. Residents need to consider REPAYE seriously.

  • If you’re doing IBR, you owe it to yourself to run some numbers to see if REPAYE is for you. The main immediate downside will be interest capitalization and potentially losing one month/one PSLF-qualifying payment during the switch. The main long-term downside could be if your future salary breaks through the cap. As above, this may not be a realistic problem for you, and even if it is, you may able to preempt this by switching back to IBR while you still qualify.
  • If you’re doing PAYE, you won’t save any money on your monthly payment, but if you have a high debt/income ratio (and many of you do), then you can potentially save a lot of money due to the new unpaid interest subsidy. If you’re married, this will depend on your spouse’s income and debt burden as well.
  • If you’re not going for PSLF, then it makes sense as a resident to apply to Laurel Road and SoFi to see what the private industry can offer you. If the rates they offer are lower than your effective REPAYE rate, then refinance. Alternatively, if you need the even lower payments ($75 or $100/month) those banks offer, then refinance. Both offer $300 bonuses for signing up via those links. If you’re scared about the future and want to lock in a relatively lower interest rate now instead of temporarily using REPAYE, then refinance (though you may leave some money on the table). If you’re not sure about doing PSLF, then REPAYE in many cases will keep your qualifying payments at the lowest possible amount while also limiting the growth of painfully accruing interest: a healthy middle ground.

Oh, and I’m not a tax or student-loan professional (whatever that is). This isn’t actually advice. You could always consult with a professional or your servicer to help you determine which plan is right for you. If this is all overwhelming or the stakes are high and you want a second opinion, then you may actually benefit from professional advice. The only person I recommend is my internet friend (and affiliate), Travis Hornsby, the Student Loan Planner.


tadro5 02.17.16 Reply

Excellent post that really covers a lot of important info. Question: Who actually are the professionals that I would talk to regarding this? Are accountants well versed in professional student loans? Who would know the ins and outs best.

Ben 02.17.16 Reply

The hard but best answer is yourself. Educating yourself and doing it yourself is really the best option. If and when you have specific questions, your servicer can answer/confirm things for free. If the answers don’t make sense, call back and talk to someone else and see if the answers stay the same.

Your average accountant is not typically well versed. There are “student loan consultants” and advisors though (who can be found via google). They’ll probably have a big excel spreadsheet that will spit out different options like a more robust version of the calculator above. If your question is about IBR/PAYE/REPAYE/private refinance, they should be able to help. All of these answers do require so assumptions about your future income, and you could do this yourself as well.

The other choice is a financial planner. Many financial planners aren’t great either and have an incomplete handle on loans, but some are tailored to physicians and know their stuff (and some are tailored to fleecing physicians). In this case, you want a CFP (someone with real credentials) that charges a simple fee or hourly rate. Many of these people are often also salesmen who make commissions on insurance products and investments etc, so you need to make sure you know how they get paid before getting involved.

Generally, being wary of financial professionals will serve you well. As one example, one of the biggest companies catering to financial planning and student loan management for residents until recently was GL Advisor. The company was shut down by the feds and its CEO charged with fraud. While the stakes seem high, I’d still strongly recommend doing it yourself if you can.

rutgersdoc 02.21.16 Reply

Thanks for this great post and the easy to follow-along examples.

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?

Ben 02.22.16 Reply

Yes, that plan is definitely feasible. Both federal and private loans are eligible for private refinancing (such as with DRB and LinkCapital). Given your private loan rate at almost 7.5%, you’re right that you should try to reduce that as soon as possible.

To me, that proposed plan is probably the safest to control interest during residency. The only thing to double-confirm with yourself is to make sure you don’t want to refinance all of your loans together now? Assuming you’ve considered household/spousal income and they don’t apply, the simple way as I mentioned above is to compare the private rate with the effective REPAYE rate. (Also keep in mind that subsidized loans if you have any get all of their interest paid for three years). I’d guess that the effective rate will be significantly better, particularly as your federal loan load is high (people with smaller loans get much less accrued interested waived of course).

If interest rates rise, you may not be able to get a great rate at the end of residency. That’s the one downside. That being said, trying to predict interest rates is like trying to predict the stock market: a terrible idea. Deferring the risk of not being able to consolidate down as well in the future as you can today isn’t a bad idea. If rates are high when you make good money, it’ll just mean you’ll need to focus more on paying them down faster when the time comes.

WaterDragon 04.13.16 Reply

Hello Ben,

Thanks for the great post! I want to ask for your advise and tips if you have one on my situation.

I will soon graduate from medical student in May and start the medical internship this July for a year before I will do radiology residency training next year (4 yrs of radiology residency + 1 yr of fellowship).

I only have fed loans, no private loans (4 Direct unsub, 2 Direct Plus Grad and 2 Federal Perkins at different interest rates).

Current principle amount is ~ 229,000 ($206,400+interest amount accrued as of today) with average interest rate of 6.1%. Monthly interest accrual is $1150 ($13,800/year). I am a single, not married without children. My lender: Fedloan servicing.

Here is my projected PGY incomes with rough estimates (I included moonlight salary as well):

PGY1: AGI = $50,000; Required monthly payment = $268; 50% subsidy = $441; interest rate = 3.72%
PGY2: AGI = $72,126; Required monthly payment = $453; 50% subsidy = $349; interest rate = 4.20%
PGY3: AGI = $74,000; Required monthly payment = $468; 50% subsidy = $341; interest rate = 4.24%
PGY4: AGI = $83,000; Required monthly payment = $543; 50% subsidy = $304; interest rate = 4.43%
PGY5: AGI = $92,000; Required monthly payment = $618; 50% subsidy = $266; interest rate = 4.63%
PGY6: AGI = $94,000; Required monthly payment = $635; 50% subsidy = $258; interest rate = 4.67%

So, my current plans are below:
1) RePAYE/PSLF for 6 yrs of training then refinance thereafter
– As you can see, under REPAYE, effective interest rate is less than 5%. DRB bank can offer a fixed 4.5-6.5% interest rate for 10 yrs term to residents which means RePAYE option is still viable to stay during residency training (unless DRB offers below 4.5%) – my application is currently under processing with DRB at the moment
– With RePAYE, I will likely have cash flow, so I will invest those to IRA Roth and 403b during residency.
– After investment and if I still have extra funds, then I will go ahead and use that to student loan to prevent interest amount accrued. As of right now with my current understanding, any extra amount you pay on top of minimum required monthly payment will go toward outstanding unpaid interest. You can always target your extra payment to specific loans either highest interest rate one or highest principle amount of loan. So, my plan is to sign up for the Direct Debit which will reduce the interest rate of 0.25% on each loan I have and let fedloan taking out minimum monthly payment. Then, as soon as they process my payment, I will pay extra payment to prevent leftover amount after subsidy to be accrued. If I do this each month, then, I may pay off quicker on the specific loan and possibly make a dent on principle amount of highest interest rate loan one even during residency.

2) RePAYE/PSLF for full 10 yrs to have leftover loan amount forgivable
– This option is less likely for me. Radiology practices are dominantly hired by private groups even at academic settings sometimes. With fair amount of radiology salary, it may be better off to pay off on my own rather than depending on PSLF option. What do you think on this?

3) Refinance now and re-refinance whenever I can get a lower interest rate anytime
– Unless DRB bank offers me below 4.5% interest rate, I won’t do refinance now option. I will rather be on RePAYE to get the benefit of subsidy amount just during my residency. If DRB can offer a good deal, then it is smart to refinance if you know for sure about not pursuing PSLF. DRB requires only 100/month during residency and up to 6 months after training is over, FYI. There is other bank LinkCapital who can refinance residents, but they don’t lend currently.

Ben 04.14.16 Reply

Except for your PGY1 and maybe PGY2 years when you may need to use paystubs, you’ll use last year’s tax returns each year to calculate your REPAYE payments. So you’re payments and relative interest rate increases won’t go up quite so fast.
1) Confirm with your servicer that they’ll honor you “timing” the subsidy that way. Please do let me know if you what they say. Also, I’d guess you are pretty unlikely to have much leftover cash at least at first.
2) Doing REPAYE allows you to hedge your bet for PSLF without much risk if it ends up working out for you. Nothing wrong with this. In this case, you obviously want to be making the smallest payments possible during residency. If you have extra cash in this situation, you might put it into a low-risk investment or CD etc and use the money toward the loans when you know it won’t be wasted.
3) If you really think PSLF is not a good option for you, then you should refinance if the rate is lower than the effective rate for you with REPAYE. This allows you to pay it down as fast as possible without games and protects you from increasing income effects. The only reason to refinance now if the deal is above/near your effective REPAYE rate is if you’re concerned about future interest rate rises (i.e. locking in “today’s low rates”). Rates currently are already a bit higher than they were last year, so this idea is not without merit. Again, you could always refinance again if rates were to drop further.

WaterDragon 04.15.16

From my understanding and talking with fedloan servicer, 50% subsidy amount will be taken care of monthly based on the amount difference between the monthly interest accrued and the monthly payment calculated under REPAYE. I will set up the Direct Debit only to my minimum monthly payment under REPAYE. Then, on the Fedloan servicing website after you log in with your account, there is a tool for me to select a specific loan I want to pay online. So, if I want to pay extra on that loan, then this extra will go toward the outstanding. In the end, I will still get the subsidy benefit and if I am able to pay extra, I can do that online targeting the specific loan. This is my current plan if I will be on REPAYE during residency.

Do you think it will be worthwhile to pursue in PSLF with radiology or other decent pay specialties? Hypothetically, if I will become an attending at 503(c)1 place for 4 more years under REPAYE after 6 yrs of training, since there is no cap under REPAYE, I will pay a lot per month and end up with not much leftover amount to be forgiven after 120 months payment. So, I am not leaning toward PSLF pathway. What is your take on this?

My application is still currently in processing with DRB and if they can offer the rate at 4.5 fixed rate, would you be on refinance with DRB vs REPAYE? Obviously, I will have much lower effective rate under REPAYE for the first three years of PGYs.

Ben 04.15.16

1) Interesting.

2) PSLF is viable, assuming you trust the program itself. You can determine the salary you need using the payment tool. Your first year out in practice, you’ll still basically be using your fellowship pay. After that, if your payments outstrip the standard 10-year, then switch to PAYE (or IBR if necessary). If you were making no extra payments, you’d probably finish fellowship with still 200+ in loans. In this case, making three years of attending-level pay (years 8, 9, 10) would still result in large savings. Even a new radiologist making 300k a year for a few years isn’t going to make that big of a dent in the total amount making the minimum REPAYE payments (put that AGI into the calculator and you’ll see).

3) The reason to hurry to refinance is fear of future rate increases. If you’re not that scared, then wait. If you’re scared and don’t plan on PSLF, then do it now. You can’t predict interest rates, you just need to follow your risk tolerance: either minimize now with REPAYE or refinance now to ensure long-term reasonable rates.

Ben 12.21.16

For others reading, when I talked to my servicer, they told me they applied the subsidy on a quarterly basis and it was not possible to “time” it. It tends to even be hard to see the subsidy on your actual statements (something I remember from my days receiving the subsidized loan subsidy; they would say “you can’t see it but we promise it’s there”).

I honestly don’t know who is right or if any of this is done consistently either within or across servicers. I did read the actual legislation and it does not specify. Given how bad servicers are at applying extra payments and whatnot appropriately, I personally would be very hesitant to attempt this. If talking to my servicer was reassuring and I had the money to try it, I would definitely do so for only a couple months and make sure it was working the way I wanted.

MarkyMark 03.30.17 Reply

WaterDragon – I am also a current intern in a very similar situation – 200k in debt, anesthesiology and and I want to aggressively pay back my loans. I think your option #1 is the way to go. I have been putting large amounts (1-2k/mo)toward my loans. I am just now learning the detail of REPAYE and its subsidy for 50% of interest accrued. This makes me want to enroll in REPAYE and focus no putting this extra money towards a ROTH IRA to take better advantage of this subsidy.

I am trying to calculate the effective interest rate like you did in years 1-6, but I am having trouble. Would you mind sharing a calculator or spreadsheet that you used?

Ben 03.30.17

For each year, use the federal estimator with the relevant/estimated income. That will give you the monthly payment. Multiple by 12 to get the annual amount paid. Mutliply your loans by your current interest rate (take into account the automatic deduction) to get your annual interest. Subtract the two and you’ll get the amount of unpaid interest. Dividing that by two gives you the subsidy amount and the residual unpaid interest. Take the annual interest subtracted by the subsidy amount and this is your new interest annual interest amount. Divide that by your loan amount to get your effective rate.

In the above example:
Loan: $200,000 at 6.8%
REPAYE payment as a resident making $50,000: $270/month
Annual interest accrued: $13,600 (200,000*.068)
Annual interest paid: $3,240 (270*12)
Annual interest unpaid: $10,360 (accrued – paid)
Amount forgiven: $5,180 (half of unpaid)
Effective interest rate: 4.2% ([accrued-subsidy]/loan amount), so (13,600-5180)/200,000

MarkyMark 03.30.17

Excellent thanks Ben – So after crunching my numbers (190k ave interest 6.3%, AGI 40-90k) I get an effective interest of 4% even after pgy-5. So I’ve settled on changing over to REPAYE, taking advantage of the subsidy (making minimum payments), and instead of putting 1k/mo into my loans, I’ll pretty much max out the wife’s and my Roth IRA. At the end of 5 years (7%return IRA) , I come out 30k better off vy doing it this way.
Thanks for your help!

Ben 03.30.17

A lot of folks are in your shoes and will save doing exactly what you’ve decided on

WaterDragon 04.17.16 Reply

Using the repayment calculator, AGI greater than 300k won’t let you transfer from REPAYE to PAYE/IBR route. So, you will be stuck with REPAYE/PSLF plan. Plus, if you marry during residency later with a partner with her/his income, you are likely to pay beyond the cap monthly amount under REPAYE/PSLF. So, during the 3 yrs of attending salary to finish the full 120 payments for the sake of PSLF benefit, you won’t have much amount leftover to be forgiven if you continue to stay on REPAYE/PSLF. So, only other option will be give up on PSLF and refinance to pay off on your own OR switch to Standard payment route if you still want to pursue PSLF. This is my current thought on this regarding the PSLF route.

Ben 04.18.16 Reply

1) Don’t forget, you’re going to get your next job before your training ends. You won’t be switching from a 300k salary to something; you’ll be switching in anticipation of that bigger job. There is a lag between any life change and the effect on your loans. Also note that since REPAYE is a 10% payment unlike IBR, a lot attendings in many specialities aren’t going to push past the cap unless their spouse makes considerable income. And it’s not that easy to push past the cap in a crippling way. An extra 100k in income becoming an extra 10k in payments times three years doesn’t wipe away 200k in debt.
2) That’s all actually mostly beside the point in your example. Even in your example, switching to Standard repayment for 3 three years, paying ~30k a year. 230k on REPAYE for 6 years (the original loan balance has still been growing for a part of that time, let’s say probably 250k, but we can ignore that). A lot of that payment is going to interest, at the end of 3 years, you’d still near 200 forgiven. Even if magically your interest rate was dropped to 0% and you were simply paying down dollar for dollar, those three years would take you only down to 140k for forgiveness. I’d still call that a large amount to be forgiven. Even overpaying on the cap like you’re concerned with doesn’t change things by that much, even with salaries over 300k. Three years can only do so much.

TJ 07.07.16 Reply

My loan servicer, FedLoan, warned me against switching to REPAYE at this time. Even though it would lower my payment for a while, the payment would eventually increase with salary and I would not be eligible to switch back to my current 15% IBR plan and would not be eligible to switch to standard repayment at that time either. I am planning on PSLF.

Ben 07.07.16 Reply

Your payment will go up with salary regardless. Whether or not that higher payment at 10% uncapped is more than it will be at capped 15% on IBR depends on how much money you make. There is no single right answer. If you see the illustrations above, a lot of doctors just out of training don’t make enough per year to actually lose money on REPAYE (and keep in mind that all the years of lower payments under REPAYE aren’t spontaneously washed away once REPAYE costs more per month than IBR). Obviously subspecialist surgeons have this problem more than pediatricians. And of course there’s the potentially deal-breaking issue of spousal income.

As far as I know, you can switch back to IBR in advance *before* you you start making big attending money. Did your servicer say you could never switch out of REPAYE ever no matter what? Because that would be big news. This Q&A from the government states that “If you choose to leave [REPAYE], you may change to any other repayment plan for which you are eligible” (page 6). The issue that your servicer was likely referring to is that most attendings no longer have a partial financial hardship and thus no longer qualify for IBR. If you did this at the end of your training, there should be no issue. I’ve confirmed this with my servicer Nelnet.

In fact, you only have to enter the standard or reduced repayment for a month going from IBR to REPAYE but not on the way back.

lgga223 03.24.17 Reply

Incoming PGY1 here with $320k in loans. My wife’s AGI is $52k, so while my first and second years of residency would have manageable REPAYE payments at $166 and $372 (using the fsaid calculator), since I would have zero 2016 AGI and 6mos of 2017 AGI to contribute to the equation, the payments then take off to $586 and higher. I understand the tax benefits of filing jointly and the REPAYE interest subsidy. I would also like to start a Roth IRA and get as close to maxing it out as I can afford. REPAYE would have me pay $32k over the course of my 5 year residency, whereas PAYE (and thus filing separately) would have me pay under $11k with monthly payments reaching $235/month during PGY5, at the expense of accruing $100k. Since my wife and I plan on having a couple kids throughout residency, the lower monthly payments seem more appealing so that things don’t get too tight during those years (and allow me to max out a backdoor Roth IRA and also build an emergency fund to cover 3 months). However, REPAYE keeps that $100k of accrued interest away, which is nice. Since I’m not relying on paying towards PSLF, I’m having trouble deciding between the pros and cons of REPAYE vs PAYE. Part of me thinks the added cash flow and lower monthly payments during residency would make it worth hammering away extra interest once I start practicing, however I know that no matter how high my compensation could be, paying more gov’t interest is never a “good” idea. Any advice?

Ben 03.24.17 Reply

You can start with REPAYE filing together then switch to PAYE filing separately if you need the cashflow. The interest capitalization after a year or two of low payments and a big subsidy isn’t going to make much of a difference. If you’re not PSLF bound, you could also consider refinancing once your income increases and REPAYE stops giving you a good subsidy. The resident-friendly refinancing companies require 100 bucks a month or less, which will also give you more flexibility if your life costs balloon.

Katelyn 05.19.17 Reply

Hey Ben,

Incoming PGY1. Your posts are tremendously helpful! My question is, why aren’t all residents (or atleast the majority) doing REPAYE and then switching to PAYE at the end of their training? I feel like I am missing a key pitfall or something. Is it a pain in the ass to switch? Are new residents scared they will not be able to switch? Or is this just information not everyone has? I understand some people are not eligible, have a large spousal income, have private loans, etc etc… But just wondering why this isn’t a more ‘popular’ way to go about it.

You’re awesome. Thank you!

Ben 05.19.17 Reply

One reason is that it probably will be popular in the future, but REPAYE is still pretty much brand new and lot of current residents aren’t on it. It was released at the end of 2015 (which is mid-cycle for almost everyone), so really only students graduating in 2016 (i.e. current interns) even had the option to pick it when they first selected a repayment plan.

Another is that even for more industrious residents, it seems a lot of servicers have been misleading borrowers about the ability to switch out. See:

Another is that it depends on what happens after training. Switching only makes sense if you’re trying to minimize payments for PSLF. Otherwise, having smaller payments just means paying more over the life of the loan. Additionally, the accrued interest will capitalize, which is not relevant for PSLF but is for everyone else. For PSLF purposes:
– A lot of people don’t need to. It isn’t that easy to break past the pay cap for a lot of docs. Thus, if you’re single, have a non-working spouse, or have a spouse with a similar debt to income ratio, PAYE isn’t going to make a big difference unless you are in a high paying specialty. There are definitely attendings who will continue to earn a REPAYE interest subsidy, particularly heavy borrowers.
– Similarly, depending on their spouse, many won’t gain enough in lower payments by filing separately to offset the tax penalty of switching to PAYE in order to file taxes separately worth it.

Jeff 06.13.17 Reply

I have asked a few people about this and haven’t been able to get a straight answer:

For REPAYE, do payments made during the 6 month grace period count against the unpaid-interest subsidy?

I don’t plan on aiming for PSLF, thus I want to minimize my effective interest rate throughout residency by making the smallest payments and achieving maximal government subsidies. But, if I can get rid of some of my higher interest loans prior to those payments counting against me, that would be a win win. Thanks for anyone with the info!

Ben 06.14.17 Reply

No, because you can’t be in a repayment plan (e.g. REPAYE) during grace period. You can of course make payments, but you won’t chose one until toward the end, and it won’t start after the six months is up.

The way around this is to file for a consolidation, which is the only way to void/opt out of the grace period. See:

David 08.28.17 Reply

Thanks for the great article. This has really helped me understand REPAYE better. The only thing I’m not really sure on is if I contribute more than the 10% each month and more than the accrued interest for that month will the extra payment go towards interest or the principle of the loan? If it doesn’t go towards the principle of the loan then I don’t think REPAYE makes sense for me.
$233,000 in loans with 5.875% interest rate
I’m currently paying about $2500/ month to pay off my loans as quickly as possible and trying to figure out if it makes sense to switch to REPAYE or not. I’m currently in the standard repayment plan.

Ben 08.28.17 Reply

Extra payments on federal loans always go toward outstanding interest, no matter what plan you are in. If your calculated payment under REPAYE is less than the accruing interest, then you get a subsidy. Otherwise, you won’t and there is no point switching if you can afford the payments.

Since you are actually paying down your loans using the standard plan, the way you’d probably save the most money is by refinancing. Unlike most trainees, most people who can afford the standard plan won’t get enough of a subsidy under REPAYE to beat out what the industry can offer (though of course there’s only one way to find out).

David 08.28.17

I’m currently $233,000 in debt with 5.875% interest
I’m currently making $110,000 in salary
I’m currently paying $2500/month with about $1400 of that going towards Principal
I’m wondering if I switched to REPAYE and paid the same amount each month if it would save me any money.
Based on my calculations I would save ~$2250 a year, at least initially until my salary went up and/or annual interest accrued goes down. Do you agree with my numbers and do you think it makes sense to switch to REPAYE for at least a few years?
annual int accrued = $13701
Annual int Paid = $9200
Annual INt unpaid= $ 4501
Amount forgiven= $2250
Effective Interest rate = 4.9%

Ben 08.28.17

I agree with the numbers. You’ll save some money with REPAYE, and if the goal is to pay off loans early, you really won’t need to switch back. I would personally still check out the private rates every so often and refinance whenever the offered rates are lower than the effective REPAYE rate, but switching in your situation is a solid move.

David 08.28.17 Reply

Thanks for checking my numbers and for your advice, Ben. Appreciate it.

Matt 09.28.17 Reply

Hi Ben,
I am matching into Family Medicine in the spring. I will graduate with about $325,000 in federal loans. Is there anything I should be thinking about right now for these / or should be once I match?
Thanks so much,

Mohammed 12.27.17 Reply

Hi Ben,
Had a quick question about REPAYE. I was under the impression that the 50% interest subsidy applies to the amount of interest that’s not covered by the minimum monthly payment. However, a representative from my loan servicer told me that the subsidy applies to the amount of interest not covered by whatever payment I make each month, thereby reducing the amount of interest the government pays in the event I make a payment that exceeds the minimum. Do you have any information on this discrepancy or on how to make it so the maximum amount of interest is covered each month. My goal is basically to cover the interest that accrues each month. Any advice would be helpful. Thanks!

Ben 12.29.17 Reply

Your understanding is correct and the servicer representative is wrong. However, I’ve definitely heard of reps saying such things, particularly from Navient. Who is your servicer?

Either way, I cover this in detail in my book. A few things you can do:

1. Call them again and ask to speak to a manager.
2. Find out how they apply the subsidy and try to “time” payments after it is applied. This process is often opaque and not necessarily feasible to do
3. For many people including you, the best option is probably to just pay the accumulated interest later and not worry about your servicer. Remember that interest doesn’t capitalize while in REPAYE. Unless you can dent the principal, nothing magical is gained by applying extra payments in terms of accruing interest now instead of later so long as you don’t spend the money earmarked for loans on anything else. You can just set up a loan slush found in an online interest-bearing savings account with the money you would be paying and then apply a large payment at some point in the future, say when your subsidy is running out. In the savings account, at least you’ll earn some interest.

Mohammed 01.18.18

Thanks for the reply! This was very helpful. My loan servicer is Great Lakes. I’ll be sure to give them a call and ask what the deal is, but I’m glad you told me it doesn’t really make a difference if I pay it now or later. I was feeling somewhat pressured to cover interest each month.
Do you have an resources about the “loan slush” you referenced above? Don’t know anything about that. Is it just a savings account where I set some money aside and watch it grow? I’m pretty ignorant regarding financial stuff, so forgive any silly questions.

Thanks again!

Ben 01.18.18

Yeah, it’s just a savings account you would use to keep the money somewhere safe where you won’t spend it. Ally Bank is a popular choice. The interest rates are low of course because there is no risk whatsoever (it’s a savings account after all), but it helps fight against inflation.

Another move that is riskier in some ways but generally has more bang for your buck over the very long term is to invest the extra money toward retirement (and if you have a company match in your 403(b) or 401(k), then you should at least be doing that).

Rebecca 04.04.18 Reply

Hi Ben

I currently am enrolled in PAYE with approx. $265,000 in loans with interest rates averaging around 6%. I am in a 3 year residency at a for profit hospital (with 2 years left) so I am not eligible for PSLF. My plan after residency is to live cheaply and pay off my loans in about 3 years by making large payments. If this is the case, should I be enrolled in REPAYE to decrease interest while in residency and then just refinance my loans as an attending?

Thank you!

Ben 04.04.18 Reply

In most cases, that’s correct. Technically, you could refinance now with a resident-friendly company, but unless you are married with a working spouse, it’s not very likely for a private company to be able to beat your effective REPAYE rate with the subsidy.

If you want to do your due diligence, then you can calculate your effective rate in REPAYE and then do the prelim applications for refinancing and see what’s better.

Stephanie 07.10.18 Reply

Hi Ben,
I am a current PGY1 resident with about 115,000 in loans. I am planning on paying this off without PSLF. I consolidated my loans, after filing my taxes as a fourth year but when I spoke to my servicer, NelNet, they said that the interest subsidy doesn’t kick in for another 3 years. So, now I am not sure why I consolidated, and, since I don’t have to make payments for another year ($0 till August 2019), would it be best just to make regular payments? Thanks.

Ben 07.17.18 Reply

Your servicer is incorrect or made a confusing/misleading statement. The REPAYE interest subsidy on any subsidized loans doesn’t kick in for three years, but that’s because the unpaid interest on subsidized loans is already fully covered for three years regardless of which IDR plan you choose.

You should receive a full (50%) REPAYE unpaid interest subsidy for unsubsidized loans immediately.

Since your interest will not capitalize on this loan during repayment if you remain in your plan, there is no particular benefit to paying now versus paying later assuming you don’t earn enough to actually pay down both the accruing interest AND some prinicipal with each payment and don’t extend your overall repayment term. One good strategy is to put your full payment money into an interest-bearing online savings account for a period of time prior to using it. This way your money will earn a bit of interest before you apply it to your loans and will also be available as an emergency fund.

Since you’re planning on paying it off yourself, you’ll also want to periodically compare your effective REPAYE rate with the rates offered by private lenders; at some point, it’ll be the right time to pull the trigger there.

AJ 12.14.18 Reply

Hi ben
Thank you for the post. I’m currently on my first year out of residency with about 290,000 I have been on PAYE for the past 3 years. I am currently covering only about half of even the interest and was wondering if i should be transferring out of PAYE and into REPAYE. I am married but my income is much higher and my loans are also higher. I was wondering if i should be switching to REPAYE for interest reduction and if i should stay on REPAYE or if I can move back to to PAYE once i can at least cover the interest. As i understand most of the time you want to stay in PAYE however i am a bit concerned that i haven’t been able to cover interest and won’t be for a few more years. I also wasn’t sure if the PAYE payments will be added to REPAYE or i would start over.
thanks in advance!

Ben 12.17.18 Reply

The first question is what’s your long-term plan. REPAYE will result in a lower effective interest rate in your situation, so if you eventually pay off your loans yourself, then REPAYE may save you money here. However, your unpaid interest will capitalize, which would change the amount of interest accruing each month. You’ll have to compare your current principal versus your new principal (with capitalized interest) to see it really makes sense. If your goal is PSLF, then switching would only help you hedge your bets if your plans change. The extra amount would be irrelevant if forgiven.

You can switch back as long as you still have a partial financial hardship. Each time you switch interest capitalizes. Payment counters do not reset when switching payment plans, but you often get placed in an administrative forbearance for a month, so it’s common to delay potential forgiveness by a month of qualifying work when you switch. My student loans book is now completely free, I recommend you check it out.

Kristin 01.10.19 Reply

Does it ever make sense for one spouse to be on REPAYE and the other IBR? Example:
Spouse 1: 125k per year, 200k in debt (on REPAYE, non-PSLF, b/c it is lowest monthly payment, but filed separately from spouse since spouse on IBR; IBR higher monthly for spouse 1 and not PAYE eligible)
Spouse 2: 54k per year, 75k in debt (on IBR-nonPSLF b/c it is cheapest monthly, so filed separately but missed out on all benefits of filing jointly).
Should spouses continue to file separately so one spouse stays on low IBR payment? Or both be on REPAYE so they can file jointly?

Ben 01.12.19 Reply

It’s very rare when both spouses have loans for that scenario to work out saving money. In your case, both borrowers have a partial financial hardship and are thus paying the usual fraction of their income as a percentage as usual. But because REPAYE ignores your filing status, the REPAYE borrower’s payment does not change with your tax maneuver. It uses the full family income. Read my free book to see how MFJ/MFS plays in (or at least that chapter). But it’s something like this:

Total income with 125+54 = 179k, in REPAYE = ~1300 / month

Spouse 1 (still179k) in REPAYE = ~1300 / month
Spouse 2 (54k) in IBR = 449 / month

So, no big victory there. That said, in a non-PSLF situation, paying more money toward your loans is not a bad thing. If money is tight, that’s one thing, but those loans aren’t going to pay themselves. However, depending on your interest rate, you still as a couple may be in a negative amortization scenario while in REPAYE, and thus you may actually be leaving a (probably small) unpaid interest subsidy on the table.

Aaron 02.02.19 Reply

Hi Ben,
I love the website and want to thank you so much for publishing your book. It’s been really helpful as an M4 doing some personal finance education and trying to weigh the options I’ll have going forward.

I’m currently considering the questions of PAYE vs REPAYE, and MFS vs MFJ and am wondering if you or any other readers here might be able to comment?

My debt: $411,408 @ 6.10% (all Federal direct/PLUS loans)
Other debt: $2250 active credit card debt, $3000 credit card debt with 0% APR
Spouse debt: $33,000 @ 6.93% (all Federal direct/PLUS loans)
Spouse income: $49,000/yr (Public school teacher)

I am applying into IR/DR and am thus expecting a higher than average salary, but have recently discovered a love of academics and want to consider the possibility that I may qualify for PSLF should I end up choosing that route at the end of PGY-6.

My current plan is essentially the one highlighted at the end of your book:
1. File MFS, certify $0 income as soon as possible
2. Do a direct consolidation, enter PAYE, and begin making qualifying $0 payments while I pay down my credit card debt.
3. Make PAYE payments above the minimum payment as often as possible, so as to minimize the difference with REPAYE while still maintaining financial flexibility. I would use this flexibility to finally start an emergency fund as well as for potential retirement account contributions depending on my residency benefits.
4. PGY-6: compare PSLF vs. private refinancing w/ aggressive payments vs. staying Federal w/ aggressive payments

Towards the end of residency I could either scale up or down my monthly payments as my employment options crystalize. I feel like this plan gives me the best flexibility at the end of PGY-6 to either pursue PSLF with a fairly low loan cost/forgiveness ratio, or to begin aggressive payments, but want to make sure I’m not missing anything.

Any thoughts/comments would be much appreciated!

Ben 02.02.19 Reply

Re: #3

If you are in an IDR plan like PAYE and still have a PFH, then there is no benefit to making larger payments above the minimum if considering PSLF or with the amount of debt you’re talking about, since you will be deep in a negative amortization scenario.

For possible PSLF, any *extra* money you put into a loan that eventually gets forgiven is literally money wasted.

Even without PSLF, if you can’t pay down the interest and make any progress against the principal, then you’re just chipping away at the accruing interest itself but not slowing it down at all (i.e. there is no interest-reducing benefit to the aggression). It would make more sense to use this money to fund tax-advantaged retirement accounts. If you wanted to earmark this money for a loan-payout slush fund, then one could put it in an interesting-bearing online savings account or CD in order to get a couple percent interest on this money prior to deploying it. In this case, it would make sense to deploy it prior to losing a PFH (which triggers capitalization) or prior to refinancing.

Meredith 11.24.19 Reply

Thanks so much for your wonderful articles – they’ve been so helpful in navigating repayment options. I’m currently looking into my loan repayment options and wondering if you might be able to provide some guidance.

I’m currently a PGY-3 in a 4 year program. Right now I have $178,000 in student loads, currently paying $311/mo through REPAYE. There is still some uncertainty with regards to my exact future plans, but for now I’m shooting for PSLF. I got married this summer — my spouse is working (non-medicine), has no student loans and makes slightly less than my resident salary. I anticipate a salary around $250,000 after graduating residency.

I am currently considering switching from REPAYE to PAYE – but unsure of the timing. I’m also having a very hard time conceptualizing how the interest subsidy difference between PAYE and REPAYE affects things. Interested in this switch especially if I’m going for PSLF to reduce future monthly payments – and hoping to capitalize on the switch while I still quality from an income standpoint.

Specifically, does it make sense to switch to PAYE now? Or would it be better to stay with REPAYE for an additional 1 year and switch to PAYE in 2020 (still before graduation)? I suppose we would do MFS this year if I switch to PAYE now. Hopefully that makes sense, thanks!

Ben 11.26.19 Reply

Assuming your recertification is in the summer/fall, you would file the 2019 taxes this spring as married filing separately. Then when you switch to PAYE as certification time, it will be based on your trainee salary alone.

For PSLF, staying in REPAYE with a working spouse earning that much will increase your payments and reduce your forgiveness. In the event of PSLF, all that matters is how much money you spend on your monthly payments over the 120 payments. The REPAYE interest subsidy is a nice hedge in case you end up pursuing a non-qualifying job, but REPAYE never saves you money compared to PAYE for PSLF purposes.

Will 11.26.19 Reply

Could someone theoretically enter Repaye but still do the math and pay the loan off the same way they would under a 10 year standard plan? My thinking is that this would allow a cushion just in case a private practitioner had a bad month financially and therefore couldn’t afford their monthly payment under the standard plan

Ben 11.26.19 Reply

You could be on any IDR plan and pay more, of course. Someone in PP will hopefully not be living paycheck to paycheck. If the rates in a private refinance are lower, one could also refinance to a longer term for a smaller mandatory monthly payment but just pay more, but longer terms have worse rates and so may not be worth it, especially as you lose the federal benefits, including the possibility of PSLF should you decide to reenter academia.

In general, paying extra in an IDR plan only makes sense once you’re able to pay off all the accrued interest and start making progress on the principal. Since federal loans use simple and not compound interest (and because you cannot directly pay off the principal with extra payments), it’s better to put extra money temporarily in something that earns interest itself until you’ve saved enough to make some real progress.

Emma 05.13.20 Reply

Hi! I know this post is old but I found it very helpful. I am an incoming intern with 300,000$ of debt and plan to do 6 years of residency. I am not married currently but will marry my significant other in approximately 3 years. He makes a good salary outside of medicine and has no debt. I originally thought that I should do PAYE as my significant other makes a good salary and knowing we will marry somewhat soon, but should i be doing REPAYE until I get married? Thanks!

Ben 05.13.20 Reply

Depends on if you’re planning for PSLF or not. If going for PSLF, can just do PAYE, as the REPAYE benefits are irrelevant. If you’re paying them off yourself, then your payments going up while in REPAYE after you’re married aren’t actually a bad thing; you’ll get out of debt faster.

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