How do you choose which repayment program to enter?

[Trisphorin]

So i decided to enter REPAYE payment program, how do i let the government know and start the payment plan? I'm graduating in May, do i start the payment in Nov after the 6 month grace period?

Thanks!!

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[RangerBob]

Unless you consolidate, your first payment will likely be due around Christmas--it really depends on when your school reports you as graduated. Many schools wait to report you as graduated until June. That's good in that it defers your first payment, but it's also bad in case you want to take advantage of the time you're unemployed to consolidate your loans and legally/ethically apply for $0 monthly payments. You can't consolidate until your loans are no longer in in-school status, and you can't apply for $0 monthly payments once you've started working, so it's a small time-frame.

To apply for REPAYE is fairly simple--you fill out a form at studentloans.gov and fax it to your loan servicer. Typically your servicer (FedLoan, Sallie Mae, Nelnet, there may be others...) will send you notice to re-certify for an income-driven plan, but I can't remember if they tell you more than a month in advance when your first payment is due. It takes 2 months to process an income-driven application, so typically you submit the paperwork around October/November if your first payment is due in late December.

The application has a section that lets you chose your specific plan vs the one with the lowest monthly payment.

 

[235009]

Unless you consolidate, your first payment will likely be due around Christmas--it really depends on when your school reports you as graduated. Many schools wait to report you as graduated until June. That's good in that it defers your first payment, but it's also bad in case you want to take advantage of the time you're unemployed to consolidate your loans and legally/ethically apply for $0 monthly payments. You can't consolidate until your loans are no longer in in-school status, and you can't apply for $0 monthly payments once you've started working, so it's a small time-frame.

To apply for REPAYE is fairly simple--you fill out a form at studentloans.gov and fax it to your loan servicer. Typically your servicer (FedLoan, Sallie Mae, Nelnet, there may be others...) will send you notice to re-certify for an income-driven plan, but I can't remember if they tell you more than a month in advance when your first payment is due. It takes 2 months to process an income-driven application, so typically you submit the paperwork around October/November if your first payment is due in late December.

The application has a section that lets you chose your specific plan vs the one with the lowest monthly payment.

I wouldn't call anything with regards to dealing with loan servicers "fairly simple". Never forget that the main goal of these companies is to extract the maximum amount of money from you possible. They don't make applying for IBR easy so if you don't hear from them after sending them forms then call and inquire. One of my servicers didn't tell me that, in their view, I checked the wrong box to a question during my re-certification even though the other servicer didn't care so they were basically going to let me revert to standard payment plan without telling me. They will also quite intentionally miscalculate your IBR so don't just take their word for it. Just generally be diligent when dealing with these scumbags.

 

[RangerBob]

I wouldn't call anything with regards to dealing with loan servicers "fairly simple". Never forget that the main goal of these companies is to extract the maximum amount of money from you possible. They don't make applying for IBR easy so if you don't hear from them after sending them forms then call and inquire. One of my servicers didn't tell me that, in their view, I checked the wrong box to a question during my re-certification even though the other servicer didn't care so they were basically going to let me revert to standard payment plan without telling me. They will also quite intentionally miscalculate your IBR so don't just take their word for it. Just generally be diligent when dealing with these scumbags.

You are unfortunately correct, I probably should've just said the process to start the application is fairly simple. I've had more than enough of my share of mistakes and the hands of my loan service--it took about 6 months to get my consolidation loan interest rate corrected (it was calculated ~0.5% too high). They then messed up my switch from IBR to REPAYE as well.

 

[Trisphorin]

Unless you consolidate, your first payment will likely be due around Christmas--it really depends on when your school reports you as graduated. Many schools wait to report you as graduated until June. That's good in that it defers your first payment, but it's also bad in case you want to take advantage of the time you're unemployed to consolidate your loans and legally/ethically apply for $0 monthly payments. You can't consolidate until your loans are no longer in in-school status, and you can't apply for $0 monthly payments once you've started working, so it's a small time-frame.

To apply for REPAYE is fairly simple--you fill out a form at studentloans.gov and fax it to your loan servicer. Typically your servicer (FedLoan, Sallie Mae, Nelnet, there may be others...) will send you notice to re-certify for an income-driven plan, but I can't remember if they tell you more than a month in advance when your first payment is due. It takes 2 months to process an income-driven application, so typically you submit the paperwork around October/November if your first payment is due in late December.

The application has a section that lets you chose your specific plan vs the one with the lowest monthly payment.

Thanks for the detailed answer! I really appreciated it. I filed my income tax this year even though I made $0. I was told that if i filed my $0 income tax then I don't need to make payments for an year, I am not really sure on how this works.

 

[RangerBob]

Thanks for the detailed answer! I really appreciated it. I filed my income tax this year even though I made $0. I was told that if i filed my $0 income tax then I don't need to make payments for an year, I am not really sure on how this works.

Unfortunately getting $0 payments doesn't work unless you consolidate. Otherwise when you apply for IBR/PAYE/REPAYE in the fall you will have to answer "no" when the form asks if your tax return accurately reflects your current income, which it doesn't. They've even added the warning now about jail/fines.

Some people still answer "yes." I do not personally recommend doing that, particularly if you think you might aim for PSLF. If you're re-certifying and your income has changed by a few thousand, that's pretty similar, but going from $0 to $50k is not.

 

[235009]

I wouldn't call anything with regards to dealing with loan servicers "fairly simple". Never forget that the main goal of these companies is to extract the maximum amount of money from you possible. They don't make applying for IBR easy so if you don't hear from them after sending them forms then call and inquire. One of my servicers didn't tell me that, in their view, I checked the wrong box to a question during my re-certification even though the other servicer didn't care so they were basically going to let me revert to standard payment plan without telling me. They will also quite intentionally miscalculate your IBR so don't just take their word for it. Just generally be diligent when dealing with these scumbags.

....and one of the loan companies (actually the exact one I've had trouble with) just admitted that “There is no expectation that the servicer will act in the interest of the consumer,” Student Debt Giant Navient to Borrowers: You’re on Your Own

Stay diligent, do your homework, double check everything they do and insist if they tell you something you know to be incorrect.

I've always wondered why my student loans weren't portable...why can't I choose my servicer? If I could I would've dumped these crooks long ago.


Sent from my iPhone using SDN mobile app

 

[Trisphorin]

Unfortunately getting $0 payments doesn't work unless you consolidate. Otherwise when you apply for IBR/PAYE/REPAYE in the fall you will have to answer "no" when the form asks if your tax return accurately reflects your current income, which it doesn't. They've even added the warning now about jail/fines.

Some people still answer "yes." I do not personally recommend doing that, particularly if you think you might aim for PSLF. If you're re-certifying and your income has changed by a few thousand, that's pretty similar, but going from $0 to $50k is not.

Am i getting this right? You are essentially delaying when to start the repayment. I am trying to pay it back within a few years after residency and I am not aiming for forgiveness, so this wouldn't affect my loan amount, and just delaying when I start to make payment?

 

[RangerBob]

Am i getting this right? You are essentially delaying when to start the repayment. I am trying to pay it back within a few years after residency and I am not aiming for forgiveness, so this wouldn't affect my loan amount, and just delaying when I start to make payment?

Consolidating speeds up starting repayment. I was just saying it's the only legal/ethical way to get a $0 payment (which does count as a payment), and you would start as soon as the consolidation loan is processed. Otherwise you start repayment at the normal time (6 months after you graduate) and will pay roughly 10% of your AGI. If you lie on the form you can get the $0 payments, but once again--it's technically a payment, so you're not delaying repayment.

I would never recommend anyone delay starting repayment unless they just cannot handle the few hundred dollars (ie, perhaps they live in NYC, with a non-working spouse and kids). REPAYE/PAYE/IBR save so much money by preventing repeat capitalization (as well as the REPAYE interest subsidy) that I recommend anyone who can afford it start repayment on an income-drive plan.

 

[zidi08]

For REPAYE, when is the owned interest put to principal?
Also is it better to take advantage of the ｆｕｌｌ　grace period, or push to pay as early as possible?

 

[RangerBob]

For REPAYE, when is the owned interest put to principal?
Also is it better to take advantage of the ｆｕｌｌ　grace period, or push to pay as early as possible?

As long as you re-certify annually (on-time!) while in REPAYE, your interest will never capitalize aside from when you start repayment. Regardless of what plan you chose, your interest will capitalize when you start repayment (or really, at the end of your grace period since it should capitalize if you put your loans in forbearance too).

You cannot waive your grace period unfortunately--the only way to start REPAYE payments early is to consolidate your loans. I consolidated some of my non-direct loans so they could be brought into the direct loan program and thus be PSLF-eligible, but I didn't want to consolidate all my loans because then you can't selectively pay off your highest rate loans (like gradplus). But, if you're banking on PSLF then it doesn't really matter, as long as PSLF actually sticks around.

 

[Trisphorin]

As long as you re-certify annually (on-time!) while in REPAYE, your interest will never capitalize aside from when you start repayment. Regardless of what plan you chose, your interest will capitalize when you start repayment (or really, at the end of your grace period since it should capitalize if you put your loans in forbearance too).

You cannot waive your grace period unfortunately--the only way to start REPAYE payments early is to consolidate your loans. I consolidated some of my non-direct loans so they could be brought into the direct loan program and thus be PSLF-eligible, but I didn't want to consolidate all my loans because then you can't selectively pay off your highest rate loans (like gradplus). But, if you're banking on PSLF then it doesn't really matter, as long as PSLF actually sticks around.

but would you consolidate your loans if all your loans were unsubsidized direct loans? I am hearing both pros and cons.

 

[RangerBob]

but would you consolidate your loans if all your loans were unsubsidized direct loans? I am hearing both pros and cons.

There are definitely pros and cons.

As far as I'm concerned, there are the reasons to consolidate federal loans with a federal consolidation loan:
1) To bring FFELP loans into the direct loan program (so they will be eligible for REPAYE, PSLF, etc). This only affects pre-2010 borrowers I believe, as I think 2010 and after are all direct loans now.
2) To allow you to start repayment ASAP after graduation. With the processing time, you typically start repayment 3-4 months prior to when you would normally, as the grace period lasts 6 months. The primary reason to do this is that's 3-4 more PSLF-eligible payments. Not too many benefits otherwise.
3) You can apply for $0 payments for that first year as you will have no income when you apply to consolidate if you have just graduated med school but haven't started internship yet. Of course, you're starting repayment early, so you're only getting about 8 months of $0 payments relative to what you would have had otherwise.
4) If you just don't want 10 different loans, then you simplify things by consolidating. But it's all psychological, since you're only making one payment anyway and your servicer calculates how much goes to each loan.

The cons are:
1) You lose the ability to selectively pay off the lowest interest rate loan
2) Your interest rates will be the average weighted rate of all the loans, rounded UP the nearest eighth of a percent
3) Your servicer may mess up the consolidation (like with mine--they let me add a loan but they forgot to take it into account when calculating my new interest rate, which was now artificially inflated. It took a few months and having my financial aid director talk with a real administrator (not the "supervisors" you can talk to on the phone) at the loan servicing company
4) You lose any IBR/PAYE/REPAYE (as well as PSLF) eligible payments, as your loan is now paid off and you are taking out a new one. This is why if you plan to consolidate with a federal loan, it's best to do it ASAP.

For most people, I don't think consolidating is going to save them money unless they have loans that need to be brought into the direct loan program to be eligible for REPAYE as well as PSLF. If your loans are already all eligible for those, the only reason to consolidate, in my mind, would be if you just want to start repayment earlier and thus start building up credit towards PSLF earlier. There is also the small and temporary benefit from the possibility of $0 payments, but I wouldn't bank on that because your loan servicer can ask you for updated salary information at any time.

 

[Trisphorin]

There are definitely pros and cons.

As far as I'm concerned, there are the reasons to consolidate federal loans with a federal consolidation loan:
1) To bring FFELP loans into the direct loan program (so they will be eligible for REPAYE, PSLF, etc). This only affects pre-2010 borrowers I believe, as I think 2010 and after are all direct loans now.
2) To allow you to start repayment ASAP after graduation. With the processing time, you typically start repayment 3-4 months prior to when you would normally, as the grace period lasts 6 months. The primary reason to do this is that's 3-4 more PSLF-eligible payments. Not too many benefits otherwise.
3) You can apply for $0 payments for that first year as you will have no income when you apply to consolidate if you have just graduated med school but haven't started internship yet. Of course, you're starting repayment early, so you're only getting about 8 months of $0 payments relative to what you would have had otherwise.
4) If you just don't want 10 different loans, then you simplify things by consolidating. But it's all psychological, since you're only making one payment anyway and your servicer calculates how much goes to each loan.

The cons are:
1) You lose the ability to selectively pay off the lowest interest rate loan
2) Your interest rates will be the average weighted rate of all the loans, rounded UP the nearest eighth of a percent
3) Your servicer may mess up the consolidation (like with mine--they let me add a loan but they forgot to take it into account when calculating my new interest rate, which was now artificially inflated. It took a few months and having my financial aid director talk with a real administrator (not the "supervisors" you can talk to on the phone) at the loan servicing company
4) You lose any IBR/PAYE/REPAYE (as well as PSLF) eligible payments, as your loan is now paid off and you are taking out a new one. This is why if you plan to consolidate with a federal loan, it's best to do it ASAP.

For most people, I don't think consolidating is going to save them money unless they have loans that need to be brought into the direct loan program to be eligible for REPAYE as well as PSLF. If your loans are already all eligible for those, the only reason to consolidate, in my mind, would be if you just want to start repayment earlier and thus start building up credit towards PSLF earlier. There is also the small and temporary benefit from the possibility of $0 payments, but I wouldn't bank on that because your loan servicer can ask you for updated salary information at any time.

I really appreciate your answers!

 

[abolt18]

There are definitely pros and cons.

As far as I'm concerned, there are the reasons to consolidate federal loans with a federal consolidation loan:
1) To bring FFELP loans into the direct loan program (so they will be eligible for REPAYE, PSLF, etc). This only affects pre-2010 borrowers I believe, as I think 2010 and after are all direct loans now.
2) To allow you to start repayment ASAP after graduation. With the processing time, you typically start repayment 3-4 months prior to when you would normally, as the grace period lasts 6 months. The primary reason to do this is that's 3-4 more PSLF-eligible payments. Not too many benefits otherwise.
3) You can apply for $0 payments for that first year as you will have no income when you apply to consolidate if you have just graduated med school but haven't started internship yet. Of course, you're starting repayment early, so you're only getting about 8 months of $0 payments relative to what you would have had otherwise.
4) If you just don't want 10 different loans, then you simplify things by consolidating. But it's all psychological, since you're only making one payment anyway and your servicer calculates how much goes to each loan.

The cons are:
1) You lose the ability to selectively pay off the lowest interest rate loan
2) Your interest rates will be the average weighted rate of all the loans, rounded UP the nearest eighth of a percent
3) Your servicer may mess up the consolidation (like with mine--they let me add a loan but they forgot to take it into account when calculating my new interest rate, which was now artificially inflated. It took a few months and having my financial aid director talk with a real administrator (not the "supervisors" you can talk to on the phone) at the loan servicing company
4) You lose any IBR/PAYE/REPAYE (as well as PSLF) eligible payments, as your loan is now paid off and you are taking out a new one. This is why if you plan to consolidate with a federal loan, it's best to do it ASAP.

For most people, I don't think consolidating is going to save them money unless they have loans that need to be brought into the direct loan program to be eligible for REPAYE as well as PSLF. If your loans are already all eligible for those, the only reason to consolidate, in my mind, would be if you just want to start repayment earlier and thus start building up credit towards PSLF earlier. There is also the small and temporary benefit from the possibility of $0 payments, but I wouldn't bank on that because your loan servicer can ask you for updated salary information at any time.

I'm going to disagree a little here, in that I think consolidating and immediately entering RePAYE is generally the better choice in nearly every situation.

Even with your interest rate rounded up 1/8%, that will likely pay for itself because of the interest subsidy you'll be getting for 4-6 months before the grace period would have ended.

As far as selectively paying off higher interest loans, this is valid unless you, like me, plan to refinance all your loans with a private company immediately after finishing residency. Then being able to differentiate them doesn't matter. Also if you're planning on PSLF, then differentiating them still doesn't matter.

If you're planning on PSLF, the benefit is that you start making qualifying payments sooner, and those payments are $0 a month for up to a year. Even if PSLF doesn't pan out, the interest subsidy by the government during that time decreases your total loan burden.

I think one of the only times RePAYE doesn't make sense is if you have a working high income spouse/SO with whom you cohabitate.


And just something to note about your payments in residency that a lot of people seem to miss (not specifically in response to you Ranger Bob). Your income driven repayment (I'll specifically use RePAYE as an example) is supposed to be determined based on your "discretionary income" rather than your AGI. The federal government defines discretionary income as your AGI MINUS 150% of the poverty level for a family of your size. In my case, I have a family of five and my income during residency will be ~$52K. For a family of 5, 150% of the poverty level is ~$42K. So my discretionary income will be $10K for the year, making my total loan payment for the year become $1000 divided over 12 months while on RePAYE. And the magic of all of it is that while my loans will be accumulating, let's say $15K a year, and I'll be paying $1K a year, the government will pay half of the remaining interest, ie $7K.

 

[RangerBob]

I'm going to disagree a little here, in that I think consolidating and immediately entering RePAYE is generally the better choice in nearly every situation.

Even with your interest rate rounded up 1/8%, that will likely pay for itself because of the interest subsidy you'll be getting for 4-6 months before the grace period would have ended.

As far as selectively paying off higher interest loans, this is valid unless you, like me, plan to refinance all your loans with a private company immediately after finishing residency. Then being able to differentiate them doesn't matter. Also if you're planning on PSLF, then differentiating them still doesn't matter.

If you're planning on PSLF, the benefit is that you start making qualifying payments sooner, and those payments are $0 a month for up to a year. Even if PSLF doesn't pan out, the interest subsidy by the government during that time decreases your total loan burden.

I think one of the only times RePAYE doesn't make sense is if you have a working high income spouse/SO with whom you cohabitate.

And just something to note about your payments in residency that a lot of people seem to miss (not specifically in response to you Ranger Bob). Your income driven repayment (I'll specifically use RePAYE as an example) is supposed to be determined based on your "discretionary income" rather than your AGI. The federal government defines discretionary income as your AGI MINUS 150% of the poverty level for a family of your size. In my case, I have a family of five and my income during residency will be ~$52K. For a family of 5, 150% of the poverty level is ~$42K. So my discretionary income will be $10K for the year, making my total loan payment for the year become $1000 divided over 12 months while on RePAYE. And the magic of all of it is that while my loans will be accumulating, let's say $15K a year, and I'll be paying $1K a year, the government will pay half of the remaining interest, ie $7K.

Your post is very accurate. I should amend my opinion to say most borrowers should at least look into/consider federal consolidation. I hadn't taken into account that between your interest capitalizing sooner (less interest to capitalize than if you wait 4 more months) and starting the REPAYE subsidy benefit earlier, then yes, that should more than make up for the very slight increase in interest rate.

I did not consolidate (aside from bringing just my M1 FFELP loans into the direct loan program), because private consolidation companies had just started popping up and I wasn't anticipating using any of them. And I didn't (and still don't) have faith PSLF won't be changed. So I was wagering on keeping my loans with Uncle Sam and paying them in full, in which case I wanted to pay off those 7.9% GradPlus loans first. Since REPAYE didn't exist at the time, it didn't seem smart to consolidate all my loans together.

I am not at the point at which federal consolidation makes little sense. If someone wants to consolidate, the time to do is is ASAP after graduation.

Private consolidation on the other hand, as you point out, is often best done when you have a signed contract in hand/upon residency graduation. If you are absolutely certain you will not benefit from PSLF, then it's possible it makes sense to consolidate early with a lender who will consolidate residents' loans (DRB and LinkCapital) and then possibly re-consolidate upon finishing residency. However, with the advent of REPAYE and the interest subsidy (which can be quite sizeable--particularly for a family of 5!), combined with the now higher private-consolidation rates for residents (they used to be lower), I don't think many people actually come out ahead, and even if they do, I'm not sure that small amount of savings is worth the loss of federal loan benefits while in residency.

 

[abolt18]

Your post is very accurate. I should amend my opinion to say most borrowers should at least look into/consider federal consolidation. I hadn't taken into account that between your interest capitalizing sooner (less interest to capitalize than if you wait 4 more months) and starting the REPAYE subsidy benefit earlier, then yes, that should more than make up for the very slight increase in interest rate.

I did not consolidate (aside from bringing just my M1 FFELP loans into the direct loan program), because private consolidation companies had just started popping up and I wasn't anticipating using any of them. And I didn't (and still don't) have faith PSLF won't be changed. So I was wagering on keeping my loans with Uncle Sam and paying them in full, in which case I wanted to pay off those 7.9% GradPlus loans first. Since REPAYE didn't exist at the time, it didn't seem smart to consolidate all my loans together.

I am not at the point at which federal consolidation makes little sense. If someone wants to consolidate, the time to do is is ASAP after graduation.

Private consolidation on the other hand, as you point out, is often best done when you have a signed contract in hand/upon residency graduation. If you are absolutely certain you will not benefit from PSLF, then it's possible it makes sense to consolidate early with a lender who will consolidate residents' loans (DRB and LinkCapital) and then possibly re-consolidate upon finishing residency. However, with the advent of REPAYE and the interest subsidy (which can be quite sizeable--particularly for a family of 5!), combined with the now higher private-consolidation rates for residents (they used to be lower), I don't think many people actually come out ahead, and even if they do, I'm not sure that small amount of savings is worth the loss of federal loan benefits while in residency.

All excellent considerations, and I agree very much with your statements, including about refinancing privately, and that probably the only great time to consolidate your loans is upon medical school graduation.

I'm definitely not crossing my fingers for PSLF. My earning potential in anesthesiology also makes PSLF a less desirable/feasible plan.