If anyone is not on (RE)PAYE payment plan, why?

[MartialArtDPT]

Hi all. I am looking at options on my student loans and after lots of consulting and researching, I can't understand why anyone who qualifies would not use REPAYE or especially PAYE plans for debt that exceeds a certain amount (depending on income, perhaps somewhere around 35k+). If you qualify and don't use these plans, can you help me understand why? I want to get as big a picture as I can.

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[topher031888]

Hi all. I am looking at options on my student loans and after lots of consulting and researching, I can't understand why anyone who qualifies would not use REPAYE or especially PAYE plans for debt that exceeds a certain amount (depending on income, perhaps somewhere around 35k+). If you qualify and don't use these plans, can you help me understand why? I want to get as big a picture as I can.

When I graduated I owed about 60k. With the income driven payment plans you loans are forgiven after 20 or 25 years but with a huge catch. The forgiven amount is considered taxable income and given that the loans are generally much larger than when you started on the plan, this tax hit can be quite substantial (this could change but I would not risk it personally). Meaning that you should be saving money the whole time in order to pay the taxes, this has to be considered along side the actual payments you will be making. In my situation it would cost me more money (and a lot more self discipline) to go into a income based plan and using my traditional payment plan I have a lower interest rate and should pay off my loans in another 8-9 years. I have colleagues who owe substantially more and REPAYE and PAYE plans were the best option for them.

I strongly recommend against relying on your loan servicer for accurate information, they barely understand how these things work. They are a big reason so many have failed in getting their loans forgiven (as you may have seen in the media), those people were not getting randomly denied, they just didn't do it right. Some of them were given bad information and some didn't bother to figure it out at all. I have been working with Joseph Reinke, who runs a company called fitbux. All the loan counseling is free and he never pressured me to refinance until it was in my best interest (he makes his money a few ways but refinancing student loans is one of them). There are several other great loan counseling groups out there but I strongly recommend fitbux. It was his calculator that helped me decide the most efficient repayment strategy for my situation and goals.

 

[MartialArtDPT]

Great answer, thanks!

 

[nd_dpt]

Just got off of a call with fitbux myself. I owe 137k and they recommended the extended fixed plan because it is more flexible and low maintenance compared to an IBR plan, which works better for me. Highly recommend setting up a call with them to get personalized advice from experts.