Student Loan Repayment

[John Burr]

---

Members don't see this ad.

Hey guys,

A D4 here going into residency soon. My school financial aid counselor said that it's always better to choose REPAYE or PAYE than to refinance student loans. He also said that federal student loans (direct and direct plus) accrue simple interest, not compound interest which was not what I was told before. Can anyone tell me which is better to pay off student loans? Also, is it true that student loans accrue simple interest?

 

[rolltidedumptruck]

It depends on your personal situation, (ie. how much debt you have, debt to income ratio etc.) so unfortunately there isn't one easy answer about this. I recommend checking out the student loan planner podcast, he goes into these issues and could give you some perspective.

 

[Awarara]

Your school counselor is correct on both things. I would recommend googling about student loans some more to get a better understanding. Student loans is actually really straight forward once you read about it.

 

[DocMon16]

I am in residency and plan on starting REPAYE this year.

 

[ESPN907]

Plus those income based repayment programs have interest subsidies you should qualify for your first year or two out of school

 

[Xtract]

So whether you go into work directly out of dental school, go to a residency that pays, or one that you pay for, is it still worth entering REPAYE? (400k+ dental school tuition)

 

[Alpha Centauri]

Always stay on REPAYE. They pay for 50% of your interest. Even if your income is like 140k and you are making bare minimum REPAYE payments, you can make individual lump sum payments.

AKA, REPAYE payment is 1,000 a month but you can afford to pay 4000 a month. Stay on REPAYE, pay the 1000 then a week or two later pay another 3,000

 

[gunner4ever]

I am in residency and plan on starting REPAYE this year.

What did you do up till now?

 

[allDAT]

It is true that student loans accrue simple interest. Interest is only capitalized if certain conditions are met - like exiting your grace period.

Unless you owe 150k or less, don't refinance right away. Enter IDR, get some experience under your belt, secure stable employment or use the flexibility of IDR to acquire a practice. Then look at your income and decide if refinancing is right for you. Refinancing can't be undone.

 

[allDAT]

REPAYE only pays 50% of the interest that accrues on the loans, not 100%. The goal is to at least earn enough so that 10% of your discretionary income covers the interest, at that point, there's no benefit to REPAYE and switching to PAYE to shorten repayment towards forgiveness by 5 years isn't a bad idea. Those last 5 years (20 in PAYE vs 25 in REPAYE are really expensive for a dentist).

 

[allDAT]

So whether you go into work directly out of dental school, go to a residency that pays, or one that you pay for, is it still worth entering REPAYE? (400k+ dental school tuition)

Yes. With 400k in student loans, you should enter REPAYE, then consider switching to PAYE if you lose the interest subsidy because your payment covers the interest. When you switch from REPAYE to PAYE, any outstanding interest will be capitalized.

 

[Xtract]

Student loan forgiveness is now tax free; does this mean there is no tax bomb after 20-25 years of repayment?

 

[desertrat12]

Student loan forgiveness is now tax free; does this mean there is no tax bomb after 20-25 years of repayment?

My understanding is this this relief of taxes only goes until 2025