What happens if I switch from REPAYE to PAYE?

[deleted898085]

I'm a pharmacy student and will graduate in 2020. My loans are 320K currently. Interest rates are from 6% to 7.6%.
I will apply for REPAYE. What happens if I switch from REPAYE to PAYE, let's say, in 2035-2039?
Will I have to pay back all the subsidized interest I get from 2020 to 2039? Will my loan be forgiven in 2040?
Background: I'm a single mom (with 2 small kids) with an estimated income ranging from 30K to 60K annually. (Their dad helps to pay for housing, food...).

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[RangerBob]

What would be the reason to switch?

No, you don’t repay you’re subsidized interest.

Your interest will capitalize (it does anytime you change repayment plans).

Your income-based forgiveness plan resets (payments made one REPAYE don’t count towards PAYE forgiveness, etc.) At least this is the case currently.

You still preserve credit for PSLF.

 

[deleted898085]

What would be the reason to switch?

No, you don’t repay you’re subsidized interest.

Your interest will capitalize (it does anytime you change repayment plans).

Your income-based forgiveness plan resets (payments made one REPAYE don’t count towards PAYE forgiveness, etc.) At least this is the case currently.

You still preserve credit for PSLF.

I thought the plan won't reset. Payments made on repaye will count towards paye plan. That's the reason I may want to switch if the law somehow changes on tax on forgiven amount.

 

[deleted898085]

Not sure what this means "interest will capitalize."
I know interest will capitalize on both repaye and paye after 6 months after I graduate.

 

[RangerBob]

I thought the plan won't reset. Payments made on repaye will count towards paye plan. That's the reason I may want to switch if the law somehow changes on tax on forgiven amount.

Call your loan servicer, but when I spoke with mine they told me it does reset. This makes sense as most programs have different timeframes for forgiveness.

 

[RangerBob]

Not sure what this means "interest will capitalize."
I know interest will capitalize on both repaye and paye after 6 months after I graduate.

Interest capitalizes when you start repayment (at the end of your grace period) and any time you c hanger payment plans or enter forbearance.

What that means is the interest gets added to the principle and now that can accrue interest. As long as the interest isn’t capitalizing, it’s essentially just sitting in a pot at 0%, which is nice.

So make sure you submit your yearly certification in time or you interest capitalizes. And stick with one repayment program or it will capitalize again (unless the terms of the new program outweigh the drawback of capitalization, such as when I switched from IBR to REPAYE and the interest subsidy made up for the capitalized interest)

 

[NITRAS]

threads like this are so depressing.

 

[deleted898085]

Interest capitalizes when you start repayment (at the end of your grace period) and any time you c hanger payment plans or enter forbearance.

What that means is the interest gets added to the principle and now that can accrue interest. As long as the interest isn’t capitalizing, it’s essentially just sitting in a pot at 0%, which is nice.

So make sure you submit your yearly certification in time or you interest capitalizes. And stick with one repayment program or it will capitalize again (unless the terms of the new program outweigh the drawback of capitalization, such as when I switched from IBR to REPAYE and the interest subsidy made up for the capitalized interest)

Thank you for your explanation.
I thought interest capitalizes every year. But it seems like from what you said, it doesn't capitalize every year unless I forget to submit the paperwork.
Let me be clear: my principal is 300k, my interest is, let's say, 30k by 12/2020. (I will graduate in 5/2020.)
So in 1/2021, I will enter repayment, my new principle is 330k.
Interest of 2021 is 23k (@7%)
I thought my new principle in 1/2022 is 353k. Was I not correct?
Or as you said, the principle is always 330k for 25 years as long as I submit the paperwork each year, isn't it?
So
330k + 23k by the end of 2021
330k + 23k + 23k by the end of 2022 and so on?

In this case I will pick and stick with one plan until it's done. I don't plan to ask my servicer unless I switch. From what I've heard, some of the agents don't know these thoroughly.

 

[deleted898085]

threads like this are so depressing.

If you know how pharmacy field is right now, it's more depressing. Demand decreases, supply increases. No job for graduates in 2019 and later.
A retail pharmacist made $68/h back in 2012. That's what I've heard from my pharmacy manager when I was a tech in 2012.
From my friends who graduated in 2017, it's $58/h; in 2018, $52; 2019, $48 and most grads in 2019 don't have a job yet.

 

[RangerBob]

Thank you for your explanation.
I thought interest capitalizes every year. But it seems like from what you said, it doesn't capitalize every year unless I forget to submit the paperwork.
Let me be clear: my principal is 300k, my interest is, let's say, 30k by 12/2020. (I will graduate in 5/2020.)
So in 1/2021, I will enter repayment, my new principle is 330k.
Interest of 2021 is 23k (@7%)
I thought my new principle in 1/2022 is 353k. Was I not correct?
Or as you said, the principle is always 330k for 25 years as long as I submit the paperwork each year, isn't it?
So
330k + 23k by the end of 2021
330k + 23k + 23k by the end of 2020, and so on?

In this case I will pick and stick with one plan until it's done. I don't plan to ask my servicer unless I switch. From what I've heard, some of the agents don't know these thoroughly.

Correct-the principle won’t grow because the interest isn’t capitalizing/getting added on to it.

So at the end of 2021 you have that $330k at 7% and another $23k that is at 0%. Following year it’s $46k at 0%. Keep in mind your REPAYE/PAYE payments will only chip away at the interest (that $23k each year). REPAYE will also keep the accumulating interest down with the subsidy.

I would still not recommend going for a 20 or 25 year forgiveness plan-there are so many unknowns and the government could change things in the future. Getting a job at a nonprofit and going for PSLF (10 year forgiveness) would be the smarter way to go if you cannot pay the loans off in full. But even with PSLF there are concerns.

 

[deleted898085]

I see. 23k each year with 0%.
Thank you!
If my income is 60k/yr then my payment is about 3k/yr. So I still own 20k. With REPAYE, I'll get 10k subsidy. So I own 10k/yr of interest. 250k for 25 yrs.
Plus 330k = 580k debt in 2045.
Tax on amount forgiven is about 200k that I have to pay.
So total amount I have to pay back is 200k + 3k/yr x 25 = 275k.
If the law stays the same, it looks like I'll pay a bit less than the amount I borrow (300k).
I don't know if I can find a job as a pharmacist, not to mention a job at nonprofit. Pharmacist job market is tight right now. Nowhere is hiring.
I don't think the laws on student loans will change for worse. I think it will stay the same or maybe change for better