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RPAYE Repayment Strategy

Started by AndrewMartin, February 02, 2018, 12:36:03 pm

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AndrewMartin

For the revised pay as you earn option, since it forgives all of your unpaid interest for 3 years for subsidized loans, and half the unpaid interest for unsubsidized loans, would it be a good tactic to pay the RPAYE amount for 3 years, and save additional cash on top of that, then pay that cash savings as a large lump sum amount toward the principal once the 3 year interest forgiveness period is up? Wouldn't that allow you to pay it off faster than paying interest and principal for the first 3 years?

I'm not sure if I'm explaining the idea correctly, so just let me know if I should try to more clearly phrase the question.

TheCollegeInvestor

Hey Andrew,

Potentially - but the big flaw I see is where you'd get this extra cash to save. If you make enough money that your RePAYE payment isn't low, you're not going to have much of an interest subsidy (if any).

If your RePAYE payment is low and you get a big subsidy, well it's also because you're not making enough. If you're not making a lot of money, how are you going to save extra cash? Not to say it's impossible - but definitely tough.

Have you read this article on it: https://thecollegeinvestor.com/19246/repaye-student-loan-interest-subsidy/

studentloaned

I'm also in a RPAYE pickle and could really use a second opinion. 

Current RPAYE loan total is $221,600 at 7.125%, for a graduate loans. Currently income is at approx. $100k, but it could slightly fluctuate up or down over the years.

Is it the SAFER bet to just refi with a private loan with PENFED (12 years at 4.91%) or stick with the RPAYE lower monthly payment and deal with the potential tax hit after the 25 years.  My gut says to go with the refi since I can afford the increased payments and like the idea of getting out of debt sooner... but I would love a second opinion to make sure I'm not making a big mistake to get out of the RPAYE program.

Thank you!!!


TheCollegeInvestor

Safer is always keeping your Federal loans and staying on an income-driven plan. The reason is you get forgiveness (and also potentially unlock PSLF if you work in public service), but also get access to deferments and discharges if you need them in the future.

The only reason to refinance would be to save money. And we only recommend people refinance their Federal loans into private loans IF they are on the standard 10-year repayment plan AND play to pay off the loan at or before the 10 year mark.