Switch to the Revised Pay As You Earn (REPAYE) plan Right Now, RIGHT MEOW!

Pay 10% of discretionary income regardless of where you work for student loans

Pay 10% of discretionary income regardless of where you work for student loans

Looks like there is a new revision in Dec 2015 to the Pay as You Earn option of the Income-Driven Repayment Plans from the Department of Education. In the before time you must be a new borrower as of Oct. 1, 2007, and must have received a disbursement of a Direct Loan on or after Oct. 1, 2011 to qualify for the Pay as you earn which is a sweet cap of 10% of discretionary income. Now they have a new plan called the REPAYE which is the revised version of this plan that allows anyone to use it. In addition they have extended the payments to 25 years for professional students. A good summary of the new plan can be found here.

The name of the game here is to make 120 monthly payments while serving will count towards a public service loan forgiveness. So you want to make the absolute minimum payments for these 120 payments, unfortunately depending on outstanding balance, sometimes the interest will capitalize. This payment plan would certainly give Dave Ramsey and his legions of mindless debt fearing robots a heart attack. If you are not going to do 10 years in the service or public health, then don’t do the REPAYE and pay off your student loans heavily, then do your debt free scream or whatever.

This is my debt glacier method where you let the debt slowly become huge over your 8 years of undergraduate and professional school. This debt continues to grown as interest snows on top of the existing formed glacier. It then becomes overwhelming and magestic. This pile of debt now becomes a fixture of your natural environment and your only hope is that in 10 years, massive climate change will melt it away instantly when it is forgiven. This last part may be tricky because we always have people trying to eliminate or reduce this loophole to $57,000 so if that happens, boo!

This method is for those of us who had to take out loans for professional school who now find themselves in the service. The 120 payments in a income based repayment plan can be done in 10 years. You just got to make sure you re-certify every year both for federal employment as well as income based repayment every single year. This will ensure you have a ALARA style payment towards you 120 payments which will hopefully forgive the rest of your loans. For example I have $206,000 in student loans that was at 8%!!! I applied my SCRA to the loan via letter (thank you Kelvin!!) which brought it down to 6.5% when I re-consolidated under FEDLOANS which gives a 0.25% discount for direct deposit.

Under the old Income Based repayment I was paying $1,500 a month for my loan as it was based on 15% of discretionary income, now its $1,000 since its based on 10% of the same income. So 120 payments is $120,000 over 10 years which gives me the $80,000 forgiven on top of all of that capitalized 6.5% interest. Which is a win in my book only if you can ignore the gut wrenching growing massive mountain of 6 figure debt in the background for 10 years.

I called 1-800-699-2908 (FEDLOAN) and they walked me through the whole thing, I switched from my IBR (which they wanted me to re-certify anyways) to the REPAYE. I went ahead and took the $5 forbearance for the month rather than pay the $3104.68 which represents the level payment plan as it switches over. This month of forbearance will not count as one of the 150 payments.

Again this whole thing will only work if you are committed to 10 years of Public Service which does not all have to be consecutive. You can do this plan as you are in and get out, work in the pubic sector then get back into public service and these payments will all accumulate. Even without federal service, the outstanding balance on your PAYE and REPAYE loan will be forgiven if you haven’t repaid your loan in full after 20 or 25 years (for professional school students).

-Derp

One Response to Switch to the Revised Pay As You Earn (REPAYE) plan Right Now, RIGHT MEOW!

  1. Pingback: May Annual Financial Spring Cleaning | The Derp Report

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