Student loan payments: get advice and actual numbers here Forum

[Tiago Splitter]

1) When would PAYE be better than refinancing? The interest rate will still be really high, so the loans aren't really going away. Is this only desirable if I see myself going to govt/PI sooner/longer than expected? Although I can refi again, I can't gain back the govt benefits (e.g. PSLF), and that's really the only hesitation with the decision. Maybe irrational but it's uncomfortable to wait even while making low payments (or even at a low rate honestly).

PAYE is better than refinancing if you want to build savings. It also can be much better if you end up getting something forgiven at the end of 20 years. It's obviously hard to know whether this will happen but when thinking about interest rates you have to factor in the value of forgiveness. Paying 250k over 5 years is not nearly as good as paying 300k over 20 years.

Also, as long as there's a chance you'll do government work for ten years refinancing is a poor choice IMO.

Given that my wife is going for PSLF on PAYE, we can also save with her income (albeit not as much I guess). Do we know if the tax bomb is a real thing? Because maybe the savings would be wiped out anyway. Lastly, idk if banking on both of us getting forgiveness is a good idea. I mean what if the program gets cut? I dunno, I think it might be better to just refi. Ugh.

I'm including the tax bomb in my numbers. Just assume 40% or so on whatever is left. Still a much better deal than 100%.

But again if you do well enough to pay it off in year 17 or whatever the forgiveness doesn't do you a lot of good. It's still simple interest though, so don't forget to consider that vs. the compound you'd be paying under a refi.

[imalreadyamember?]

1) When would PAYE be better than refinancing? The interest rate will still be really high, so the loans aren't really going away. Is this only desirable if I see myself going to govt/PI sooner/longer than expected? Although I can refi again, I can't gain back the govt benefits (e.g. PSLF), and that's really the only hesitation with the decision. Maybe irrational but it's uncomfortable to wait even while making low payments (or even at a low rate honestly).

PAYE is better than refinancing if you want to build savings. It also can be much better if you end up getting something forgiven at the end of 20 years. It's obviously hard to know whether this will happen but when thinking about interest rates you have to factor in the value of forgiveness. Paying 250k over 5 years is not nearly as good as paying 300k over 20 years.

Also, as long as there's a chance you'll do government work for ten years refinancing is a poor choice IMO.

Given that my wife is going for PSLF on PAYE, we can also save with her income (albeit not as much I guess). Do we know if the tax bomb is a real thing? Because maybe the savings would be wiped out anyway. Lastly, idk if banking on both of us getting forgiveness is a good idea. I mean what if the program gets cut? I dunno, I think it might be better to just refi. Ugh.

I'm including the tax bomb in my numbers. Just assume 40% or so on whatever is left. Still a much better deal than 100%.

But again if you do well enough to pay it off in year 17 or whatever the forgiveness doesn't do you a lot of good. It's still simple interest though, so don't forget to consider that vs. the compound you'd be paying under a refi.

It's not simple interest? Are you sure? I just remembered another reason I've been waiting to refinance: I have low payments right now because I'm on PAYE with my measly clerk salary. If I refinance, even if I'm saving money long-term they're still gonna require a min payment that is way higher than my current payment. Right now I pay about $700 for all 4 loans. After a refinance it would be at least 3 times that I think. So maybe I should wait.

[Mr. Peanutbutter]

I thought refi student loans were simple interest, too, it's just that you have to capitalize the accrued interest (again) when you refi?

[bk1]

1) When would PAYE be better than refinancing? The interest rate will still be really high, so the loans aren't really going away. Is this only desirable if I see myself going to govt/PI sooner/longer than expected? Although I can refi again, I can't gain back the govt benefits (e.g. PSLF), and that's really the only hesitation with the decision. Maybe irrational but it's uncomfortable to wait even while making low payments (or even at a low rate honestly).

See Tiago's answer. But generally I think PAYE vs refinance is a question of priorities, realistic career assessments, and risk tolerances. Personally, I like the idea of my school debt being gone and not having to deal with it so I put a higher value on refinancing than most. There's a ton of discussion on this topic in this and other threads so I'd search for it.

3) The "healthy" credit card debt is on a card still in the 0% APR period. It has to be paid eventually, but it's not accruing interest.

Fair enough.

4) Most important: I see what you mean about my current interest rates not mattering for the refi rate. But doesn't it matter what my income is? Aren't they going to give me a lower rate if I say "I make 190k" vs. "I make 58k"? That's the main reason I thought I would wait until I start---being able to report my income as much higher. On that note, since my salary raises automatically every year, does that make any difference to them?

Yes, the higher income matters. You were debating refinancing "when I start work" versus "waiting a few months" so in that sense your income should be the same.

The salary raises might matter if you're on the edge of being accepted (e.g., you might have to wait until you get the raise to be approved) but they won't matter if you are already accepted (i.e., they aren't going to give you a better rate by assuming you will get raises).

5) How do I know that the bank is going to approve me for a certain set of loans? I don't want to mix and match to see what gets approved if it means my credit is pulled each time. And if I understand you correctly, I wouldn't get a lower rate by leaving out Sallie Mae? That makes sense yet I always thought the opposite. I guess I'm mixing up consolidation (all loans grouped together at their average interest rate) with refi.

You can't know for sure. You can get a feeling by talking to a loan officer (for example, the loan officer I worked with essentially told me I'd have to either raise my liquidity, wait till I was a second year, or get a cosigner to be approved before I actually submitted the paperwork). It is in the bank's interest not to waste time reviewing an application they would deny so they aren't going to hide the ball. I also don't understand the "mix and match" comment. You will have to disclose all loans you have when you apply for refinancing and the amount of other loans you have (whether it is student loans you don't ask to refinance or other types of loans such as for a car/house) affect your ability to be approved.

Credit pulls have a minimal impact so I wouldn't worry about that too much. They also might treat all pulls in a short period of time (e.g., 30 days) as a single pull. I know they do that for mortgage and car loan pulls, but not sure if they do that for student loan refinancing.

Yes, leaving out Sallie Mae is unlikely to make a difference and you were mixing consolidation with refinancing. Consolidation is guaranteed I believe (you don't have to be approved). Federal loan consolidation is where your federal loans are combined into a single loan with a single payment that has the weighted average of the rates. It doesn't apply to private loans. This is different from refinancing (which is getting a whole new loan) and generally not advised (because it removes your ability to attack the highest interest rate loans first).

[bern victim]

I thought refi student loans were simple interest, too, it's just that you have to capitalize the accrued interest (again) when you refi?

interest capitalizes daily.

fed loans are only simple interest while you are in "partial financial hardship" (meaning your PAYE payment is less than the 10-year standard repayment). if you leave PAYE or lose partial financial hardship, your accrued interest capitalizes.

[bk1]

interest capitalizes daily.

Mine does not. Based on brief googling, I suspect this is generally true for refied student loans.

[bern victim]

never mind, i'm dumb

[imalreadyamember?]

1) When would PAYE be better than refinancing? The interest rate will still be really high, so the loans aren't really going away. Is this only desirable if I see myself going to govt/PI sooner/longer than expected? Although I can refi again, I can't gain back the govt benefits (e.g. PSLF), and that's really the only hesitation with the decision. Maybe irrational but it's uncomfortable to wait even while making low payments (or even at a low rate honestly).

See Tiago's answer. But generally I think PAYE vs refinance is a question of priorities, realistic career assessments, and risk tolerances. Personally, I like the idea of my school debt being gone and not having to deal with it so I put a higher value on refinancing than most. There's a ton of discussion on this topic in this and other threads so I'd search for it.

3) The "healthy" credit card debt is on a card still in the 0% APR period. It has to be paid eventually, but it's not accruing interest.

Fair enough.

4) Most important: I see what you mean about my current interest rates not mattering for the refi rate. But doesn't it matter what my income is? Aren't they going to give me a lower rate if I say "I make 190k" vs. "I make 58k"? That's the main reason I thought I would wait until I start---being able to report my income as much higher. On that note, since my salary raises automatically every year, does that make any difference to them?

Yes, the higher income matters. You were debating refinancing "when I start work" versus "waiting a few months" so in that sense your income should be the same.

The salary raises might matter if you're on the edge of being accepted (e.g., you might have to wait until you get the raise to be approved) but they won't matter if you are already accepted (i.e., they aren't going to give you a better rate by assuming you will get raises).

5) How do I know that the bank is going to approve me for a certain set of loans? I don't want to mix and match to see what gets approved if it means my credit is pulled each time. And if I understand you correctly, I wouldn't get a lower rate by leaving out Sallie Mae? That makes sense yet I always thought the opposite. I guess I'm mixing up consolidation (all loans grouped together at their average interest rate) with refi.

You can't know for sure. You can get a feeling by talking to a loan officer (for example, the loan officer I worked with essentially told me I'd have to either raise my liquidity, wait till I was a second year, or get a cosigner to be approved before I actually submitted the paperwork). It is in the bank's interest not to waste time reviewing an application they would deny so they aren't going to hide the ball. I also don't understand the "mix and match" comment. You will have to disclose all loans you have when you apply for refinancing and the amount of other loans you have (whether it is student loans you don't ask to refinance or other types of loans such as for a car/house) affect your ability to be approved.

Credit pulls have a minimal impact so I wouldn't worry about that too much. They also might treat all pulls in a short period of time (e.g., 30 days) as a single pull. I know they do that for mortgage and car loan pulls, but not sure if they do that for student loan refinancing.

Yes, leaving out Sallie Mae is unlikely to make a difference and you were mixing consolidation with refinancing. Consolidation is guaranteed I believe (you don't have to be approved). Federal loan consolidation is where your federal loans are combined into a single loan with a single payment that has the weighted average of the rates. It doesn't apply to private loans. This is different from refinancing (which is getting a whole new loan) and generally not advised (because it removes your ability to attack the highest interest rate loans first).

This is, again, insanely helpful and I cannot thank you enough. I misunderstood when you said to refi immediately, and now I understand. I'll do it pretty much ASAP when I start at my firm. Thank you again!

[El Pollito]

i think my loans are just in permanent forbearance

thanks REPAYE

[Anonymous User]

Not sure if someone has asked already, but I couldn't find it in the thread. REPAYE covers 50% of unpaid interest during the first three years. Is that based purely on what you pay with your minimum monthly payment or do they factor in any additional payments that you make?

[El Pollito]

sofi has twice rejected me for loans i didn't apply for. what a shit company.

[bk1]

Not sure if someone has asked already, but I couldn't find it in the thread. REPAYE covers 50% of unpaid interest during the first three years. Is that based purely on what you pay with your minimum monthly payment or do they factor in any additional payments that you make?

I could be wrong, but I do not believe it factors in additional payments based on a reading of the summary from the Federal Register (see https://www.gpo.gov/fdsys/pkg/FR-2015-0 ... -16623.pdf). The summary defines "monthly payment amount" as:

The proposed regulations would add a new § 685.209(c), establishing the REPAYE plan as a third ICR plan under which a borrower’s monthly payment amount is determined based on the borrower’s adjusted gross income (AGI) and family size.

With regards to the interest subsidiary, the summary states:

Under proposed § 685.209(c)(2)(iii)(B), if a borrower’s monthly payment amount is not sufficient to pay the accrued interest on
the borrower’s Direct Unsubsidized Loan, Direct PLUS Loan, or on the unsubsidized portion of a Direct Consolidation Loan, the Department would charge the borrower 50 percent of the remaining accrued interest. In addition, the Department would charge the borrower 50 percent of the remaining accrued interest on a Direct Subsidized Loan or the subsidized portion of a Direct Consolidation Loan for which the borrower has become responsible for accruing interest under § 685.200(f)(3).

I will note that the summary does appear to use "monthly payment" and "monthly payment amount" interchangeably. But at least according to that language I would believe the interest subsidy is based off the calculation of the REPAYE payment, not the amount you actually pay each month. This makes sense in my mind because you could, in theory, increase your interest subsidy by paying less than the minimum payment (assuming there aren't other provisions that would affect this when you default by not meeting your minimum payments).

[El Pollito]

oh sorry repaye just keeps you in forbearance until you die so none of that matters

[Anonymous User]

Thanks, bk1!

[Anonymous User]

I have currently have $240k in various UG and LS gov't loans, which I have been aggressively paying for the last two years on a biglaw salary. I was adverse to refinancing because I liked the safety blanket of the gov't forbearance programs and the like. I now am thinking of refinancing to lower my interest rate because I'm still in biglaw and am not currently looking to leave and because of the raise. Because of the interest to principal ratio curve (where more interest is paid early in the loan) is there a point where I've already gotten ahead of my interest and it makes less sense to refinance, or am I thinking of this wrong?

Long-time, not that active, TLSer that probably should have spent more time ITT.

[Tiago Splitter]

I have currently have $240k in various UG and LS gov't loans, which I have been aggressively paying for the last two years on a biglaw salary. I was adverse to refinancing because I liked the safety blanket of the gov't forbearance programs and the like. I now am thinking of refinancing to lower my interest rate because I'm still in biglaw and am not currently looking to leave and because of the raise. Because of the interest to principal ratio curve (where more interest is paid early in the loan) is there a point where I've already gotten ahead of my interest and it makes less sense to refinance, or am I thinking of this wrong?

Long-time, not that active, TLSer that probably should have spent more time ITT.

You're still paying the same interest rate, there's just less interest to pay because the principal balance is lower. If you refi, you'll pay even less interest still. So if you can get a nice rate cut you should refi given that you're planning to pay the whole thing off.

[Anonymous User]

I have currently have $240k in various UG and LS gov't loans, which I have been aggressively paying for the last two years on a biglaw salary. I was adverse to refinancing because I liked the safety blanket of the gov't forbearance programs and the like. I now am thinking of refinancing to lower my interest rate because I'm still in biglaw and am not currently looking to leave and because of the raise. Because of the interest to principal ratio curve (where more interest is paid early in the loan) is there a point where I've already gotten ahead of my interest and it makes less sense to refinance, or am I thinking of this wrong?

Long-time, not that active, TLSer that probably should have spent more time ITT.

You're still paying the same interest rate, there's just less interest to pay because the principal balance is lower. If you refi, you'll pay even less interest still. So if you can get a nice rate cut you should refi given that you're planning to pay the whole thing off.

But if you stay on schedule I think that you pay more interest in the first months/years and then less at the back end. A scheduled payment is credited like 90/10 to interest in your first year, and then goes closer to 50/50, and then near the end of your loan I think that scheduled payments are basically then credited only to principal. I think that that how the lender makes sure they get there's first. Thus, the thought was that, at some point, I'd think that refinancing would cost you since you've gotten to the point that your payments are credited mostly against principle (i.e., you are recalculating the whole loan on a lower interest rate when your principal is still high but you've paid a lot of the total calculated interest). No idea where the line is though. Sound right?

[Tiago Splitter]

I have currently have $240k in various UG and LS gov't loans, which I have been aggressively paying for the last two years on a biglaw salary. I was adverse to refinancing because I liked the safety blanket of the gov't forbearance programs and the like. I now am thinking of refinancing to lower my interest rate because I'm still in biglaw and am not currently looking to leave and because of the raise. Because of the interest to principal ratio curve (where more interest is paid early in the loan) is there a point where I've already gotten ahead of my interest and it makes less sense to refinance, or am I thinking of this wrong?

Long-time, not that active, TLSer that probably should have spent more time ITT.

You're still paying the same interest rate, there's just less interest to pay because the principal balance is lower. If you refi, you'll pay even less interest still. So if you can get a nice rate cut you should refi given that you're planning to pay the whole thing off.

But if you stay on schedule I think that you pay more interest in the first months/years and then less at the back end. A scheduled payment is credited like 90/10 to interest in your first year, and then goes closer to 50/50, and then near the end of your loan I think that scheduled payments are basically then credited only to principal. I think that that how the lender makes sure they get there's first. Thus, the thought was that, at some point, I'd think that refinancing would cost you since you've gotten to the point that your payments are credited mostly against principle (i.e., you are recalculating the whole loan on a lower interest rate when your principal is still high but you've paid a lot of the total calculated interest). No idea where the line is though. Sound right?

That's not how it works. Think about it this way:

You have 200k debt at 7% interest. Assuming you make one payment a year, interest is 14k.

Now you've paid some of it down and have 100k debt at 7% interest. That year you'll pay 7k in interest. Sure, from your fixed payment more goes to principal now than interest, but the rate is still 7%.

If you refi that 100k to 4% interest, you'd only pay 4k in interest rather than 7k. The only reason not to refi is to retain the government forbearance protections. But assuming you can refi for a lower rate you are paying more for those protections, so if you don't plan to need them it makes sense to refi.

[bk1]

Tiago is correct. You pay more interest at first because your balance is higher. Reducing your interest rate will always save you money, but it will save you less money the lower your balance is.

Whether you should refi depends on whether you are okay with sacrificing federal loan protections in exchange for a lower rate.

[ballouttacontrol]

Wrt above couple comments... refinancing WILL capitalize any unpaid interest ya?

So under repaye my interest would probably be more than my payments, but this unpaid (and subsidized under repaye) interest would capitalize once I refi. Right?

[bk1]

Wrt above couple comments... refinancing WILL capitalize any unpaid interest ya?

So under repaye my interest would probably be more than my payments, but this unpaid (and subsidized under repaye) interest would capitalize once I refi. Right?

Functionally yes, though I would say this is technically incorrect (and the subsidized interest never capitalizes because you never owe it).

Under REPAYE, if your payments are less than the full amount of interest that accrues: (1) some of it is subsidized (i.e., you are straight up not charged that interest), and (2) the interest that does accrue is not capitalized. You still owe that interest, but the unapid interest won't get added to the principal and thus interest won't accrue on that unpaid interest (i.e., it doesn't capitalize). If you are under REPAYE when you decide to refinance, you will look and see how much you owe in total, which will include the remaining principal and any unpaid interest (even if not capitalized). The refinancing bank then cuts a check for this amount and you owe the bank a loan on that amount, which you begin paying interest on that amount. This is why I say it's technically incorrect, because the unpaid interest is never added to the original principal, BUT the principal of the new loan you take out is in the total amount of the remaining principal plus the unpaid interest.

[Br3v]

What happens if you can't make payments under a private loan (generally)? Under a government loan, for example, you could switch your re-payment plan to a higher # of years and thus reduce the monthly payment (at the cost of paying more in the long run). Is that something private loans a typically allow? I'm assuming even if you convert government loans into private you cannot discharge the loans either?

[bern victim]

most private loans have forbearance options if you have financial hardship, but it can be hard to qualify. you might just get fucked

[bk1]

What happens if you can't make payments under a private loan (generally)? Under a government loan, for example, you could switch your re-payment plan to a higher # of years and thus reduce the monthly payment (at the cost of paying more in the long run). Is that something private loans a typically allow? I'm assuming even if you convert government loans into private you cannot discharge the loans either?

Bern is right that some have unemployment protections such as SoFi (https://www.sofi.com/faq/), CommonBond (https://commonbond.co/blog/student-loan ... otections/), and DRB (https://student.drbank.com/). Definitely not all do though. If you can't make the payment (and have run out of unemployment protections), you would default. Presumably the bank would likely try to work with you (though it's going to hurt your credit) since they have an incentive to actually get the money out of you if they can.

Ideally, if you see something coming (e.g., getting shoved out of biglaw), you'd try to refi again to a longer term if you didn't think you could make the payments after the event happened. You'd also ideally have an emergency fund that could cover your payments for several months.

[imalreadyamember?]

Does anybody know if one can change household size on PAYE without having to re-certify salary? And do you have to let them know every time your salary changes? Two things happened since my wife certified her salary amount.

1) We got married (i.e. her household increased to 2 while we still file at the single rate)
2) She got a bump for her 2nd clerk year

If she has to re-certify when changing her household, is it worth it? If she has to re-certify regardless then obviously it's better to change the household. I'm just not sure if her raise will offset or even outweigh the benefit of having a larger household.

Also I just realized I'm not sure if we should even file separately for this year; we're both clerks but I'll have a biglaw stub year for 2-3 months. Generally it will be better to have our salaries separate so I'm operating under the assumption that it's just easier to file separately even this year. Is there any strong reason I'm incorrect? It'd be probably a bitch to change it at this point since she's already gotten her set payments for PAYE and our withholding is set at the single rate, etc.