A new twist on the existing Income-Based Repayment (IBR) and Pay-As-You-Earn (PAYE) programs to adjust student loan payment programs to income – just became operational in the final weeks of the end of 2015. The program will potentially benefit up to 5 million Americans who are now enrolled in the IBR program, which caps mandatory student loan payments at 15 percent of income. Under REPAYE, these workers may qualify to lower their payments by as much as a third, to 10 percent of income.
What does this mean for doctors? Is it a good idea? In some cases, yes, in some cases no, depending your individual circumstances.
Under previous versions of income-based repayment programs, the rules provided a cap on your expected payment, no matter what your income was. That is, no matter how high your income rose, your expected payment would not increase beyond the payment that would pay off your loan in ten years, under the IBR rules.
This isn’t a bad problem to have, as things go. But the old system created a nice little loophole for some doctors. Here’s how: If you start the process in residency, when you’re earning, say, between$50,000 and $60,000 per year, they set your payment at 10 percent of your income early on. Then, as your income increases, your payment increases, but never beyond the payment that would be sufficient to pay off the loan within ten years. The relatively low payment may not be enough to pay off the loan after 25 years – at which time the balance is forgiven.
REPAYE, however, does away with this cap – potentially exposing you to higher payments as your income increases – and reducing your likelihood of getting any significant student loan balance forgiven at the end of 25 years.
Furthermore, under previous income-based repayment plans, you could qualify with your own income, even if you are married. Under REPAYE, though, you must include your spouse’s income in the payment calculations. This is true even if you file taxes separately.
This means if your spouse’s income is comparable to yours, REPAYE won’t make much sense unless he or she also has a comparable amount of student loan debt.
So what’s the bottom line?
“If you’re going for PSLF [Public Service Loan Forgiveness], and currently in PAYE, you don’t want to switch to REPAYE because you’ll end up with less forgiveness due to making bigger payments as an attending,” writes the White Coat Investor. “If you are going for PSLF and currently in IBR there is a decent chance you do not want to switch to REPAYE, but you have to run the numbers.”
Doctor Disability Insurance, Inc. is an innovative, one-stop service that makes disability insurance shopping quick, affordable, and easy to understand. Physicians save time and money by comparing plans and prices from multiple insurance companies. The site provides free quotes from leading names in the disability insurance industry along with friendly and knowledgeable customer support. The best values in the insurance industry are located in one place and are available any time doctors are ready, including late at night and on weekends.
Based in San Clemente, California, President and CEO Charles Krugh is a Certified Financial Planner with more than 15 years of experience working with people in the medical industry.
Call us toll free at 866-899-7318 to speak to one of our disability insurance professionals.