Dear MS4 around the world:

Congratulations for coming this far! This is your match day/ early medical school graduation present from DWM. This chart will serve you throughout your residency & fellowship.

I will continue to update this chart with legislative changes and new players in the student loan refinancing industry.


MS grad present DWM flow chart

For Larger View/Printing: MS grad present DWM flow chart

You can calculate the minimum monthly payment required by each of the federal repayment options by using Repayment Estimator, U.S. Dept of Education. You will need your loan type, loan amount, loan interest, annual income, and household size.

But if you have any federal/ government student loan, you can just log in and it should automatically use your current numbers to calculate the estimated payments for you.


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Apply to Earnest by clicking here, you will get $300 cash bonus and DWM will get a referral fee when you sign your contract. Win-win!


DFD DRB

Apply to DRB by clicking here, you will get $300 cash bonus and DWM will get a referral fee when you sign your contract. Win-win!


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Apply to CommonBond by clicking here, you will get $300 cash bonus and DWM will get a referral fee when you sign your contract. Win-win!

RePaye vs. Paye vs. IBR vs. Refinance

2 thoughts on “RePaye vs. Paye vs. IBR vs. Refinance

  • May 22, 2016 at 7:43 pm
    Permalink

    How do you calculate your effective interest rate?

    Reply
    • May 23, 2016 at 8:32 am
      Permalink

      Thank you for taking the time to ask questions here. This way other readers can benefit too.

      Here’s how effective interest rate of REPAYE is calculated.

      The following examples will walk you through how it’s done:

      Example 1:
      PGY Married To an Attending and In IBR

      “I have 150k student loan principle, 50k interest, all at 7%. My spouse makes 200k as an attending. We are a family of 6. I make 60k as a PGY3/6. Should I switch to REPAYE?”
      First, calculate your monthly REPAYE payment. Is it affordable? Using this calculator, you can see that your REPAYE monthly payment is $1,759/month.
      You currently have 200k total debt (all consolidated): 150k principle, 50k interest. Your current IBR monthly interest is calculated on the 150k principle. But when you leave IBR to go REPAYE, your 50k interest will capitalize, and your new principle will be 200k.
      Your REPAYE monthly interest is calculated on the new 200k principle:
      200k7%= 14k annual interest without subsidy. Divide that by 12 to get your monthly interest of $1167. Since your monthly payment is greater than the monthly interest you accrue, REPAYE will NOT subsidize you. This means, your interest rate is still 7%. So you should not switch to REPAYE since it ONLY works against you by capitalizing your current interest without any interest reduction.
      If you stick with IBR, your current interest won’t capitalize until you no longer qualify for IBR or when you leave IBR voluntarily.
      Another option to consider is refinancing. If you refinance, you will likely get a 7 year 4.5-5% interest rate with one time capitalization when the loan company buys your loan from the feds. This will give you 200k
      4.5% = 9k in annual interest v.s. your current 150k*7% = 10.5k interest. Not a whole lot of savings, but you may also benefit from a lower $0-100 payment. Obviously refinancing ensures you will not receive PSLF.

      Example 2:
      Married to a Spouse With No Income and In IBR

      “I have 150k student loan principle, 50k interest at 7%. My spouse stays at home. We are a family of 5. I make 60k as a PGY2/6. Should I switch to REPAYE?”
      Per the calculator, your REPAYE monthly payment is $145/month. This means you will enjoy some interest savings by going on to REPAYE. To switch from REPAYE to IBR, there’s one middle step. They will put you on Standard 10 year repayment where you need to make at least 1 payment before you can select REPAYE. If the standard 10 year payment is too high, you can apply to make a reduced payment. Another factor to consider is that when you leave IBR (with the goal of going to REPAYE), your interest will capitalize.
      You currently have 200k total debt (all consolidated): 150k principle, 50k interest. Your current IBR monthly interest is calculated on the 150k principle. But when you leave IBR to go REPAYE, your 50k interest will capitalize, and your new principle will be 200k.
      Your REPAYE monthly interest is calculated on the new 200k principle, so 200k*7%= 14k annually or $1,167 monthly not counting the REPAYE subsidy. Subtract your monthly payment from your monthly interest = $1167 -$145 = $1022. REPAYE will pay 50% of $1022 = $ 511. Your net annual interest after subsidy will be 12 x ($1167 monthly interest -$ 511 monthly subsidy) = $7872
      Thus, your effective interest rate will be 7,872/200,000= 3.94%. Your total interest saved will be $6,132/year on annual simple interest; (Technically there will be a little more savings since the feds calculate interest daily, not annually.)
      You could also compare this to refinancing during residency. Let’s say you can refinance into a 7 year loan with a 4.5% rate [Fat chance. Residents are doing well to refinance into 6% loans lately, but not when this post was submitted to me.-ed] Obviously 4.5% is more than 3.94%, so you’ll end up paying more in interest if you refinance, about $45 more each month. That may change as you progress through residency, however, so if you’re not going for PSLF, you may wish to recalculate your effective interest rate each year and compare to what you can refinance to.
      Two Caveats
      Remember that consolidating your loans will RESET your PSLF 120 payment clock. If you have already consolidated your loans or all your loans are PSLF eligible (don’t need consolidation), you don’t need to worry about this. Also kee
      Also remember that while under current law you can switch from REPAYE back to IBR upon residency graduation, (to avoid the potentially higher payments under REPAYE since those payments aren’t capped like IBR and PAYE payments are) that law could change.

      Reply

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