Welcome back to My Early Retirement Journey. So the other day, I got an email from my student loan servicer. That’s better than a wedding invitation, said no one ever.
What the heck is REPAYE
What is it? REPAYE is one of four income-driven repayment plans offered by the federal government for federal student loans.
How much do I pay? With the REPAYE plan, your payment is generally 10% of your discretionary income. Your discretionary income is calculated as adjusted gross income minus 150 percent of the state poverty guideline for your family size. Additionally, payments can be estimated using their Repayment Estimator.
How long is the repayment period? It depends. The REPAYE plan’s repayment period is twenty (20) years if all loans you are repaying under the plan were received for your undergraduate degree. The REPAYE plan’s repayment period is twenty-five (25) years if any loans you are repaying under the plan were received for a graduate or professional degree program.
What happens at the end of REPAYE if I still have a balance? Under any of the income-drive repayment plans, including REPAYE, any remaining loan balance is forgiven at the end of the repayment period.
What else do I need to know? As of now, the forgiven balance may be considered taxable income, however this single girl is curious to see how exactly the IRS plans to collect that tax bill on a population of “needy” people. Maybe income-driven tax repayment plans? 😊
For more information, go directly to the Federal Government’s Student Aid website.
What does that mean for the single girl
Take a look at the numbers. Here I openly share my $300,000 student loan balance and the income-based monthly payment calculated with the REPAYE program.
To pay or to REPAYE
The difference (Standard Repayment vs REPAYE):
Using standard repayment as the original: $3642
Using REPAYE amount as the new: $566
The percent difference is (3642- 566)/ 3642 * 100 = 84.5% decrease in monthly payment
Because I chose to contribute to a traditional 401k vs Roth 401k, I decrease my adjusted gross income and this helps keep my payments low since the REPAYE payments are income-based. This year (2018) will be the first year I attempt to contribute the maximum to my 401k.
I know debt is sacrilege in the FIRE blogosphere, but each person’s journey is different. It makes more sense to me from a financial standpoint to carry this debt and apply for loan forgiveness after 25 years. I hope and pray it pays off! The most salient ramification is that if I were to take on a mortgage, my debt-to-income ratio would be quite high. Psychologically, carrying a mortgage and this loan is burdensome which plays a role in why I have gotten out of the housing market.