REPAYE Plan: What is it and what are the changes?
As the cost of higher education continues to rise, student loan debt has become a significant burden for many individuals, including medical professionals. In response to this ongoing issue, the government has proposed changes to the Revised Pay As You Earn (REPAYE) plan, aiming to alleviate some of the financial strain on borrowers.
What is the REPAYE Plan? The Revised Pay As You Earn (REPAYE) plan is an income-driven repayment option available to federal student loan borrowers. It was introduced to provide more affordable monthly payments based on the borrower's income and family size. The proposed changes to federal student loan programs encompass several key aspects that can greatly impact borrowers. Let’s review them below:
The Department proposes the Federal Poverty Guideline be increased from 150% to 225% for the determination of discretionary income based on borrowers family size.
The revision in discretionary income payment percentages, with 5% for undergraduates and 10% for graduates, brings a more nuanced approach to repayment. For borrowers with mixed debt, a weighted average calculation ensures a fair distribution of payment obligations.
Married couples can now opt to file separately, excluding spousal income from the equation, thereby potentially reducing their repayment amounts.
The double consolidation loophole grants Parent PLUS borrowers’ access to the new plan, allowing for new possibilities for repayment options. These alterations aim to address the diverse needs of borrowers and facilitate a more equitable and flexible loan repayment system.
Proposed Changes to the REPAYE Plan: The proposed changes to the REPAYE plan aim to make student loan repayment more manageable and fair for borrowers. While these changes are not yet finalized, they offer a glimpse into potential improvements that could significantly benefit borrowers. Here are some key proposed modifications:
Enhanced Interest Subsidies: The new REPAYE plan offers significant interest subsidies for higher-income couples with graduate degrees. By allowing separate tax filing, providing a 25-year forgiveness period, and subsidizing unpaid interest, borrowers can experience significant reductions in their monthly payments and overall annual interest charges.
Loophole for Parent PLUS Loans: Although Parent PLUS loans are excluded from the new Income Driven Repayment (IDR) plan, there is a loophole known as "double consolidation." This allows Parent PLUS loan recipients to access REPAYE, potentially leading to nearly zero monthly payments and offering opportunities for significant savings and potential loan forgiveness.
Investment Opportunities: In addition to the changes in repayment options, the availability of low or zero-interest loans for graduate borrowers during their studies presents unique investment opportunities. While the direct investment of student loan funds is not explicitly permitted, the fungibility of money allows borrowers to allocate their loan proceeds towards living expenses, thereby freeing up their own income for investment purposes or other financial goals.
It is crucial for higher-earning individuals to carefully evaluate their current repayment obligations, income trajectory, and long-term financial plans when considering a switch to the new REPAYE plan. While the proposed changes offer opportunities for substantial savings, borrowers must assess whether the benefits align with their individual circumstances and goals. Considering factors such as income growth potential, future financial aspirations, and other relevant considerations will help borrowers make informed decisions about their repayment strategies. Borrowers should also stay informed as the new REPAYE rules continue to develop.
What’s on your mind?
We’ll be sharing tidbits of wisdom like this with any subscriber every two weeks, along with deeper dives for our clients every month or so.
What questions do you have that we can answer in future posts? Reply directly to this email and let me know.
Fortress Physicians by the Numbers
🏡 42 Physician Households as Clients
💰 $680,000 Avg Household Income
👩 Average Age 44
💸 $3.25 Million Net Worth
📈 29% Average Savings Rate
Securities and Investment Advisory Services offered through Fortress Private Ledger, LLC. Member FINRA/SIPC
If you found this newsletter valuable, consider sharing it with your friends, or subscribing if you haven’t already.
Talk soon,
Chris