Hi folks! I'm currently on the SAVE forbearance and don't plan on switching to another payment plan until the very last minute of the 90-day timeline. In the meantime, I need some help in determining the best course of action for when I do have to switch payment plans: switching to RAP or switching to PAYE and then eventually to RAP once PAYE sunsets?
Key Info:
- Loan amount: ~$234k (principal is ~$218k and interest is ~$16k)
- Consists of 4 loans (2 Grad Plus and 2 Direct Unsubsidized issued from Sep 2021 through Sep 2022 for grad school)
- Interest rate: Blended rate is ~6.71% (ranges from 5.28%-7.54%)
- Monthly interest expense is ~$1200
- AGI (per latest tax returns): $91,834
- Currently on SAVE forbearance
- Tax filing status: Single
- Live in a VHCOL city
What my monthly payments would currently look like under PAYE and RAP, per Studentaid.gov:
- PAYE: $562 monthly
- RAP: $685 monthly
Additional info:
- I'm not aiming for a PSLF track, though I'm still aiming to pay a relatively low amount and getting forgiveness by the end (unless I'm able to get a higher paying job in 2028 – which is a goal of mine)
- I can technically afford either payment plan, though admittedly, PAYE does provide a bit more of a breathing room with regard to my monthly discretionary income
- Planning to lower my AGI by increasing 401k contribution percentage
Pros and cons I've thought of:
- Pros for RAP:
- Interest subsidy, which would prevent the total balance from ballooning
- Monthly principal payment of $50 that I should be eligible for given my monthly payments don't cover interest
- Cons for RAP:
- RAP payments (from my understanding) are uncapped and highly correlated to your AGI – payments could become costlier for me if I'm looking to change jobs in 2028
- Higher monthly payments than PAYE
- You're locked in for 30 years and are unable to switch to other plans
- This may sound paranoid, but given the current state of the ED (effectively a skeleton crew due to the Trump admin's cuts) and with all the pending applications that have yet to be processed, I'm not sure how responsive ED would be to clerical issues/functionality issues with RAP (e.g., interest subsidy or the $50 monthly principal payment not being applied, etc.,)
- Pros for PAYE:
- Lower monthly payments than RAP
- It might take some time for the ED to process / get RAP running smoothly – PAYE could serve as an in-between option in the meantime
- Cons for PAYE:
- No interest subsidy
- It'll be sunset on July 1, 2028
Given the provided information, what would the best strategy be and why?
Thank you for your help!
Need help figuring best course of action: SAVE -> RAP or SAVE -> PAYE -> RAP?
byu/privateharambe inStudentLoans
Posted by privateharambe