I am really confused. I need some help. I took out $70,000.00 in direct student loans. I was on IBR for 5 years.  I switch to REPAYE because they were going to subsidize half the unpaid interest. They capitalized my interest to make my balance $87,000.00, but the subsidy would save me in the long run on the taxes for forgiven amounts. I checked my interest, and it is still accruing at the full 6.5% on REPAYE. When I requested a payoff balance, it showed the full amount of accrued interest added onto the loan. So I emailed Fedloan Servicing asking where the subsidy was reflected on my account. I got this response.

“Because no money is actually changing hands, there are no financial statements available to you that reflect this subsidy. A request is being submitted to show how the interest subsidy is reflected on your account. Please allow 7-10 business days for this request to process.”

So are they saying this subsidy only applies if my loans are forgiven in 20 years?  So if I paid off one of my loans tomorrow, I would have to pay all the accrued interest and get no benefit from the subsidy? If I leave this plan, will the subsidy be erased? It sounds like they are saying it is just something accruing in the background. Please let me know because I feel completely scammed. There wasn’t anything in the provided material from the Department of Treasury to say the subsidy was conditional on loan forgiveness.

Wulfric42

I wish it wasn’t so hidden…. I had a similar question regarding the interest subsidy for the first 3 years on IBR. There were no materials detailing exactly HOW it was paid and when. Fedloan servicing was able to see transactions that the govt paid the interest on the subsidized loans on the first of every month, and was able to see how much they paid every month. Perhaps it’s the same with REPAYE? I suppose you can get an excel spreadsheet and chart how much interest you have every day, and see if that number takes a dip when you make a payment or on a certain day of the month…

Thank you for the reply! It is the first of the month, and I do see a small reduction. It appears the period from when I came out of forbearance to my first billing did not receive the subsidy. That would make it 2.5 months before seeing any subsidy credited. I would be upset, but my annual interest accruing will be cut from $5720 to $2860. My plan is to make an extra payment once a year starting on my smallest loan. I will actually get to pay some of the principle on the loan! With $17,000 accrued interest so far, I thought this day would never happen. Thank you!