First, I’d like to say thank you to Heather and everyone involved in this forum!  This is really a great site!
I have a few questions that I’m having trouble finding the answers to.  My fiancé has around 200k in grad school loans and she has been on IBR for close to 3 years. So…

1. Is there any benefit from switching her to either PAYE or REPAYE, and what are the positives and negatives of doing so?  From what I can gather, she does qualify for the original PAYE (her loans are from 2010-2013).

2. I see that her unpaid interest is being covered at 50% during the first 3 years, but what happens after the 3 years are up?  I believe REPAYE covers 50% for the entire 25 years.

3. She has some fairly substantial inheritances coming down the pipe, which I don’t believe will affect her taxable income, therefore won’t disqualify her from IBR.  Under IBR are we able to take that money and pay off some of the smaller individual loans?  I was confused by the comparison blog post, it seemed like it said that IBR had maximum allowed monthly payments.  I’m just not certain if we are able to throw lump sums at the debt.

4. Finally, does anyone know what happens to your assets in the event that you get to the 25 year forgiveness mark?  If you own a home and cars and a nice 401k are they going to go after it to reduce that debt before forgiveness occurs.  That’s a scary thought.

Our goal is to make a ton of money and pay this thing off but as that interest accrues, seemingly by the minute, the possibility of us doing so goes down. Any and all advice is appreciated! Thank you!

In regards to #4…what makes you think the government will go after your home and 401k?  Is that something that usually happens?

1. Benefit: payments capped at 10% instead of 15%. I think more interest is subsidized by the govt if your payments do not cover it.
Negative: Switching from IBR to PAYE could be painful. You’d have to pay an “accelerated” payment which is one month of what it would be under a 10-year repayment plan. So, if you have a 200k debt, you’d probably have to pay like $2,500 up front in order to do so. There might be workarounds, but you’d have to call your loan servicer to find out (my advice, ask for a supervisor even if the first rep is nice. You want to make sure you get accurate information).

2. Not sure about REPAYE, but IBR only covers the interest on subsidized loans, and that’s only if your payments aren’t covering it. 3 years is all you get.

3. I’m under IBR, and you can always pay more than your monthly amount. When you do, your account will be in “paid ahead” status unless you request it not to be. That means if I have $100 IBR payments for 12 months, and I plop down $900, my next bill wont be due until after 9 months has passed. It immediately goes to your interest/principal. I’m not sure if you can pay ahead more than 12 months under IBR because it is only scheduled for 12 months, but there is not a maximum allowed payment. You might ask why you wouldn’t want to be in “Paid ahead” status. If you are planning to do PSLF, you have to make 1 payment a month of the required amount, and being in paid ahead status might mean that you might forget to make a payment (you still can, but nothing will be due).

4. Not sure where you heard this from, but from what I can tell they automatically forgive it, and send you a form to report it as taxable income. The only way that assets might be seized is if you cannot pay your taxes. You can claim insolvency if the amount you owe in taxes is more than you currently own, but that’s the only work around. Either that, or congress makes it tax-free.

Your fiance’s situation sounds very similar to mine. I’m currently exiting IBR to enter REPAYE. It will cut the monthly payment by one third (assuming income is unchanged). You do have to exit IBR for one billing cycle but your fiance will likely qualify for a forbearance for this period, which requires a minimum $5 payment. As a poster already mentioned, you can always pay more than what the billing statement requires. Rather than prepaying future payments though, I would explicitly request that the extra money be used to pay down principal. You can do so my writing it on the memo line of the check and again in a letter accompanying the check. Paying down the principal reduces accrued interest. About that inheritance though… if your tax return does not accurately reflect your real income, arguably you should be reporting the inheritance to ED for consideration in your loan payment calculation. I don’t know how ED treats such one-time lump sums in the income-driven repayment calculation. The “tax bomb” at the end of the 25-year period would come in the form of a substantial payment due on that year’s taxes. You will receive a 1099 for the “income” received in the form of the debt forgiven. Let’s say you have an effective tax rate of 25% and your fiance has $100,000 in loans forgiven. That would lead to a $25,000 tax obligation, but it doesn’t have to be paid all at once. The IRS has payment plans that spread the tax burden over several years. Only in the case of delinquency would the IRS begin collections, which can include a parade of horrors, such as property liens and wage garnishment. I think the underlying theory is that gradually rising wages and inflation will allow most borrowers to completely pay off their loans. Ask anyone 25 years into a 30-year mortgage how much they pay per month and your jaw will drop at the pittance they pay thanks to inflation.

I believe that when you pay more than the monthly bill date, it automatically goes to principle (as long as the interest is paid off). They don’t withhold your payments until they are due, they apply them immediately to your balance and extend your next due date if it is over the monthly amount. I know for certain Navient does this… I haven’t tried it with Fedloan servicing but they told me over the phone it was the same way. I don’t see any benefit to not extending your due date, unless you have a bad habit of forgetting to pay and you need that monthly reminder. Financially, it makes no difference, and I’d prefer to have a few months where nothing is due in case I suddenly can’t make a payment for some reason….