Determining Your Interest Subsidy Under IBR, PAYE or REPAYE

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We've addressed the different Income Driven Repayment (IDR) options before and I hope I've convinced you that for most medical graduates with a large amount of student loan debt and a small resident salary, the best repayment plans to be on are IBR, PAYE and REPAYE.  One of the great benefits of these 3 repayment plans is the interest subsidy.  So how can you find out how much subsidy you qualify for and whether or not you've received them?  Get ready for some math!

Interest Subsidies Under IBR, PAYE or REPAYE

Depending on which income driven plan you are on, your interest subsidy applies differently:

Determining Your interest subsidy

Step 1 - Calculate your interest.

The rules are fairly straightforward, according to Fedloans, you can calculate the interest accrual on your student loans via this simple formula:

Interest rate × current principal balance ÷ number of days in the year = daily interest

Let's apply this to an example.  Say Dr. Financially Responsible (FR) has $50,000 in subsidized loans and $100,000 in unsubsidized loans both with a fixed annual interest rate of 6.8%.  He would accrue:

6.8% × $50,000 ÷ 365 days/year = $9.32 daily interest on his subsidized loans
6.8% × $100,000 ÷ 365 days/year = $18.63 daily interest on his unsubsidized loans

Which translate into ~ $280/month (subsidized) and $560/month (unsubsidized) for a total of $840 total interest each month.  Yikes!

Step 2 - Look up your monthly payment amount.

Every year you are on IBR, PAYE or REPAYE, you have to certify your income with the government at StudentLoan.gov.  In fact, you probably just received a reminder from your loan servicer recently to re-certify your income.  Your monthly payment is calculated based on your income - hence the "income driven" part of Income Driven Repayment.  All you have to do is log into your account online and take a look at your bill to find the amount due.  Take Dr. FR for example, based on his resident salary and family size, the government calculated his monthly payment to be $120 on his subsidized loans and $240 on his unsubsidized loans.  

Step 3 - Subtract your payment amount from interest accrued.

Let's see how Dr. FR would fare in each of the 3 repayment plans.

Of course these numbers will vary depending on your personal situation.  But these simple calculations should get you to a number that's reasonable close to the interest subsidy you are receiving.  Think of this as a type of ongoing loan forgiveness - a bonus from the government for taking the time to understand the many different repayment plans.

Where is my subsidy?

I've been on IBR and now REPAYE since leaving medical school.  I was curious how much subsidy had been paid on my behalf.  The logical first door to knock on was my student loan servicer - Fedloan Servicing.  After all, they are responsible for keeping track of my payments so they should know about the subsidy payments right?  Wrong!  I couldn't find any information about how much interest subsidy I've received on the website.  After multiple phone calls and emails, here is what I learned about these elusive subsidies:

  1. Uncle Sam does not actually send a check to your loan servicer each month for the subsidy.  You loan servicer keeps track of a ledger internally where the subsidy amount simply gets "disappeared" every month.  Not sure why they couldn't just list it under your account. (Hint: contact your loan servicer and ask them to post that information online.)
  2. You can request for a list of all such "disappearances" to be sent to you.  I did.  Since starting repayment in May of 2014, I've received $5,565 in subsidies for my subsidized loans and $1,327 for my unsubsidized loans. 

How is your student loan repayment coming along?  Are you on an income driven plan?  If not, does the interest subsidy change your mind?


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Future Proof, MD

Dr. Bo Liu is an aspiring radiologist-in-training and the founder and editor of the White Coat Money Blog.  He has an interest in interventional radiology and helping his medical colleagues get ahead in this mad world of medicine and money.  When he's not crushing the list at the PACS station or typing up your next favorite blog post, you can usually find him at the local badminton club, movie theater or the most recently opened restaurant.