I expected the Apocalypse to come. That’s not the problem. The problem is that it’s so tacky.

I’m on REPAYE. One of the best things about REPAYE is that, depending on your income, the government might subsidize part of your repayment. This is important because, in a world where you still can’t refinance student loan interest rates, it’s the only “official” way to make your effective interest rate go down.

For the sake of simple math, let’s say your interest accrues at $300 a month, but based on your income you can afford $100 (they calculate what they think you can afford). The difference between what you can afford and what you accrue is $200. They will pay 50% of that. So every month, you don’t have to pay $100 in interest.

Now, the way they think you’re going to use it is by making your minimum payment, and then the extra $100 nobody paid gets added to your loan balance, and it goes up every year. At the end of 20-25 years, the whole amount gets “forgiven” and you have to pay taxes on that forgiveness.

BUT if your goal is to pay it down, then you could still use this to your benefit. Take advantage of the $100 savings each month, and pay aggressively. Your payments will go further because you’ll be accruing less interest.

One caveat is that their method of getting the subsidy is…odd. I think they send a statement to the government every month, and then the government sends in the subsidy, which gets applied to your account. In other words, you only get the subsidy when you pay $100 a month. If you make a big payment, you don’t get the subsidy that month. (Talk to your student loan servicer to double check this, it’s pretty complicated).

Long story short, you could take advantage of the subsidy most months, then make a few large lump-sum payments throughout the year. You would then be able to pay it down more quickly than you would without REPAYE.

If you apply for REPAYE now, you then have a year until they recalculate your income. If during that year you get a raise, then you could really take advantage of that subsidy. Your payments would only be x, but you could afford 2x or 3x, and make those payments without paying all that interest.

If however your income goes down, you can contact them to recalculate even if a year hasn’t passed yet. So it’s win-win.

One more thing to note: REPAYE is an even better deal if you have subsidized loans. For the first 3 years you’re on REPAYE, the whole “difference” between what you can afford and what you accrue is paid by the US government. So in the example above, you’d be getting a 200$ subsidy every month. If you have a mix of subsidized and unsubsidized loans, you could then put your extra money towards paying down the unsubsidized loan first.

Hope this helps.