Student Loan Repayment Options (2016)

December 4, 2016 in Residency Talk, Student Loan Repayment Options

Postsecondary education has become extremely expensive in this country. I felt my in-state local college tuition was reasonable back then (its increased dramatically since then), and I was able to come out of undergrad student loan-free. Then came medical school tuition… a whole new ball game. My annual medical school tuition was between $35-40k per year (in-state school, private). And since its frowned upon to have a job in medical school, I had to factor in about $12k per year for living expenses. Combined with a 6.8% to 8.75% interest rate, this brought my total medical school loan burden to over $235k by the time I finished residency. But my loans actually seemed reasonable compared to Ben’s loans, which were nearing $500k (out-of-state school, private). Paying those high-interest loans off ASAP was a priority. But we had to figure out the best way to do it!
Student Loan Repayment Options 2017

In residency, your best options for repayment are IBR, PAYE or REPAYE, as this buys you interest subsidy and years of Public Service Loan Forgiveness (PSLF) eligibility. You can also defer your loans or consolidate them with a private company (I’ll touch on this later). Knowing that I was not going to work for a PSLF eligible employer, I deferred my loans and forwent the interest subsidy. Ben opted for IBR.

How to pick the best student loan repayment track

* FFELP borrowers can consolidate into DL to apply for REPAYE. ** Spousal income is only included in the income calculation if you file jointly. *** Or if you forget to re-certify your income and family size annually.

I put together the above table to quickly and easily understand the current government repayment plans. Most of this is self-explanatory, but I just want to make a quick notes:

  1. For IBR and PAYE, there is a cap on the monthly payments so that, if your income ever increases to the point that your calculated monthly payment amount would be more than what you would have to pay under the 10-year Standard Repayment Plan (like when you transition from resident to attending salary), your payment will no longer be based on your income. Instead, your required monthly payment will be the amount you would pay under the 10-year Standard Repayment Plan, based on the loan amount you owed when you first began repayment under the PAYE or IBR plan (you’ll remain on the PAYE or IBR plan). Your monthly payment will never be more than the 10-year Standard Repayment Plan amount.
  2. For IBR and PAYE, spousal income is only included in the income calculation if you file taxes jointly. This loophole allows families to lower their monthly payment by not providing a spouse’s income while still including the spouse in family size. REPAYE closed this loophole.

Also worth mentioning is specifics on PSLF. In order to qualify for PSLF, you must have the following:

  • Qualifying repayment plan
  • Qualifying student loan
  • 120 qualifying payments after 10/1/2007
    • Pay the full amount on bill, no later than 15 days after due date
    • CANNOT make a qualifying payment while in school status, grace period, deferment, forbearance
  • Qualifying employer (government, not-for-profit)
  • Full time employment (at least 30 hours per week)

After the 120th payment, you must submit the PSLF application to receive loan forgiveness. You must be working for a qualified organization at the time you submit the application. Forgiveness not taxable.

Best Ways to Repay Student Loans

Since Ben started IBR in residency (3 years of PSLF eligible payments completed), now has a high income (benefits from the standard repayment plan “cap”), and is working full time for a PSLF eligible employer, we decided to continue paying his loans with the IBR plan with hopes that PSLF will stick around long enough to forgive a portion of his loans.

Me, on the other hand? I will not qualify for PSLF with my current employer. Therefore, utilizing any of the government-based repayment plans would be of no benefit. Luckily, an alternative loan repayment option has emerged in the past few years: loan refinancing. There are numerous different banks now willing to refinance student loans at much lower interest rates than the current government rates. Some well known companies include:

There’s no way to know which company will offer the lowest rate, so this past spring I filled out applications to each refinancing company to see which one offered the lowest interest rate. Ultimately, SoFi offered me the best rate, at just above 4% with a 5-year fixed repayment plan. I’m now on track to pay off my student loan debt in 5 years, with monthly payments of about $5.2k.

If you want more information on student loans repayment options, this post by White Coat Investor is a great reference. Even if you don’t have student loans or just aren’t interested in learning more about them right now, I’d definitely recommend popping over to his site and looking around – there’s so much useful financial information!!