REPAYMENT OPTIONS


Public Student Loan Forgiveness or PSLF can be a very effective way of addressing student loan debt. Graduates who gain employment with a qualified nonprofit employer and meet the other requirements for PSLF, are required to make 120 qualifying payments, or ten years of monthly payments, not necessarily consecutive payments.  You might work for a qualified nonprofit employer for a couple of years, make a number of qualifying payments and then decide to leave that employer to work at a for profit employer for a few years.  The qualifying payments you made will be put on hold, at least under the current PSLF rules.  If you decided to return to a qualified nonprofit employer at some point in the future, you could then resume making qualifying payments to reach the 120 qualifying payments requirement, thus satisfying the obligation under current PSLF rules. 

Depending on your specialty and your goals, you may be considering offers from both PSLF qualifying nonprofit employers, like a community health clinic or from for profit employers.  It is important to not only consider pay and benefits as you review job offers but also the potential impact of any student loan forgiveness that might be available through your employer or as a result of working for a PSLF qualifying nonprofit employer.   

Tax-free student loan forgiveness provided through the PSLF program is huge and should be carefully considered as you review job offers.   

The Department of Education reviews each PSLF applicant at the end of the 120 qualifying payments to verify that all requirements have been met.  This process can take several months and therefore it is advisable to continue making payments, past the 120 payments, until you receive notice from the DOE that your PSLF requirements have been satisfied.  Any over payments are refunded by the DOE.  This will likely take a few months also. 

Income-based repayment will be an important option to consider as soon as you began receiving an income, even while in residency. We recommend you begin this planning or at least discussing these options as you begin reviewing job offers or if  you begin receiving an income from residency. However, income-based repayment is often times the most expensive way to repay student loans over the long-term if you are not participating in or qualify for the PSLF or another forgiveness program.  The payments are typically capped at 10% of discretionary income based on a formula and last for 20-25 years! UGH.  Depending on the balance of your loans, an income-based payment might not even cover the accumulating interest.  Therefore, it is very important to understand what the total cost of the loan will be over the entire repayment period. If you work for a qualified nonprofit employer you may consider using PSLF and an income-based repayment method in concert with one another.  Depending on your household income, number of dependents and some other factors, you may be eligible for the Department of Education to forgive a portion of your interest accumulation each year for the first few years out of school or while in residency.  The interest savings can amount to several thousand dollars a year with proper planning.  It is very tempting to select an income-based payment because generally the payments are much lower, at least starting out, than other repayment methods.  But in our experience, most graduates don't want to make payments for 20 or 25 years.  Having a comprehensive plan at the beginning will provide the best opportunity to identify the appropriate repayment strategy that will allow you to pay off your student loans as quickly and as efficiently as possible, while not ignoring the other important financial issues that will need to be addressed. 

Private student loan refinancing has become a very large industry. With nearly $1.5 trillion in student loan debt in the US, the financial industry has jumped in with both feet.  Depending on a number of factors like: career, income potential, credit score, and outstanding loan balance, private lenders may provide you with an offer to refinance your student loan debt at a lower interest rate than what you might receive through one of the Federal repayment options.  While a lower interest rate is generally a good thing, you need to understand the pros and cons of refinancing through a private lender and do your research on which private lender might be appropriate for you.  Some private lenders have worked out discounts with various healthcare associations.  For example, members of the ADA can receive a .25% discount on their interest rate by refinancing their student loans through a particular private lender a number of our dental clients have used.  With the expected future income of many graduate level healthcare professionals, private lenders are generally very eager to work with you.  Private lenders often offer both fixed and variable rates, unlike the Federal repayment programs that offer only fixed rates.  Refinancing through a private lender has become fairly popular, especially among those healthcare professionals that start with a nice six figure income immediately after graduation and who may also have a two income household.  

 

The primary downside of refinancing through a private lender is that you lose the benefits of the Federal programs forever!  

For example, the Federal programs offer a fairly liberal deferment feature which allows you to defer making payments for up to about 1000 days during the entire repayment period, that's three years.  Let's say you wanted to spend a year with the Peace Corps stationed overseas.  A private lender is most likely going to require you to make your student loan payments during that period of time.  If you are in one of the Federal programs, you could simply make a phone call to your loan servicer and apply for a deferment.  Your student loan payments would stop, but interest would still be accumulating during your deferment period.  

Refinancing through a private lender can be an excellent choice for a number of borrows but it is really important to understand the trade off between the possibility of a lower interest rate with a private lender versus the benefits associated with the Federal programs like: PSFL, income-based repayment and the liberal deferment options that might be available. We work with our clients and help them determine the appropriate repayment strategy that might include using more than one repayment method over the repayment period. 

For example, it might be appropriate to select an income-based plan during residency while you are earning a little income or for the first year or so after graduation as you start your career. Then once you have settled into your career on a full-time basis perhaps after a year or so, you consider a private refinance that would likely require a more robust payment. If you are transitioning from school or residency right into a nice six figure income, then a private refinance right out of the gate might be appropriate. What's important is to consider all the options, pros and cons, in light of your budget (income-expenses), interest rates, repayment periods, and career path (nonprofit vs. for profit employer) you are seeking to travel. 

THE BOTTOM LINE 

Selecting the appropriate student loan repayment strategy is likely going to be one of the most important financial decisions you will make in your life and should NOT be viewed in isolation from the other important financial issues you will face as you transition from school into your career.  Working with a team of experienced, objective professionals can save you time, money and provide you with peace of mind as a plan is created to meet your specific and evolving needs.

To start a conversation, please visit our "Needs Assessment" page on this site. 

PSLF and Income Based Repayment Forms

Public-service-loan-forgiveness-common-questions

Public-service-employment certification-form

Income-driven-repayment-q-and-a

Income-driven repayment (IDR) Plan Request