Paying the piper A short breakdown of loan repayment options for residents The government offers myriad loan repayment options, but not all of them are wise choices. Here’s a closer look. Dec. 16, 2016Friday Jesse Richards, DO, and Caleb Scheckel, DO Contact jrichards Facebook Twitter LinkedIn Email Topics loan repaymentstudent debtstudent loans The median education debt for medical residents is over $200,000. With that kind of debt, new physicians can save tens of thousands of dollars by managing their loans effectively. The government offers myriad loan repayment options, but not all of them are wise choices. Here’s a look at the numbers behind the most popular options, provided by the repayment calculator on studentloans.gov. For the example, we used a “resident” with $200,000 in loans at 6.5% interest earning $55,000 annually. A resident with $200,000 in loans at 6.5% interest earning $55,000 annually Here’s the total amount paid and projected loan forgiveness for a number of repayment plans, including two versions of income-based repayment (IBR), Pay As You Earn (PAYE), Revised Paye As You Earn (REPAYE) and Income-Contingent Repayment (ICR). *Note that borrowers will have to pay taxes on their forgiven loan balance if they don’t pursue Public Service Loan Forgiveness (see below), though some lawmakers want to change that. A comparison of first and last monthly payments Here’s what the first and last monthly payment looks like in the different plans. These plans can be divided into those that qualify for Public Service Loan Forgiveness (PSLF) and those that don’t. Graduated and Extended plans don’t qualify and end up costing significantly more, so they will not be covered here. About PSLF PSLF is a current government program designed to encourage professionals to work for nonprofit and government organizations. If you make 120 qualifying monthly payments (they do not have to be consecutive) while working at a qualifying organization, your remaining balance is forgiven tax-free. Some question whether PSLF will be around in the future, but as of now there are no program-ending plans on the horizon. [story-sidebar sidebar id=”197148″] Most residency positions qualify for PSLF; physicians can choose PSLF-qualifying plans even if they aren’t practicing in a qualifying institution. If you don’t make the required 120 payments while working for a qualifying employer, you will still be eligible for loan forgiveness after a longer time period (see below). Plan-by-plan details In the slideshow below, you can see how the standard repayment plan stacks up against the four available income-adjusted plans. These plans base your monthly payment on your discretionary income, which is the difference between your income and 150% of the poverty guideline for your household. An important note: If you don’t pursue PSLF, your forgiven loan balance will be considered taxable income by the Internal Revenue Service, though some lawmakers are trying to change this. PrevNextMonthly payment: Static throughout a 10-year repayment plan. Income-earning spouse? Repayment is the same whether you combine your income with your spouse's or not. Interest benefit: No interest benefit. Notes: Although the plan qualifies for PSLF, if you stay in it for 10 years you won't have a balance to be forgiven.Image by iStockMonthly payment: 10-15% of discretionary income, depending on when you started borrowing. Maximum payment: Capped at what the payment would be in the standard 10-year repayment plan. Income-earning spouse? Plan allows you to separate your income from your spouse's. Interest benefit: Depending on your payments and loan size, the government may forgive some of the interest on your subsidized loans for the first three years. Loan forgiveness (if not doing PSLF): After 20-25 years of payments, depending on when you started borrowing.Image by iStockMonthly payment: 10% of discretionary income. Maximum payment: Capped at what the payment would be in the standard 10-year repayment plan. Income-earning spouse? Plan allows you to separate your income from your spouse's. Interest benefit: Depending on your payments and loan size, the government may forgive some of the interest on your subsidized loans for the first three years. Loan forgiveness (if not doing PSLF): After 20 years of payments.Image by iStockMonthly payment: 10% of discretionary income. Maximum payment: No cap on maximum payment. Income-earning spouse? Your income must be combined with your spouse's. Interest benefit: This plan has the most generous interest benefit; depending on your payments and loan size, the government may forgive some interest on subsidized loans for three years and some interest on your unsubsidized loans for the entire repayment period. Loan forgiveness (if not doing PSLF): After 25 years of payments.Image by iStockMonthly payment: 20% of discretionary income or what the payment would be in a standard 12-year repayment plan, whichever is less. Maximum payment: No cap on maximum payment. Income-earning spouse? Plan allows you to separate your income from your spouse's. Loan forgiveness (if not doing PSLF): After 25 years of payments.Image by iStock About the authors: Jesse Richards, DO, is a first-year internal medicine resident at the University of Kansas in Kansas City, Kansas. Caleb Scheckel, DO, is a first-year internal medicine resident at the Mayo Clinic in Scottsdale, Arizona. Both physicians have large federal student loan debt burdens and have spent many hours researching the various repayment options as well as other ways to handle medical student debt. They wanted to share what they learned with others. More in Training 6 states in 12 months: A guide to life on the road during fourth year Fourth year is what you make it. Rachel Pray, OMS IV, shares how she embraced travel and adventure as much as possible during her fourth year. Being a DO in a heavily MD residency program: What surprised me I was incredibly nervous to join a large MD-dominant internal medicine residency, but I was pleasantly surprised by how much my osteopathic training helped me excel. Previous articleStudy illustrates challenges of billing and coding for social determinants of health Next articleDO produces PBS documentary on Lewis and Clark expedition medicine
6 states in 12 months: A guide to life on the road during fourth year Fourth year is what you make it. Rachel Pray, OMS IV, shares how she embraced travel and adventure as much as possible during her fourth year.
Being a DO in a heavily MD residency program: What surprised me I was incredibly nervous to join a large MD-dominant internal medicine residency, but I was pleasantly surprised by how much my osteopathic training helped me excel.
Thank you for the breakdown of the different loan options! The visuals in this article are great. Dec. 21, 2016, at 11:54 am Reply
The proof is in the pudding: the first 10-year batch of PSLF doctors is applying for loan forgiveness in October of 2017. We will see how this goes! (I have my fingers crossed!) Apr. 21, 2017, at 9:48 am Reply