Income-Based Repayment and Pay As You Earn—who’s on first?!

Student loan servicers have begun processing the income-driven repayment plan applications of three plans for those looking to leave the SAVE Forbearance:

1. Income-Based Repayment (IBR)
2. Pay As You Earn (PAYE)
3. Income-Contingent Repayment (ICR)

For early-career physicians, I will focus on IBR and PAYE. We will also assume that both plans have similar features below with two notable differences*.

Similarities

• Uses 150% of the Federal Poverty Line to Determine Discretionary Income
• Allows unpaid interest to accrue, allowing your loan balance to increase while making minimal payments during residency and fellowship
• Currently allows you to exclude spousal income if you file taxes married-separately
• Has a payment ceiling which keeps your payment from increasing above what a Standard 10 Year Repayment would be
• Require a Partial Financial Hardship to qualify (see differences in calculation below)
• For someone who has had every loan disbursed after July 1^st 2014, the payment is based on 10% of your discretionary income

Differences

• For someone who had any federal loans disbursed before July 1^st 2014, regardless if they’ve been repaid, consolidated or refinanced:
  • • PAYE calculates the payment based on 10% discretionary income
    • IBR calculates the payment based on 15% discretionary income
    • This is where people discern between “Old IBR” & “New IBR”
• IBR is written into law by congress, actually written as the plan alongside the Public Service Loan Forgiveness (PSLF) program when first introduced.
• PAYE was introduced by the Department of Education and was previously removed as an option for new enrollees (when the SAVE challenges hit) before being re-introduced in March 2025 with physicians in the plan continuing to count towards PSLF.
• IBR uses a 15% Discretionary Income calculation to determine Partial Financial Hardship, regardless of when loans were disbursed (lower income threshold). PAYE uses 10% Discretionary Income calculation (higher income threshold)

As a reminder, the SAVE Forbearance currently has no payment requirements, no interest accruing, and no time counting towards the 120 months needed for PSLF.

Though making loan payments on a PGY salary is not fun or easy, most residents and fellows are clamoring to do so. This allows the time being underpaid in training (lower payment) to count towards PSLF and limit the number of payments made while in practice (higher payment).

For those looking to exit SAVE Forbearance and apply for another plan for PSLF purposes, what are some commonly recommended actions:

• If all your loans were disbursed after July 1, 2014, and you are able to demonstrate a Partial Financial Hardship, applying for IBR is likely the best route. Same lower payment as PAYE with the safer path towards PSLF.
• If you had loans disbursed before 2007, it’s possible you don’t qualify for PAYE and need to apply for IBR using the 15% discretionary income calculation.**

For those with loans disbursed before July 1, 2014, the question becomes: “Can’t I just apply for the cheaper PAYE now and then switch to IBR in the future if PAYE goes away?”

Good question! Here are some things to consider:

• The assumption is you would run into another wide-sweeping forbearance with similar administrative ineptitude in the length of time spent not qualifying for PSLF.
• IBR has a 15% Discretionary Income calculation for their Partial Financial Hardship calculation. This makes it harder to switch into IBR as your income increases.
  • • See another blog post here outlining Partial Financial Hardship Calculations

• A 10-year “Standard Repayment” only counts for PSLF if you have NOT consolidated your loans.
  • • A “Standard Repayment” for consolidated loans can be up to 30 years based on loan balance. This makes them ineligible for PSLF qualification.
    • A “Standard Repayment” for un-consolidated loans is always 10 years.

• Switching plans causes interest to capitalize, increasing the payment ceiling with the principal amount.

Borrowers who cannot demonstrate a Partial Financial Hardship who have already consolidated their loans may be left without a path towards PSLF

“Well then, what should I do? I’m overworked, underpaid, and honestly exhausted”

Connect with a financial advisor with a Certified Student Loan Professional Designation.

Kyle Flynn, CSLP® is a consultant with Twin Oak Advisors who intimately understands the financial path and challenges facing early-career physicians and where loan repayment fits in with retirement planning, home-buying, disability insurance, and simply trying to survive training financially.

To schedule a no-obligation, introductory conversation with Kyle, use this link here.