Recent updates—loan repayment and Public Service Loan Forgiveness (PSLF)
With recent injunctions and court rulings regarding the Savings on Valuable Education (SAVE) plan, many physicians have found themselves needing to make the difficult decision whether to continue in an Administrative Forbearance or switch to another Income-Driven Repayment plan.
Those enrolled in the SAVE plan, including those who were previously in Revised Pay As You Earn (REPAYE) and were automatically placed into this new plan, will now be put into an Administrative Forbearance which allows borrowers to make no payments while not having any interest accrue.
In contrast to the January 2024 press release from the Department of Education and the White House, this time will no longer count towards the 120 payments needed to satisfy Public Service Loan Forgiveness (PSLF) if working at a qualifying institution.
Switching repayment plans to gain PSLF credit can take months, with borrowers being placed in a similar forbearance while processing. It requires borrowers to provide updated income documentation, often increasing the monthly payment long before their IDR Anniversary Date would have required so after November 2024. While enrolled in another Income-Driven Repayment plan such as Income-Based Repayment (IBR), all unpaid interest starts to accrue above the minimum payment, and switching into & out of these plans will force interest to capitalize.
Borrowers are faced with a tough decision: optimizing the budget and loan balance versus making higher payments with no interest subsidies to count towards PSLF.
One item of interest is the PSLF Buyback program, which allows individuals to repay months in arrears to count towards PSLF. This is currently being discussed as a possibility to “recapture” this time in Administrative Forbearance while awaiting a resolution. These payments would be based on the Adjusted Gross Income from the calendar year of those months, making the months in forbearance attractive to physicians while on a resident or fellow salary. Unlike current payments, which are based on recently filed tax returns and allow borrowers to manipulate income documentation to lower their monthly payments, the income calculation would be applied backward.
A few examples:
Many intern residents were scheduled to make $0/month payments based on a 2023 tax return from medical school with $0 of Adjusted Gross Income. Switching from SAVE to IBR using this tax return would still generate a $0/month payment after all of the processing time.
For single, second-year residents with no dependents and a tax return showing 6 months’ worth of income, SAVE would’ve kept your payment at $0/month if your Adjusted Gross Income was below $34,000. Income-Based Repayment would only calculate this if your Adjusted Gross Income was below $22,590. So, a borrower with a $30,000 Adjusted Gross Income on file from their tax return would have the payment updated to $60-95/month depending on whether all loans were disbursed after July 1st, 2014.
If using the PSLF Buy Back program in the future, the Department of Education would base the payment on a 2024 Adjusted Gross Income. Interns would be treated like second-year residents (6 months of income) and second-year residents would make Buyback payments based on their full 2024 calendar year salary. Assuming this is $60,000 Adjusted Gross Income, the payment would be $220-$460/month depending on your situation and repayment plan.
This is a lot of information and financial jargon, which we understand can be difficult to digest while working extremely long hours on a limited budget during training. So, what action items can you take today?
- Connect with a financial professional who can help navigate the complex loan repayment space and how other priority items impact this (retirement planning, insurance coverage, tax filing).
- Protect yourself and your ability to repay these loans and/or pursue Public Service Loan Forgiveness. We can do all the planning in the world, but reaching a $0 loan balance is based on your ability to earn an income and repay the loans for a minimum of 10 years. If you have not yet, you can use the link below to request a complimentary comparison of physician-specific, own-occupation disability insurance.
Source: https://www.ed.gov/save