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Income Driven Student Loan Programs

Sep 15, 2017

Income Driven Student Loan Programs

When it comes to student loan repayment, there are a number of different programs in which physicians can enter into. This first article will highlight the various income driven programs, and our next article will delve deeper into what programs could make sense based on certain situations.

The 3 income driven plans that we will focus on include REPAYE, Income Based Repayment (IBR) and Pay As You Earn (PAYE). Below I have made an outline which goes through some of the key similarities and differences to these programs.

Similarities Between the Programs

  • All payments are based off of a percentage of your discretionary income.
  • If you are in one of these programs, your loans could be eligible for Public Service Loan Forgiveness after you complete 120 qualifying payments. Forgiveness would be tax-free if you adhere to the rules of the Public Service Loan Forgiveness Program.
  • If loan balance is not fully repaid by year 20 or 25, then the remaining amount of your loans will be forgiven, but this is a taxable benefit.
  • These forgiveness programs only apply to Federal Direct Student Loans.


REPAYE

  • Available to all borrowers with Federal Direct Loans.
  • Payments are based on 10% of discretionary income and there is no financial requirement.
  • Your spouses’ income will be considered in determining your payment amount. There is also NO CAP on the maximum monthly payment.
  • There is an interest subsidy on loans during the period where your payments do not cover the accruing interest. This applies to subsidized and unsubsidized loans.


Pay As You Earn

  • In order to qualify for this program, you must be a new borrower as of October 1st, 2007, and must have received a direct loan on or after October 1st, 2011.
  • Payments are based on 10% of your discretionary income and you must show a financial need at the time of enrollment.
  • Payments can never be more than what a 10 year standard repayment schedule would be at the time you enroll in the program.
  • Spouses can file taxes separately to lower income for payment purposes.


Income Based Repayments

  • Available to borrowers who have taken out federal loans prior to October 1st, 2007 or had taken out any new federal debt since October 1st, 2011.
  • Payments are based on 15% of discretionary income and you must show a financial need at the time of enrollment.
  • Payments can never be more than what a 10 year standard repayment schedule would be at the time you enroll in the program.
  • Spouses can file taxes separately to lower income for payment purposes.

Many physicians that are still in training, or recently out in practice, are likely familiar with IBR and PAYE as these have been popular programs for those seeking loan forgiveness through the Public Service Loan Forgiveness Program. Our next article will address certain questions such as:

  1. What is considered a qualifying payment towards Public Service Loan Forgiveness, and how can you make sure that my payments are counting?
  2. Should I switch from IBR or PAYE into REPAYE?
  3. What program is the best for loan forgiveness?
  4. For those not seeking loan forgiveness or want to enter into a private practice setting, what loan repayment options are available?

Overall, developing a student loan strategy requires important considerations. It is advised that you consider these options with your financial advisor as the above topics were only a general outline of available options.

Written by Joshua Wokurka, Financial Advisor and Ross Cameratta, Financial Advisor

1893394/DOFU 09-2017



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