53 student loan basics all borrowers should know

Pay as You Earn (PAYE)

1. Monthly payment is 10% of discretionary income
2. There is a cap on your payment amounts in the future
3. No interest subsidies available
4. Not everyone qualifies for this program. Depends on when you took your loans out and what type of loans you have.
5. Typically best for clients looking for forgiveness of their loans since it will oftentimes allow for the lowest payment down the line if a spouse is involved.
6. Allows you to file your taxes separate from your spouse and isolate only your income.
7. Keep in mind that there are different ways to report your income if you live in a community property state and are married, filing your taxes separately.
8. Need to show “partial financial hardship” to qualify
9. Taxable forgiveness of loans after 20 years

10. Monthly payment is 15% of discretionary income
11. There is a cap on your payment amounts in the future
12. No interest subsidies available
13. Typically the option for folks who want the perks of PAYE but don’t qualify.
14. Typically best for folks looking for forgiveness of their loans since it will typically allow for the lowest payment down the line (if you don’t qualify for PAYE)
15. Allows you to file your taxes separate from your spouse and isolate only your income.
16. Keep in mind that there are different ways to report your income if you live in a community property state and are married and filing your taxes separately.
17. Need to show “partial financial hardship” to qualify.
18. Taxable forgiveness of loans after 20 or 25 years depending on when you took your loans out

Revised Pay as You Earn (REPAYE)

Consolidating student loans

Pros

27. Can allow for eligibility to other repayment plans and potentially access to the PSLF program if you have some loans that don’t qualify.
28. Allows for repayment options all the way out to 30 years
29. Can allow for pay off of defaulted or delinquent loans
30. Might allow for more interest rate subsidies with a different IDR plan

Cons

31. Will restart the clock for the PSLF program
32. Lose payment history for non PSLF forgiveness
33. You can potentially lose out on Perkins loan cancelation
34. Can no longer target certain high-interest loans if repaying them since consolidating will turn it into a single weighted average interest rate for all of your loans together.

Public Service Loan Forgiveness program

35. All loans must be direct loans in order to qualify
36. You must work full-time at a qualifying institution.
37. You must be on an income-driven repayment program (PAYE, REPAYE, IBR, ICR)
38. Fed loan is the only servicer who facilitates this program. If you are not with a fed loan then you are not on the program.
39. Critical to file your employment certification forms regularly, and it is critical to watch fed loan for accuracy. They are known for making gross errors and have many lawsuits out about this.
40. Be sure not to pay extra towards your loans as this can put your loans into “paid ahead” status and thus all of those months will not qualify for PSLF’s required 120 months.
41. Must make 120 qualifying payments but it does not need to be consecutive.

Other loan forgiveness options

42. Outside of the PSLF program and the taxable forgiveness of loans at the end of your 20 to 25 years on an IDR plan, be sure to investigate other loan assistance repayment plans (LARPs) in your area and specialty.
43. Many branches of the military offer loan assistance and even stipends during residency in return for service.
44. There are typically great forgiveness programs available to those physicians who work for the VA as well as those who work in rural areas.

Refinancing with a private bank

45. Typically best for those who will not be working at a qualifying institution for the PSLF or whose income will be so high that any sort of long-term forgiveness will not make sense.
46. Understand that the private bank dictates all of the terms of the loan in their promissory note and so be sure to be familiar with those prior to refinancing
47. Once you refinance with a private bank, you can never go back to a federal repayment plan and so be sure that is the right decision for you.
48. Avoid committing to short-term repayment loan terms. Flexibility is one of the most important determining factors when considering the success of a client’s financial plan. Commit to yourself to pay it off sooner but you don’t want to be on the hook to the bank for that high payment. It typically makes more sense to look at a 10-15yr term even if it will cost you a higher interest rate since if you pay it off sooner than the 10-15yrs, you won’t be charged the full interest amount anyways.

Student loan cautions

49. Look out for private consolidation firms who might reach out to you during training and leave you frightening messages about your loans.
50. Never give out your FSA login information to anyone
51. Typically remaining in deferment while in residency is not the best option but it can be in certain situations.
52. Before refinancing with a private bank, be sure to know the ramifications
53. Be sure to verify that your loan servicing provider is up to date and not missing qualifying payment documentation.