Student Loan Repayment Options Explained
Plan your repayment schedule to ensure success
By Michael Steigerwalt, Financial Professional,
One of the most commonly asked questions we receive from young physicians today is “how do I pay my student loan and how will this effect my current and future financial picture?”
This is also a huge concern for physicians going from residency to becoming an attending physician.
When finishing medical school you now have a mortgage payment that you really aren’t prepared for. Your student loan can be characterized as your first mortgage and now you need to figure out the most efficient way to start repaying this. Beginning this process can cause added anxiety and undue stress while trying to get through your training and situated into your new attending role.
At some point, you may even ask yourself “was having this student loan worth it?”
If you have asked this yourself, you’re not alone. Almost every physician does. It is crucial to step back for a minute, and refocus your mindset to fully understand that all the education and all the hard work you have put in, is exactly what got you to where you are today.
With the help of a financial professional, and specifically one who specializes in your industry, it is important to have a thorough discussion about the repayment options that you will have and the effect that paying your student loans will have on your taxes and monthly repayment amounts. Everyone will have different needs and requirements regarding their loans and we will discuss a few of the options here.
Let’s first address Federal Loan repayment options:
Income Driven Repayment plans for Federal loans are among the most common options that residents select for repayment.
These plans consist of several different options to start paying on your student loans. We will emphasize two of the most commonly used plans for repayment.
The first is PAYE (pay as you earn) plan that gives you the lowest monthly payment for the entire time you are in this plan.
The second is REPAYE (revised pay as you earn) plan that will be the same payment during residency as PAYE.
The major differences between the two:
PAYE: Your payment is based upon your adjusted gross income from your income tax return. Your repayment schedule will be for 20 years and the remaining balance (if any) is forgiven. You will owe taxes on any remaining balance, and your payment can only adjust as high as to what your standard repayment would have been when you started your repayment plan.
REPAYE: your schedule is set for 25 years and the rest of your balance (if any) is forgiven. Again, you will owe taxes on any balance leftover. During residency you have your Direct Subsidized interest 100% paid by the government and Direct Unsubsidized interest 50% is covered by the government. As an attending physician, your payment may rise higher than the standard repayment as it coincides with your adjusted total income.
Being in an Income-Driven Repayment option allow your monthly payment to be calculated by the loan provider who is following your adjusted income from your Federal Income tax. That is why it is so important to submit your taxes early beginning with your last year of medical school. These plans do not factor your interest rate to pay on the loans and if you continue to stay in these plans your interest will never have a factor on your loan repayment. This is the biggest advantage using these options while in residency.
We really emphasize to our clients the importance of deciding which option to use when starting their repayment plan. Being married or single does play a part in deciding which plan to select and whether or not you will be planning on taking advantage of the Loan Forgiveness Program.
Once you decide upon which program you will use, you will want to stay in that program during your time as an attending physician and then consider other options when personal changes and life events happen.
The Loan Forgiveness Program: This program was initially implemented in 2007 and was based upon 10 years of paying your loan in the income driven program and the remainder would be forgiven. In the last year it has become more prominent and now physicians in the program have become more aware of this.
Some advice, keep good records and stay vigilant with your payments in this program. After 10 years in this program, your loan will be forgiven and no taxes are owed on the remaining balance. Keep a running total of your months in the program and have it documented by the non-profit company you are working with. Be sure to have each year verified by the organization which is crucial to keeping your repayment qualified for the loan forgiveness program.
Private student Loans: As a medical resident on her way to becoming an attending physician, finding the ideal refinancing of private loans is vitally important. Obtaining a low interest rate on your loans is key! If you are looking to refinance your loan, there are many great resources available today such as Credible, Splash financial, Lendkey, and many more. Make sure you keep your private loans separate from your federal loans.
Federal consolidation is also something you might consider before engaging the Income repayment options.
Expert Tip: Be careful with consolidation as this should usually be done at the beginning of the loan forgiveness program when income driven repayment options are typically decided upon.
You lose your time in the forgiveness program if you consolidate once you are in the repayment plans. Remember this, you do need to be in the income driven repayment plans to qualify for loan forgiveness, that is why you want to explore consolidation first, and then loan forgiveness.
Loan forgiveness is a hot topic because most physicians don’t realize that this can be a viable solution. Many feel they will not get their loans forgiven because of the fact that only 1% of qualified student loans have received forgiveness.
Professional Tip: It is absolutely critical to stay in touch with your loan provider every year and ask questions about your federal repayment and where you are at that particular point in the process.
When you complete residency and are looking for your new place of business, make note of whether it is a non-profit organization (most hospitals) or for profit organization (most private medical facilities). This will help you decide upon the ideal option for repaying your student loan.
Remember this: Once you leave the Federal Repayment option and get into a private loan repayment, you cannot go back. This is why you need to consider all your options to determine the best situation when refinancing your loan. For this, you will need to go into private loans for refinancing options. It’s simple enough to go online and check available interest rates to see what you qualify for.
In conclusion, treat your student loan debt like your first mortgage and look for the best refinance option for your loan. Have someone you trust, preferably a specialist in financial planning for medical professionals, educate and help you work this debt into your financial plan which will keep your goals attainable going forward.
Contact us to discuss student loan repayment strategies
About Michael Steigerwalt
Michael Steigerwalt, is a comprehensive financial professional at WealthScope Financial. As a Financial Professional, Mike works and educates medical professionals throughout hospital residency programs. Complimentary, no obligation student loan counseling available for medical professionals in training. Contact Michael at MSteigerwalt@wealthscopefinancial.com or 570-225-8092.
Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice. Penn Mutual and its subsidiaries do not issue or advise with regard to student loans. Registered Representative of Horner, Townsend & Kent (HTK). 161 Washington Street, Suite 700, Conshohocken, PA 19428. 610-771-0800. Securities products offered through HTK, member FINRA, SIPC. Financial Professional of Penn Mutual Life Insurance Company. HTK is a wholly owned subsidiary of Penn Mutual. WealthScope Financial is not an affiliate or subsidiary of HTK or Penn Mutual. 2021-123105 Exp 06/23