Preparation is an effective prophylactic for financial headaches.
Keep accurate records from the start!
The big question after amassing educational debt in medical school is what to do after you leave medical school. It is without question that you are responsible for the debt and that you need to be sure, you have a good handle on what you have before you leave medical school so you are able to manage it affectively. One source where you can get a history or an inventory of your Federal Stafford Loans, Federal Perkins Loans and Federal Graduate PLUS Loans is at https://studentaid.gov.
Income Driven Repayment (IDR)
Income-Driven Repayment (IDR) are opportunities for borrowers to pay on their students loan based on income rather than the educational debt. Income-Based Repayment (IBR), Pay As You Earn (PAYE) and Revised PAYE (REPAYE) are several income-driven repayment plans for borrowers under the William D. Ford Federal Direct Loan (Direct Loan) Program. If you qualify for an IDR, your required monthly payment will be capped at an amount that is intended to be affordable based on your income and family household size, and will be less than what you would have to pay under a 10-year Standard Repayment Plan.
In addition to making your monthly loan payments more affordable, the IDR Plan offers other benefits:
- Under IBR and PAYE plans, if the payment amount does not cover the full amount of interest that accrues on your loans each month, the government will pay any unpaid, accrued interest on your subsidized loans for up to three consecutive years from the date you begin repaying the loans under these plans. (You are responsible for paying the interest that accrues on your unsubsidized loans during this three-year period.) Under REPAYE, the government will not charge the borrower 50% of the unpaid accrued interest.
- If you repay under IBR or REPAYE and meet certain other requirements, any remaining loan balance after 25 years is cancelled, whereas under PAYE it is after 20 years.
- Payments that you make under IDR plans count toward the 120 payments that are required for the Direct Loan Public Service Loan Forgiveness (PSLF) Program.
Repayment of student loans has taken a different twist with the enactment of the Income Driven Repayment (IDR) Plans and the Public Service Loan Forgiveness (PLSF) Program. Both of these congressional programs voted into law in October 2007 were implemented on July 1, 2009. Both are discussed at www.ibrinfo.org.
A lot of attention has been placed on the PSLF, with the potential opportunity to have significant forgiveness of unpaid loans upon completing 120 qualified payments under IDR plans while during working in a not-for-profit (501 C 3) setting. There is a great potential for medical residents to take advantage of this opportunity given that they are making an income that allows entry into an IDR in their first year of residency training in an education center, deemed a not-for-profit setting. With a medical residency training program lasting 3-7 years (not counting Graduate Fellowship training, which is also in a not-for-profit capacity) and with 80% of hospitals and healthcare networks not-for-profit, many residents will likely continue to work in a hospital or health care network that is also not-for-profit. You can understand why PSLF is a real opportunity. Unfortunately, some medical training do not lend well to working in a not-for-profit. For example, not limited to or by any means a comprehensive list, you may find Anesthesiologists, Emergency Medicine, Ophthalmologists, Orthopedic Surgery and Pathologist working in for-profit ventures and may not be able to realize PSLF. Nonetheless, IDR is for everyone whereas PSLF may not be for everyone.
Loan repayments may seem too far away to even think about. Calculating monthly payments can be a formidable task. However, it is a good idea to estimate what payments will be so that one can budget money accordingly when beginning a residency or practice. To calculate payments over the ten years after medical school, use the conversion factors in the following table. The sample calculation shows how to figure out the monthly payments for three loans with different principal amounts and interest rates.
For other loans that include the Loans to Disadvantaged Students (LDS), Federal Primary Care Loans (PCL), you can access information on these loans at the Indiana University Student Loan Administration (SLA). Their website is http://www.iuloans.iu.edu/.
Educational loans have long-term implications for your financial future. Therefore, special attention must be given to the management of personal and educational debts from the very beginning. Keep accurate records of all debts, including, but not limited to:
- copies of your promissory notes,
- loan disclosure statements from your loan servicer,
- any correspondence from the lender or servicer, and
- financial aid notifications.
If you have not kept records during the undergraduate years, request from your financial aid office a copy of your financial aid records. Use the information received to begin accurate record keeping. You can also access your records by reviewing your federal loan history through online services like the National Student Loan Data Service (NSLDS) at http://www.studentloans.gov/ or your loan servicer. At IUPUI, you have access to your records by going onto http://www.one.iu.edu/.
Public Service Loan Forgiveness
The Public Service Loan Forgiveness Program begins July 1, 2009, and is intended to encourage individuals to enter and maintain their careers in the Public Service arena. The program offers forgiveness of the outstanding Federal Student Loan balance to borrowers who have made 10 years (120 monthly payments) of qualifying payments. Eligible payments are payments made beginning October 1, 2007.
The following loan types are eligible for the Loan Forgiveness:
- Federal Direct Subsidized/Unsubsidized Stafford Loans
- Federal Direct Grad Plus Loans
- Federal Direct Consolidation Loans
Borrowers with loans via the Federal Family Education Loan (FFEL) Program must consolidate* their loans with the Federal Direct Loan Program to qualify for the Public Service Loan Forgiveness Program.
*Note that payments made prior to the consolidation do not count toward the 120 required payments. For more information on the impact of consolidating our loans, visit the Consolidation page.
- Must not be in default on the loans for which forgiveness is requested.
- Must be employed full-time by a public service organization-
- While making 120 (10 years) on time payments;
- Must be employed at a Public Service Organization at the time of application for forgiveness;
- Must be employed at a Public Service Organization at the time of forgiveness.
Public Service is defined as full-time work in any position, in one of the following areas:
- Full-time service in AmeriCorps or Peace Corps.
- Full time employment by a “Public Service Organization” defined as:
- A federal, state, local, or Tribal government organization, agency, or entity (includes most public schools, colleges and universities);
- A public child or family service agency;
- A non-profit organization under section 501(c)(3) of the Internal Revenue Code that is exempt from taxation under section 501(a) of the Internal Revenue Code (includes most not-for-profit private schools, colleges, and universities);
- A Tribal college or university;
- A private organization that is not a for-profit business, a labor union, a partisan political organization, or an organization engaged in religious activities (unless the qualifying activities are unrelated to religious instruction, worship services, or any form of proselytizing) and that provides the following public services –
- Emergency management;
- Military service;
- Public safety;
- Law enforcement;
- Public interest law services;
- Early childhood education (including licensed or regulated health care, Head Start, and state-funded pre-kindergarten);
- Public service for individuals with disabilities and the elderly;
- Public health (including nurses, nurse practitioners, nurses in a clinical setting, and full-time professionals engaged in health care practitioner occupations and health care support occupations);
- Public education;
- Public library services; and
- School library or other school-based services.
Borrowers do not have to be employed for 10 consecutive years within Public Service, however; payments made during the non-qualifying employment period will not count toward the 120 required payments for loan forgiveness.
Typically the use of the standard payment plan will allow the borrower to repay the loan in-full before forgiveness would be available. Borrowers wishing to optimize the amount of forgiveness they would be eligible to receive, should consider utilizing a reduced monthly payment plan such as Income Contingent or Income Based repayment. Using a reduced payment amount will ensure that the amount forgiven is optimized.
For additional information you can view the final regulations for the Public Service Loan Forgiveness Program that were published on October 23, 2008 by the Department of Education at: http://www.ed.gov/legislation/FedRegister/finrule/2008-4/102308a.html.
Table of Conversion Rates for 10-Year Repayment Schedule
The below example shows a medical student borrowing $34,000 in Subsidized Stafford Loans ($8,500 per each year of medical school) at 4 percent interest as well as $100,000 in Unsubsidized Stafford Loan ($25,000 each year) and $10,000 in Perkins Loans at the 5 fixed percent interest. The following are the monthly payments for a ten-year period, calculated as follows:
|$10,000 (Federal Perkins Loan) at 5%||$10,000 × .010607 = $106.07|
|$34,000 (Subsidized Stafford) at 4%||$34,000 × .010125 = $344.25|
|$100,000 (Unsubsidized Stafford) at 4%||$100,000 × .010125 = $1,012.50|
|Total Est. monthly payment||$1,462.82|