You’ve finished school and you’re a few weeks into residency. While it’s awesome to be finally practicing what you went to school so long for, it’s pretty likely you racked up some major student loan debt to do it. The problem is, as a resident, you don’t make even close to enough money to pay back all that debt like you will once you’re finally staff. So what’s a resident to do when you want to stay on top of your student loan debt and set yourself up for success when you graduate residency?
After reading or watching today’s post you’ll know exactly what you can do with your student loans to set yourself up for repayment success when you do finally finish residency. Estimated read time ~ 6 minutes estimated watch time at 1.5x speed ~4 minutes.
Get started.
The first thing you’ll need to do to figure out what to do with your student loans is to learn and acknowledge the basics of your debt. Answer these three questions and move on to the next step.
What type of student loans do you have? (Federal, private, both)
How much student loan debt do you owe?
Are you a resident at a government on non-profit institution? (i.e. a VA or a 501c3 hospital?)
Option 1: Public Service Loan Forgiveness (PSLF)
One of the most common options residents choose to pursue is PSLF. PSLF forgives the remaining balance of Federal student loan debt after a borrower makes 120 eligible monthly payments on an income-driven repayment plan while employed full-time for an eligible employer (government or 501c3 organization).
This can be a good option for residents that have significant amounts of Federal student loan debt. Remember, loan forgiveness options only work for federal student loans so any private student loan balances will still need to be repaid in full.
If this is the route you’re planning to go here’s the most efficient way to get it done:
Consolidate your loans into a Direct Consolidation Loan right now. This allows you to enter repayment right away instead of wasting six months in the grace period. If you don’t do this you’ll accumulate interest in the grace period and won’t be making an eligible payments toward loan forgiveness so will delay your forgiveness by six months.
Enroll in your income-driven repayment plan of choice. If you qualify, the PAYE plan is the best because the monthly payment is 10% of discretionary income and never more than the payment under the 10 year standard plan.
Start making payments as soon as your loan is consolidated.
Option 2: Income-Driven Repayment, No Forgiveness
Maybe you’ve decided loan forgiveness isn’t for you because you have a lot of private student loan debt or not quite enough federal student loan debt to make forgiveness worth it. Or maybe you don’t like the idea of a loan forgiveness program that can be eliminated by a congressional vote. Whatever the reason, you’re not planning on using student loan forgiveness.
You want to avoid entering forbearance on your student loans. As a resident, you qualify for this option. The problem with forbearance is that interest will continue to accrue on your student loans the entire time you’re not making payments. That interest can cost you thousands of dollars each year!
For most residents, your best bet is going to be to enroll in an income-driven repayment plan. That way you can make low monthly payments and at least pay off some interest. You also have the option to make extra payments each month if you can afford it, but don’t have the pressure of a high monthly payment on a resident salary.
If you have private student loans your options may look different. You’ll want to talk directly to the servicer of your private student loans to arrange a repayment strategy that works for you during residency. Private loan servicers may encourage forbearance rather than offering up a lower monthly payment option. If this is the case ask them if you’re still able to make monthly payments while your loans are in forbearance. That way you can work to pay down your debt without the pressure of a high monthly payment.
When you’re almost finished with residency.
If you’re not considering loan forgiveness you may want to consider refinancing once you’re getting paid market salary for a post-residency graduate. If that’s something you’re interested in check out this post, which is all about whether refinancing during residency is a good choice or not.
Are you a resident trying to figure out what to do with your student loans? Leave me a comment below or send me an email jeni@repayable.org having been a resident myself I’m always happy to help other young professionals start off strong with their student loans!
If you’re considering student loan forgiveness this post will help you avoid common mistakes that delay your forgiveness or even worse make you ineligible for student loan forgiveness. Estimated read time ~ 5 min
Student loan forgiveness isn’t exactly straightforward. For folks counting on it, student loan forgiveness offers an opportunity to kiss their debt goodbye after years of repayment. Student loan forgiveness takes years, 5-25 years depending on which type of loan forgiveness you’re eligible for. No one wants to work toward loan forgiveness for 10 years only to find out they made a mistake that’s going to delay their forgiveness another couple of years or they made a mistake that makes them completely ineligible for loan forgiveness.
Consolidating your student loans.
Consolidating your student loans to a Direct Consolidation Loan lumps all your individual loans with varying interest rates into one big loan with an interest rate based on the weighted average rate of your individual loans. Student loan consolidation doesn’t save you money or lower your interest rate. If you consolidate your student loans while working toward Public Service Loan Forgiveness (PSLF) your 120 payments will start all over again, none of your previous payments will count. That means you could delay your student loan forgiveness by years.
Avoid consolidating your student loans if you’re working toward PSLF and have already made eligible payments.
Choosing the wrong repayment plan.
Each student loan forgiveness option has specific requirements about which type of repayment plans make a borrower eligible for student loan forgiveness. You want to make sure you’re enrolled in an eligible repayment plan as soon as possible otherwise you delay loan forgiveness and pay more on your debt than you need to.
Look up the specifics of the student loan forgiveness plan you’re interested in on the FSA website. Find the qualifying repayment plan that fits your needs best and make sure you’re enrolled in it.
Failing to resubmit your income information on time.
Student loan forgiveness generally requires a borrower to be enrolled in an income-driven repayment plan of some type. Borrowers must update their income information annually to remain eligible for income-driven repayment. If you fail to keep update that information your repayment will revert back to an alternative repayment plan, costing you extra money and delaying your student loan forgiveness.
Keep your income information updated annually so your income-driven repayment plan doesn’t lapse.
Defaulting on your student loans.
Defaulted loans aren’t eligible for loan forgiveness. Any payments made to rehabilitate your student loan default aren’t eligible for loan forgiveness. That means you will spend more money and delay the time until you can shake off the burden of your debt.
Keep making income-based payments. Your required monthly payment is based on your income and can be as low as $0 each month and still count toward student loan forgiveness.
Refinancing federal student loans.
Refinanced loans are private student loans and aren’t eligible for any type of loan forgiveness. If you think at any point that you may need student loan forgiveness don’t refinance your student loans!
What about if you already have private student loans? Your private loans aren’t eligible for loan forgiveness so it’s best to put any extra monthly payments you can afford toward principal on those student loans. If you qualify you can consider refinancing your private student loans for a lower interest rate.
Have you heard of anyone making any of these mistakes and delaying their student loan forgiveness? Are there any mistakes I missed? Let me know in the comments below or on the Repayable Facebook Page!
If you’re planning to take advantage of any type of student loan forgiveness, this post is for you.
Estimated read time 4 min.
What types of student loans can be forgiven?
Federal student loans are the only loan types eligible for forgiveness. Private student loans don’t have any federal loan forgiveness options, any company that suggests they can forgive your private student loans is almost certainly a scam.
What are the options for student loan forgiveness?
Public Service Loan Forgiveness or PSLF: PSLF forgives the amount of student loan debt remaining after 120 payments have been made while employed full-time for a qualifying employer.
Teacher Loan Forgiveness: Teacher Loan Forgiveness forgives up to a combined total of $17,500 of student loan debt if you teach full-time for five consecutive years in specific schools that serve low-income families.
Income-driven Loan Forgiveness: Income-driven loan forgiveness forgives the amount of student loan debt remaining after 20-25 years of income-driven monthly payments.
Is student loan forgiveness taxed?
Loan amounts forgiven under income-driven loan forgiveness are taxed as income. Loan amounts forgiven under Teacher Loan Forgiveness and PSLF are not taxable.
How do I get student loan forgiveness?
Each loan forgiveness program is different and has it’s own eligibility nuances. The best place to start is by reading about the program you’re interested in on the Federal Student Aid (FSA) website. Here are the links to the respective programs.
Here are a few general principles to make sure you remain eligible for student loan forgiveness:
Make your monthly payments on time and keep your loans in good standing. Defaulted student loans aren’t eligible for loan forgiveness.
Do not refinance any loans you want forgiven. Refinanced loans = private loans. Private loans don’t qualify for student loan forgiveness!
Submit your income documentation annually to keep your income-driven repayment plan active. If you don’t submit this information annually you will get switched to a standard repayment plan which will cost you more money.
Are you considering loan forgiveness? Are you almost there, or have you already had student loan debt forgiven? Share your thoughts on loan forgiveness below or on the Repayable Facebook Page.
See you next week for a post about common student loan forgiveness mistakes that can cost you time and money.
Ask Jeni is brought to you in partnership with tuition.io, a company dedicated to helping the best companies free their employees from student loan debt.
My household income is about $230,000. I have $50,000 in student loan debt and my wife has $20,000. Would my wife be a good candidate for student loan forgiveness? She makes about $25,000 per year. Are there any options for my debt? We both have federal loans.
Let’s start out by looking at student loan forgiveness for your wife. By herself, your wife is an excellent candidate for income-driven student loan forgiveness. That means she would make payments under an income-driven plan for 20-25 years and the remaining balance would be forgiven.
However, how you file your taxes will determine whether only her income is considered or if your total household income is considered. If you file as “married filing jointly” your household income will be considered when determining the income-driven monthly payment. If you file as “married filing separately” then her income alone will be considered. Married filing separately doesn’t qualify for the same tax incentives as “married filing jointly” so be sure to talk with a tax preparer or accountant about which option makes the most sense for your financial situation.
What about the options for your student loan debt? Given your income of $205,000 a year or so $50,000 in student loan debt should be very maneagable. It gives you a debt-to-income ratio of 0.25:1 which is excellent. Your ideal loan options will depend on your personal goals.
Without knowing the specifics of your financial situation I can’t know for certain but it’s unlikely you will have any loan balance to be forgiven after 20-25 years of income-driven payments. You can use the Repayment Estimator on the Federal Student Aid (FSA) website to see how much interest you pay under different repayment plans and how long your repayment term is.
If you’re looking to get out of debt quickly you may be a good candidate for student loan refinancing. I don’t know about other debts such as a mortgage, car, etc but your student loan debt-to-income ratio is excellent and you have high personal income. If you also have an excellent credit score you have a lot of the characteristics refinancing companies are looking for.
Refinancing is a good option if your current interest rate is high and you can significantly lower it. For example I refinanced my federal loans from their 6.67% interest rate to a fixed rate of 3.37% this move will save me nearly $20,000 over the life of my loans. When you refinance your student loans your loans become private loans and lose their federal student loan benefits.
I’ve written a lot about refinancing so check out these posts if you’re considering it:
A higher monthly payment will also help you pay less interest. If you have flexibility in your household budget you can make extra monthly payments, making sure to instruct your loan servicer to direct them to principal. You can also choose a more aggressive repayment plan so your required monthly payment will be higher. If you want to get out of debt fast, paying aggressively on your student loans will minimize the interest you’ll pay and save you money.
Read this if you want to be able to spot a student loan scam from a mile away. Estimated read time 5 min.
The FTC estimates that repayers have lost over $95 million to student loan scams. Scam student loan companies trick people into thinking they can provide the student loan debt relief the repayer so desperately desires. Then the fraudster walks away with the money and giving borrowers nothing in return.
Student loan scams are modeled after real & legitimate student loan options. So today’s post is going to highlight four popular types of scams along with the legitimate options so you can avoid student loan scams.
Student loan forgiveness scams
These scams promise to get your loans cancelled or forgiven if you pay the company a fee. There are two important things to know to keep you away from this one. #1 There’s no loan forgiveness for private loans. #2 Federal student loans can only be cancelled in very specific situations (death, permanent disability, and school closing). All other loan forgiveness options take time and have no fees associated with them whatsoever.
What you should do instead:
Apply for federal loan forgiveness directly online the applications for these can be completed on the federal student aid website for free! You can learn about different types of forgiveness in this post (link loan forgiveness post)
Lower your monthly payment scam
This scam promises to negotiate with your loan servicer or lender on your behalf to get your monthly payments lowered. Some of these scams and steal your information and money and give you nothing. Some companies are ripping you off at best. Basically these companies offer to take your money and work with the loan servicer to negotiate a reduced payment amount. The thing is your loan servicer doesn’t have to do anything different and often they don’t. Meanwhile, the company you’re paying will take your money but not make your monthly student loan payments, putting you into default.
What you should do instead:
Contact your loan servicer directly. Applications for federal income-based repayment plans are free and can be easily completed online. Your payments can be as low as $0 per month.
Refinancing/Consolidation scams
These scams promise to consolidate your student loans to a lower interest rate. Refinancing and consolidation are both legitimate options but unfortunately there are also scam companies that have cropped up. You should never pay any type of fee for refinancing or consolidating your loans. There are no processing fees, application fees, or any other kind of fee. This process is free. If there’s a fee, it’s a scam.
What you should do instead
If you want to consolidate your federal student loans you can complete the free application here. If you want to refinance your student loans check out this post on the best refinancing companies. All the companies listed are legitimate refinancing companies.
Get your student loans out of default scams
This scam promises that if you pay them some amount of money (typically a few hundred dollars) they will get your student loans back in good standing. Most of these companies will just take your money and run. They don’t do anything to get your loans out of default.
What you should do instead:
Call your loan servicer and work to rehabilitate or consolidate your federal loans. Loan rehabilitation and consolidation are free and don’t require an upfront payment. A new monthly payment will be set up and you must make these payments on time to get your loan back in good standing.
If you’re considering student loan forgiveness but the dubious PSLF news has you wondering if any forgiveness option is safe you’ll want to read this. Estimated read time 5 min.
PROSPER wants to eliminate time-based loan forgiveness for new borrowers, I haven’t heard of anyone who’s actually received PSLF, what is the deal with loan forgiveness? Is loan forgiveness for real or is the government going to pull the rug out from under borrowers? The proposals in the PROSPER Act and the news around PSLF might have you wondering if you’re on safe ground and if loan forgiveness is a secure option for getting rid of your student loan debt. Let’s take a look at the information we know about loan forgiveness.
PSLF and income-driven loan forgiveness
Public Service Loan Forgiveness (PSLF): Forgives remaining balance of student loans after a borrower makes 120 payments on a qualifying income-driven repayment plan while working for a qualifying employer. The loan amount forgiven is tax free.
Income-driven Loan Forgiveness: Forgives the remaining balance of student loans after a borrower makes payments on an income-driven plan for 20-25 years (depending on when loans originated). The loan amount forgiven is taxable.
Borrowers who qualify for these programs
PSLF: Borrowers employed in specific public-service jobs.
Income-driven Loan Forgiveness: Any borrower who makes payments on their income driven repayment plan for 20-25 years.
Estimated costs
PSLF: $23.7 billion dollars over the next decade.
Income-driven Loan Forgiveness: $74 billion over the next decade.
Security of Plans Based on Cost
PSLF: is an incredibly high cost plan that doesn’t cap the loan amount forgiven and covers a broad range of borrowers. The proposed PROSPER Act eliminates this plan for future borrowers. If you haven’t yet borrowed and are considering PSLF as a way to make your debt affordable look somewhere else. It’s unlikely this plan will survive in the long term. If you’re currently working toward PSLF you should be able to get loan forgiveness through PSLF.
Income-driven Loan Forgiveness: is another high cost loan forgiveness option. This option helps borrowers with the most need making it a plan that is better targeted than PSLF. However time-based loan forgiveness is also set to be eliminated for new borrowers under the PROSPER Act to be replaced with a plan that protects borrowers from negative amortization so they would pay no more than they would have under a 10 year standard repayment plan. Because this type of forgiveness is better targeted and allows the government to collect more of the original debt it’s more likely that this will survive in some form for future borrowers. If you’re a current borrower you will likely get loan forgiveness under this model.
So what’s a borrower to do?
Unfortunately the security of loan forgiveness options depend greatly on the desires of Congress. If you want to exert the control you have then you must talk to your representative and state senators. Tell them what your life looks like with loan forgiveness and tell them what it looks like without it. Borrowers have demonstrated they’re ready to speak up as evidenced by the fact that the student loan interest deduction and graduate school tuition waiver remained intact in the tax plan.
Borrowers counting on loan forgiveness need to continue to keep their loan in good standing by making payments on time each month. If you’re counting on PSLF, start submitting your certification of employment now and keep doing it annually.
Do you feel uncertain about loan forgiveness? Let me know in the comments below or on the Repayable Facebook Page.
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