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!
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 daughter is a Jr in High School. When should we start researching and applying for grants/scholarships and typically how long does it take to receive acceptance or denial responses for scholarship applications? I’d like to plan ahead if I know she won’t qualify for a particular grant/scholarship.
Your daughter will graduate high school in spring 2020 and plans to start college in the fall of 2020.
You can start researching scholarships now. Some scholarships may be accepting applications for Fall of 2020.
Grants are offered by the individual college. Once your daughter fills out the Free Application for Federal Student Aid (FAFSA), which will be available for her to do as early as July 1 2019, the schools she applies to/attends will use that information to determine her eligibility for grants and what her total financial aid package would look like. Financial aid can also include student loans, which have to paid back, and work study.
The time frame for finding out if your daughter received a scholarship will vary by individual scholarship. There’s no standard in terms of when you will find out.
You will find out if your daughter received grant money after the FAFSA is submitted and your daughter has applied to individual schools, the colleges time frame for awarding financial aid will vary by institution.
Well we’re half way through 2018 which means it’s a handy time to check in with your student loan repayment goals. Read or watch this if you want to see how things are going for me and check out my tips for making extra student loan payments.
Estimated read time ~5 minutes estimated watch time at 1.5x speed ~ 2.5 minutes.
It’s all about your individual student loan repayment goal.
Everyone is going to have a different student loan repayment goal that makes sense for them. There is no “one size fits all” dollar amount that is right for every borrower. You’ve got to pay what is reasonable for your student loan amount, your income, and the rest of your financial goals.
The best repayment goal is $3,000 each month toward my student loans. I’ve refinanced and my required monthly payment is $1,345 each month so that means I pay at least an extra $1,645 a month on my student loans. Paying $3,000 each month is aggressive enough that I can pay my debt back quickly but still leaves me enough room in my monthly budget to spend on the experiences and things that matter most to me.
Track your repayment progress.
It’s easy to set a goal and then not check in with it until the end of the calendar year. But by then if you’re not on track it’s too late to make any changes. So I check in with my repayment progress quarterly (every three months) to be sure I’m on track and celebrate any extra success I may have had.
In the 2nd Quarter of 2018 I paid $9,840 on my student loans.
My goal was to pay $9,000 ($3,000/month X 3 months) so I was able to pay a little bit extra during the second quarter.
Use extra income for your student loans.
It seems obvious that you would want to use your extra income to pay down your student loan debt but it can be harder to practice than you might think.
The money I used this quarter to pay extra came from some consulting work I do on the side. It can be tough to convince myself to apply a percentage of that to my student loans because I hustle on top of my 40 hour work week to earn that money so sometimes I want to treat myself with it.
What has helped me to use this extra income for my student loans is to remind myself that paying even a few hundred extra means less time I’m beholden to student loan debt. Even shaving a month or two off of that debt buys me a freedom that I can’t find when I buy things or even when I travel.
Keep the big picture in view.
One thing that’s been very rewarding for me is to track my progress over the entire year.
In 2018 I’ve paid $20,385 toward my student loans. I feel great about that number. I started with almost $65,000 in January and now I have just over $45,000 left to pay off.
Each payment gets me a little bit closer to my #debtfreedream.
What are your student loan repayment goals? I would love to hear them and cheer you on toward success. Let me know in the comments below or on the Repayable Facebook Page.
If you’ve defaulted on your student loans there are two major ways to get out of default and put your student loans back in good standing. Read this if you want to know whether consolidation or rehabilitation is best for you. Estimated read time ~ 5 min. Estimated watch time at 1.5x speed ~3 min.
It can be tough not to feel discouraged when your student loans are in default. Fortunately there are two main options, rehabilitation and consolidation, available to get your student loans out of default. The third option is to pay your student loans off in full but this isn’t really an option because if a borrower could pay the loans off in full it’s unlikely they would have defaulted in the first place.
Let’s talk about the difference between student loan rehabilitation and consolidation for getting your defaulted student loans back in good standing.
Rehabilitation
What it is:Student loan rehabilitation is set up with your student loan holder. To rehabilitate your student loan you will set up a monthly payment with your loan servicer. You’ll need to make nine payments within 20 days of their due dates during 10 consecutive months and then your defaulted loan will be back in good standing.
Advantages:The biggest advantage of rehabilitating your student loan is that the record of default will be removed from your credit history. Your late payments that were reported before you went into default will remain on your credit history, but the default itself will be removed.
How to do it:You’ll need to contact your student loan holder to get the process started. If you don’t know who your loan holder is you can log in to your Federal Student Aid Account to find out. Next you will provide your loan holder information about your income and they will determine a monthly payment that’s 15% of discretionary monthly income.
If that payment isn’t affordable you can ask the loan holder to calculate a reasonable alternative monthly payment. To do that you’ll need to provide documentation of monthly income and expenses. You’ll also need to fill out the Loan Information Income and Expense Document.
Consolidation
What it is:Student loan consolidation is set up with your student loan holder. To consolidate your student loan you will apply for a Direct Consolidation Loan and agree to repay it under an income-driven repayment plan. Borrowers can’t consolidate student loans that are being collected through wage garnishment unless the wage garnishment order is lifted.
Advantages:The biggest advantage of consolidating your student loan is that your loan will quickly be out of default, rather than taking nine months like rehabilitation. Unfortunately your default will still show up on your credit history.
How to do it:You’ll need to apply for a Direct Consolidation Loan. That application will require information about your income and you will need to enter an income-driven monthly repayment plan.
Problems?
If you’ve tried these steps and are feeling stuck you can contact the Department of Education’s Default Resolution Group at 1-800-621-3115.
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