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    A guide to understanding loan repayment options for physicians

     

    Standard Repayment.  This is a simple plan where your loan repayment is set at 10 years. The payment stays the same for the entire period. This option is good for people with relatively low student loans, and while the monthly payments are probably too high for most residents, they should be manageable as a practicing physician. This is a qualifying plan for PSLF, however, since PSLF takes ten years, the loan will be repaid in full.

     

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    Income-Driven Repayment Plans: This is not specifically a plan but rather an umbrella term that encompasses all of the plans where your monthly payment depends on your income instead of your loan amount. It is based on you having to pay a percentage of income each year until the loan is paid off or it is forgiven. Of note, discretionary income in these plans means income above 150% of the poverty line.

    Income-Based Repayment (IBR). The first, and least restrictive, of the income driven plans. Your monthly payments are capped at 15% of discretionary income.  The requirements are that your monthly loan payments constitute a “financial hardship,” which virtually all residents qualify for, but only attendings with very high loans will qualify. This plan allows you to only take your Adjusted Gross Income(AGI)into consideration if you are married and file taxes separately, which allows you to lower your payments by lowering your AGI. Finally, the maximum payment under IBR is capped at the standard repayment.

    Pay As You Earn (PAYE). Similar to IBR, but only available for people who did not take loans out before 2007. It uses 10% of discretionary income rather than 15% of IBR, resulting in lower monthly payments. Like IBR, you can also separate your income from your spouse’s if you file taxes separately. Payment is also capped at the standard repayment amount. If not going for PSLF, forgiveness occurs after 20 years (although it is taxable, while PSLF is tax-free).

    Revised Pay As You Earn (REPAYE). Identical to PAYE with for four key changes. You cannot separate your income from your spouse, even if you file taxes separately.  Unlike PAYE, everyone is eligible. Third, there is no cap on the maximum payment at the standard. Fourth, if your payments do not cover all of the accruing interest on your loans, the federal government will forgive half of the interest.

    The fourth change is the best difference. If your income-based payments don’t cover all of the interest from the loans, the federal government will forgive half of the accruing interest2.

     

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    There are several other older plans, such as the extended, graduated and income contingent repayment, but they all come with a much longer pay-off periods and are not as advantageous when it comes to loan forgiveness.

    Finally, in addition to the federal loan plans, there is the option to privately refinance student loans. There has been huge growth in the private refinancing industry, with many companies such as DRB, SOFI and Link Capital lining up to refinance loans for physicians. Often times, rates can be significantly lower than federal loans, however, they are dependent on individual credit and financial situations. 

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