Income-Driven Repayment Plans and Public Service Loan Forgiveness
Managing federal student loan payments during residency can be difficult, but income-driven repayment plans may offer more manageable payment amounts that could also count towards Public Service Loan Forgiveness (PSLF).
Income-Driven Repayment Plans*
There are three repayment plans that base a borrower’s monthly loan payment on their income. The income-driven repayment plans include: Income-Based Repayment (IBR), Pay As You Earn (PAYE) Repayment, and Income-Contingent Repayment (ICR).
The basic premise for the income-driven repayment plans is that the borrower makes a loan payment based on their discretionary income and household size. Two of the plans (IBR and PAYE) also require that the borrower exhibit a Partial Financial Hardship (PFH) in order to qualify. Eligibility qualifications for all three plans differ and not all borrowers will qualify for all plans. For a complete list of eligibility requirements, visit the Federal Student Aid website.
With the income-driven plans, either the Adjusted Gross Income (AGI) for the borrower’s household (as filed with the IRS) or Alternative Documentation of Income (ADI) forms must be submitted to the servicer(s) when entering the plan, and annually thereafter. As the income for a household changes, so will the required monthly payment amount.
All three plans feature a loan forgiveness benefit. Loan forgiveness occurs after a required 20- or 25-year repayment term is satisfied (dependent upon repayment plan). For more information on repayment plans, terms of repayment, and forgiveness benefits, visit: www.studentaid.ed.gov/repay.
Public Service Loan Forgiveness (PSLF)*
The PSLF program rewards borrowers for working in the non-profit sector. Borrowers must make 120-monthly, on-time payments while working fulltime (30 hours or more per week) at a non-profit, 501(c)(3), military, or governmental organization. While many medical schools and teaching hospitals qualify, an Employment Certification Form should be submitted to confirm an employer’s eligibility and to keep track of payments.
After making the required monthly payments, the borrower can apply to have their outstanding federal student loan balance forgiven. For more details about PSLF, review the PSLF Fact Sheet. You may also want to use the “PSLF Forgiven” feature in the Medloans® Organizer and Calculator to view potential forgiveness amounts.
Public Service Loan Forgiveness is ONLY available for Direct Loans. If existing student loans did not originate from Direct Loans, they can be converted into a Direct Loan by consolidating. For more information, visit www.studentloans.gov .
How do the Repayment Plans and PSLF Work Together?
While in residency, if you choose to make payments on your student loans, it’s likely that you may only be able to afford a low monthly payment. The income-driven plans may provide that type of payment for you. Some residency program positions are paid through a qualifying employer. If that is the case, then the payment made during residency could count toward the 120-monthly payments needed to qualify for PSLF.
Once residency training is finished, a physician’s salary will increase, and the required monthly payment amount will increase, but it will never be more than what the Standard 10-year payment amount would have been when initially entering repayment.
Other loan forgiveness options available with the income-driven plans take 20 or 25 years to realize; however, if public service is your desire, and you meet all the criteria, you could benefit by combining PSLF with an income-driven plan and experience loan forgiveness in a shorter period of time.
*This document does not provide all eligibility requirements, but instead, highlights features of each repayment plan. To determine if these repayment plans and/or if Public Service Loan Forgiveness is an option for you, contact your loan servicer(s).