By Andrew Paulson, CSLP, Lead Student Loan Consultant and Co-Founder of our partner site StudentLoanAdvice.com
Yes, it’s true. The federal student loan pause that began during the COVID pandemic is ending, and after a three-and-a-half-year hiatus, loan payments and interest are beginning once again. Interest starts accruing in September 2023, and payments will be due in October. If you were in a repayment plan prior to the pause, you should still be in that repayment plan unless you’ve switched since then. If you have never entered a repayment plan or need to switch repayment plans, you should do so now.
In anticipation of the payment restart, here are a couple of things to consider to ensure you’re ready.
Create a Budget for Your Monthly Payments
The first thing you need to do is understand how much you can carve out of your monthly budget for your student loan payments. If you were making $5,000 per month as a resident and are now making $25,000 per month as an attending, there’s another $20,000 you could be throwing toward your loan. Of course, you want to put a little buffer in there for increased retirement contributions and lifestyle inflation in case you are buying a house, starting a family, or moving to a more expensive neighborhood.
Yes, you could double your monthly take-home pay and still have $15,000 to pay down your loans. But before you start paying off your loan like your hair is on fire, you need to consider what repayment track you are on.
Most high earners will pay down their student loans by one of two methods:
- Live Like a Resident (aka aggressive paydown) or
- Public Service Loan Forgiveness (PSLF)
Decide If You Should Refinance Your Student Loans
If you’re planning on aggressively paying down your loans, you should first consider private refinancing your student loans to see if you can obtain a lower interest rate. After you have secured a lower interest rate (if you were able to drop your interest rate at all), determine the term or length of repayment.
This table shows what the potential interest rates would be if you were to refinance $250,000 of student loans right now with an attending income and excellent credit. If you live like a resident, you could select a five-year term and be out of debt in five years. You could be debt free in TWO YEARS if you pay ~$11,000 per month. Sounds pretty enticing to be student debt free that soon.
The longer you keep your loan, the more interest you’ll likely have to pay. Unfortunately, rates in the 1%-2% range don’t exist with refinancing right now, but there’s still some value for those who plan to pay down their loans aggressively.
If you are planning on PSLF, your objective is to pay the least amount possible toward your student loans. Whatever balance you have forgiven after a decade is TAX-FREE so don’t put extra money into your student loans if you're on the PSLF track. Put it into retirement, real estate, college savings accounts, future vacations, etc. You can drop your monthly payments by contributing to pre-tax accounts or filing separately if you have a spouse that works.
In either case, you’ll likely be out of debt in a maximum of 10 years after you graduate from medical school.
More information here:
Student Loans 101: Ultimate Guide to Student Loans
Refinance Student Loans and Pay Off or Go for PSLF?
Consider a Loan Forgiveness Option
There are a number of federal loan forgiveness programs. PSLF is the most common we see with our audience, and it has increased in popularity due to its recent success. But, there’s also IDR forgiveness.
PSLF takes 10 years of payments in an income-driven repayment (IDR) plan, working at least 30 hours per week at a nonprofit. When you reach your forgiveness milestone, there are no taxes due on the balance forgiven.
IDR forgiveness is 20-25 years of payments in an IDR plan, and it doesn’t have any particular work requirement. That means you don’t even have to be employed to qualify for this plan. However, when you reach your forgiveness milestone, the balance is taxed. So, if you had $300,000 forgiven in 20 years, you could end up paying more than six figures in taxes that year.
Please note: Those who receive IDR forgiveness prior to 2026 will not be taxed on their debt balance forgiveness. This benefit of the American Rescue Plan Act of 2021 will sunset in 2026.
Those who make more money than they owe in loans should not consider loan forgiveness as an option. However, with the three years of payment pause, many have kept their loans federal and continued to receive forgiveness credit during the pause. If you’re only a couple of years away from either forgiveness milestone, you might be better off sticking with it since you haven’t paid a dime on these loans for 3+ years.
For our PSLF clients, we are seeing that they will only pay around one-third of what they borrowed for school—even if they go into a high-earning specialty. If you borrowed $300,000, you’d likely only have to pay $100,000 over a decade to reach PSLF. Not a bad deal for that expensive education. Of course, these numbers can change slightly if you only train for 3-4 years and start making more than you owe right away. PSLF generally favors those going into surgical specialties and fellowships because of the additional years at a lower income.
As a rule of thumb, if your debt-to-attending-income ratio is 1:1 or greater, you should consider PSLF. And if you have extended training of five-plus years, you should run the numbers. We’ve recently met with docs in orthopedics, ENT, and radiology who thought they made too much for PSLF before discovering they would actually benefit from it now.
Those not considering PSLF and wondering about eligibility for IDR forgiveness need to have a debt-to-attending-income ratio of roughly 2.5:1 or greater. Very few physicians will pursue this track unless they work part-time or are career changers. This track is more common for those who are dentists, attorneys, animal doctors (veterinarians), and chiropractors.
If you made any payments on direct loans during the pause, you can request your servicer refund you that money. This is a good idea if you are on forgiveness since non-payments during the pause count, and you can use those funds toward future monthly payments.
More information here:
Is Public Service Loan Forgiveness Worth It for Doctors?
12 Reasons I Hate Income Driven Repayment Forgiveness Programs
SAVE Plan Is Available When Payments Start
When President Joe Biden’s $10,000-$20,000 of forgiveness was blocked by the Supreme Court in June 2023, the administration announced Saving on a Valuable Education (SAVE) would be available for borrowers when payments resume this year. SAVE is an IDR plan that replaces the REPAYE payment program. It qualifies for the federal forgiveness programs discussed earlier. If you are already in the REPAYE plan, you will automatically be placed in the SAVE program.
The SAVE program is the most affordable program if you only borrowed for undergrad. If you borrowed for graduate school, it will be the most affordable option for many (but not all). Here are a couple of quick points on SAVE and changes in IDR plans going forward.
- In SAVE, monthly payments are calculated by taking 5% of discretionary income for undergraduate loans and 10% for graduate loans. When you have a combination of both, the weighted average of the two will be taken to calculate your monthly payments.
- Instead of taking 150% of the poverty line to calculate your discretionary income, SAVE will take 225%. This should drop your monthly payments. The larger your household, the larger the deduction for which you’ll be eligible.
- If you make your monthly payment, no accrued interest will be added to your loan balance. For example: If $500 in interest accumulates each month and you have a $200 payment, the remaining $300 would not be charged. In the past, the interest subsidy was not nearly as generous, usually covering one-half of unpaid interest.
- SAVE allows the exclusion of spousal income if you file taxes Married Filing Separately. In the past, this was not available to borrowers in REPAYE.
- PAYE and ICR will be phased out to new borrowers in July 2024 (ICR will still be available to Parent PLUS loan borrowers). If you’re considering either of those plans, make sure you’re in them before that date.
- If, as of July 1, 2024 (or beyond), you've made 60 or more payments under REPAYE, you may not switch to the Income-Based Repayment plan.
- Unlike the PAYE and IBR repayment plans, SAVE does not have a payment cap based on the standard 10-year repayment plan.
Here’s an example of a borrower who owes $250,000 from graduate school and makes $250,000 per year. They are married with a stay-at-home spouse and two kids.
Borrowers who make less than they owe in student loans should strongly consider switching into SAVE. Those who will make more than they owe should be wary of entering the SAVE program. You might be better off staying in IBR or PAYE. To see more scenarios, check out our recent post on SAVE.
Income Recertification
Income recertification is an annual requirement to stay current with your loan servicer if you’re in an IDR plan. Certification has been postponed during the student loan pause for more than three years. If you are already in an IDR plan, you shouldn’t have to recertify until around February/March 2024 at the earliest. Also, if you log into your servicer’s website and see a date before then, it will be pushed back an entire year. For example, if your recertification date is marked for November 2023, assume it will restart in November 2024. We are seeing lots of servicers tell borrowers they need to recertify now. This is not true unless you’ve never enrolled in a repayment plan.
For those who graduated during the payment pause, you’ll need to make sure you’re in a repayment plan when payments start in October. We strongly suggest enrolling into a repayment plan now.
If you’re enrolling for the first time, switching plans, or consolidating, you are required to submit income certification (a recent tax return or pay stub) to enroll in an IDR plan. Right now, borrowers can self-certify income. Yes, you read that right. No supporting income documentation is required. Also, beginning in 2024, you'll be allowed to automate your income recertification.
12-Month Onramp for Student Loan Repayment
To help borrowers move back into repayment, the Department of Education is giving borrowers a 12-month runway to resume repayment. This means you could extend forbearance until September 30, 2024. Those who miss a monthly payment during this time would not be considered delinquent or placed in default. Unlike the government-mandated pause from March 2020-September 2023, interest WILL accrue and non-payments WILL NOT be treated as qualifying months for either forgiveness track.
The student loan pause was a large benefit to many with mortgage-sized student loan balances, due to no payments and no interest. Despite the hardships of the pandemic, you hopefully moved closer to your financial goals through retirement savings, buying a home, etc.
With the imminent start of payments, make sure you’re signed up for the correct repayment plan and that you have an overall plan of attack to pay down your loans. If you need help running the numbers, StudentLoanAdvice.com has a team of student loan professionals who can help walk you through all the scenarios. StudentLoanAdvice.com will help you select the best way to pay down your debt.
What do you think? Are you going for PSLF or aggressively paying down your loans? What actions do you need to take before payments restart? Comment below!
In regards to public service loan forgiveness it should be considered that other loan repayment programs such as state loan repayment (in California) and federal programs such as National Health Service Core awards can help with the PSLF payments. This can significant reduce out of pocket expenses for student loans. Often the same operations that qualify for PSLF qualify for these loan repayment programs.
Hi Craig Brown,
Yes, there are a plethora of other forgiveness programs aside from PSLF (most common) that physicians call apply for. And, usually the repayment assistance you are receiving for those forgiveness programs can qualify as monthly payments. Essentially, creating a double dipping effect.
Andrew SLA
Can people who were not eligible for REPAYE – I think loans before 2008 – go into SAVE? Or are they still excluded?
Hi GN
Yes. If you have direct loans, you can enroll into it now. If you have FFEL loans you’d have to consolidate your loans first to be eligible.
Andrew SLA
There still is a slight chance of some form of loan forgiveness. I would be hesitant to refinance federal loans into private loans today, unless the rates were significantly cheaper. If it becomes clear that no forgiveness is happening, I would immediately reevaluate.
WirehouseFA,
Refinancing federal loans used to be such an easy decision. You could go from 7%-1% and nobody was really receiving PSLF at the time. Now the script has completely flipped. Now refinancing doesn’t really reduce your rate at all with rates going up about 4% over the last year and now over 600,000 borrowers have obtained PSLF. More borrowers than ever are keeping their loans federal for the forgiveness program and crummy refinancing rates. However, those with private student loans should stil consider refinancing them.
Andrew SLA
Andrew SLA
Good points. Though I was referring to a possible Biden/Congress one time forgiveness.
WirehouseFA,
Oh, you still think there’s going to be one-time forgiveness? Sure, I think there’s some remote possibility, but don’t you think SCOTUS would just strike it down just like the last time? Most legal experts say that it’s dead in the water if they try another attempt at one-time forgiveness.
I don’t disagree on keeping your loans federal though.
Andrew SLA
I’m not a politician, but it’s a serious topic. There’s enough of a possibility that I wouldn’t move loans private to save .5%. If private rates were 3% lower, I likely would refinance. But for a negligible rate difference, while forgiveness is a (small) possibility, I’d leave loans federal.
It’s a tough decision of how much one would be willing to pay in extra interest for the possibility of additional forgiveness down the road. I think you’ve taken a reasonable approach that 0.5% may not be worth it. But 1-2%. I’d probably take that if I could get it.
How would it “become clear” that mass forgiveness will never happen? I think people just need to make decisions based on current law and let the chips fall where they may.
Andrew, why do you say you don’t have to re-certify, even if the servicer says you must? What can a borrower show the servicer so they are not considered delinquent by the servicer?
Scott C,
The Department of Education, which governs loan servicers, it explicity says it.
Andrew SLA
Hi Andrew,
Any idea when the recertification dates will be updated in the federal student aid system? I know I don’t have to recertify yet per DoE, and it’s very advantageous for me not to. However, it’s creating a real problem for me in applying for a mortgage. My MOHELA account shows my next payment due as based on the 10-year standard repayment plan amount and not my IBR amount (even though it says I’m enrolled in SAVE), presumably because my income certification is shown as past due on the FSA site. Due to this, my debt-to-income ratio is showing as much worse than it actually will be.
MOHELA was decidedly unhelpful in resolving the matter, and it seems like I’m pretty much stuck with waiting until the government updates the date. Hopefully after that, MOHELA will follow suit and adjust the payment to what my actual IBR amount will be.
Any other suggestions aside from wait and see?
Thanks,
Travis
Travis,
You could recalculate your payment now if you really want to get a morgage that bad now. If your income hasn’t changed since you last certified, neither should your payment. If your income has gone up a lot though, maybe it’s better to wait until next year to certify (whenever your date is). The earliest it would be is Feb/March 2024, if you didn’t recertify early.
Andrew SLA
My income’s gone up substantially. My recert date reads as 4/2023 and I know this probably means my date will end up being 4/2024, but the mortgage people are having a hard time accepting this as proof that my payment is going to be much lower than what is stated on Mohela’s portal. I know probably I should just be patient, but I haven’t been given any timeline on when to expect changes to be made and we are eager to move forward with our life. Thanks.
Travis,
Sounds like you could at least plan on April next year for recertification. It doesn’t seem like recertification will continue to be postponed after that date.
Andrew SLA
Interesting unforeseen consequence of all this monkeying around with student loan programs.
Hi Andrew, thank you for the article. I didn’t know that non-payments during the 1 year forbearance from September on wouldn’t count towards PSLF. What about partial payments, do they count toward PSLF? My employer contributes monthly towards the loans but the amount doesn’t cover the entire monthly payment.
Hi Matia,
I don’t think partial payments going forward would count (under the waiver in the past they could). You’ll want to make the full payment to receive PSLF credit.
Andrew SLA
My PSLF story:
Total paid: $55,213.45
Total forgiven: $309,746.83
I didn’t make a single payment during training. How?
3 years of actual payments after fellowship
3 years of COVID forbearance that qualified
4 years of residency forbearance (employed at academic “non-profit” that qualified retroactively)
=10 years of “payments” under PSLF
Lesson from story – check the status of prior “payment” periods with your servicer. Previously reported periods of employment now qualify (like certain forbearance and deferral periods) even when you haven’t been making actual payments.
Hi LuckyPSLFDOC,
Appreciate you sharing your story. It’s mind boggling when you sit back and think about how you can borrow 300k and only pay 50k over a decade. I feel like more would go into medicine if they new they could pay ~15% of what they borrow. I’ve met with a couple of docs who are in the same position and timing just worked out perfectly for them on the student loan pause. The pandemic wasn’t easy on anybody, but the pause on payments, continuing the clock for forgiveness and interest sure did help borrowers quite a bit.
Andrew SLA
Wow! Congrats.
I have $300k in student loans. 5 years into REPAYE. 1 year of attending income of approximately $350-400k per year (finished residency June 2022). MFJ, stay at home spouse, 4 kids.
How do I calculate PAYE cap on payments? Is it the outstanding loan balance/120? Is that the case even if 5 years into REPAYE? Does the cap change over time as you make payments?
Currently I will have very low payments as my income is based off of residency income. I have to recertify in March 2024. I figured I would need to switch from REPAYE to PAYE, and I just want to confirm that I could switch in March when I have to recertify? Additionally, would I even be able to switch? Don’t I need to have a financial hardship to switch? Thanks!
Hi WT,
See this forum post. It explains how to calculate the cap – https://forum.whitecoatinvestor.com/student-loan-management/340443-how-paye-cap-is-calculated
You are going to be very close in switching plan. You’ll want to try to get into PAYE to cap your payment. If you need help with this i’d suggest scheduling a consult. https://studentloanadvice.com/schedule
Andrew SLA
Hi Andrew,
Since all this came out, I have been trying to understand the cutoff date for the 6 month grace period for recertification, but I can’t seem to find anything definitive, and it doesn’t appear you have either. Mohela says my wife’s recertification date is 2/4/24 and studentaid.gov says my wife’s IDR anniversary is 2/28/XX, so I’m assuming February is the month we will need to recertify. Depending on what is actually defined as the ending of the payment pause, February would either be the 6th month or 7th month, resulting in your suggestion that the earliest one could expect to recertify is Feb or March. That is potentially an entire extra year at the pre-pause payment amount or a significantly higher payment beginning in March.
I know we are dealing with the government, but it seems ridiculous to not know the exact date of “6 months after the payment pause ends.” Do you have any idea when we will have clarification on this or how we can get this answer?
Hi Tim,
Honestly, they post (dept of ed) most of these updates in the 11th hour most of the time. So, I wouldn’t expect for you to have a concrete update until right before payments start. Just plan you’ll have to recertify in February 2024. And, if it’s later than readjust.
Andrew SLA
Hey Andrew,
Is there any way to sign up for SAVE while in school? I tried but was denied because my graduate and undergrad loans have an “in school” status.
Matt,
You should definitely give it a shot. If you could enroll into SAVE while your in school and you haven’t been making money in the past, your loans wouldn’t grow at all. Call your servicer and request to be taken out of in-school deferment. If this is granted enroll into SAVE. This is a brand new strategy so let us know if you can do it.
Andrew SLA
I called and it Looks like only the school registrar can adjust the status. So I might try that route but my servicer did not sound optimistic that would work either. Any chance I could consolidate while in school and end my deferment?
Matt,
Understood. In order to consolidate your loans have to exit in-school deferment. If you drop below part-time, take a leave of absence or graduate, those are times when your loans will enter the grace period and you could consolidate and enroll into a repayment program.
I wonder if they are starting to catch on as this could be a huge loophole for those in school.
Andrew SLA
I want to make sure I’m understanding correctly: I’m in my final year of medical school (will be graduating May 2024) with ~165k of loans with an additional 25k being disbursed for my final semester in January. If we are able to enroll in SAVE now and have had zero income, our existing loans would not accrue interest due to the SAVE interest subsidy? Does this apply even with the upcoming 25k disbursement I have? Thank you.
KP,
If you enroll after you take your last 25k, then yes.
Andrew SLA
Aloha Andrew!
If you have a Parent Plus Loan for your child and you work for a non profit hospital can you as a parent apply for a PSLF that can be forgiven in 10 years ? I understand that the child cannot apply for PSLF for the Parent Plus Loan. The parent is a nurse, so they are not as high income as doctors in this website. I think the AGI of the parents is around $140-180K. Thank you so much for your help.
Idalee
Aloha Idalee!
Yes. The parent loan forgiveness is based on the parent’s employment. The original Parent Plus Loan a parent borrows doesn’t initially qualify for forgiveness and would need to go through consolidation prior to applying for forgiveness.
Andrew
Thanks for all this information! I am a new grad with $126,000 in grad plus/unsubsidized loans, and I am planning to aggressively pay off my loans. I am hoping to pay $2500/month to pay it off within 2-3 years. Will it still benefit me to switch to SAVE so that I save money on the interest since internet will be capped? Thanks!
What do you mean switch? What are you in now? I think REPAYE folks (which you probably are) get automatically switched to SAVE.
Also what do you mean by new grad? You’re an intern? How are you paying $2,500 a month then? You’re an attending? Well, after your income gets recertified to your attending income, you may not be getting much of an interest waiver. But you can stay in REPAYE/SAVE until then and then decide whether to refinance or not. Either way it won’t matter much with only $126K that you’re paying off rapidly. I’d challenge you to pay even more than $2,500 a month. At $10K a month you’re done in just over a year. At $5K a month you’re done in just over two years. At $2,500 a month, even if it all went to principal, you’ll be paying for over 4 years, not the 2-3 you want to be debt free in.
Thank you so much for the prompt reply! Sorry for the confusion—for clarification, I am actually a PA and graduated from PA school late 2021, so I have not had to make any payments yet. I believe I am currently on the 10 year standard repayment plan, but I was wondering if I would save money on interest if I switched to SAVE. Thank you again for all your helpful posts—I know I’m not a physician but it still has truly been all great advice for me too!
Jade,
You might save a little bit in an interest subsidy by enrolling into the SAVE program if you are making less than you owe. If you are making more than you owe, then i’d just keep it in the standard 10yr plan and pay them off aggressively.
Andrew SLA
There’s a very good chance of it. SAVE should generally be the default option.
Got it, thank you so much!!
Hello, does anyone know if you can take advantage of the new SAVE interest subsidy and then make large payments mid-month following your minimum required payments and still keep that interest subsidy? Ie. my monthly required payment based on my resident income is $300 however I’m accruing $1200 in interest a month. So $900 in interest would be forgiven a month. If I make that monthly payment of $300 and then two weeks later make a $3500 dollar payment (with my new attending income that hasn’t yet been recertified) will this extra payment be applied to the principle? Thanks!
I don’t know that you even have to do it in two payments do you? Although it kind of seems that something is screwed up if you are able to make a huge additional payment but qualify to be in SAVE!
1) Mohela certified my PSLF employment from 08/2019-08/2020 (predoctoral internship at non profit) and from 09/2020 to date (fellowship and employment at state run hospital). I enrolled in PAYE on 09/20 and have been making payments from 09/2020 to date. Can I request a refund for the payments I made from 09/2020–08/2023 and still receive PSLF forgiveness for the same period.?
2) Although my internship is PSLF certified from 08/2019-08/2020, Mohela only credited PSLF from 03/2020-08/2020. How do I get PSLF credit for 08/2019 through 02/2020? I was in forbearance and did not make any payments during this time.
Cheryl,
1.) Yes
2.) If you were in forbearance from 08/19-2/20 those don’t count for PSLF. Only the covid forbearance would count in this case. For more information on forbearances and deferments that count (outside of the covid ones), here’s an article for your review.
https://www.whitecoatinvestor.com/idr-waiver-who-qualifies/
Andrew SLA
Thank you so much for the reply!
The IDR waiver says “the government will also count these periods of time as credit: Forbearances of 12 consecutive months or longer OR more than 36 months in total.”
Since I was in forbearance for the entire 12 months of my internship (8/2019-8/2020), shouldn’t this period be credited towards PSLF? Mohela certified PSLF employment from 8/2019-8/2020 but only shows PSLF credit for 3/2020-8/2020.
Cheryl,
Right. But it doesn’t indicate anything about the gov’t mandated pandemic pause tied into the 12 month continous or 36 month cumulative forbearances. My understanding is those are separate. That’s probably why you are only seeing credit for the Covid time.
Andrew SLA
Thank you for this article. A few people have asked above but I still am not clear on the answer. My husband has $250k in loans and he is an EM physician. We have set aside $120k during the pandemic that will go towards his principle before payments resume. Since interest rates for private lenders aren’t as robust, I’m exploring switching him to SAVE so that if we are making a payment of $6500+ per month on his loans he would benefit from the lack of accrued interest. I guess I’m struggling to understand whether or not high income earners will benefit from the interest subsidy. Does this plan seem like a better alternative to refinancing or a standard 10 year repayment?
Thanks!
At a certain income, they don’t. But you would have to run the numbers to see if you would or would not. If you benefit, it may be better than refinancing. Just about everything is better than a standard 10 year plan though!
If switching from PAYE to SAVE, do the accrued months in IBR get counted towards save or do they reset?
William Brown,
They are counted if you are doing PSLF.
Andrew SLA
I have a really interesting situation. I am enrolled on PAYE and MOHELA sent me a letter saying that on the PAYE-PFH (partial financial hardship) I will owe $1800/month. However, I am getting emails from the US Department of Education recommending I switch to the new SAVE plan and that “I will save at least $1000/year”. When I use the calculator on studentaid.gov, it says I will owe about $3600/month on SAVE. I called MOHELA and they recommended I stay on my current plan since the monthly payment will be substantially lower. For context, I make 460k and owe 500k in loans. I am about 88 payments into PSLF. Any advice?
Thanks so much for your incredible work.
You just have to run the numbers. For a minority of people, the payment cap of PAYE outweighs any of the SAVE benefits. I think there’s a very good chance you are one of those people. PAYE also provides taxable forgiveness at 20 years instead of 25, but that doesn’t apply in your case.
I had 220k left of my student loans. I saved all of the payments over the pause and put the money into a high interest savings account. I then paid that 105k towards the principle before interest started accruing. Every time I put large amounts of money towards them, I think what if there is forgiveness for primary care physicians or the 0% interest proposal for current federal student loans. My question is, if my highest interest debt is my student loans (6.75%), would you recommend continuing throwing large chunks of money at my student loans, or would you put the money elsewhere?
Without a functioning crystal ball, I can’t promise you there won’t be some mass forgiveness thing down the road or that rates won’t go back to 0%. But at 6.75%, I’d be throwing money at it like crazy right now.