Janice Lozano
Paying off student loans during residency can be a challenging task. Residents have the option to postpone payments during training, but this can result in accruing interest, increasing the total amount owed. On the other hand, making payments during residency can help save money in the long run by preventing interest accumulation. Federal student loan borrowers can choose mandatory forbearance, which pauses payments for a year, but interest still accrues. Alternatively, refinancing can lower interest rates and save money. Residents should consider their personal and financial goals when deciding how to manage their loans, balancing repayment with other financial priorities.
| Characteristics | Values |
|---|---|
| Do you have to pay back student loans during residency? | Yes, but there are options to postpone payments. |
| Options to postpone payments | Mandatory forbearance (for federal loans) |
| Interest on mandatory forbearance | Interest accrues |
| Who can qualify for mandatory forbearance? | Medical/dental residents |
| How to apply for mandatory forbearance? | Obtain the form from the FSA website or the loan servicer, and get the program coordinator to sign off |
| How long does mandatory forbearance last? | One year or 12 months, but can be renewed |
| What happens if you don't apply for forbearance? | Interest keeps piling on, increasing the overall balance |
| What are the other options? | Refinancing, income-driven repayment plans, PAYE, REPAYE, SAVE |
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Mandatory forbearance
During residency, medical residents have to start making payments on their student loans. However, there is an option called mandatory forbearance that allows residents to pause their federal student loan payments for a period of one year or 12 months. To qualify for mandatory forbearance, borrowers must have Perkins, FFEL, or Direct Loans. It is important to note that interest still accrues during the forbearance period.
To request mandatory forbearance, residents need to submit a form to their loan servicer and await approval. This option is available to residents who meet certain eligibility criteria, such as serving in AmeriCorps, the National Guard, or participating in a dental internship. Residents should also let their loan servicer know that they are in residency to ensure they are approved for the request.
While mandatory forbearance can provide temporary relief from loan payments, it may not be the best option for everyone. Residents should carefully evaluate the pros and cons of mandatory forbearance and consider other alternatives, such as income-driven repayment plans or loan consolidation, to manage their student debt effectively during residency.
Additionally, residents can explore other opportunities to increase their income during residency, such as moonlighting or working a second job. It is important for residents to carefully consider their financial options and seek advice from trusted resources or financial planners to make informed decisions about their student loans and overall financial well-being.
Overall, while mandatory forbearance can offer a temporary pause in loan payments during residency, residents should weigh their options and explore various financial strategies to manage their student debt effectively.
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Payment plans
Residents can choose to postpone payments on their federal student loans during residency with a mandatory residency forbearance. This option is guaranteed, but it is not always the best choice, as interest continues to accrue, increasing the total amount owed.
An alternative to mandatory forbearance is income-driven repayment (IDR). IDR plans set monthly payments as a percentage of discretionary income, typically between 10% and 15%, and extend the repayment period to 20-25 years. IDR plans also forgive any outstanding balance remaining after the repayment period. The most common federal income-driven payment plans are:
- Pay As You Earn (PAYE)
- Revised Pay As You Earn (REPAYE)
- Income-Based Repayment (IBR)
- Income-Contingent Repayment (ICR)
- Saving on a Valuable Education (SAVE), which replaced REPAYE
Under PAYE, monthly payments may not cover accruing interest, increasing the total amount owed over time. REPAYE, on the other hand, subsidizes half of all accrued interest, but factors in the debt and income of a physician's spouse when calculating monthly payments. SAVE is similar to REPAYE but does not cap monthly payments based on the 10-Year Standard Repayment amount.
Another option is to refinance student loans, which can lower the interest rate and save money over time. Doctors with excellent credit and a low debt-to-income ratio are ideal candidates for refinancing.
The right repayment plan depends on an individual's financial situation, life plans, goals, and future income.
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Loan forgiveness
To maximize loan forgiveness, residents should consider consolidating their federal student loans into a Direct Loan at the beginning of their residency. This ensures that all loan debt is eligible for PSLF. Additionally, residents should enroll in a qualifying repayment plan, such as an Income-Driven Repayment (IDR) plan, which calculates repayments based on adjusted gross income and family size. IDR plans can help stabilize monthly loan payments while pursuing PSLF.
It is imperative to verify that your residency program qualifies for PSLF. Residency programs that are 501(c)(3) nonprofit organizations or state hospitals are more likely to meet the criteria. Working at a hospital does not automatically guarantee eligibility. To confirm, residents can use the employer search tool on studentaid.gov or consult a student loan specialist.
During residency, some physicians may opt for moonlighting or taking on extra work to boost their income. While residency programs have varying policies on moonlighting, it can be a way to supplement earnings and potentially contribute to loan repayment. Additionally, residents can explore loan repayment assistance programs or seek advice from financial planners to navigate their options effectively.
While PSLF offers significant benefits, residents should be aware of potential downsides, such as lower salaries in the public sector compared to private practice. Moreover, residents must understand that PSLF is not automatic and requires proactive steps, including submitting the PSLF form annually and tracking payments. Staying informed about updates to the PSLF program through studentaid.gov and correspondence from the Department of Education is essential.
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Refinancing
Residents and fellows will want to choose between the new SAVE plan (formerly REPAYE), which heavily subsidizes interest, and PAYE/NEW IBR, which allows for capped payments. Residency can count toward PSLF, but doctors must meet certain conditions for student loan payments to qualify. This includes working for a PSLF-eligible residency program and choosing the right student loan repayment program.
If you have private medical school loans, you may want to consider student loan refinancing. A few student loan refinancing lenders offer reduced payments for medical residents. Some even provide a grace period after residency ends before requiring payments.
However, there are situations when it does make sense to refinance federal loans in residency. These are mainly people who are not planning to go for any type of loan forgiveness and are receiving little or no REPAYE subsidy due to their or their spouse's income.
There are several companies that offer refinancing for medical residents, such as Citizens Bank, which fixes loan payments at $100 per month up to four years during residency. The monthly payment begins immediately after loan disbursement for the duration of the residency or fellowship program, up to 48 months, plus a six-month grace period.
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Moonlighting
While moonlighting can provide a substantial extra income, there are a few considerations to keep in mind. Firstly, residency programs typically have their own policies on whether residents can take on extra work, so it's important to check with your program about moonlighting eligibility. Additionally, if you're paying back your student loans on an income-driven repayment (IDR) plan, moonlighting can increase your monthly payments since IDR plans use your discretionary income to determine your payment amount.
Furthermore, there are different options for managing your student loans during residency. You can choose to make payments during residency or postpone them. If you choose to make payments, you'll want to consider the repayment plan that best aligns with your personal and financial goals. On the other hand, if you postpone payments, you may be able to take advantage of a mandatory residency forbearance, which allows you to temporarily pause payments without penalty.
It's also important to consider the potential impact on your loan forgiveness options. Residency can count towards Public Service Loan Forgiveness (PSLF), but certain conditions must be met, such as working for a PSLF-eligible residency program and choosing the right student loan repayment program. Additionally, if you're enrolled in a mandatory residency forbearance and make voluntary payments, those payments may not count towards PSLF since you're not enrolled in an eligible repayment plan.
Overall, moonlighting can be a viable option for medical residents to increase their income and pay off student loans, but it's important to carefully navigate the policies and restrictions surrounding it and make informed decisions about loan repayment and forgiveness options.
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Frequently asked questions
Residency programs have their own policies regarding student loan payments. While you can choose to pay back your student loans during residency, you can also postpone payments.
If you postpone your student loan payments during residency, interest will continue to accrue, increasing your overall balance. This can be avoided by consolidating all your federal student loans at the beginning of residency into one federal Direct Loan.
Residents with federal loans can choose an income-driven repayment plan that typically caps monthly loan payments at 10-15% of their discretionary income. Residents can also consider refinancing their loans during residency to secure a lower interest rate and reduce monthly payments.
