federal student loans

Trying to get your student loans forgiven? Consider public service loan forgiveness

Public service loan forgiveness has gotten some bad press in the news, but as a graduating medical student, I am still planning to enroll in it. When I shared this proclamation with my classmates they had mixed reactions and several questions. Just in case you’re wondering the same thing, I’ve answered them all below:                                                                                                            

1.     What is Public Service Loan Forgiveness?

Public Service Loan Forgiveness (PSLF) is a government sponsored student loan forgiveness program. If you work in public service for a non-profit organization, academic institution, or government agency and make 10 years of on-time qualifying monthly payments towards your student loans, the government will “forgive” your remaining student loan balance.

This program was designed for public servants like teachers and police officers who have lots of student loan debt but may be unable to pay it off in a reasonable time, partly because the salary they receive working in public service is less than the salary they would have received in a different profession. The goal of the program is to allow people with a passion for public service to pursue careers in that field without saddling them with an eternal burden of student loans.

The great thing about this program is that many health care professionals qualify too. Before you roll your eyes, hear me out. Many [future] doctors, such as myself, obtained an average of $200,000 in student loans during medical school. Then we enter residency where we are mandated to spend 3-7 years earning a government salary of only $60,000 while working 80 hours a week before we can make “the big bucks.” If we choose to stay working in an academic setting, which pays much less than private practice, we will qualify for public service loan forgiveness as well.


2.     Wait, isn’t it sketchy?

I’ll admit, there has been some bad press about public service loan forgiveness (PSLF). A couple years ago, people who thought they met the requirements were finally able to apply for loan forgiveness. Unfortunately, many people were not granted this forgiveness and hearing this news scared many people who were depending on this program.

Although this is less than ideal, there are several reasons why previous applicants were unable to get their loans forgiven. When the program first came out, the rules were vague. There was a lot of misinformation about how to enroll and many people who thought they qualified for the program did not actual qualify for it. Nowadays, the requirements for PSLF are much easier to understand. Now that people are more aware of how to properly enroll into the program, there is a good chance that people who have met the qualifications will get their student loans forgiven in the future.

3.     Is it wise to depend on this program?  

With recent proposals to eliminate PSLF, or potentially limit how much money can get forgiven through it, many people are worried it may change in the future and would rather pay off their student loans another way. That’s understandable. However, I am still planning to enroll in PSLF. Why? Because as it stands currently, PSLF gives me a chance to get hundreds of thousands of dollars in student loans forgiven. It is simply too good of a deal to pass up.

I could work insanely hard to pay off my student loans shortly after finishing my medical residency and fellowship, but doing so would cause me to live a less than ideal life. My student loan payment could be nearly $3,000 a month (almost double the cost of a mortgage). Pursuing PSLF allows me to enroll in an income-driven repayment plan that never charges me a payment higher than 10% of my income. With PSLF, I can use the money I would have spent on student loans to save up for a down payment on a home, replace my old car, finance my [future] kids college educations, or save for retirement.


4.     How do you qualify?

According to the website, you need to have direct federal student loans, work full-time in public service via a 501(c)(3) nonprofit or academic institution, and submit 10 years worth of on-time qualifying payments (i.e. Pay the full amount of your student loan repayment each month through one of the income-driven repayment plans).


5.     How do you actually enroll?

Go to the student loan website, fill out sections 1 and 2 on the PSLF enrollment form, and have your employer fill out Sections 3 and 4. Once that is complete, you fax the entire form to the “FedLoans” sub-department of the Federal Department of Education. Once you’ve submitted the form, “Fedloans” will verify whether you submitted the paperwork correctly and confirm whether you qualify. You must contact Fedloans annually to verify all of your payments and re-submit the employer verification enrollment form so that they know you still work in public service for a qualifying organization. If you have a different loan servicer (such as Nelnet, Navient, Great Lakes, etc), your loan servicer will be switched to Fedloans as soon as you enroll into Public Service Loan Forgiveness.  


6.     Are you protecting yourself if something goes wrong?

I understand that going for PSLF is a risk. There is a good chance that the government might drastically change the rules of a program that allows relatively high earning doctors to avoid paying hundreds of thousands of dollars in student loans. If you are still going for PSLF like I am, you need to protect yourself.

How am I doing this? By creating a “student loan investment side fund.” Instead of using the money I’m saving in PSLF to buy a better car, a larger home, or have a wealthy “doctor” lifestyle, I’m saving that money. Specifically speaking, I will take money from each check and put it into a high-yield savings account. I’ll use money in that account to invest in a combination of real estate deals, index mutual stock funds, and money market funds. That way, if PSLF changes in the next few years and for some reason I can’t get my loans forgiven, I will have created a nice nest egg of money that I can use to quickly pay off the rest of my student loans. If the PSLF program stays the same, then I can keep on investing that money and use it to pay for my [future] kids’ college education or my retirement. The opportunity to get hundreds of thousands of dollars in student loans forgiven is worth taking a risk. The best way to take this risk is to protect yourself just in case something happens.

Tell me, are you thinking of going for Public Service Loan Forgiveness too?

How to Choose The Student Loan Repayment Plan Best For You

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If you have ever tried to learn about student loan repayment plans you might have felt overwhelmed and confused. The information can seem daunting at first and even I had to spend a couple days researching the repayment plans before I finally understood the differences among them.

Instead of spending days researching information like I did, I’ve created a summary of information on the different repayment plans in a question-and-answer format with some key takeaways at the end. I hope you find it helpful:

  1. What is the Standard Repayment Plan and who should choose it?  

    With the standard repayment plan, you will pay off your student loans in 10 years by making “fixed” monthly payments. This means you will pay the same amount each month regardless of how much money you make. The government will determine your monthly payment by adding all of your student loans (and the projected interest that will accumulate on them), dividing that number by 10 [years], and splitting the amount into fixed monthly payments. 

    Choose the standard plan if you can afford the payments each month and don’t plan on pursuing any student loan forgiveness programs. Paying off your loans in 10 years, instead of dragging them out over 20-25 years, will save you thousands of dollars in interest payments. The downside to the standard plan is that the fixed monthly payments may be higher than you can actually afford, especially if you have a high amount of student loan debt (i.e. people who took out student loans for private colleges, graduate school, or some other type of professional program). Keep in mind that you will be automatically enrolled into the standard repayment plan if you don’t select a different repayment plan.   

  2. What is the Graduated Repayment Plan and who should choose it?

    The graduated repayment plan is similar to the standard repayment plan. In both plans, you pay off your loans in 10 years. However, with the graduated repayment plan, your monthly payments are not fixed. Your monthly payments will instead start out low, and increase every 2 years, until you have fully paid off your student loans in 10 years.

    This plan might be good for someone who knows his or her income will increase within the next few years. However, the monthly payments in the later years might be much higher than you can afford. Plus, if you are going to pay off your student loans in 10 years then you might want to consider refinancing them with a company outside of the federal government since they may be able to offer you a lower interest rate.

  3. What is the Extended Repayment Plan?

    Through the extended repayment plan you will pay off your loans in 25 years. You can either make “fixed” payments for 25 years or you can make “graduated” payments (in which the payments start small and then increase in amount each year). Usually, people choose this plan when they are not eligible for one of the income-driven repayment plans but cannot afford the high monthly payments that would require them to pay off their loans in 10 years. If you are eligible for one of the income-driven repayment plans then that is probably your best bet.   

  4. What are the income-driven repayment plans?

    The Federal Department of Education understands that some people may have acquired a substantial amount of student loan debt that they may not be able to repay with their current salaries. Instead of handing you a monthly student loan bill that may be higher than your mortgage, these income-driven repayment plans base the size of your monthly student loan payments on your income.

    Most of these plans cap your student loan payment at 10-15% of your discretionary income. Your discretionary income is your income minus whatever the poverty line is for your family size. In other words, if your income is low, your student loan payment will be low. As your salary increases, the size of your student loan payment will increase. After 20-25 years (depending on the type of federal loans you have) your student loans will be forgiven.

    The good thing about these income-driven repayment plans is that they allow you to make student loans payments you can actually afford. The bad thing about these income-driven repayment plans is that you will pay more money in interest than you would have paid on the standard or graduated plan and you have to pay taxes on the amount of student loans that are forgiven. For example, if you get $50,000 forgiven then you have to pay taxes on that $50,000 the year your loans are forgiven. (Note: if you opt for public service loan forgiveness, you don’t have to pay taxes on loans that are forgiven through that program, but that is the exception).

    Keep in mind that there are several different types of income-driven repayment plans. There is Pay-As-You-Earn (PAYE), Revised-Pay-As-You-Earn (REPAYE), Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR).

  5. Should you enroll in an income-driven repayment plan like Pay-As-You-Earn (PAYE) or Revised-Pay-As-You-Earn (REPAYE)?

    Consider enrolling in PAYE and REPAYE if you cannot afford payments under the standard repayment plan and/or if you might be pursuing a loan forgiveness program. These income-driven repayment plans are for people like new doctors entering residency and college graduates entering the workforce who may not be able to afford payments under the standard plan. Under these income-driven plans, your student loan payment is never more than 10% of your discretionary income.

    With these plans, you send in a payment each month and your loans are forgiven after the 20-25 years. Your income-driven repayment is recalculated each year after you file your taxes. If your income goes up, the amount of your student loan repayment goes up. If you decide that you want to pay off your loans before 20-25 year mark, there is no penalty for paying more than the amount due.

  6. What is the difference between PAYE and REPAYE?

    PAYE and REPAYE are similar income-driven repayment plans but have little nuances that can make a big difference. Both plans cap your student loan payment at 10% of your discretionary income and will forgive your loans after 20-25 years. The government will pay 100% of any unpaid interest that accrues on your subsidized loans during the first 3 years of repayment but will not do so for your unsubsidized loans. (As a rule of thumb, most people take out subsidized loans in undergrad and unsubsidized loans in graduate school or professional school). The differences between PAYE and REPAYE are:

    -You have to qualify for PAYE. It is only available to people with certain types of loans and who can demonstrate financial hardship with a high debt burden relative to their income (check with your loan servicer to see if you qualify).

    -Unlike PAYE, REPAYE will also pay 50% of any unpaid interest that accrues on your unsubsidized loans. I realize this may sound confusing, so let me explain. Under all of the income-driven repayment plans, the government will cover any unpaid interest on your subsidized loans (aka loans from undergrad) for the first 3 years. However, interest will still accumulate on your unsubsidized loans (loans from graduate school).

    • Under the REPAYE plan, if your income is so low and/or your debt burden is so high that your income-driven payments do not even cover the interest that is accruing on the loans, then under REPAYE the government will pay 50% of the remaining interest to keep it from compounding so quickly. For example, if your income-driven repayment plan requires you to pay a monthly payment of $200 (which amounts to $2,400 a year) but the interest accruing on your loans is $10,000 a year, then the government will pay 50% of the interest that remains so ($10,000-$2,400)x50%= $3,800.  

    -PAYE will cap your payments at the standard repayment plan level even as your income rises. As you start to earn more money your income-based repayment plan will increase. If you are enrolled in PAYE, the payment will never be higher than it would have been if you had enrolled in the standard 10 year plan. In contrast, if you enrolled in REPAYE, then it can be higher (but of course will never be higher than 10% of your discretionary income).

    -If you are enrolled in PAYE, your spouse’s income is not used to calculate the income-driven repayment amount if you file your taxes separately. However, if you are enrolled in REPAYE your spouse’s income will count, even if you file your taxes separately.

  7. When should you consider Income Based Repayment (IBR) and how is that different from Income-driven repayment?

    ”Income-driven repayment plans” is the umbrella term used by the federal government to classify all the types of repayment plans that base your monthly payment on your income. PAYE, REPAYE, IBR, and ICR are all considered different types of “income-driven repayment plans.”

    Unfortunately, not everyone can qualify for PAYE. If someone doesn’t qualify for PAYE and doesn’t want his or her spouse’s income to be used in calculating the income-driven payment, he or she might want to consider the income based repayment plan (IBR).

    The IBR plan is ideal for people who: cannot afford payments under the standard repayment plan, plan to go for some sort of loan forgiveness program, do not qualify for PAYE, AND do not want their spouse’s income used to determine their monthly payments.

  8. What the heck is Income-contingent repayment (ICR) and who should enroll in that one?

    Income contingent repayment (ICR) is a plan for people who want to enroll into an income-driven repayment plan but have loans that don’t qualify for PAYE, REPAYE, or IBR. Most federal loans that you took out as a student will qualify for PAYE, REPAYE, or IBR. However, loans that your parents may have taken out will not. Thus, ICR is a good income-driven repayment plan for students who are paying back student loans that their parents might have taken out on their behalf or for parents themselves who want a more affordable way to pay back the loans they took out to finance their children’s educations. My point? If you aren’t paying back loans from your kids or loans from your parents then ICR is probably not the plan for you.   

  9. Can I change from one student loan repayment plan to another?

    Yes. Oftentimes people may choose one of the income-driven repayment plans after they graduate, but then change to another type of plan as their salary increases or their life circumstances change. For example, a recent graduate might choose to enroll in REPAYE for a few years to enjoy the benefits of the government interest subsidy, then change into PAYE or IBR if they get married to someone who makes a high income (so that their spouse’s income isn’t used to determine their monthly payments). Then after a few more years, they may opt out of the income-driven plans altogether or even refinance their loans with an outside company to lower their interest rate.

    There is a caveat to switching plans though: If you initially enroll into the IBR plan and want to switch plans, you must first enroll in the standard plan and pay one payment under that plan before you switch into another type of plan. (From my knowledge, this is the only repayment plan with that caveat).

Key Takeaways:

I realize this was A LOT of information. I consider myself a fairly intelligent individual (who is about to graduate with a doctorate degree) and even I had to read the information on student loan repayment plans multiple times. I did a ton of research and even called the Department of Education to clarify a few things. Thus, if you’re slightly confused or unsure of what plan is right for you, you are not alone. You can always call your loan servicer to ask for help, put your information into the repayment estimator, or look up information on the Federal Website FAQ page. Nevertheless, here are some general takeaways:

  • If you can afford the payments under the standard 10 year plan and don’t plan on getting your loans forgiven through any government program enroll in the standard repayment plan.

  • If you plan on participating in the public service loan forgiveness program then enroll into an income-driven repayment plan (that way you will have smaller monthly payments and get more money forgiven).

  • ”Income-driven repayment” is the umbrella term for student loan repayment plans that base your monthly payment on your income. Pay-as-you-earn (PAYE), revised-pay-as-you-earn (REPAYE), income-based repayment (IBR), and income contingent repayment (ICR) are different types of income-driven repayment plans.

  • REPAYE and PAYE are both types of income-driven repayment plans and are very similar. Both will cap your payments at 10% of your discretionary income. The differences among them are:

    • You have to specifically qualify for PAYE but REPAYE is open to almost everyone.

    • REPAYE will continue to subsidize 50% of unpaid interest that accrues on your unsubsidized loans (aka some of your loans from grad school).

    • PAYE will not include your spouse’s income when calculating your payments if you file your taxes separately, REPAYE will include your spouse’s income even if you file your taxes separately.

  • If you are single (or have a spouse who does not make much money), cannot afford payments on the standard plan (or plan to pursue public service loan forgiveness), and do not think your monthly payments will fully cover the cost of interest that is accruing on your loans, then enrolling in REPAYE may be best.

  • If you are married to a spouse who makes a decent amount of money, but cannot afford the standard repayment plan, and may choose to pursue public service loan forgiveness in the future then do PAYE. If you do not qualify for PAYE, then enroll in IBR.

  • You can always switch from one repayment plan to another. This is very common as people’s life circumstances change (i.e. as they get married, switch jobs, or experience a change in income).

Tell me, was this helpful? What additional information about student loan repayment plans would you still like to know?