Student Loan Repayment Strategies For Medical Professionals – Are you anxious about your student loans? You’re not alone. Did you know that borrowers in the United States hold a collective debt of $1.6 trillion in student loans? Bachelor’s degree holders have an average of $30,000 in student loans, and medical/dental graduates owe close to $300,000. Although it may seem daunting, there are strategies to help you reduce your debt. Tactics such as forbearance can delay payments, while others such as Public Service Loan Forgiveness (PSLF) can cancel remaining debt. In this guide, we’ll walk you through the different student loan repayment options. This graph should give you an idea of payment times from residence. It’s time to start paying off your student loan! (1) Tolerance As you probably know, you have a long way to go if you are a medical or dental student. After four years of medical or dental studies, your training can last from 3 to 7 years. Since graduate programs can be very demanding, it can be difficult to find time to earn money during this time. Forbearance allows you to temporarily delay your loan repayments or make smaller ones. Unlike private lenders, it may be easier to suspend federally subsidized loans. As interest accrues on your loan, your total loan balance will increase. To avoid paying more in the long term, you can allocate excess capital to your loan. (2) Income Contingent Reimbursement Income Contingent Reimbursement (IDR) plans cap your monthly payment at a fixed percentage of your Discretionary Income. It’s usually around 10-20%. The main income-oriented plans include IBR, PAYE, REPAYE and ICR. See the table below for details on each. If you have government-backed loans, you might want to look into income-based repayments (IDR). Examples of these loans include the Direct, Perkins, Stafford and Grad Plus options. Income-based repayment options are one of the best benefits of having government loans. Depending on the IDR option you choose, you can cap your payouts at 10-20% of your Discretionary Income. To be eligible for the IDR, you must show partial financial hardship when first applying. You should also check your family size as well as your annual income. Calculate your repayment amount based on income You can also use this calculator to determine your monthly payment amount. Keep in mind that any balance returned after 25 years is taxable income. (Be sure to consult a tax or financial professional for advice on managing potential tax liabilities.) PAYE, REPAYE, ICR PAYE PAYE or Pay As You Earn is similar to IDR, but it caps your payment at 10% of your discretionary income. It offers a discount after 20 years of payments and you must have taken out a federal loan after October 1. 2007. REPAYE REPAYE (Revised Pay As You Earn) is similar to PAYE, but it is a reformed version that was implemented in 2012. Your payment is limited to 10% of your Discretionary Income, and its terms of forgiveness are 20 years for undergraduates and 25 years. years for graduate students. The REPAY option also includes an interest subsidy, which means that the government helps you pay the interest on your loans. If your monthly payment does not cover interest, the government will pay the rest of the interest component of your monthly payment if your loan is subsidized. The government will only pay half of your interest payments if your loans are unsubsidized. RPAYE also does not cap your monthly payment as your income increases unlike the PAYE plan. Uncapped payments could put unnecessary additional pressure on your budget. ICR ICR, or Income Contingent Repayment, is a good option if your applications for other income-based repayment plans have been rejected. This is the only income-based repayment option available for Parent PLUS loans, but they must first be consolidated to qualify. Payments are the lesser of 20% of your discretionary income or monthly payments when the loan is amortized over 12 years. His grace period is 25 years. Deferment Deferment is like forbearance because you can use it to suspend payments. However, you must meet certain criteria, such as being unemployed, doing military service, or facing other difficult financial times. Graduate students are also entitled to a deferment. You must also request a deferral from each lender, which will lengthen the process if you work with different lenders. Fortunately, the government will pay the interest on your government-subsidized loans during this time. Yet, you will still be responsible for the interest accrual on your private loans. What to avoid with income-driven repayment One of the most important things to avoid with income-driven repayments is to avoid going into credit card debt. To avoid going into debt on your credit card, get ahead or follow student loan repayment options. Secured credit cards have interest rates that fluctuate around 18%, which will double your debt in 4 years, according to the rule of 72. The rule of 72 will show you how many years it will take for your investment or debt to double by dividing 72 by your interest rate or rate of return. This is a rough estimate, but it can show you how compound interest can help or hurt you. Once you are a resident or fellow; you start earning a living wage. Either way, keep your budget in mind, avoid credit card debt when possible, and consider income-driven repayment options, including IBR, PAYE, REPAYE, and ICR. Income-based repayments will make your monthly payment more manageable and eventually wipe out your remaining income, which will likely be considered taxable income. (3) Refinancing As mentioned earlier, your interest rate can make a huge difference when considering student loan repayment options. Refinancing can be a useful tool to save on interest. Still, you should be aware of the pros and cons when refinancing. Advantages of refinancing You can save substantial sums by reducing your rate by 1%. If you owe $200,000 at 7% and refinance at 6%, you’ll save $12,000. This assumes you pay off your debt in 10 years and you can use this calculator to calculate your own scenarios. You will have a fixed rate and payment term. This can be seen as an advantage and a disadvantage, as your interest rate will not increase as long as you choose a fixed rate loan rather than a variable or hybrid loan. But, refinancing student debt is irreversible, so think twice before signing the dotted line. (You can always refinance again. The irreversible part goes from public to private) Disadvantages of refinancing You will lose your federal payment plan options. If you decide to refinance; this converts your government guaranteed loan into a private loan. Thus, you would lose certain protections like IDR and similar government programs. Check if the interest savings are greater than the loss of these payment plans. You will not be eligible for federal protections. This is more important than missing the IDR or similar reimbursement plan. Refinancing your loan will make you ineligible for federal protection programs like civil service loan forgiveness. Physicians and dentists can use the PSLF program to serve in the public and not-for-profit sectors to obtain cancellation of their remaining balances. Things you should ask yourself before refinancing: Will I need a co-signer? Have I reviewed discounts, lenders, and programs offered by my professional association like the American Medical Association (AMA) or the American Dental Association (ADA)? Do I want to have a mortgage on my medical or dental practice building? Other debts and refinances can impact your credit score. How much Discretionary Income do I have at the end of each month? Is it worth forgoing repayment plans and protection programs that might result in lower payments or a discount? Will there be a tax charge if my loan is cancelled? What is the difference between refinancing and consolidation? Consolidation is often confused with refinancing. Consolidation allows you to take all of your monthly payments with other lenders and combine them into one payment. This strategy can also be used with other types of debt such as credit card or medical debt. The biggest difference between consolidation and refinancing is that refinancing mainly focuses on reducing the interest rate. Just like consolidating, refinancing your loans will also result in a single monthly payment. Like refinancing, consolidation can be used to organize your debts in the same way. However, private loans are suitable for refinancing, while consolidation is for government guaranteed loans. Some of the major benefits of consolidation include: Being able to organize your debt. Having multiple loan repayments to different lenders can be confusing. By consolidating, you can keep your financial house in order with just one payment. . Access an Income Contingent Repayment (ICR) plan with a PLUS loan. This loan is granted to your parents and they will be eligible for a
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