You are a doc (or soon to be) who graduated from med school with mortgage-sized student loans. You haven’t made student loan payments on your direct federal student loans for years (Cares Act 2020). You’re concerned about the high interest rates resuming in January of 2023, loan forgiveness programs, loan servicers quitting the loan servicing business and how to plan amidst all the uncertainty.
Our company, StudentLoanAdvice.com, was started in conjunction with the White Coat Investor to help physicians, dentists and other high earners stop making dumb decisions with their student loans. The student loan industry is growing more complex each day with a multitude of repayment plans and loan forgiveness options—each with its varying advantages and disadvantages which touches on your income, tax filing status and even how you’re contributing for retirement. It’s no surprise that many of our clients prior to our consultations were making five and six figure mistakes through mismanagement of their student loans.
For a few hundred dollars we’ll meet with you one-on-one, review your situation and provide you with a customized student loan plan to help you optimize your student loan management.
Here’s a few steps to help you be prepared for when student loan payments resume
- Make sure your contact information is updated
- Find out your student loan balances
- Don’t assume your payments start automatically
- Pick the optimal repayment plan
- File public service loan forgiveness certification form
- Privately refinance federal student loans if no longer pursuing forgiveness
- Create a plan
1. Make Sure Your Contact Information Is Updated
Make sure you’ve updated your mailing address and email on studentaid.gov and your loan servicer’s site. Anticipate correspondence to come from your loan servicer in the mail and through email. But, beware of scammers. Since tens of millions of borrowers are beginning to make payments come January 2023, scammers will be out there to make a quick buck off you. To verify the email has actually come from your servicer, login to your servicer’s website and look at the email tab. Any correspondence that’s sent via email should be documented there as well.
2. Determine Your Student Loan Balances
As simple as this sounds, I meet with doctors quite frequently that over or underestimate how much they owe and what their interest rates are. Your federal student loan balances, interest rates, certification dates, etc., are on studentaid.gov or your loan servicer’s website. Your private student loans will be on your loan servicer’s website.
If you aren’t sure how much you owe or how many student loans you have, they can be identified on your credit report. The easiest way to obtain this is through freecreditreport.com.
3. Don’t Assume Your Payments Start Automatically
You might have been in auto-debit payment prior to the loan moratorium. In order to resume auto-debit payments, contact your loan servicer to let them know.
If you fail to make payments and don’t enter forbearance, your loan will become delinquent. If you stay delinquent, aka make no student loan payments for 270 days, your loans will move into default. Defaulting on your student loans is a tough situation to be avoided at all costs.
4. Pick the Optimal Repayment Plan
You could be throwing away thousands of dollars if you’re in the wrong repayment plan.
There are a number of factors to consider to ensure you’re in the correct repayment plan.
- Are you going for loan forgiveness or paying them off?
- What is your debt-to-income ratio?
- Are you married and is your partner also working?
- Are you planning to work at a non-profit/501(c)(3) or private practice?
This list isn’t exhaustive but directionally will help in your selection of your repayment plan. If you’re single or the sole provider in your household, REPAYE is usually best while in residency. If you’re CERTAIN you are not going for loan forgiveness, then privately refinance when you can get a lower effective rate (after your REPAYE subsidy is applied). If you are going for loan forgiveness, enroll in REPAYE and switch to PAYE at the end of residency.
Dual earner households with one spouse with loans or both with loans will need to review in depth the differences between REPAYE and PAYE and pick the plan which provides a better financial outcome. REPAYE tends to be better when you are paying off your loans quickly, while PAYE has a couple of unique benefits which can maximize forgiveness. However, sometimes it’s optimal to have one spouse in PAYE and the other in REPAYE.
If you’re a couple with federal loans, it’s easy to pick the wrong repayment plan. If you’re unsure how to run the numbers, take out the guesswork and meet with an expert at StudentLoanAdvice.com.
5. File Public Service Loan Forgiveness (PSLF) Certification Form
For those on track to receive tax-free loan forgiveness via public service loan forgiveness (PSLF), make sure to file your PSLF certification form. Since March of 2020 until now, no payments have been required. However, each month should count as credit toward PSLF as long as you have qualifying employment—and the only way to have those months credited toward PSLF is by submitting a PSLF certification form.
Loan servicers have done a poor job of keeping track of your payments and don’t expect them to improve. Fedloan, the previous loan servicer in charge of PSLF quit in July 2022. Mohela is the new PSLF servicer.
6. Privately Refinance Federal Student Loans If No Longer Pursuing Loan Forgiveness
Borrowers have long put off private refinancing as they’ve been holding onto the 0% interest freeze and hopes that the current administration will issue widespread loan forgiveness. The Department of Education has said that January 2023, is the last payment delay.
If you’re no longer pursuing taxable loan forgiveness (20-25yr) or PSLF (10yr) you should not be holding onto those 6-8% federal loans. Private refinancing often offers much lower rates at 4-6% and is an excellent idea for those of you paying your loans down. The only case I don’t see this providing you with a lower rate is while in your intern year.
A quick rule of thumb is that if your debt-to-income ratio is less than 1, go ahead and privately refinance your loans. For debt-to-income ratios greater than 1, run the numbers of private refinancing vs PSLF.
7. Create a Plan
If you haven’t been making payments on your federal student loans for years due to the CARES Act bill, this time has likely been quite a relief for you financially; however, the reprieve is ending soon and you need to again allocate a portion of your earnings to your student loan payments.
First, assess your student loan pay down method. For most doctors, they should pursue PSLF or private refinancing. The method you choose is mainly determined by your employment out of training. For those of you eligible for PSLF, the numbers almost always work in your favor.
Second, determine your monthly payment. If you’re pursuing PSLF, pick the lowest monthly payment as detailed above. If you’re private refinancing, pick a payment term with the largest monthly payment you can afford so that you can minimize overall interest paid.
Lastly, stick to your plan and, if applicable, review with your partner annually how you’re doing. If your income changes, you may want to increase your monthly student loan payment or make an overpayment.
If the student loan payment restart is stressing you out or you want to make sure you’re on the best track to managing your loans, book a meeting with StudentLoanAdvice.com today!