IDR for Interns and Residents


Income-driven Repayment for those heading into Internships and Residencies

Conventional wisdom often says to defer your loans while pursuing internships and/or residencies.  However, income-driven repayment (IDR) is often a better option for veterinarians with federal student debt pursuing advanced education.

What happens in deferment/forbearance?:

  • If your internship/residency qualifies for deferment/forbearance, your federal student loan payment amount due is zero.  However, interest continues to accrue on the majority of federal loans during the deferment/forbearance period.
  • After exiting deferment/forbearance, all interest that has accrued will capitalize, meaning it will be added to your principal balance.
  • Adding interest to your principal balance increases the amount of interest that accrues during the remainder of your repayment and will increase the total costs of repaying your loans.

Using IBR or PAYE/REPAYE for advanced education:

Your payment under IBR (2009) is generally 15% of your income or 10% of your income under PAYE/REPAYE.

With a low enough income (ie. during an internship, residency, fellowship, etc), it is possible to have a monthly payment equal to zero under an IDR.  These zero amount payments still count towards the monthly payments due before forgiveness.

You must provide annual documentation of your income in order to continue to have your payments based on your income under IBR, PAYE or REPAYE.  If you fail to provide timely annual documentation, your unpaid interest will capitalize and your payment will revert to a standard 10-year repayment amount due.

*** Veterinary colleagues do not let other veterinary colleagues defer their loans!  ***


CAUTION
: if you are enrolled in school at least half-time during an academic internship/fellowship/residency, your school will automatically report your status to the Department of Education.  This will result in an automatic loan status change to “deferment."  You may be able to prevent this automatic status change by providing oral and written notice to your loan servicer(s) to waive your in-school deferment and remain in repayment.  Make sure to do this prior to starting your academic position and to have dated documentation of your request (ie certified mail).

What to do with your loans when you’re headed for an internship/residency

  • File a tax return during your final year of veterinary school whether you need to or not
  • Consolidate your loans into a federal Direct Consolidation loan as soon as you graduate and enter your loan grace period.  This will also give you a chance to consolidate non-Direct loans (FFELs, HPSLs, Perkins)  into a loan type that will be eligible for the most beneficial IDR plans
  • Choose your loan servicer during consolidation (FedLoan Servicing is the least worst.  Stay away from Navient if possible.)
  • Select the most beneficial IDR plan for you (will depend on your loan details, family size, spouse details, and career plans).
  • Utilize your Adjusted Gross Income (AGI) from your recent filed tax return or indicate that you currently have zero taxable income if you are consolidating prior to starting your internship/residency.  This should result in a minimum payment amount due of $0/month for the next 12 months (depending on your family circumstances and tax filing status).
  • Set reminders and follow-along in the process: Make certain all loans have been consolidated, the appropriate loan repayment plan has been selected, and the expected payment amount due is calculated.
  • Once consolidation is complete and your IDR plan is established, enroll in auto-debit with your loan servicer even if your payment amount due is $0/month.  You will receive a 0.25% interest rate reduction with auto-debit.
  • Set reminders to renew your IDR plan.  Target 60 days before your IDR anniversary.
  • Simulate your repayment scenarios using the VIN Foundation Student Loan Repayment Simulator each year

Revised Pay as you Earn (REPAYE) during internships/residencies

Depending on your student loan balance and family circumstances, you might benefit from REPAYE during periods of advanced education even if you qualify for PAYE.  Under REPAYE, you will receive an interest subsidy equal to 50% of the unpaid interest balance each month.  This can reduce the rate of growth for your unpaid interest during periods where your student loan payments are well below you average monthly interest accumulation. This is particularly true during prolonged advanced education years.

For example, if your consolidated starting loan repayment balance is $200,000 at 6%, you accumulate about $1,000/mo of interest.  If your minimum monthly payment is $0/mo, your REPAYE subsidy would be equal to $500/mo.  Thus, after 12 months in REPAYE, your unpaid interest balance will be $6,000 vs. $12,000 under PAYE or IBR.

REPAYE does have some specifics to consider, particularly if you are married.  When you’re married, REPAYE requires you to provide and count your spouse’s income in your minimum monthly payment calculation.  This may negate or minimize the impact of the REPAYE interest subsidy depending on your spouse’s income.  REPAYE also runs for a maximum of 25 years, whereas PAYE runs for a maximum of 20 years.  Therefore, it may also be beneficial to explore scenarios where you utilize REPAYE during your advanced education and switch to PAYE once your income increases.  Make certain to review the specifics of REPAYE and PAYE before choosing this strategy.

When you switch repayment plans, the unpaid interest that accumulates will be capitalized.  Thus it is imperative to anticipate the cost implications of utilizing REPAYE over PAYE, or utilizing a strategy that involves switching from REPAYE to PAYE.  Try the VIN Foundation Student Loan Repayment Simulator to see the short and long-term impacts of student loan repayment for your situation.


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