Income-Driven Repayment for Veterinary 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?:
- If your internship/residency qualifies for deferment, your federal student loan payment amount due is zero. However, interest continues to accrue on the majority of federal loans during the deferment period.
- After your loans exit deferment, all of the accrued interest 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 your total loan repayment cost.
Using IBR, PAYE, or SAVE for advanced education:
Your IDR Profile will determine which income-driven repayment options are available for your loans.
Your payment under IBR (2009) is 15% of your Discretionary Income or 10% of your Discretionary Income under PAYE/IBR 2014.
SAVE has been blocked by a federal court since July 2024. No new SAVE applications are being accepted. Anyone who was using SAVE since the court ruling has been placed into an interest-free forbearance. No forgiveness credit is received during the forbearance.
With a low enough income (ie, during an internship, residency, fellowship, etc), it is possible to have a monthly payment equal to zero using IDR. These zero-dollar minimum payments are still counted as forgiveness-eligible payments (should you reach forgiveness).
You must provide annual documentation of your income to continue to have your payments based on your income under IBR, PAYE, or REPAYE. If you fail to provide timely annual documentation, your payment will revert to a standard 10-year repayment amount due. If you are using IBR and do not renew your income information on time, your unpaid interest will capitalize. After July 1, 2023, no unpaid interest capitalization will occur for PAYE and SAVE income-driven repayment plans.
*** Veterinary colleagues do not let other veterinary colleagues defer their loans! ***
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BEWARE the Automatic Deferment: 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). In-school deferments will trigger the capitalization of any unpaid interest you have once that deferment ends, no matter which repayment plan you were using prior to receiving the in-school deferment.
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
- Obtain your federal student aid data file and upload it to the VIN Foundation My Student Loans tool to help examine your loans and see which IDR plans you're eligible to use.
- 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 any loan servicer during consolidation; they are all terrible. Watch them carefully for mistakes.
- Select the most beneficial IDR plan for you (will depend on your loan details, family size, spouse details, and career plans). Use your IDR Profile to help you select the best IDR plan.
- Use your Adjusted Gross Income (AGI) from your recently 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 (autopay) 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 Date.
- Simulate your repayment scenarios using the VIN Foundation Student Loan Repayment Simulator each year or whenever your circumstances change.
SAVE during internships/residencies
Although the SAVE plan is blocked, if you were able to get your loans into SAVE, then enjoy the interest-free forbearance during your advanced training for as long as the forbearance lasts. There is currently no other way to pause interest accrual on your student loans other than the SAVE forbearance. This will reduce the interest accrual during your training and lower the amount you repay after your training. Stay tuned for updates on the SAVE forbearance and any transition plan when it is announced.
Get familiar with recently proposed changes to Income-Driven Repayment plans. Be prepared to evaluate the remaining repayment options and select another one when necessary.
After July 1, 2023, when you switch from PAYE or SAVE to another repayment plan, your unpaid interest will not be capitalized.
Try the VIN Foundation Student Loan Repayment Simulator to see the short and long-term impacts of student loan repayment for your situation.