Uncertainty surrounding the student-loan repayment landscape has largely been lifted. A U.S. Supreme Court recent ruling dealt a major blow to the Biden administration’s plan to cancel up to $20,000 in student-loan debt for borrowers who earn $125,000 a year or less, or $250,000 or less for couples who file taxes jointly. A 6–3 Supreme Court ruling in the case of Biden v. Nebraska effectively killed that plan. The AMA has outlined the issues in the case and next steps from the Biden administration (PDF).
So with no blanket forgiveness forthcoming, where does that leave physician borrowers? Industry experts from Laurel Road—which has been selected by the AMA to help you navigate your financial future—weighed in on some key questions that might arise.
Enacted as part of the CARES Act in March 2020, all borrowers in federal repayment were granted a six-month period in which they were not required to make any payments and interest did not accrue. Scheduled to end in September 2020, that repayment pause was extended nine times. A tenth extension, however, is not forthcoming.
“In May, the president signed legislation that ends the payment pause,” said Chris Walters, who heads up GradFin, a brand of KeyBank along with Laurel Road. “This legislation requires interest to resume in September with payments resuming in October. Borrowers should start preparing for payments to begin by logging into their loan servicer and making sure their contact information is accurate.”
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The Saving on a Valuable Education (SAVE) Plan will be replacing the existing Revised Pay As You Earn (REPAYE) Plan. The benefits of the SAVE Plan fully take effect July 1, 2024. Those benefits can reduce payments for residents and fellows because it calculates your monthly payment amount based on your income and family size.
Though the plan is more favorable to loans taken out to fund undergraduate education, physician borrowers who have undergraduate and graduate loans will pay a weighted average of between 5% and 10% of their discretionary income based upon the original principal balances of their loans. Perhaps the biggest benefit to the SAVE plan is that a borrower will not be charged any remaining accrued interest each month after the borrower's payment is applied under the REPAYE plan. This means that a borrower’s loan balance will not grow as long as they make their monthly payments
For federal borrowers now on the REPAYE plan, the switch to SAVE will be automatic. If a borrower wants to enroll in SAVE and they’re not already on the REPAYE plan, they should apply for REPAYE now and will be automatically switched to SAVE once it goes into effect.
Before repayment resumes, Laurel Road Chief Marketing Officer Kaitlin Walsh-Epstein advised physician borrowers to take a few key steps.
“Make sure that your monthly payment amount is correct based on your selected plan so you know what you will be paying in October 2023,” she said. “Also, confirm how you’d like to be contacted by your servicer. If you want everything sent in the mail, make sure your mailing address is updated. If you want your documents to be sent via email and paperless inbox, then make sure you’re checking your online account and the correct email is set up.”
One other thing borrowers should be mindful of is who is servicing their loan. In some cases, a borrower’s loan vendor may have changed in the past three and a half years.
“If your student-loan servicer has changed, you would have received notice with their information,” Walters said. “Be sure to create an online account with your new student-loan servicer and make sure your repayment plan, loans, and payments are set up correctly moving forward.”
A favorable option for physicians, the Public Service Loan Forgiveness program aims to offer debt relief for physicians and others who make 120 payments on their educational loans while working for a nonprofit or government entity. That plan remains intact for any borrower, though the past three-plus years of the loan repayment pause has been a benefit; each month that passed counts as a payment made toward the required total.
“To qualify for the PSLF, you still need to have federal Direct Loans, work at least 30 hours per week at an eligible nonprofit organization or government agency, and be enrolled in an income-driven repayment plan,” Walters said. “Your monthly payment will need to be made on time every month to count towards PSLF, and you will still need to make 120 qualifying payments total.”
Though interest rates are high amid the Federal Reserve Board’s effort to curb inflation, refinancing could still be an option for borrowers looking to potentially lower their rate or change their term length, Walsh-Epstein said. “It's worth reviewing everyone's unique financial situation, but for many residents and fellows, it could make sense to keep your loans federal and look into the income-driven repayment options available to you,” she said. “With the new SAVE plan, many residents may even qualify for $0 monthly payments, especially as interns, so it’s worth exploring your income-driven repayment options with a specialist.”
Moreover, Walsh-Epstein also cautioned against a “set it and forget it” approach to student loan debt management. While the new SAVE plan may be the best option for residents and fellows, physicians should revisit their repayment plan annually (or as their financial situation changes) to ensure that it continues to be the best plan for them.
“Refinancing could make sense when you have high interest private student loans,” Walsh-Epstein said. “Borrowers may not realize that they can choose exactly which of their loans they'd like to refinance, so even if they have a mix of high- and low- interest private loans, they could benefit from refinancing only the higher-interest ones.”