Federal student loan payments can make it difficult for doctors to earn a decent income early in their careers.
To make the repayment process easier, most students follow a monthly student loan payment plan until the debt is paid in full.
However, failing to meet the payment deadlines can acclimate interest too fast for some students to handle.
To help ease the interest, the government introduced the REPAYE plan.
REPAYE was then replaced by the SAVE plan (sometimes referred to as the new REPAYE), which builds on the REPAYE plan’s pros and adds some extra perks.
Key Takeaways
- REPAYE was an income-driven plan that allowed you to pay your loan as you earned and forgiven it after 20 or 25 years.
- The new REPAYE or SAVE plan allows you to qualify for loan forgiveness up to 10 years earlier if your loan doesn’t exceed a certain threshold.
- REPAYE borrowers were automatically transferred to SAVE once the new plan came into effect.
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What Is the New REPAYE: The (SAVE) Plan
The SAVE income-driven repayment plan follows the same basis as the REPAYE plan; it’s an IDR plan that all federal student loan borrowers are eligible for, including graduates and undergraduates.
Here are details on how the plan works:
Payment Calculations
The current IDR plans require a payment of at least 10% of discretionary income every month.
However, under the SAVE plan, income-driven repayment for undergraduate loans is set at 5% of discretionary income.
Normally, the discretionary income is calculated as the difference between your annual income and 150% of the poverty line for your family size in your state.
The SAVE plan decreases monthly payments by increasing the income exemption from 150% to 225% of the poverty line.
In other words, SAVE can significantly decrease your monthly payment amount compared to regular IDR plans.
Payment Period and Loan Forgiveness
If you acquire a loan for undergraduate study, you’ll maintain the monthly payments for the next 20 years.
After that period expires, the remaining balance will be forgiven.
The same concept applies to graduate and professional study loans, but the forgiveness is applied after 25 years instead of 20.
Further, the SAVE plan incentivizes one-time payments by offering faster forgiveness for students who borrow $12,000 or less.
A student who borrows the said sum and makes their monthly payments under the plan will have their loan forgiven after 10 years.
Interest Subsidy
The SAVE plan offers significant relief for low-income borrowers.
If the borrower is earning less than $32,000 as an individual or $67,000 as a provider for a family of four, they qualify for $0 monthly payments.
Additionally, most other borrowers will see their payments cut by at least half compared to other repayment plans.
If your monthly payment doesn’t cover all the interest that accrues, the government will pay:
- 100% of the remaining interest in subsidized loans for the first three years.
- 50% of the remaining interest in subsidized loans after three years.
- 50% of the remaining interest on unsubsidized loans for all years.
The SAVE plan also offers an interest subsidy.
If you make your full monthly payment, the government will cover any interest that accrues on your loan balance, preventing your loan balance from growing due to unpaid interest.
Annual Recertification
For the plan to continue smoothly, you must provide updated income and family size information each year.
Failing to recertify may result in increasing your payment to the 10-year standard repayment plan amount.
Related: A Physician’s Guide to Student Loan Forgiveness
The New REPAYE Vs Other Income-driven Repayment (IDR) Plans
The new SAVE plan offers a more generous interest subsidy compared to other income-driven repayment plans.
Most IDR plans are designed to make student loan payments more manageable for borrowers with financial hardship.
Accordingly, they base monthly payments on your income and family size, and the payments can be as low as $0.
However, even with a $0 payment, interest on your loans continues to accrue each month.
In other words, the total amount you owe keeps growing since your payments don’t cover the interest.
The SAVE plan can make this a bit easier by paying half the difference in unsubsidized loans and the whole difference in subsidized loans.
For example, let’s assume you have $15,000 in subsidized loans and $75,000 in unsubsidized loans, both with a 4% interest rate.
This translates to your subsidized loans accruing $50 per month in interest (($15,000 * 4% / 12) and your unsubsidized loans accruing $250 per month ($75,000 * 4% / 12).
If your income qualifies you for a $0 monthly payment under the SAVE plan, the government will assist with the interest as follows:
- Subsidized loans: The government will cover the full interest accruing on your subsidized loan, paying the entire $50 per month for the SAVE plan’s initial three years.
- Unsubsidized loans: Unlike subsidized loans, the government covers half the accruing interest on unsubsidized loans, paying $125 per month (half the $250) towards the interest for the first three years.
Once the three years are over, the government’s subsidy will change. It would cover half the interest on both subsidized and unsubsidized loans, paying, in our example, $25 and $125 per month (instead of the previous $50 and $125).
Related: Medical School Loan Repayment
Find Your Best Financial Management Strategy
Paying back loans may be a challenging task for every doctor in the US.
However, financial stability goes beyond that.
A financially stable physician should know how to get the most out of their current position by getting the best contract.
The process should also be supplemented by various types of insurance to minimize financial drain, such as in cases of disabilities or malpractice.
There’s also the aspect of adequately investing your income to help you formulate a good retirement plan.
All of these factors and more are deciding factors for your financial stability as a physician.
The good news is that you don’t have to go through this alone.
Our team at Physician’s Thrive is qualified and ready to give you any type of financial consultation that you need to thrive.
Contact us, and let us help you make the most of your medical career.
