Federal student loan payments have been on a pause for the last three and a half years. For physicians who didn’t start their student loan repayments prior to the temporary relief programs, the student loan repayment calculations coming from the lenders for the first time can be a shock and, in some cases, a financial strain.
Student loan interest will start accruing again on September 1st, 2023, with payments due again beginning in October. Start planning and readjusting your budget now to make sure you’re ready for your first payment come October.
For those of you with high interest rates, it may be time to refinance, but make sure you're aware of all of your federal options first before you let go of them, as this can't be reversed!
Below, we'll cover some of the recent updates to federal student loan repayments and what you need to know about payments restarting this fall.
Disclaimers/Disclosures: PLEASE confirm this information before making any decisions based on it. The knowledge on this topic is changing rapidly and you should talk to relevant licensed experts (which we are not) as well as check the studentaid.gov site for the most updated information.
This page contains information about our sponsors, as well as affiliate links, which support the group at no cost to you. These should be viewed as introductions rather than formal recommendations. We do not provide individualized advice and are not formal financial, legal, or otherwise licensed professionals. You should consult these parties as appropriate and do your own due diligence before making decisions based on this page.
Quick Links
What You Need to Know about Federal Student Loan Payments Restarting
The US Department of Education has put together a webpage to help you prepare for student loan payments restarting. You can learn more here.
The TLDR Highlights
If you haven’t been making payments while payments were paused, it’s a good idea to go to the https://studentaid.gov/ website and double check that your contact information in the system is still correct, especially if you’ve moved in the past three-and-a-half years.
If you were on an income-driven repayment (IDR) plan, you have (at least) six months to re-certify your income. Knowing when to re-certify your income is going to be key based on what it will do to your payment amounts. Read more about this below. To recertify your IDR plan, login to your FederalStudentAid account.
Your paused payments will count toward IDR forgiveness if you’re on an IDR plan.
There are significant changes to your Income Driven Repayment Plan options that were introduced 6/30/23, including the new SAVE program. You will want to read about these in detail (highlights below) to see what is now the best option for you, and discuss with a financial planner if needed.
Be careful about the various calculators out there telling you which plan is best for you - we've had many reports on our communities that the numbers are inaccurate and not fully adjusted to the new changes. If it's not on the government website, be cautious about believing it!
BE VERY CAREFUL ABOUT THE TAX IMPLICATIONS OF PLANNING ON STUDENT LOAN FORGIVENESS VIA SAVE OR THE OTHER IDR PROGRAMS. While the amount forgiven by PSLF is always tax free, the current taxation free status for forgiveness through the income-driven repayment plans is only temporary for now. It is slated to end in December 2025. At a typical physician's tax bracket and with a typical physician loan amount, this could result in a huge "tax bomb" the year of forgiveness which should be taken into account when comparing against refinancing.
If you have a high interest rate and you aren't planning on trying for student loan forgiveness for one of the federal plans, you should look into student loan refinancing and whether it makes sense for you, as it could lower monthly payments and/or lead to less total interest paid.
If you were setup for autopay before the pause, you will likely need to re-enroll in autopay to continue to receive the 0.25% rate discount on your interest rate.
You should receive a bill in September (some are receiving in August) letting you know your monthly payment amount. As soon as this bill is sent to you, you'll be able to see the payment amount on your online account.
Some loans were transferred to new loan servicers during the pause. Check your studentaid.gov Dashboard to find out who your service provider in. Make sure you set up an online account with them.
Income-Driven Repayment Plan Changes
There have been several changes to the previous IDR plans that are important to know as you consider your options. As high income professionals, some of these changes may significantly impact your decision to pay off your loans or to refinance to private loans. Before we get into those, there is some terminology that is important to understand. Here are some of the ones we are seeing most discussed on our communities.
Terminology
Discretionary Income: Adjusted Gross Income - 150% of the Federal Poverty Line (or 225% of the Federal Poverty line with SAVE, the new version of the updated REPAYE plan)
Tax Bomb - While the amount forgiven by PSLF is always tax free, the current taxation free status federally for forgiveness through the income-driven repayment plans is only temporary, and depending on where you live, you could see a state tax bill depending on where you live. Also, as of now, the federal exemption from tax for forgiven amounts through IDR plans is slated to end in December 2025. At a typical physician's tax bracket and with a typical physician loan amount, this could result in a huge "tax bomb" the year of forgiveness which should be taken into account when comparing against refinancing.
There are also forbearance and deferment options available (learn more here). Note in these cases, interest usually still accrues while your loans are in deferment/forbearance. This means your balances will keep growing since you won’t be paying anything towards the accruing interest.
The New SAVE Plan
The legacy REPAYE plan is being replaced by a new plan called the SAVE Plan. You can find the full plan details as they develop throughout the different stages here on the official Federal Student Aid website.
Some of the highlights of the new SAVE plan:
Prevents unpaid interest from compounding and increasing your student loan balance
Any outstanding balance on your loan will be forgiven if you haven't repaid your loan in full after 20 years (if all loans were taken out for undergraduate study) or 25 years (if any loans were taken out for graduate or professional study).
Excludes spousal income for borrowers who are married and file separately, so filing separately may decrease the amount you have considered as discretionary income
The ability to automatically re-enroll in IDR plans so you don't miss your recertification deadline.
Undergraduate loans will reduce from 10% to 5% of their discretionary income for payment calculations. For graduate/medical school loans, the calculation will be based on 10% of your discretionary income. Borrowers who have both undergraduate and graduate loans will pay a weighted average rate between 5% and 10% based on the original principal balances.
Some words of caution here:
There is NO CAP to your calculated payment amount based on your discretionary income. For many physicians, the calculation of their discretionary income may be greater than the payment they would make to repay their loans either through normal interest payments or refinancing, and you could end up paying more over the 25 years of the program than you would have otherwise.
If you are doing SAVE outside of PSLF: As of now, after December 2025, forgiveness through this program would be subject to federal tax (and in some states state tax even now). Beware of the potential 'tax bomb' that would occur if this happened when comparing it to paying your loans back. Your comparative calculations should include for SAVE the monthly payments you will pay during this period + tax on the forgiven amount versus what you would pay by repaying your loans the normal way through monthly payments.
One-Time Income-Driven Repayment (IDR) Adjustment
If you are one of the following, the government has announced that it will be doing a one-time adjustment, changing whether certain payments or months are credited toward your loan forgiveness:
Are currently on an IDR plan or were in the past
in the PSLF program
not on an IDR plan but have FFEL program loans held by the US DOE and are interested
The one-time adjustment may result in:
You will be closer to the end of your repayment period and forgiveness
You will automatically receive loan forgiveness
You have more than the number of months required in your repayment period and may receive a refund.
Learn more here on the Student Aid website.
The Decision on When to Re-Certify Your Income
Usually you have to re-certify your income every year, but right now you may actually be able to delay re-certifying until 2025. Regardless it's not for at least 6 months (February 2024). Downloading your file from the Studentaid.gov site will tell you about your recertification date. Here's the thing - if you earn more now than you did before the pause, you may want to wait as long as possible to re-certify your income so you don't have your payments jump earlier than they need to. In this case, you can choose to wait until your servicer contacts you to ask for it. It is not a requirement to let the Department of Education know this as its based on your tax return. Conversely, if you're making less than you did before the pause, you may want to hurry up and re-certify to decrease those payments.
Student Loan Refinancing
Interest rates have risen recently, not just for mortgages but for student loans. Anyone who gets overwhelmed by their minimum monthly payment statement may be equally shocked to discover refinancing rates have risen too.
Does this mean it's a bad time to refinance your student loans? Not necessarily. It depends on your situation and the interest rates you are holding on your federal loans. If you are working towards a Public Student Loan Forgiveness (PSLF) program, you don't want to refinance your federal loans. If you aren't under a PSLF or other federal repayment program and your interest rates are high, you should shop around and compare rates to see if you could save money by refinancing the higher interest student loans, especially if you're feeling the pinch of payments restarting in your budget. Some of our student loan refinancing resources offer special PSG rates or cash back bonuses. Learn more here.
Student loan refinancing is available as fixed rate or variable rate. Be cautious with variable rate options, even if the interest rate is currently lower than what you could get on a fixed-rate loan refinance. This is especially true if you aren't planning to pay off your loans quickly. As we've seen in the past few years, interest rates can increase quickly, which could leave you in another situation where you can no longer find enough room in your budget to cover your increased minimum monthly payment.
"Fresh Start" Initiative
The Fresh Start initiative is separate from repayment assistance. This program aims to help borrowers who were in default prior to the start of the payment pause in 2020. Learn more on the Student Aid website here.
Budgeting for Student Loan Payments
The average medical school student graduates with over $200,000 in student loans. On a standard 10-year repayment plan, that can easily surpass $2,000 a month in minimum payments come October. For dual-physician households, the burden could be twice as heavy when payments restart.
A $2,000 monthly expense is a lot harder to manage than a one-off car repair if you don't plan ahead. Put your budget date night on the calendar now.
When you're reviewing your student loan minimum payment, it doesn't hurt to check what the interest rate is, especially if this will be your first time paying on your loans. In some cases–especially in this higher interest rate environment than the one we grew accustomed to for a few years–paying minimum payments might not even cover the interest accruing. This means that while making your monthly minimum payments, your student loan balance could be growing instead of decreasing. This generally occurs under income-based repayment plans. While it might be a situation that's unavoidable given current circumstances, it's important to be mindful of the situation and budget the best you can when assessing the relief plans mentioned below. Our partner Empower offers several personal finance tools, including a debt payment calculator. Empower Personal Wealth, LLC (“EPW”) compensates us for new leads. We are not an investment client of Empower Advisory Group, LLC.
If you haven't budgeted before, now is a good time to start. You don't have to be a nerdy number cruncher or master of complicated spreadsheets to put together a budget. We've partnered with YNAB (You Need a Budget) to help you set and track your monthly budget. It has a small learning curve at the beginning (they have walkthrough videos to help you get started), but links with your bank account to make it easy to track and plan for the upcoming payment restart.
Resources
Student Loan Refinancing: If you're not planning on going for one of the forgiveness programs, student loan refinancing might be worth exploring as it could lower your monthly payments as well as the total interest paid out over the course of your loan. View our student loan refinancing offers (including special PSG discounted rates and cash back offers) here.
YNAB (You Need A Budget) is an impressive app that's laser focused on budgets and very customizable. They have a really loyal following, and people swear by it. It's not free (but also not expensive). There's a free trial if you want to try it out and play with it. This app can help you plan for student loan payments coming (and beyond).
Empower is a free way to aggregate your accounts and get a comprehensive overview of your finances. It includes a lot of tools, including a debt payment calculator that could help assess your student loan situation. Empower Personal Wealth, LLC (“EPW”) compensates us for new leads. We are not an investment client of Empower Advisory Group, LLC.
If you've tried a YNAB budget and using Empower for a DIY approach but aren't a DIY person, one of the financial advisors on our database can help you formulate a comprehensive financial plan to help you set your focus moving forward.