Income-Driven Repayment Plans*
There are four repayment plans that base a borrower’s monthly loan payment on their income, not their debt. The income-driven repayment plans include: Income-Based Repayment (IBR), Pay As You Earn Repayment (PAYE), Revised Pay As You Earn Repayment (REPAYE) and Income-Contingent Repayment (ICR).
The basic premise for the income-driven repayment plans is that the borrower makes a monthly loan payment based on their discretionary income and household size. Two of the plans (IBR and PAYE) also require that the borrower exhibit a Partial Financial Hardship (PFH) (PFH) in order to qualify. Eligibility qualifications and benefits for all four plans differ and not all borrowers will qualify for all plans. For a complete list of eligibility requirements, visit the Federal Student Aid website.
With the income-driven plans, either the Adjusted Gross Income (AGI) for the borrower’s household (as filed with the IRS) or Alternative Documentation of Income (ADI) forms must be submitted to the servicer(s) when entering the plan, and annually thereafter. Each year, as the income for a household changes, so will the required monthly payment amount.
All four plans feature a loan forgiveness benefit. Loan forgiveness occurs after a required 20- or 25-year repayment term is satisfied (dependent upon the repayment plan). For more information on repayment plans, terms of repayment, and forgiveness benefits, review FIRST’s Education Debt Manager for Matriculating and Graduating Medical School Students.
Public Service Loan Forgiveness (PSLF)*
The PSLF program rewards borrowers for working in the non-profit sector. Borrowers must make payments to cover 120 separate monthly payments, while working fulltime (30 hours or more per week) for a qualifying non-profit, 501(c)(3), military, or governmental organization. While many medical schools and teaching hospitals qualify, borrowers should complete the PSLF Form annually to confirm employer eligibility and to track qualifying payments.
After making the required payments on qualifying loans, and meeting the work requirements, the borrower can apply to have their outstanding federal student loan balance forgiven. For more detailed information, review FIRST’s PSLF Fact Sheet. You may also want to use the MedLoans® Organizer and Calculator to view potential loan forgiveness amounts.
Public Service Loan Forgiveness is ONLY available for Direct Loans. If existing federal student loans did not originate from Direct Loans, they can be converted into a Direct Loan by consolidating. For more information about Direct Consolidation Loans, visit the Federal Student Aid website.
How do the Repayment Plans and PSLF Work Together?
While in residency, if you choose to make payments on your student loans, you may only be able to afford a low monthly payment through an income-driven plan. These repayment plans are qualifying repayment plans for PSLF.
Additionally, to meet PSLF requirements, the borrower must be paid by a qualifying employer. If your paycheck during residency is being paid by a qualifying employer, then your payments would also count toward PSLF.
Once residency training is completed, a physician’s salary will increase, and the required monthly student loan payment will also increase. Some repayment plans put a cap on what the monthly payment amount can increase to, regardless of income, but not all plans provide this benefit.
To compare specific repayment plans and determine the best plan for you, review FIRST’s Repayment Plans Compared chart, and talk with your loan servicer for more detailed information specific to your loan portfolio. To further determine if PSLF is an option for you, review this resource: Income-Driven Repayment Plans: Questions and Answers.
Loan forgiveness through the income-driven plans take 20 or 25 years to realize; however, if working in public service, and if you meet all the criteria for PSLF eligibility, you could benefit by combining PSLF with an income-driven plan and experience loan forgiveness in as few as 10 years.
View FIRST’s videos about PSLF and the various income-driven repayment plans at aamc.org/videowebinars.
*This document highlights features of the income-driven repayment plans and the PSLF program. For full details, visit the Federal Student Aid website at studentaid.gov.