Income-Driven Repayment Plans*
There are four repayment plans that base a borrower’s monthly loan payment on their income. 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 120-monthly, on-time payments while working fulltime (30 hours or more per week) at a qualifying non-profit, 501(c)(3), military, or governmental organization. While many medical schools and teaching hospitals qualify, an Employment Certification Form should be submitted to confirm an employer’s eligibility and to keep track of qualifying payments.
After making the required monthly payments, the borrower can apply to have their outstanding federal student loan balance forgiven. For more details about PSLF, review the PSLF Fact Sheet. You may also want to use the MedLoans® Organizer and Calculator to view potential forgiveness amounts.
Public Service Loan Forgiveness is ONLY available for Direct Loans. If existing student loans did not originate from Direct Loans, they can be converted into a Direct Loan by consolidating. For more information about consolidation, 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, it’s likely that you may only be able to afford a low monthly payment. The income-driven plans may provide that type of payment. Some residency positions are paid by a qualifying employer. If that’s the case, then the payment made during residency could count toward PSLF.
Once residency training is finished, a physician’s salary will increase, and the required monthly payment amount will increase. Some repayment plans place 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.
Other loan forgiveness options available with the income-driven plans take 20 or 25 years to realize; however, if public service is your desire, and you meet all the criteria for eligibility, you could benefit by combining PSLF with an income-driven plan and experience loan forgiveness in a shorter period.
To determine if an income-driven repayment plan and/or if PSLF is an option for you, contact your loan servicer(s), and review this resource: Income-Driven Repayment Plans: Questions and Answers.
View videos about PSLF and the various income-driven repayment plans from the FIRST website at aamc.org/videowebinars.
*This document highlights features of each repayment plan. For full details, visit the Federal Student Aid website at studentaid.gov.