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Driven to despair

Are you struggling to pay off your school loans? An income-driven repayment plan can be a path to financial freedom for student borrowers — and possibly to loan forgiveness.

Driven to despair
If you feel overwhelmed by federal student loan payments, consider signing up for an income-driven repayment plan ASAP.

Your choice to become a veterinarian likely came at great cost. Veterinary students who graduated in 2017 with outstanding school loans owed an average of $166,714, according to the American Veterinary Medical Association. Compare that with a veterinarian’s median 2018 salary of $93,830 and your debt-to-income ratio is probably high. You might have trouble keeping up with loan payments. That’s why an income-driven repayment (IDR) plan can help.

Four IDR Categories

When you start paying back federal student loans, your monthly payments likely are spread out over 10 years unless your loan servicer agreed to other terms. A 10-year term can be cost-effective because it limits interest payments. But if you have six-figure debt, the loan payments can be difficult to maintain.

IDR has four options:

  • Income-Based Repayment (IBR)
  • Income-Contingent Repayment (ICR)
  • Pay As You Earn (PAYE)
  • Revised Pay As You Earn (REPAYE)

Each plan has eligibility requirements and notable differences, but essentially, all income-driven repayment plans limit what you pay each month toward your student loans. Under any IDR plan, your monthly payment will total 10% to 20% of your discretionary income.

For a veterinarian with six-figure debt, IDR can make payments more affordable. If you’re in between jobs, your payments could technically be zero and your loans would remain in good standing, effectively helping you avoid default.

Under all four categories, forgiveness of federal student loans is possible after 20 to 25 years of payments. The caveat is that you owe taxes on the forgiven amount.

How They Differ

Let’s take a closer look.

  1. Income-Based Repayment: Under IBR, you’d pay 10% to 15% of your discretionary income for 20 to 25 years, depending on when you took out the loans. If your student debt exceeds your annual income, you likely qualify.
  2. Income-Contingent Repayment Plan: Under ICR, you’d pay either 20% of your discretionary income or, if you had fixed payments over 12 years, an amount based on a formula, whichever is less. ICR has a repayment period of 25 years. Any borrower with eligible loans can opt for ICR.
  3. Pay As You Earn: Under PAYE, you’d pay 10% of your discretionary income for 20 years. You need to qualify based on your income. If your student loan debt exceeds your income, you’re likely eligible. You also must be a new borrower, which means the loans were disbursed on or after Oct. 1, 2011.
  4. Revised Pay As You Earn: Under REPAYE, you’d pay 10% of your discretionary income for 20 to 25 years, depending on whether you borrowed for your undergraduate or graduate degree. Any borrower with eligible loans can opt for REPAYE.

Which Program Is Right?

Out of the four options, you’ll pay the least per month and have the shortest repayment terms under PAYE or REPAYE. ICR is the worst option but is noteworthy as it’s the only income-driven plan for which Parent Plus borrowers qualify. With IBR, your tax bill might be higher on forgiven loans, but the cost savings during the repayment period can make it worthwhile.

REPAYE and PAYE are the more serious contenders, but each has nuances. First of all, you must qualify for PAYE based on your income and by being a “new” borrower. On the other hand, anyone with qualified loans can opt for REPAYE. You might not be eligible for both plans, but you’ll likely qualify for one.

If you’re eligible for both programs, other considerations come into play. (Married borrowers, take note.) Under REPAYE, your income and your spouse’s income are used to calculate monthly payments, regardless of your tax filing status. In other words, it doesn’t matter if you file jointly or separately; both incomes will figure in your monthly payment.

Under PAYE, if you’re married and file separately, only your income is calculated toward the monthly payment.

Look at Interest Subsidies

Another thing to consider is interest subsidies. Under PAYE, if your payments don’t cover all the interest, the government will pay any remaining interest for up to three years on subsidized loans. You’re held accountable for interest on unsubsidized loans as well as any interest that accrues on subsidized loans after the three years are up.

REPAYE can potentially save you even more money. Under REPAYE, the government will cover all interest on subsidized loans for up to three years. After that, the coverage is half of the interest on subsidized and unsubsidized loans.

As a veterinarian, you could have a salary that barely supports your monthly payments, much of which could be interest charges. In that case, REPAYE can be a great option due to the interest subsidies.

How to Get Started

If you feel overwhelmed by federal student loan payments, I suggest signing up for an income-driven repayment plan ASAP. The best category varies based on your situation, but again, REPAYE and PAYE typically are the best options.

Submit the income-driven repayment plan application on

StudentLoans.gov, or request a form from your servicer. Once you do that, you need proof of income.

Processing the application and calculating the new payments will take several weeks. In the meantime, continue paying back your loan or ask for a temporary forbearance. After you’re approved, you need to recertify annually, and update your income and family size in order to stay on the REPAYE plan.

Why IDR Makes Sense

An income-driven repayment plan can make a lot of sense for veterinarian borrowers. It’s also one of the few ways federal student loans can be forgiven. Considering the lack of opportunities under the Public Service Loan Forgiveness program, pursuing forgiveness through IDR provides hope.

If you need more manageable loan payments, get started now on an income-driven repayment plan. Just be sure to save for any taxes assessed upon loan forgiveness.

Rob Bertman is a chartered financial analyst, certified financial planner and student loan consultant at Student Loan Planner. He consults on balances of $200,000 to $400,000.

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