As a veterinarian, you usually come out of school with a high debt-to-income ratio. You may want to specialize and enroll in residency. Or, you might be looking to purchase a dream practice with a business loan. At this point in your career, you may have more student loan debt than income, holding you back from your dreams.
We sat down for an interview with Jan Miller, a nationally recognized student loan expert, to learn about income-driven student loan repayment plans. While these plans are just one piece in an overall strategy for repaying student loans, they are a major player when it comes to making repayment affordable. With over 23 years of experience within the financial services and student loan sector, Jan is a nationally recognized expert in finding pathways through student loan debt.
Not only does he have the expertise to manage your student loan repayment, he is also a personable and relatable advisor. Jan will get to know you through relationship building and work from an understanding of your personal dreams and financial goals. Just as you chose to specialize in veterinary services, when it comes to your student loan repayment, you need a specialist. Jan is a highly informed student loan expert, who keeps on top of the latest trends and knowledge in the quickly-changing student loan field.
Loyall Group can help you navigate your student loan repayment by connecting you with Jan Miller, the nationally recognized student loan expert. Reach out today to schedule a 15-minute consultation. When you talk with a student loan specialist, they will often take the time to explore whether you qualify for an income-driven repayment plan (IDR). There are four types of IDR’s, which we’ll explain below. After reading this article, you should have an idea of what options may be available to you.
Why do Income-Driven Repayment Plans Matter?
For veterinarians who are upside down on their debt-to-income ratio, an IDR can make the repayment process affordable by reducing your required monthly payment. All IDR’s have some aspects in common. Generally, once you are accepted into the program, your adjusted gross income is put through a formula to determine what your payment will be. Then, you will pay for 20-25 years, in the end, any debt leftover is forgiven, with taxes due. Under the current government administration, Congress passed a law that stated that the forgiven amount will be tax-free through the year 2025. Each year the IDR formula is recalculated based on your income.
There are several benefits to IDR Plans:
- You will have an affordable monthly payment
- Debt forgiveness is available after 20-25 years
- If you are upside down on your debt-to-income ratio, this could mean huge savings over the long term.
- With some of the plans, you may qualify for the Federal Government to pay for some or all of the accrued interest on certain types of loans.
- If you are in veterinary residency and your income is lower than 150% of the poverty line, you may qualify for a $0/month payment without affecting your credit score.
With all these benefits, let’s take a brief look at the different types of income-driven repayment plans available to you.
If you don’t know whether an IDR would be the best strategy, remember that our team here at Loyall Group is here to connect you with Jan Miller, a nationally recognized expert who will walk you through your particular student loan pathway. Schedule a brief 15-minute consultation call to see if one of these plans may work for you.
Income Contingent Repayment Plan (ICR)
ICR is the oldest of the plans to be put into place, effective July 1995. Maybe your parents helped you through veterinary school with Parent PLUS Loans. If so, this is a plan that may be their best strategy forward towards repayment. It is most common for Parent borrowers to use this plan on Parent PLUS Loans because it is the only plan that includes that type of loan. Parents must first consolidate all their Parent PLUS loans into a Federal Direct Consolidation Loan to qualify for this plan. If you don’t have Parent Plus Loans, this plan has the least beneficial formula for calculating your payment, so you’ll want to look at the other options for better benefits.
There are two formulas for computing your monthly repayment amount with ICR. The plan chooses whichever formula outputs the smallest monthly repayment. The first is through a formula based on the difference between your adjusted gross income and 100% of the poverty line. After subtracting 100% of the poverty line from your ADI, take 20% of that “discretionary income” number and divide it into 12. That would be your monthly repayment amount under the first method.
The second method is to take your regular monthly payment for 12 months and multiply it by the Income Percentage Factors that can be found on the Federal Register.
Let’s look at an example of the ICR formula calculation. Steve just graduated from Veterinary School with $183,000 in debt at a 6% interest rate. His income is $76,000 and he is working in Texas. The poverty line is $12,880.
If he started repaying his loans, his payment would be $1,179 each month.
After enrolling in the ICR repayment plan, his new payment would be:
$76,000 – $12,880 = $63,120
20% of $63,120= $12,624
$12,624 divided by 12 = $1,052
Income-Based Repayment Plan (IBR)
All Federal Loans qualify for the IBR plan. It has a 25 year payment structure with taxable forgiveness at the end. The formula for monthly payment is better than the ICR plan because it is based on 150% of the poverty line.
Just like in ICR, you first take your adjusted gross income and subtract 150% of the poverty line. If you borrowed loans before 2014, you would take 15% of your “discretionary income” number and divide that by 12. If your loans were borrowed after 2014, your percentage will be 10% of your discretionary income number.
Here is an example of the IBR formula calculation based on Steve, the borrower mentioned above:
$76,000 (AGI) – $19,320 (150% Poverty Line) = $56,680
10% of $56,680 = $5,668
$5,668 divided by 12 = $472
If you’ve graduated from veterinary school recently, you may want to look into the PAYE plan, as it has one of the best formulas to reduce your monthly payment. The PAYE formula is superior to the IBR in many ways. It has a 20 year repayment-before-forgiveness timeline and is based on 10% of your discretionary income, making lower payments for borrowers. PAYE is for newer borrowers who have borrowed their first loan after October 1, 2007, and who have borrowed a Federal Direct Loan after October 1, 2011. Only Federal Direct Loans, or other loans consolidated into a Federal Direct Consolidation Loan qualify for this program.
One of the largest benefits to the PAYE program is that it limits capitalized interest on your loans to 10%. Since your new lower payment may not be enough to pay the accruing interest on your loan, it could be applied back onto your principle. As this article from Federal Student Aid shows, limiting capitalized interest keeps your principal low and saves you money over the long term.
Revised Pay As You Earn (REPAYE) applies the benefits of the PAYE program to all Federal loans. After 20 years a borrower can receive forgiveness for undergraduate loans, and after 25 years for graduate loans.
The REPAYE plan bases its calculation on 10% of your discretionary income, using 150% of the poverty level to calculate discretionary income.
One of the best features of the REPAYE plan is the interest subsidy that it offers. If you are looking into going into a veterinary residency, this could save you thousands of dollars in interest payments. For the first three consecutive years on the plan, the Federal Government subsidizes 100% of the interest that isn’t paid by the new monthly payment. And, after the first three years, 50% of the unpaid interest is still subsidized. Subsidizing interest could save you thousands of dollars, especially in residency when your payment may be $0 due to income restrictions.
Want someone to show you just how much you can save with an income-driven repayment plan? Our team at Loyall Group can connect you with Jan Miller, a student loan expert who will break down your savings potential.
Why You Should Use Wise Counsel, Not an Income-Based Payment Calculator to Make Decisions About IDR’s
While you may find online calculators to find out your potential payment on these plans, or try to do your math on your own, there are many other variables that impact these calculations. Marriage and spousal incomes, financial hardship, when you took out your loans, how old your debt is, what types of loans you have, and whether you have refinanced before all impact your eligibility and the formulas that calculate your payment.
You are an individual with needs, dreams, and desires. Maybe you don’t want to work for a non-profit. Or you’ve fallen in love and plan to get married, and want to know how that will impact your loans. You need a strategy to repay your loans. The best course is to get a mentor, someone who walks with you month after month with expert knowledge and experience in student loan repayment strategies.
When you contact Loyall Group for a brief phone call, we’ll connect you with Jan Miller, an expert who specializes in student loan repayment. He’ll demystify the process of IDR’s, taking your personal lifestyle, needs, and dreams into consideration. And that will bring clarity out of chaos for you. So, connect today for a free and easy consultation phone call.