Student Loan Repayment
and Forgiveness
How you could have over $150,000
of your Direct Loans forgiven.
“Reality continues to ruin my life.”
-Bill Watterson,
cartoonist Calvin and Hobbes
Reality…..
 89% of all medical students graduate with loan debt
 Median debt for Public Schools is $150,000
 22% owe more than $200,000
 Median stipend for a 1st year resident is $46,717
 38% of medical graduates reported on the graduation
questionnaire that loan indebtedness had some influence on
their specialty choice
Fact Source: AAMC Debt Fact Card
Public Service Loan Forgiveness
 Effective October 1, 2007
 Government program that provides forgiveness, or
cancellation, of debt on the remaining balance (principal and
interest) due on eligible federal Direct student loans
after the borrower has made 120 monthly payments to
Direct Loans while also employed “full-time” in qualifying
service jobs
Qualifying Service Jobs
 Tax-exempt, 501(c)(3) non-profit organizations
 Federal, state, local or tribal government
 Military (active duty)
 Public schools and colleges
 AmeriCorps or Peace Corps
 Private organizations that provide public services
 Public service for individuals with disabilities and the elderly
 Public health (including nurses, nurse practitioners, nurses in a
clinical setting, and full-time professionals engaged in health
care practitioner and health care support occupations)
 Check studentaid.ed.gov website for more info
Employment
 Must be working “full-time” (at least 30 hours per week)
 Must be employed while…
 making the required payments
 at the time you apply for the forgiveness, and
 at the time the remaining balance is forgiven
 Does not have to be continuous employment
 Can be employed in more than one job (as long as your hours
worked at the qualifying jobs average at least 30 hours per
week)
Eligible Loans
 Any non-defaulted loan made under the Direct Loan
Program
 Federal Direct Subsidized Stafford/Ford Loans
 Federal Direct Unsubsidized Stafford/Ford Loans
 Federal Direct PLUS loans for graduate or professional students
(Grad PLUS)
 Federal Direct Consolidation Loans
If you have other federal loans, like FFEL Stafford or Perkins,
you should consider consolidating those loans with Direct
Loans so they qualify.
120 Required Monthly Payments
 Must not be in default
 Make 120 required monthly payments on time to Direct
Loans in one of the following repayment plans:
 Standard Repayment
 Income Contingent Repayment
 Income-Based Repayment (IBR)
 Voluntary payments made during periods of deferment,
forbearance or grace do NOT count toward forgiveness
 Repayment Calculator:
http://www.ed.gov/offices/OSFAP/DirectLoan/calc.html
Repayment Options
 National median debt
 Current interest rate
 Total at graduation with interest
 Standard Repayment (10 years)
 Graduated Repayment (10 years)
 Extended Repayment (25 years)
 Extended Graduated Repayment (25 years)
 Income Contingent Repayment
 Income-Based Repayment
$150,000
6.8%
$170,870
$1,966
$1,350
$1,186
$ 968
$ 586
$ 380
How does IBR work?
 Must show a “partial
financial hardship”
 If you earn below 150% of
the poverty level for your
family size, your required
payment is $0
 If you earn more, your
payment is capped at 15%
of your household income
that is above 150% of the
poverty level for your
family size
IBR Monthly Payment Amount
Annual
Income
1
$25,000
$30,000
$109
$172
$35,000
$40,000
$45,000
$234
$297
$359
$50,000
$55,000
$60,000
$422
$484
$547
$65,000
$609
Family Size
2
3
$39
$0
$102
$32
$164
$94
$227
$157
$289
$219
$352
$282
$414
$344
$477
$407
$539
$469
4
$0
$0
$24
$87
$149
$212
$274
$337
$399
Does IBR work if you’re married?
 You must list your spouse’s income if you filed a joint tax
return and it will be used to calculate your payment
 NEW JULY 2010 – Lenders will also consider the spouse’s
loan debt knowing that both incomes must be used to pay
both loan debts – calculators currently do not reflect this
change in law
 You could file taxes separately; however, you could also lose a
lot of tax benefits by doing so – consult a CPA
What about interest?
 Interest continues to accrue, but on the principal amount
only
 If your reduced payment does not cover the accrued interest,
then the government will pay the interest on your subsidized
loans for the first three years in IBR
 Anything you owe while in IBR after 25 years is forgiven –
including interest
Can I get kicked out of IBR?
 Your payment will increase as income increases, but you
cannot be “kicked out” of IBR unless you default
 If your income increases to where there is no “partial
financial hardship”, then unpaid interest capitalizes
 No matter your income, you’ll never have to pay more than the
10-year standard monthly payment on the balance you owed
when you first entered repayment on the loan
 If you voluntarily leave IBR, then you repay the loan under
the standard repayment with a 10-year term less any time
spent in IBR (i.e. less time and higher payment)
Estimating the numbers
 Balance at start of IBR
 Total Interest Paid
$170,870
$380 - $500
$1,300 - $1,800
$128,000
$92,000
 Forgiven Amount
$170,000
 IBR payments during 4 yr residency
 IBR payments for 6 years*
 Total Payment
You’ll never have to pay more than the 10-year standard calculated at the
start of repayment
Assumptions: household of 1 in continental US, starting salary of $120,000
after residency, 5% annual salary increase, 2009 poverty guidelines
This all sounds great, but can I really
afford payments during residency?
It is true that most residents postpone repayment.
Let’s run the numbers……
Your first bump in income
 Average Stipend 1st Post-MD Year
 After taxes* (federal, state, FICA)
 Take home pay per month
 Financial aid living allowance
 Additional amount available in budget
 Income Based Repayment (yr 1)
 Remaining amount in budget
$46,717
-$32,473
$2,706
-$1,595
$1,111
- $380
$731
*Assumes single filer, 0 allowances at 2009 tax rate, standard deductions,
MO resident
Public Service Loan Forgiveness:
Basic Checklist
 Find out what loans you have: www.nslds.ed.gov
 Consolidate your FFEL loans with Direct Loans:
www.loanconsolidation.ed.gov
 Sign up for the income-based repayment plan:
 www.dl.ed.gov select “repayment plan selection” form
 Submit proof of income (tax return or alternative income form)
 Make qualifying payments each month for 10 years while
working in public service full time
 Check that your job qualifies (federal tax letter)
 Keep paystubs and record of payments
 Apply for the forgiveness – stay tuned for application
Resources
 www.ibrinfo.org – get updates emailed to you, excellent
FAQ, complete calculator, links to more information
 www.aamc.org/first - informational brochures
 http://studentaid.ed.gov/PORTALSWebApp/students/engl
ish/IBRPlan.jsp - Direct Loans informational page on IBR
 http://som.missouri.edu/financial/smartdocs/ - will have
this presentation and other resources posted