Understanding the New SAVE Plan: Navigating Federal Student Loans as a Physician
April 1, 2024
Welcome to the official second episode of Physician Cents! We are excited to build on the great news from a few weeks ago. This article will walk you through essential topics that are highly relevant to all physicians, particularly those who are just starting their intern year. Hosted by Chad Chubb and Tyler Olson, we will cover federal student loan management, the new SAVE plan, private student loans, and much more. Buckle up, as we deep-dive into crucial financial management tips that are tailored for physicians.
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Important Dates for Federal Student Loan Management
Understanding the timelines and deadlines in federal student loan management is critical for optimizing your repayment strategy. Here are some key dates you need to be aware of:
The IDR waiver deadline is a once-in-a-lifetime opportunity for those with medical school loans. By consolidating your existing medical school loans with undergraduate or other graduate loans, you can apply non-profit work years towards your loan payments. If you have full-time non-profit work experience, wrap up your consolidation paperwork before this deadline to take advantage of this significant financial benefit.
Last Day to Get into PAYE (June 30th)
The Pay As You Earn (PAYE) plan serves as a crucial repayment option for many physicians. The deadline to enroll in this plan is June 30th. While the new Income-Driven Repayment Plan (SAVE) looks promising, PAYE offers its own set of advantages, particularly for certain borrowers. More on this later.
5% vs. 10% Rule for Weighted Average (July 1st)
The new SAVE plan introduces a dual-rate system: 5% of your disposable income for undergraduate loans and 10% for graduate loans. This proportional approach can significantly impact your repayment, providing a possible reduction in your monthly payment. Keep a lookout for this change starting July 1st.
One-Time Adjustment for IDR Waiver (By July 1st)
Many physicians have already seen adjustments under the IDR waiver, but others are still waiting. This one-time adjustment can dramatically reduce your loan balance based on your payment history. Those who see this adjustment will have the chance to potentially see their loans get significantly reduced or even forgiven. If your records are in good standing, anticipate some action by July 1st.
Income Threshold: The SAVE plan excludes 225% of the poverty line based on your household size from the income calculation.
Disposable Income Rate: You pay 10% of your disposable income for graduate loans and 5% for undergraduate loans.
Interest Accrual: Any interest that accrues above your payment amount is forgiven annually, reducing the overall financial burden.
Benefits for Residents
Minimal or Zero Payments: During residency, your payments are likely to be minimal or even zero due to the high income exclusion and low income threshold.
Interest Forgiveness: Perhaps the most critical feature, the SAVE plan provides annual interest forgiveness on amounts above your payment. For residents, this means your loan balance will not balloon during training.
Married Filing Separately Option: SAVE allows for married filing separately, a game-changing feature that wasn’t available under the revised Pay As You Earn (REPAYE) plan. This gives dual-physician households greater flexibility and savings.
Who Should Stay Out of SAVE
While the SAVE plan offers many benefits, it might not be the best fit for certain high-income physicians. Specifically:
Post-Training Income > $100,000 Above Debt: If your expected post-training income exceeds your debt by more than $100,000, the PAYE or Income-Based Repayment (IBR) plans may be more beneficial, especially for those planning to pursue Public Service Loan Forgiveness (PSLF).
Private Student Loans
For those holding private student loans, navigating the repayment process comes with its set of challenges. Here's how you can make the most of it:
Understanding the Promissory Note
Whether it’s disability provisions or death clauses, always read the fine print. Know what happens to your loan obligations if you become disabled or in the unfortunate event of death. This will help you plan accordingly and ensure you and your loved ones are protected.
Cosigner Considerations
Cosigner Responsibilities: Co-signers are equally responsible for the debt. Make sure your co-signer is aware of this.
Life Insurance: If your parents or spouse co-signed your loan, consider getting a life insurance policy to cover the outstanding amount in case something happens to you. This small premium could save them a significant financial burden.
Refinancing Options
Refinancing can be a smart move, especially if you can secure a lower interest rate. Some residency-specific programs, like Earnest, offer beneficial terms for physicians:
Lower Interest Rates: Aim to reduce your interest rates through refinance.
Residency Programs: Explore specific residency refinance programs that offer reduced rates and flexible terms.
Credit Score Impact: Your credit score will greatly influence the rates you receive. Always shop around and consider its impact before making decisions.
Conclusion
Navigating student loans can be daunting, but understanding the different plans and their specific benefits can put you ahead in your financial planning journey. Whether it's taking advantage of the IDR waiver or exploring the new SAVE plan, being well-informed is the key to making sound financial decisions. Make sure to also consider the implications of private loans and co-signing liabilities. Stay tuned for our next episode, where we'll dive into emergency funds and disability insurance, two critical components of financial planning for physicians.
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This information is for general purposes only. This information is not intended to be a substitute for specific professional financial, tax, or legal advice, as individual circumstances vary. Please see a financial professional, CPA, and/or an attorney in regards to your own individual situation.
Wealthkeel’s Advisory Services and Financial Planning offered through Vicus Capital, Inc., a Federally Registered Investment Advisor. WealthKeel LLC, 615 Channelside Drive, Suite 207, Tampa, FL 33602 -- 267.590.9533.
Olson Consulting LLC, Offering Advisory Services and Financial Planning, is a State-Registered Investment Advisor.
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