Paying Off Your Student Loans Part 3: Income-Driven Repayment
For many doctors and residents, income-driven repayment plans can be a great option after medical school, since payments are linked to the ability to pay over time and can lead to potential federal loan forgiveness.
Published October 08, 2020
7 min read
For many med school graduates, income-driven repayment plans are quite attractive, as their payments are aligned with their ability to pay over time.
In Parts 1 and 2 of our series on paying off your medical school loans, we explored the options of consolidation, forbearance and loan reduction under the Public Service Loan Forgiveness Program.
Let’s explore this income-driven repayment in more depth.
Understanding Income-Driven Payment Plans
Income-Driven Repayment Plans were introduced so borrowers could establish more affordable payments based on their income and family size. The U.S. Department of Education currently offers four income-driven repayment plans1 for Federal Direct Loans: the Revised Pay As You Earn Repayment Plan (REPAYE Plan), Pay As You Earn Repayment Plan (PAYE Plan), Income-Based Repayment Plan (IBR Plan), and Income-Contingent Repayment Plan (ICR Plan).
The monthly payment amount under these income-driven repayment plans is calculated by determining your discretionary income. And each plan requires payments equal to specific percentages of your discretionary income for various lengths of time.
Under each of these plans, the balances of your qualifying federal student loans may be forgiven if your loans are not paid off at the end of the repayment period.
For many physicians, an Income-Driven Repayment Plan offers access to student loan forgiveness and some also offer interest subsidies.
Income-Driven Repayment Plans are generally more affordable during residency. However, if your salary rises considerably after residency and fellowship, expect your monthly payment amounts to increase proportionally.
Detailed information on Income-Driven Repayment Plans can be found at https://studentaid.gov/manage-loans/repayment/plans/income-driven and https://studentaid.gov/manage-loans/repayment/plans/income-driven/questions.
Use the table below to compare income-driven repayment options:
Income-Driven Repayment Summary Matrix
| Income Based Repayment (IBR) | Pay As You Earn (PAYE) | Revised Pay As You Earn (REPAYE) | Income-Contingent Repayment Plan (ICR) | |
|---|---|---|---|---|
| Monthly Payment | Generally, 10% of your discretionary income if a new borrower* on or after 7/1/2014 or 15% if a new borrower after 7/1/2014.
Never more than the 10-year Standard Repayment Plan amount. |
Generally, 10% of your discretionary income, never more than the 10-year Standard Repayment Plan amount. | Generally, 10 percent of your discretionary income. | The lesser of 20% of your discretionary income or what you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income. |
| Repayment Periods | 20 years if you’re a new borrower* on or after July 1, 2014.
25 years if you’re not a new borrower* on or after July 1, 2014. Any amount outstanding after 20/25 years is forgiven but the amount forgiven is taxable. |
20 years. Any amount outstanding is forgiven but the amount forgiven is taxable. |
20 years if all loans you’re repaying under the plan were received for undergraduate study.
25 years if any loans you’re repaying under the plan were received for graduate or professional study Any amount outstanding after 20/25 years is forgiven but the amount forgiven is taxable. |
25 years. Any amount outstanding is forgiven but the amount forgiven is taxable. |
| Interest Subsidy | Monthly unpaid interest on subsidized loans is entirely covered for the first 3 years of enrollment in IBR. | Monthly unpaid interest on subsidized loans is entirely covered for the first 3 years of enrollment in PAYE. | Monthly unpaid interest on subsidized loans is entirely covered for the first 3 years of enrollment in REPAYE and 50% is covered thereafter.
Additionally, 50% of unpaid interest on unsubsidized loans is subsidized for the entire repayment period. |
ICR Plans do not qualify for federal interest subsidies. |
| Interest Capitalization | Unpaid interest will capitalize if you no longer qualify to make payments based on your income or if you leave the plan; no limit on capitalized interest. | Unpaid interest will capitalize if you no longer qualify to make payments based on your income or if you leave the plan.
If you no longer qualify to make payments based on your income, then the amount capitalized interest is capped at 10% of original loan principal balance at the time you entered the PAYE Plan. There is no limit on the amount of unpaid interest that may be capitalized if you leave the PAYE plan. |
Unpaid interest will only capitalize if you are removed from the plan by failing to recertify your income by the annual deadline or if you voluntarily leave the plan; there is no limit on the amount that may be capitalized. | Unpaid interest will capitalize annually until outstanding loan principal amount is 10% greater than original principal balance at the time you entered repayment; after that, unpaid interest will accrue but will not be capitalized. |
* For the IBR Plan, you’re considered a new borrower on or after July 1, 2014, if you had no outstanding balance on a William D. Ford Federal Direct Loan (Direct Loan) Program loan or Federal Family Education Loan (FFEL) Program loan when you received a Direct Loan on or after July 1, 2014. (Because no new FFEL Program loans have been made since June 30, 2010, only Direct Loan borrowers can qualify as new borrowers on or after July 1, 2014.)
- For borrowers with Federal Family Education Loan (FFEL) Program loans there is also an Income-Sensitive Repayment Plan. More information about Income-Sensitive Repayment can be found here: https://studentaid.gov/manage-loans/repayment/plans/income-sensitive.In providing this information, neither Laurel Road nor KeyBank nor its affiliates are acting as your agent or is offering any tax, financial, accounting, or legal advice.Any third-party linked content is provided for informational purposes and should not be viewed as an endorsement by Laurel Road or KeyBank of any third-party product or service mentioned. Laurel Road’s Online Privacy Statement does not apply to third-party linked websites and you should consult the privacy disclosures of each site you visit for further information.
In providing this information, neither Laurel Road nor KeyBank nor its affiliates are acting as your agent or is offering any tax, financial, accounting, or legal advice.
Any third-party linked content is provided for informational purposes and should not be viewed as an endorsement by Laurel Road or KeyBank of any third-party product or service mentioned. Laurel Road’s Online Privacy Statement does not apply to third-party linked websites and you should consult the privacy disclosures of each site you visit for further information.
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