Be sure to check out Public Service Loan Forgiveness (PSLF) Revisited and Pay as You Earn (PAYE) vs. Revised Pay as You Earn (REPAYE).
For the very first post of the Futureproofmd.com, let's talk about Public Service Loan Forgiveness (PSLF). As a recent medical school graduate, you've toughed out a marathon education and finally ready to save lives and get paid to do it. As a graduation present, Uncle Sam presents you with a student loan bill of $200,000... Cue the sad music. How will you ever pay it back?
In come PSLF. First of all, what is PSLF?
PSLF is a program designed to encourage graduates to enter and stay in public service jobs. The focus is on the word "forgiveness," which means if you stay in a qualifying job and make 120 (10-yrs' worth) qualified payments, the remainder of your loans is completely dismissed. Tax Free!
There are multiple requirements you have to meet in order to qualify for PSLF and I won't rehash all of them here. You can learn about them in detail here: PSLF. I will demonstrate how much you can save assuming all requirements are completed, with assistance of the calculator at Finaid.org. Keep in mind this is based on the 2012 tax brackets but it should provide a reasonable estimate.
Here are my assumptions:
- Total student loan debt of $200,000 with a 6.8% interest rate.
- Starting annual income of $50,000 with expected 4% raise per year during residency.
- Starting annual income of $250,000 after completion of a 5 year residency with again a 4% expected income growth per year.
- 15% Income-Based Repayment Plan (IBR) with monthly payment capped at 15% of discretionary income.
After completing requirements for PSLF...
As outlined in red above,
- Total amount paid back of $165,375.63 or $114,152.59 NPV (today's dollars).
- Total amount forgiven of $173,625.08 or $98,799.74 in today's dollars. Almost 50% of the original $200,000 borrowed.
PSLF isn't for everyone. But as you can see, depending on your preference, choosing PSLF may offer substantial savings on your student loan payments in the long run.