The most important date many new veterinarians need to remember annually for the next 20 to 25 years won't be a wedding anniversary or birthday. It is the day their student debt entered into one of the federal government's income-based loan repayment programs.
Income-Based Repayment — referred to by the acronym IBR — can make a new graduate's student loan debt manageable by capping monthly payments based on income and family size. The program, available since 2009, enables borrowers of government-backed student loans to bypass the standard 10-year repayment plan if they exhibit partial financial hardship. If so, their loan payments can be reduced to 15 percent of their discretionary income. Payments can increase or decrease each year based on income and family size. The duration of the program may extend 25 years, after which the remaining loan balance is forgiven.
Dr. Anthony Bartels
Another program similar to IBR is Pay As You Earn (PAYE). It's available to new borrowers who received federal student loans on or after Oct. 1, 2007, or borrowers who paid off their previous student loan balances prior to this date. Candidates for the program also must have received disbursement of a federal Direct Loan on or after Oct. 1, 2011. For those who are eligible, student loan payments can be reduced to 10 percent of their discretionary income. The duration of PAYE is 20 years, after which the remaining loan balance is forgiven.
There's no doubt these programs ease the day-to-day burden of student loan debt for many veterinarians. But they can compound debt problems, too. Borrowers who take advantage of either program likely will end up paying more interest on their student loan debt.
There's also a bevy of administrative pitfalls to navigate — some that I'm personally familiar with.
My wife and I are recent veterinary graduates and have a combined debt of more than $380,000. Under a standard 10-year repayment plan at 6.8 percent, we'd pay $4,300 a month to service our combined veterinary student loan debt. That's hardly a financially sustainable burden for a resident and recent graduate.
These debt repayment programs take into account your debt load and your income to come up with a monthly payment that's more reasonable. In our case, rather than paying more than $4,300 a month, our combined IBR payments are about $500 a month. That's much more affordable and sustainable, especially as we start building our careers as veterinarians.
But there are downsides to our lower payments, most noteworthy of which involve:
- loan servicers
- Traumatic Statement Syndrome
- loan forgiveness tax liability
Here's a synopsis of my experiences with each, starting with loan servicers. We never saw this problem coming, but when we started IBR, our loans were with the government and could be serviced online via MyEdAccount. It worked well. Customer service was great, the website was easy to use, and the people I talked with knew the details of the programs inside and out. At some point, there was an almighty decree to outsource all loan servicing to 11 private companies. My loans were shipped to Great Lakes and my wife’s loans to Sallie Mae. This was a debacle from the start. The IBR status on my wife’s loans was not transferred with the loans, which meant that her previous $200-plus monthly payment as a resident skyrocketed to more than $2,400 a month. It took some time to educate Sallie Mae personnel on IBR and capitalization before they corrected that mistake.
My dealings with Great Lakes have been equally disappointing, especially when it comes to recertification.
To stay enrolled in IBR, you must recertify with your loan servicer every year prior to the anniversary of when you entered your loan repayment program. That means filling out paperwork and including tax returns or pay stubs to recalculate your monthly loan payment relative to your earnings and family size.
If you remember just one piece of my advice, I hope it's this: Etch your anniversary date into your brain, tattoo it on the back of your hand or make it the universal password to any account you log into on a daily basis. If you forget to recertify prior to your anniversary date, you can be bumped from the IBR program. That means your monthly payment will go up to the standard 10-year loan amount and the interest that's accrued will capitalize.
But remembering your anniversary date and properly submitting your forms may not save you from aggravation. You should make sure the loan servicer receives your paperwork and correctly processes it. For maximum protection, send your correspondence to loan servicers via certified mail. That way you can check if and when your paperwork was received.
Great Lakes and Sallie Mae both fumbled our rerecertification paperwork this year. Great Lakes said that while they received my paperwork on time, it took 45 days to process due to a glut of applications. Given that it was processed after the deadline, my interest capitalized.
I knew when my paperwork was received because I sent it by certified mail, so my response was: "Let me get this straight. Because it took you 43 days more than what you say in your letter to process the paperwork, I’m responsible for covering a mistake that would potentially cost me $10,600 over 25 years because you didn't anticipate the amount of applications you'd receive for IBR?" Then they tried to tell me that capitalization “just happens every year in IBR." That's not even close to true and a rather ignoble attempt to excuse their mistake.
Sallie Mae's flub was even more perplexing. They successfully processed rerecertification for two of the three loans they service for my wife. Of course, they left the largest loan out of the process. The representative, while pleasant, had no idea how it happened. Neither did I, and it goes to show that you must check your statements and pay attention to the letters these companies send — if you get them.
That leads me to what I've coined Traumatic Statement Syndrome, or TSS. I made this up to reflect the feeling I have when I review our student loan statements. I thought a medical-sounding acronym might make it official and maybe even treatable.
In my opinion, TSS is the toughest part of income-based loan repayment. It's purely psychological and requires the courage and patience to accept the fact that your statement balance is going to increase long before it ever decreases. The overwhelming temptation is to ignore your loan statements — set it and forget it. But that will NOT work for income-based payment programs. With rerecertification requirements and the obvious ineptitude of loan servicers, you MUST be diligent or it will cost you even more in the long run.
These are harsh realities of programs that offer wonderful flexibility — at a higher financial cost plus your time and pride.
TSS also is the reason I cringe when I attend forums where old gray hairs talk about how wonderful this profession is and question why some veterinarians don't react with enthusiasm upon hearing a youngster say, “I want to be a veterinarian.” I am honored to be part of this great profession. But every time I hear that youngster, I can’t help but see our student loan statements and reply with a cautious, “Are you sure?” After all, there is a very real chance that my wife and I still will be paying for our veterinary education when our yet-to-be-conceived children begin their college educations.
Finally, the largest looming pitfall of these repayment programs is tied to loan forgiveness.
If you run your payments out through the duration of the program, you may have a sizable tax liability. That is because IBR and PAYE consider the portion of your loans that are forgiven as taxable income. While that may change during the next decade or two, you still have to plan as if you‘ll owe Uncle Sam a sizable amount at the end of your loan repayment.
In the meantime, my wife and I are going to try hard to pay these loans off before the end. One of the great things about these programs is the ability to pay more than your minimum if you can afford it. That can help ease our tax liability if we are unable to pay off our loans in fewer than 25 years.
And if we manage to satisfy our student loan debt early, any amount we’ve saved in preparation for the tax liability will be a nice bonus! Maybe it will even help pay for Junior’s college, although unless something drastically changes in the college tuition trajectory, our bonus will likely pay only for Junior's first semester.
IBR and PAYE are necessary evils that provide OUTSTANDING flexibility and immediate loan repayment relief coupled with loan servicing ineptitude and poorly conceived administrative details. Know the pitfalls, stay on top of it, and it could really help you get going and save you from default.
About the author: Tony Bartels, DVM, MBA, is a 2012 Colorado State University graduate and employee of the Veterinary Information Network. He also practices small animal and exotics veterinary medicine in Fort Collins, Colo. His professional interests include advocating for internship quality control and highlighting the benefits and boondoggles of the income-based repayment programs. When he’s not staring holes into his family’s student loan statements, he enjoys spending time with his wife Audra, a soon-to-be small animal internal medicine specialist. Other family members include two back-alley street mutts named Oakley and Herbie and a tortoise named Leo the Infamous. During his rare instances of free time, you might find Dr. Bartels on the ice between the pipes as a goaltender or fly fishing in one of many Colorado and Wyoming rivers.