Tony art 1280 px

Art by Cristina Rózsa

Dear Dr. Debt is an advice column about student-debt management in the veterinary community. It is adapted from Veterinary Information Network and VIN Foundation message boards where veterinarians and veterinary students ask questions and get answers to help them approach borrowing and repayment strategically.

Over the years, thousands of these online conversations have enabled VIN members to learn the good, bad and ugly aspects of student loans. With Dear Dr. Debt, the VIN News Service extends the conversation to the wider veterinary community, featuring advice from student debt expert Dr. Tony Bartels.

Dear Tony,

I am a 2022 graduate who's been working in a companion animal 501(c)(3) nonprofit organization since June. I completed my initial application for income-driven repayment in April 2022. I selected the plan with the lowest monthly payment.

I hope to achieve Public Service Loan Forgiveness (PSLF) and have my debt of approximately $210,000 forgiven in 10 years. Do my Direct Loans need to be consolidated because of all the recent pandemic-related changes to student debt programs?

I am working on submitting my PSLF form, and my main concern is to make sure I receive credit toward PSLF during the payment pause. I have made payments toward my loans during the pandemic forbearance period. My loan servicer informed me that if I made $50 payments each month, they would qualify for PSLF. Is that accurate?

Here's a breakdown of my finances: 

Student loan principal: $205,010

Unpaid interest balance: $4,960

Weighted average student loan interest rate: 5.58%

Repayment plan or strategy: Public Service Loan Forgiveness

Anticipated monthly minimum payment: $531

Adjusted gross income from most recent return: $3,000

Current annual salary: $96,500

Average monthly expenses: $4,960

Amount of time to repay student loans: 10 years

Personal debt: $312,601 home mortgage 

Pay structure: salary, $1,500 signing bonus

Tax status: single

— Focused on Forgiveness

Dear Focused,

Congratulations on recently graduating from veterinary school and starting your job with a nonprofit! The PSLF program has seen its share of challenges since it started in October 2007. Thankfully, recent changes have made reaching forgiveness through PSLF easier, but it still requires focus and discipline to get there.

Let's start with a good "physical exam" of your student loans. Uploading your federal student aid data into the VIN Foundation My Student Loans tool, I see that you have all federal Direct Loan types. Among the income-driven repayment plans, your loans are eligible for Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE) and the "new" Income-Based Repayment (IBR 2014).

A common point of confusion: PSLF is not a repayment plan. Rather, it's a program and a benefit that you can receive if you do all of the prescribed things. Among them is a requirement to choose an income-driven repayment plan for your Direct Loans, while working for an eligible employer.

You want to choose the income-driven plan that will maximize your chance of having the most student debt forgiven, tax-free, when you complete 120 monthly qualifying PSLF payments. Because the goal is to complete those 120 payments as soon as possible, timing is important for getting your loans into repayment. Unfortunately, no one can apply for a repayment plan before graduation, so your application was likely ignored if you submitted it before or immediately after leaving school. After graduation, a six-month grace period prevents borrowers from entering repayment right away. There's one exception: Borrowers who consolidate may choose to end their grace period early. Otherwise, applications for a repayment plan are accepted starting about 60 days before the grace period ends.

At this point, I don't recommend that you consolidate your loans. As Direct Loans, they are all eligible for PSLF. Consolidation will not change the repayment plans you're eligible for and would likely delay your receiving PSLF credit. Plus, consolidation will capitalize your unpaid interest (add your unpaid interest to your principal balance). That's not a big deal if you reach forgiveness and don't have much unpaid interest, anyway. But know that you will avoid capitalization by not consolidating.

Right now, your loans are in forbearance, as all federally held student loans have been since the onset of the Covid-19 pandemic three years ago. The pandemic forbearance benefit has turned off interest and payments but still provides forgiveness credit for every month since your grace period ended. 

Borrowers can be credited for PSLF-qualifying payments as long as their Direct Loans are in the right repayment plan while they work at least 30 hours per week (on average) for the right employer, even with a minimum payment that is zero. Typically, once the grace periods end, loans automatically enter a standard 10-year repayment plan. Since your grace period ended in November while forbearance benefits remained in place, no payments have been due. 

Even though your loans are in forbearance, you should have started earning PSLF credit from the date your grace period ended, given that you're working for a qualifying organization. You can confirm this once you submit a PSLF Employment Certification Form.

A payment of $50 per month has not been required during forbearance. The advice your loan servicer provided is inaccurate.

You can (and should) request a refund of those payments. Any payments made for any federal student loans from March 13, 2020, through the end of the forbearance period, probably Aug. 31, are refund-eligible. You get a fortunate do-over for your loan servicer's mistake.

I also recommend that you apply for an income-driven plan as soon as you can, particularly if the $3,000 adjusted gross income you reported is from your 2021 tax return. My guess is that the adjusted gross income from your 2022 tax return might be higher than that. You want your minimum monthly payment to be as low as possible while working toward PSLF. Because you have not yet chosen an income-driven repayment plan, your payments will resume as a standard 10-year plan, about $2,233 per month, once the forbearance benefits end. A standard 10-year repayment plan also qualifies under PSLF, but it doesn't make much sense to stay in since both are 10-year programs, so there would be no balance left on your loans to forgive.

If your 2022 tax return is not yet on file — it can take weeks for a newly filed tax return to appear in the application system for income-driven repayment plans — you can apply for a plan like PAYE or REPAYE and secure a $0 monthly payment, based on the income you reported on your 2021 return, for the next 12 months. Your payment will be zero anyway, until pandemic forbearance ends. You want that payment to remain zero for as long as possible. 

Some proposed changes to income-driven repayment are expected to take effect later this year or early next year. Considering those changes, your recent tax filing status and your PSLF plans, REPAYE is probably the best repayment strategy for you. Once the changes take effect, REPAYE will generate the lowest monthly payment. In addition, you will save on interest through an improved unpaid interest subsidy, should you end up leaving nonprofit employment for private practice before satisfying the 10-year PSLF program requirements. If that happens, you also may want to switch from REPAYE to IBR 2014, but we can cross that bridge if and when you come to it.

For now, I would suggest applying for REPAYE before you submit that PSLF form to make sure you can get your loans confirmed in REPAYE with a zero payment. You can apply for REPAYE online at studentaid.gov.

To summarize, apply for REPAYE, get confirmation of your repayment plan and payment schedule, then submit your PSLF Employment Certification Form.

To keep your student loan payments as low as possible going forward, take advantage of any opportunities available to you to reduce your taxable income, such as health insurance, health saving accounts, retirement plan contributions — anything and everything that will reduce your adjusted gross income and help you build long-term financial wellness, pay less in taxes and grow your tax-free savings.