Loan repayment proposal could cost some veterinarians

Friday is the deadline to comment on U.S. Department of Education plan

February 8, 2023 (published)
By Tony Bartels and Rebecca Mears

Photos by Dr. Audra Fenimore (L) and courtesy of Dr. Rebecca Mears(R)
Drs. Tony Bartels, left, and Rebecca Mears are student debt consultants at the Veterinary Information Network, an online community for the profession.

In March 2020 when the world shut down due to Covid-19, one of the unexpected benefits to borrowers of federal student loans in the United States was pandemic forbearance of their debt. For nearly three years and counting, those borrowers have had monthly payments of $0 with 0% interest. Now, as the pandemic benefits wind down (currently scheduled for no later than the end of August), the U.S. Department of Education is proposing changes that will significantly impact some borrowers by improving one income-driven repayment option while phasing out two other helpful repayment options.

During the past two decades, each modification of the greatly flexible federal student loan repayment programs has provided even more flexibility. This time, that is not true for all borrowers.

While the U.S. Department of Education casts its proposal as a step forward to "simplify" student loan repayment, we disagree. Although there are significant benefits for some borrowers — generally, those who took loans for undergraduate education — others, including many veterinarians and veterinary students, may lose out.

But it's not a done deal.

The changes proposed are open for public comment through Friday (Feb. 10). Depending on the feedback, the Department of Education could modify its proposal. Therefore, we urge those interested in this subject to review an in-depth analysis of the proposal posted on the VIN Foundation website. And we encourage those with a stake in the outcome to submit comments before the deadline.

A letter that highlights our concerns and proposes solutions is posted on the same site as the plan analysis. Feel free to use the letter to inform your own submission, but we discourage copying and pasting. Original comments are more powerful.

Broadly, there are two parts to the proposal. The first makes changes to a repayment plan known as Revised Pay As You Earn (REPAYE), which is one of several income-driven repayment plans currently in place. Income-driven repayment keys borrowers' monthly payment to their income and provides for forgiveness of the balance after 20 or 25 years of monthly payments. The proposed revisions to REPAYE are beneficial to certain borrowers (including ourselves, actually). What troubles us is the second part of the plan, which is to phase out two repayment options: Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE).

Losing them would be regrettable, especially PAYE.

Thousands of loan repayment simulations we've run on behalf of veterinary colleagues over the years have shown that PAYE is the most beneficial and flexible of the income-driven repayment options for veterinarians who are eligible for PAYE (not all are). Eliminating PAYE and funneling borrowers toward REPAYE means veterinarians will have a longer repayment time, from 20 years under PAYE to 25 years under REPAYE.

Largely for that reason, we believe PAYE is the best income-driven option for veterinarians who qualify for it. (There is one other income-driven plan, Income Based Repayment (IBR) 2014, that provides for forgiveness after 20 years, but it's not open to all borrowers.)

In fact, if you are a veterinarian with federal student loans who is eligible for PAYE but not enrolled and not eligible for IBR 2014, we encourage you to consider switching to PAYE — and soon, before the option is no longer available.

Should the proposed phase-out occur, borrowers already in PAYE can continue in the program. Borrowers who leave PAYE for any reason after phase-out would be unable to re-enter.

Right now, the optimal time for switching is unclear. Doing so before July 1 could trigger a capitalization event, meaning any unpaid interest would be added to the principal upon which future interest is calculated. After July 1, the Department of Education will largely eliminate interest capitalization.

However, should PAYE be phased out on or before July 1, then getting into PAYE before you're shut out trumps the unpaid interest capitalization issue. If PAYE is phased out sometime after July 1, it would be better to switch after that date, when the capitalization changes take effect. Keep an eye out for announcements as the time approaches.

We recognize that so many evolving rules can be confusing. The VIN Foundation Student Debt Center has a variety of free tools to analyze your situation, show what repayment programs you are eligible for, and help you decide what actions, if any, to take. Think of these tools as a way to conduct a student loan "physical exam" and the first step toward making a diagnosis and treatment plan for managing your loans.

Visit the Student Debt Center and use the My Student Loans tool to see which plans you are eligible to use and help you confirm which plan(s) you are currently using.

Everyone in repayment should check what plan they're in. Many of the veterinarians we help are unaware that their student loans are eligible for PAYE, and some believe they are using PAYE when they are enrolled in another plan.

These borrowers are often using another income-driven plan that causes them to pay more than their income would require, reducing the financial benefit of reaching forgiveness; or using a plan that will have them in repayment longer, thus paying more than necessary on their loans.

We've given a lot of attention to PAYE here, but for not-so-recent veterinary graduates, the proposed phase-out of the ICR payment plan is worth noting, too. While newer income-driven repayment plans generally are more beneficial than ICR, its benefits are boosted by a pending one-time forgiveness count adjustment. The adjustment gives borrowers credit toward forgiveness for any repayment time and some deferment/forbearance time, regardless of the repayment plan they use.

The ICR monthly payment calculation is complicated, but the bottom line is that for those with higher incomes relative to their student loan balance, the plan can result in the lowest monthly payment. For that reason, losing ICR would be detrimental.

Similar to the PAYE phase-out, if you're not using ICR if and when the proposed regulations take effect or you switch out of it for any reason, you will not be able to get back in.

To conclude, here are steps we urge borrowers to take now:

  1. Review the analysis of the proposed changes posted on the VIN Foundation website.

  2. Veterinary school graduates especially from 2012-18 – those most likely eligible for PAYE, but not IBR 2014 — should review which repayment plans their student loans are eligible for. Use the My Student Loans and Loan Repayment Simulator tools to determine whether you are using PAYE or could benefit from doing so.

  3. Borrowers with Federal Family Education Loans (FFELs) should review whether their loans are held by the government or a private lender. To access the Department of Education programs, those with privately-held FFELs can take action to become eligible. The handy My Student Loans tool can help you determine your loan holder (details here).

  4. Submit a comment to the Department of Education about how the proposed changes would affect you. The deadline is Friday, Feb. 10, at 11:59 PM ET.

  5. For free help with student loans, visit us here.

Tony Bartels graduated in 2012 from the Colorado State University combined MBA/DVM program. He and his wife, a small-animal internal medicine specialist, have more than $400,000 in veterinary-school debt that they manage using federal income-driven repayment plans. By necessity (and now obsession), Tony's professional activities include researching and speaking on veterinary student debt, providing guidance to colleagues on student loan repayment strategies and contributing to the Veterinary Information Network and VIN Foundation resources. Beyond debt, his professional interests include small animal practice. When he's not staring holes into his colleagues' student-loan data, Tony enjoys fly fishing and exploring Colorado with his wife, Audra, their daughter Lucy and their two rescued canines, Addi and Maggie.

Rebecca Mears graduated from the University of Georgia College of Veterinary Medicine in 2020. While there, she served as the Veterinary Business Management Association's National Business Certificate Program director and was a board member of Vets for Pets and People. Rebecca has worked in equine practice and is now putting her nonclinical passions to work with the VIN Student Team and VIN Foundation Student Debt Education Team. Her other nonclinical interests include improving financial literacy and encouraging well-being in the profession. In her time away from veterinary medicine, Rebecca can be found enjoying Central Kentucky, hiking and hosting impromptu dance parties.

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