President Biden has introduced a new income-driven repayment plan for federal student loans. The Saving on a Valuable Education (SAVE) Plan1 replaces the existing Revised Pay As You Earn (REPAYE) Plan.
THE FOLLOWING WILL GO INTO EFFECT THIS SUMMER 2023 FOR SAVE SPECIFICALLY:
- Borrowers currently on the REPAYE Plan will automatically get the benefits of the new SAVE Plan
- Income exemption increases to 225% of the Federal Poverty Line
- The plan eliminates 100% of unpaid interest on unsubsidized and subsidized loans after your scheduled payment
- For resident physicians, this can mean that your loan balance would not increase at all during training if you are enrolled in SAVE
- Married borrowers filing taxes separately can exclude spousal income
- Spouses will no longer need to cosign, making it easier for spouses without an FSA ID
THE FOLLOWING GO INTO EFFECT THIS SUMMER 2023 FOR ALL INCOME-DRIVEN REPAYMENT PLANS:
- Applications for a new plan this Summer will be processed in time for your first payment due date, though it may take a few weeks to process your application and income documentation
- Automatic, scheduled, annual income re-verification where your loan servicer connects directly with the most recent tax return on file with the IRS
- Tax laws and date restrictions apply and this would start in 2024
- You can still electively update your income manually. This is often recommended for physicians returning to fellowship after having a tax return show a much higher income than their current PGY salary.
- No interest capitalization when leaving an income-driven repayment plan
- One exception to this is the IBR (Income-Based Repayment) plan because capitalization is required by statute
THE FOLLOWING UPDATES ARE PROPOSED FOR JULY 2024 FOR SAVE SPECIFICALLY:
- Payments on undergrad loans will be cut in half by reducing the payment requirement to 5% of Discretionary Income
- Borrowers with undergraduate & graduate loans will pay a weighted average between 5% (undergrad) and 10% (graduate)
- For physicians where a majority of their loans are from medical school, this may not be a large decrease. Positively, it will still have the income exemption at 225%.
- Borrowers who consolidate will not lose progress toward forgiveness*
- The verbiage is complex, and we will see this calculation for those consolidating FFEL or government-generated Perkins loans, but the Department of Education states that:
“They will receive credit for a weighted average of payments that count toward forgiveness based upon the principal balance of the loans being consolidated.”
HERE’S WHAT HAS NOT YET BEEN DETERMINED:
- Will there be the same payment cap as Pay as You Earn (PAYE) and Income Based Repayment (IBR), which limits monthly payments to whatever a Standard 10 Year Repayment would be based on the principal amount?
- Will residents of Community Property states be required to provide alternative income documentation in SAVE plans to exclude spousal income? Or can they use a recently filed tax return? How does this differ for spouses without federal loans? How does this differ for spouses with federal loans in a standard or extended repayment?
- Are payments still expected in late July for borrowers recently approved for REPAYE and notified by MOHELA? Will there be processing time as they are switched to SAVE?
- Will MOHELA or any state file lawsuits?
For early-career physicians entering repayment, now is the time to connect with a professional to ensure you’re on track with your loan repayment and/or forgiveness goals during one of the most hectic times of your career. Our team is happy to schedule a no-obligation, introductory call to answer questions about loan repayment and forgiveness strategies.