Last Updated on June 26, 2022 by Laura Turner
While student loans are a necessary financial tool for most of today’s future doctors, the process of repaying them can get complex due to the many types of loans and the accrual of interest. If you make the wrong move, you could wind up facing a costly error—one that may take years to recover from. The following five student loan mistakes are a few of the worst errors that you can make. Do what you can to avoid them.
Neglecting to Consolidate
Once doctors reach residency status, many of them make a common student loan error: failing to consolidate loans. To make your debt eligible for the Public Service Loan Forgiveness, or PSLF, program, you must consolidate. Once your loan is a part of the program, every year of your residency is counted toward the 10 years of payments that the program requires for the loan to become tax-free.
Upon graduating from medical school, most students have several different loans, often from a variety of sources. This list often includes health student professional loans, Stafford loans, and Perkins loans, but many other types exist as well. If you wait until the end of your residency to consolidate your loans, you may miss out on one of the most substantial loopholes available for today’s doctors, which is the PSLF program.
In most cases, loans that feature the term “direct” in their name are eligible for the program while the ones without it aren’t. You can get around this. To do so, combine all of your separate loans into one consolidated loan through the federal government. Financial aid officers usually advise students to take this step.
Failing to Submit the PSLF Employment Certification Form Yearly
If you are getting close to graduating from medical school or are already in your residency program, then be sure to familiarize yourself with the PSLF form. Many residents are under the misconception that the PSLF program automatically makes them eligible for loan forgiveness. Unfortunately, this is incorrect. To become eligible to apply, you must work for a non-profit organization for 10 years.
Submit a PSLF form annually to establish a paper trail. This step also provides verification that you’re advancing in the program. By sending the form in annually, you’ll have a provable payment record despite moves between employers or problems within the loan industry. Once you begin receiving paychecks as a resident, send the PSLF form into the program for tracking purposes.
As soon as you receive your annual PSLF letter, fax in your application. Follow up by re-faxing the form weekly until the agency sends you confirmation that the application has been completed. It is a hassle to inundate the agency with the same form, but when it comes to six-figure loans, ensuring that the form is documented properly could save you thousands of dollars.
Selecting the Wrong Repayment Program
Selecting a repayment program is a challenge. Choosing one depends on your long-term goals, future income and more. If you’re married and your spouse does not intend to seek employment outside of the home, then the REPAYE program is likely the best option because it allows you to include both partners’ incomes in the calculation. Since you’ll have just one income, you could wind up with a lower monthly payment through REPAYE than you would with another plan. However, to come out ahead, you may also need to qualify for the PSLF program.
If your medical specialty results in an income that’s $300,000 or more by the seventh year of your PSLF program payments, then go with PAYE or IBR. In this case, you’ll benefit because these programs come with a total monthly payment cap. REPAYE does not offer this feature. When it comes to choosing the best repayment plan for you, put extra time into researching your options.
It’s easy to choose forbearance since making loan payments while you’re still in training is especially tough. But this choice comes with a number of costs that can quickly add up. If you borrow $300,000 for school and opt out of paying for the first four years of your training, you’ll increase the balance by almost $80,000 due to interest since it will accrue during this time.
While many of the other repayment plans require you to pay less than the amount of interest that’s accruing, which also results in loan growth, you will still owe less overall once you begin paying the student loan balance in full. If you qualify for PSLF, you’ll be in even better financial shape.
Failing to Confirm Your Employment
To qualify for the PSLF program, you will need to verify your employment. However, the department gives you a choice. You can verify as you go, or you can confirm it later. While it may be tempting to procrastinate the verification, there are bound to be surprises and problems by doing so. Trying to verify 10 years of employment at one time is usually complex, especially since most people have more than one job during this timeframe.
You may make a mistake early on that’s tough to correct later, or it may take the department longer to approve it, resulting in your paying more for your student loans. You’ll be waiting to see if you qualify for tens or hundreds of thousands of dollars in forgiveness benefits.
By being meticulous and consistent when it comes to applying for the PSLF program and choosing the best repayment plan for your situation, you may be able to steer clear of costly student loan errors. In turn, this will allow you to repay your student loans quicker and give you a stress-free head start on your medical career.