Last Updated on June 23, 2022 by Laura Turner
Save time and money on your student loans
Congratulations, new veterinary doctors! It’s time to celebrate graduation! It’s also the best time to get your student loan repayment plan in motion.
If you borrowed federal student loans to help you through veterinary school, you do NOT want to wait until your grace period expires to get your loan repayment plan started. You can benefit from starting a Federal Direct Consolidation Loan as soon as your loans allow. Let’s discuss how you can use your student loan grace period in a financially beneficial way.
Take these steps before you start your first job, internship, or residency as a veterinarian:
Log in to NSLDS.ED.GOV using your FSA ID and download your NSLDS file. Yes, it is an ugly-looking text file (.txt) — that is exactly what you need.
Check the Income-Driven Repayment Eligibility tab to see the options you’re able to use.
Click the button to send your summary loan information from My Student Loans to the VIN Foundation Student Loan Repayment Simulator, enter your income and family information, and click “Run Sim” to see which repayment plan is the most beneficial for your situation.
If you have questions on your specific situation, join Tony Bartels, DVM, MBA, for a VIN & VIN Foundation live webinar on Wednesday, May 29, 2019 8:00 PM EDT where you’ll learn, step-by-step, how to begin student loan repayment.
Utilize a Federal Direct Consolidation Loan
If you face a student debt-to-income ratio greater than one (aka your total student debt balance exceeds your income), you’ll want to get started in income-driven repayment right away. However, there’s a small problem: you can’t get into income-driven repayment until your grace period expires. To solve this problem, start a Federal Direct Consolidation loan, end your remaining grace period, choose your loan servicer, and apply for an income-driven repayment plan. You can start the Federal Direct Consolidation Loan process at studentloans.gov.
Five Reasons to End Your Grace Period Early
- For your veterinary school loans, the majority of your balance is accruing interest. You continue to accrue interest during the grace period, too. When the grace period ends, your accrued interest will get added to your principal. This is called capitalization. You’ll then accumulate interest on that higher principal balance for the duration of repayment. Shortening your grace period saves you money by forcing capitalization to happen sooner which lowers your starting repayment balance and reduces your repayment costs.
- Consolidation also allows you to choose your loan servicer. Until now you have been randomly assigned a loan servicer. You may even have multiple loan servicers. Choosing a single loan servicer can greatly simplify the Federal Student Loan repayment process. Unfortunately, there are no good options when it comes to choosing a loan servicer. They are all pretty terrible, especially if you’re planning to use income-driven repayment.
I recommend choosing FedLoan Servicing (PHEAA) not because they are good, but because they are the official loan servicer for those working towards Public Service Loan Forgiveness (PSLF). One of the main components of qualifying for PSLF is using an income-driven repayment plan. Thus, in theory, they have to be better at processing income-driven repayment documentation for PSLF purposes. Also, if you find yourself working towards PSLF, your loans will get moved to FedLoan Servicing anyway. It is better to move them during your grace period than during repayment as mistakes are often made when moving student loans during repayment.
- Consolidating before you start your first job, internship, or residency can also help you obtain a $0/month minimum payment for the first 12 months of an income-driven repayment plan. Income-driven repayment uses a discretionary income formula to determine your minimum monthly payment. Taxable income is the primary input for discretionary income. If you do not have any taxable income when you complete the consolidation and income-driven repayment application, you won’t have a payment due for the first year of repayment.
- When your student debt is greater than your income, there is a good chance for you to reach forgiveness under an income-driven repayment plan, particularly Pay As You Earn (PAYE). Generally, the sooner you reach forgiveness, the lower your total repayment costs. Ending your grace period early and entering income-driven repayment will start the clock ticking towards loan forgiveness sooner as well as buy some time and flexibility as you get familiar with your post-graduation budget.
- If you have loans from before veterinary school or other non-Direct loans like Perkins Loans, Health Professions Student Loans or Loans for Disadvantaged Students, you can use a Federal Direct Consolidation Loan to get all of your loans on the same repayment plan and the same forgiveness clock.
After your Federal Direct Loan Consolidation has completed, enroll in autopay or automatic debit for your monthly payment, even if your minimum monthly payment due is $0/month. You receive a 0.25% interest rate discount for using autopay with Direct Loans. It may not seem like much, but the savings really add up on a veterinary school-sized student debt load paid over 20-25 years.
Getting a $0/mo payment using an income-driven plan is only the first step. Your payment will go up when you renew your income documentation the following year (presuming you’re earning income). You cannot set and forget your income-driven repayment strategy. As your income goes up, your payment goes up. If you get married or have children, your payment will change depending on fluctuations to your taxable income, your tax filing status, and the state you live in.
The VIN Foundation Student Loan Repayment Simulator can help you see the financial impact of all your career and family changes so you can adjust your repayment strategy accordingly.
With income-driven repayment, it is quite possible to reach student loan forgiveness. If you have a balance remaining after making the maximum number of payments, you will incur a tax liability. Use the Forgiveness Planning Module of the Student Loan Repayment Simulator to estimate your potential tax due in the future and start a plan to save up for that anticipated amount.
Depending on your income and family situation, paying the minimum required by your taxable income and planning for the anticipated tax due on forgiveness can save you tens to hundreds of thousands of dollars on your student loans. Make sure you’re choosing the most financially beneficial repayment strategy for your situation!
The VIN Foundation is here to help!
Please feel free to reach out with any questions: [email protected]. VIN Foundation is here to help with understanding your student loans and repayment options now or in the future!
Dr. Tony Bartels, DVM, MBA graduated in 2012 from the Colorado State University combined MBA/DVM program and is an employee of the Veterinary Information Network (VIN) and a VIN Foundation Board member. He and his wife have more than $400,000 in veterinary-school debt that they manage using federal income-driven repayment plans. By necessity (and now obsession), his professional activities include researching and speaking on veterinary-student debt, providing guidance to colleagues on loan-repayment strategies and contributing to VIN Foundation initiatives.