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Managing Student Loans

So what's the big deal about managing student loans?

Judging by the number of questions I get from house officers, this is one of most confusing financial issues most of you deal with.  As a resident/fellow you must choose between forbearance (unfortunately, no more deferment), making regular payments, and Income Based Repayment, or its improved version- Pay As Your Earn (PAYE) or Income Contingent Repayment (ICR-A).  Yes, the University of Michigan qualifies as a 501(c) institution, which is a requirement for IBR/PAYE.  You will need to apply initially for IBR/PAYE and renew it each year.

So what is PAYE?

  • Annual payments are capped at 10 percent of “discretionary income” (IBR’s cap is 15%).
  • Remaining loan balance is forgiven after 20 years of qualifying payments (IBR after 25 years).

Otherwise, PAYE or ICR-A looks a lot like IBR:

  • Borrowers must demonstrate what’s known as a “partial financial hardship”.
  • Unpaid accrued interest is capitalized only if a borrower no longer has a partial financial hardship, or chooses to leave the plan.
  • Unpaid accrued interest is subsidized for the first three years in repayment.

But PAYE/ICR-A will only be available for people who:

  • Got their first student loan on or after October 1, 2007, AND
  • Got a student loan on or after October 1, 2011 (one loan can count for both requirements).