The Best Tips For Paying Off Students Loans as a Nurse
As life begins to return to some sense of normalcy, so do things that were suspended during COVID. While not much good came as a result of the pandemic over the last two and a half years - the suspension of student loan repayment and interest was one of them.
On March 27th, 2020 the original coronavirus relief bill, otherwise known as the CARES Act was signed into law by then-President Donald Trump which helped most federal student loan borrowers by temporarily pausing payments and involuntary collections on federally held student loans through Sept. 30, 2020. It was then extended several more times but the-President Trump.
On December 22nd, 2021, President Joe Biden announced that the last and final loan extension would be issued until May 1, 2022. The pause includes the following relief measures for eligible loans:
- Suspension of loan payments
- 0% interest rate
Interestingly, it was just announced that numerous members of Congress and the Senate are calling on President Biden to extend the loan forgiveness until August 31st. This would give borrowers more time to prepare and save for repayment to restart.
While there is time, it’s important to understand your options regarding student loans and student loan repayment. This is especially important for individuals who have not yet paid anything towards their student loans because of the relief bill.
Options For Paying Down Student Loan Debt
Current nursing students, nursing graduate students, and nurses with student loans will once again be saddled with thousands of dollars of student loan debt. It is estimated that over 70% of nursing students will graduate with some degree of student loan debt. According to a 2017 report by the American Association of Colleges of Nursing, graduate nursing students expect to finish school with a median debt between $40,000 and $54,999.
Nurse.Org got a chance to speak with Kyle Gallagher of GradFin to sort through some of your options and some things you can do now to prepare.
We also talked about,
- The possibility of student loan debt cancellation by the current administration.
- Refinancing your current student loans to a lower interest rate.
- Options for keeping loan payments to a reasonable monthly amount based on your income.
Kyle Gallagher is Senior Vice President of Business Development and helped over 4,000 borrowers with their student loan repayment plans. He has specific expertise in helping nurses and other healthcare professionals with student loan debt.
Nurse.Org (NO) - Student loan repayment is set to begin in May (2022), what overall/lasting advice do you have for nurses that have been without payments for nearly 2 years?
Kyle Gallagher (KG) - The most important thing for a borrower to do prior to the CARES Act extension expiring, is to verify their repayment plan and what their monthly payment will be. If the borrower does not select a repayment plan, their loans will automatically default to the 10-year Standard Repayment Plan. It is important that borrowers do this because oftentimes the 10-year Standard Repayment Plan is not the optimal strategy.
If borrowers wish to enroll or are currently enrolled in an Income-Driven Repayment (IDR) Plan, it is important that they get these estimates or approved amounts from their loan servicers (Studentaid.gov) or use a qualified professional for assistance. Navigating these programs can be complicated.
NO - Federal student loans have fixed interest rates. Can you explain what that means and how this impacts borrowers?
KG - All federal student loans have fixed interest rates, which means that regardless if the market moves up or down and regardless of the federal funds rate adjustments, the interest rate(s) will remain the same as when the loan was originally issued.
NO - For students interested in borrowing money for nursing school – is there a specific type of loan that is better than another?
KG - For the vast majority of nursing students, Direct Federal Student Loans are preferred over private student loans.
Nurses pursuing an undergraduate degree will be limited to the maximum Direct Federal Student loan for their year of matriculation. An undergraduate nursing student can borrow the maximum in Direct Federal Student Loan and then borrow through either private student loans or if their parents are willing/able to assist, they can borrow through federal Parent Plus Loans for the remainder of their tuition.
NO - What options are available to individuals if their monthly student loan payments are too high?
KG - If the borrower holds federal student loans, utilizing an Income Driven Repayment (IDR) Plan in order to reduce their monthly payment is a great option. There are four named IDR programs and each has slightly different rules for the payment calculation and accruing interest. It is important for a borrower to understand their IDR program and how it works. If these programs aren’t managed properly, they can end up costing borrowers a lot of money.
As a last resort, borrowers who hold federal student loans can put their loans into forbearance. This is not favorable because the loans will continue to earn interest and the borrower isn’t gaining any qualifying payments towards forgiveness opportunities.
NO - Loan providers offer Income Driven Repayment plans (IDR) if someone is unable to pay their monthly payment. What are the pros and cons of this type of payment plan?
KG - Income Driven Repayment (IDR) programs are available to federal student loan borrowers. There are affordability considerations to enter some of the plans but other plans are available to borrowers who choose to use them. There are several strategic reasons for borrowers to use different plans at different times in their repayment.
There are four named IDR plans:
- Revised Pay As You Earn (REPAYE)
- Pay As You Earn (PAYE)
- Income Based Repayment (IBR)
- Income Contingent Repayment (ICR)
Each of these plans have different rules for interest accrual, payment calculations, consideration of spousal income, consideration for spousal federal student loan debt, loan forgiveness, loan eligibility, and more. It is important that you evaluate all these factors in your decision-making as you choose a plan.
NEGATIVES:
- The IDR plans do not give any consideration to the loan size and interest rate while calculating your monthly payment. This can be very dangerous to a borrower because the IDR plans allow student loans to negatively amortize or grow while you think you are making payments.
- IDR plans normally calculate your monthly payment using a percentage of your prior year’s discretionary income. Some plans will look at the combined household income of a married couple instead of just the participant. This can lead to a very high calculation for monthly payment if not managed properly.
- IDR plans have forgiveness opportunities built in for participants who participate for 240 or 300 months depending on the plan and educational background. As the tax laws are written today, these forgiveness events are fully taxable as income in the year the loans are forgiven.
Positive:
- The IDR plans create affordable monthly payments for borrowers carrying large student loan balances who cannot afford to make a term repayment.
- IDR plans are compliant repayment plans for Public Service Loan Forgiveness (PSLF). You need to properly participate in an IDR or the Standard Repayment program to earn qualified payments towards forgiveness.
- Some IDR plans allow married couples to file their taxes as “Married Filing Separately.” In this case, the plan will only use the participating spouse’s income when calculating the monthly payment.
- Some IDR plans have interest rate subsidies that can protect borrowers from their loans negatively amortizing at the full interest rate.
- Some IDR plans will look at the total federal student loan balance of both spouses when calculating the monthly payment.
NO - For current students: What is the benefit of paying interest on their loan while still in school?
KG - If a borrower knows that there is no chance you will pursue Public Service Loan Forgiveness (for their federal student loans) or if they have private student loans, making interest payments while still in-school can save a borrower a lot of money in repayment. Typically, private student loans that require interest payments while still in-school have discounted or lower interest rates than private student loans that require no payment. Additionally, the payments that are made will reduce the balance of the loans so the borrower will have a lower starting point when the loan is cast and enters repayment.
NO - With the ongoing talk about student loans being canceled by the current administration, should nurses pay the minimum on their student loans or pay more if possible?
KG - The potential for a general cancellation of student debt is a topic that has been discussed in Washington since President Biden took office. However, we have not seen any formal plan as of yet.
The president has made significant strides in canceling student loans for permanently disabled Americans, students who were defrauded by for-profit institutions, and with the PSLF limited waiver which provided significant flexibility for borrowers who have been working full-time for qualified employers but have not been compliant in their repayment plan and/or have qualifying loans.
NO - If nursing students and graduates still have questions about loan repayment and the process surrounding consolidation, refinancing, and Income Driven Repayment, what do you suggest.
KG - Reach out to a professional to help guide you through the process.
Sifting through all the information about student loan debt and repayment plans can be extremely overwhelming, especially without the proper guidance. It’s important to remember that nurses are there to save lives and be there in times of need for our patients - there are resources available to you regarding your debt.
Kyle Gallagher works with individuals all across the country and is available via email (kgallagher@gradfin.com) or phone (305-975-5182).
