Technically, when you enter residency, you can put your federal student loan debt and loan repayment on “forbearance.” When you put your loans in forbearance, your student loan payments are paused for a period of time.
Federal student loan borrowers can elect to have their loans put on mandatory forbearance while completing a medical residency. Although it’s a go-to option for physicians looking for some relief, it might not be the best option out there. Read on to learn more about this option and its pros and cons.
What to know about mandatory forbearance
Mandatory forbearance is available to federal student loan borrowers in certain situations, such as people serving in AmeriCorps, the National Guard, as well as physicians in residency or those doing a dental internship.
Given the name “mandatory,” loan servicers are required to approve the forbearance if you meet the eligibility requirements for this type of forbearance. In general, mandatory forbearance is available for borrowers with Direct Loans or Federal Family Education Loans (FFEL).
Under mandatory forbearance, your federal student loan payments are paused for a period of one year or 12 months. You’d need to submit a mandatory forbearance request in medical residency to your loan servicer to make this happen.
Residency can be several years, but each increment can’t be more than 12 months. You may need to renew several times if your situation continues to qualify.
Make sure to let your loan servicer know that you’re in residency when submitting your form. This can help ensure you’re approved for the mandatory forbearance request while in medical residency.
Mandatory vs. general forbearance
Federal student loan borrowers have two different types of forbearance available:
- General forbearance
- Mandatory forbearance
Mandatory forbearance differs from general forbearance in that servicers must approve your request, if you meet eligibility criteria. A general forbearance is open to borrowers experiencing other scenarios but is also referred to as “discretionary forbearance” since approval is at your loan servicer’s discretion.
Common reasons to be approved for general forbearance include:
- Financial hardship.
- A shift in your employment situation or income.
- Burdensome medical costs.
Additionally, there might be other scenarios where your loan servicer would approve you for a general forbearance if it deems your situation worthy.
To qualify for this type of forbearance, borrowers must have Perkins, FFEL or Direct Loans. Similar to mandatory forbearance, student loan payments are put on pause for no more than one year at a time.
It’s important to note that there’s a cap on general forbearance — you can take advantage of this program for up to three years. Borrowers would need to submit a General Forbearance Request form.
Mandatory forbearance is available to borrowers in the following situations:
- Medical residency.
- Dental internship.
- Serving in AmeriCorp.
- Serving in The National Guard.
- If you’re eligible for the Department of Defense Student Loan Repayment Program.
- If your monthly student loan payment amount is 20% or more of your gross income.
For both general and mandatory forbearance requests, you must submit a form to your loan servicer and await approval.
Mandatory loan forbearance during residency isn’t a good option
If you’re working as a resident doctor and have a large amount of student debt, pursuing a mandatory forbearance request in medical residency can seem like an obvious solution.
Who wouldn’t want to stop making payments on their loans for a year at a time and not worry about it? Although forbearance is available to those completing a medical residency, it’s not an ideal option. Below are some reasons why.
Interest keeps adding up
If you went to graduate or professional school, you likely have Grad PLUS Loans which come with a high interest rate. When you put your student loans on forbearance, your payments are paused — but your interest isn’t.
That means your interest keeps piling on even more. When it’s time to repay your debt, your loan balance may have ballooned to something you couldn’t even imagine due to accrued interest and capitalization.
Doesn’t count toward student loan forgiveness
Medical residents with federal student loans have two great student loan forgiveness options:
- Public Service Loan Forgiveness (PSLF) after 10 years of full-time service and 120 qualified monthly payments.
- Income-driven repayment forgiveness on your remaining federal loan balance after 20 or 25 years.
If you sign up for forbearance, that timeframe doesn’t move the needle forward with student loan forgiveness at all.
Income-driven repayment is a far superior option
Medical residents can take advantage of a much better option, and that’s income-driven repayment (IDR).
Under IDR, there are four repayment plans that can limit your total payment amount to 10% to 20% of your discretionary income. Plus, if you’re really not making a lot of money, you might even qualify for a zero-dollar payment, all while being in good standing on your loans.
Also, to qualify for student loan forgiveness under PSLF, you must be on an IDR plan anyway. You also must be on an IDR plan to qualify for IDR forgiveness if you don’t work in the public sector.
You could pay next to nothing — or actually nothing at all — while still having those low payments (or $0 payments) count toward forgiveness. Because of this, going through income-driven repayment is a far superior option to submitting a mandatory forbearance request in medical residency.
Private student loans and forbearance
The aforementioned forbearance options are available to federal student loan borrowers. But borrowers with private student loans aren’t eligible for these forbearance options. You’ll need to check with your particular private student loan lender instead.
Because private loans come from private companies, they determine their own rules regarding forbearance. So whether they decide to offer a forbearance option and for how long — if at all — is up to them. For example, Sallie Mae’s Medical School Loan offers a forbearance in residency in 12-month increments, for up to a total of 48 months or four years.
Alternatives to forbearance for doctors in residency
Although mandatory forbearance is a guaranteed option for those in residency, it can be a costly move and not the best option. Here are some alternatives to consider.
Income-driven repayment offers federal loan borrowers four repayment plans:
- Income-Based Repayment (IBR).
- Income-Contingent Repayment (ICR).
- Pay As You Earn (PAYE).
- Revised Pay As You Earn (REPAYE).
As noted above, your monthly payments are reduced to a smaller portion of your income and can make your payments affordable. Or even zero! All while being in good standing and counting toward forgiveness.
Talk to your loan servicer about IDR and what plans you may qualify for. Then apply using the IDR request form and recertify your income each year.
Deferment is a close cousin to forbearance. It’s another way to pause your student loan payments, but it can be more attractive in some ways. In particular, if you have subsidized loans, generally the U.S. Department of Education will cover the interest on those loans during periods of deferment. This isn’t the case with unsubsidized loans.
An economic hardship deferment can last up to three years. Talk to your loan servicer to see what deferment options you might qualify for.
Weigh mandatory forbearance in residency carefully
If you’re considering a mandatory forbearance request in medical residency, evaluate the pros and cons carefully. Although it can seem like a good approach, the better option is likely an income-driven repayment plan.
You might pay much less than you think or nothing at all, based on your income. This can keep you open to forgiveness opportunities for both PSLF and IDR. That way, you’re at least moving toward forgiveness if it’s a path you want to pursue in the future.
Additionally, repayment options, like REPAYE, have great interest subsidies that you can benefit from as well, where the government covers a portion of the interest. If you have questions about the best route for you, get in touch and book a consultation with Student Loan Planner today.