The Doctor’s Dilemma: PAYE vs. REPAYE vs. SAVE for Student Loan Repayment

When a patient walks into an urgent care clinic stating they have a cough, the etiology of the cough is not necessarily pulmonary in nature. A cardiac problem may be the source of the problem. If you don’t ask questions to narrow your differential diagnosis, you could make the wrong treatment decision. 

Similarly, the path to student loan repayment isn’t a simple or straightforward answer. But the post-medical school path for a couple of years is relatively easy: Consider an income-driven repayment plan.

Why choose an Income-driven repayment plan?

Income-driven repayment (IDR) plans are fast becoming the go-to for resident physicians and physicians pursuing further training in an academic setting. With a $300,000+ student loan balance on a resident salary of $65,000, getting on a “paydown to zero” path right after medical school isn’t that appealing (or possible if that is 100% of household income).

Starting with an IDR plan makes good financial sense whether you're temporarily (until training is over) or pursuing Public Service Loan Forgiveness (PSLF), or 20- or 25-year loan forgiveness.

Just remember that getting on an IDR plan is just the beginning of forming your personal differential diagnosis.

Comparing IDR plans for physicians

The two most popular choices for income-driven repayment plans for physicians are currently the PAYE (Pay As You Earn) and the REPAYE (Revised Pay As You Earn) plans, which is now known as SAVE (Saving on a Valuable Education).  

Let’s compare PAYE vs. REPAYE for doctors, as well as the SAVE plan, to help you choose the best one for your needs.

Cheat sheet for PAYE, REPAYE and new REPAYE

Below is a table that lists the most important features of each plan we’ll discuss through the lens of a physician’s loans.

Repayment plan	Years to forgiveness	Federal poverty guidelines (based on family size)	% of discretionary income	Exclude spouse's income for married filing separately
PAYE	20	150%	10%	Yes
REPAYE	25	150%	10%	No
SAVE	20 (undergrad only) or 25 (graduate loans)	225%	5% (undergrad only) or 10% (graduate loans)	Yes

It’s important to note that the PAYE plan will close to new entrants after July 2024. Borrowers already on the PAYE plan can continue to recertify for that income-driven repayment plan.

Strategies for physicians: Start with the end in mind

In student loan consults, I’ve often heard opening statements by physicians that go like this:

• “We spent all of residency in forbearance because we couldn’t afford the payments.”
• “I’ve been making a payment based on income, but now that income has gone up, I don’t think we can afford it.”
• “The student loan counseling at the end of medical school advised that we consolidate our loans, so that’s what we did in 2017.”
• “Can you tell us which plan is the cheapest plan? I did seven years of training.”

These statements indicate that medical school graduates often do not have a master plan for their student loans. Guidance in this area is uncommon, and it’s not your fault. But the result is that many borrowers are years into a treatment plan with no clear end in mind before they hire us to do “surgery.”

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Doctor IDR repayment options in action

Let’s explore these five scenarios of IDR repayment for physicians. So here are five (hopefully) helpful solutions:

1. PSLF for a single physician with student loans.
2. PSLF for a married physician with student loans and a non-working spouse without loans.
3. PSLF for a married physician with student loans and a working spouse without loans.
4. PSLF for a married physician with student loans with a working spouse who has loans and is also going for PSLF under a qualified employer.
5. PSLF for a married physician with student loans and a working spouse who has loans but is not working for a qualified PSLF employer.

In every scenario, let’s assume the following:

• Residency: 3 years, pay $65,000
• Fellowship: 2 years, pay $90,000
• Attending physician pay: $400,000
• Spouse (if applicable) pay: $100,000
• Physician loan balance: $300,000
• Spouse (if applicable) loan balance: $150,000
• Loan interest rates: 6.50%

We will also assume that the physician files a tax return right after graduating from medical school to show they had no income in the previous year. In addition, the physician consolidates all loans right after graduation to MOHELA (PSLF loan servicer), selects an income-driven repayment plan, and sends in the PSLF form to start the qualifying payment count.

PSLF for a single physician with student loans

Consider the following Income-Driven Repayment Plan options for PSLF if you are a single physician with student loans.

PAYE

For your post-graduate years:

Your monthly payment would be $0 (based on last year’s income) for the first 12 months. The balance would grow by about $1,625 per month.

• PGY-2. Monthly payment would be based on the calendar year pay (the first half of PGY-1), so about $85 per month.
• PGY-3. Monthly payment would (finally) be based on a full year’s pay, around $350 per month.

For your fellowship years:

• Fellowship year 1. Monthly payment would be about the same, because it’s based on PGY-2 + PGY-3 incomes. 
• Fellowship year 2. Monthly payment would step up to about $450 per month.

For your attending years:

• Attending year 1. Monthly payment would be based on Fellowship income, so it would be about the same.
• Attending year 2. Monthly payment would step up to about $1,800 per month.
• Attending year 3. Monthly payments would (finally) be based on a full year’s pay, around $3,100 per month.

End result:

• $158,000 in payments and a $336,000 balance forgiven tax-free.
• You’ll also have a cash flow benefit since the monthly payment is always based on past income, not current income. This represents an opportunity to stay ahead of expenses and save, especially when income goes up 2-4x.

REPAYE 

For PGY-1, your monthly payment would be $0 for the first 12 months, but the balance would grow half as quickly at around $812.50 per month, because there is a 50% interest subsidy. The rest of your post-graduate, fellowship and attending years would follow the same repayment path as the PAYE plan.

In the end, you'll pay about $158,000 in payments, but a smaller balance will be forgiven tax-free — about $288,000.

SAVE

Your monthly payment would be about the same, and the balance would not grow because there is a 100% interest subsidy.

For your post-graduate years:

• PGY1. $0 payment for the first 12 months.
• PGY2. $0 or near-zero payment for the next 12 months.
• PGY3. About $250 payment for the next 12 months.

Your fellowship and attending years will follow the same repayment path, and the end result is similar to PAYE and REPAYE above. The difference is you’ll only pay about $147,000 in payments and get a still smaller balance forgiven tax-free of about $242,000.

Bottom line

Choose SAVE if it’s available and the ultimate goal is PSLF.

Adjusting your strategy based on marriage and spousal student loan debt

PSLF for a married physician with student loans who has a non-working spouse with no loans

If the SAVE is available, choose that. Otherwise, opt for the REPAYE plan.

PSLF for a married physician with student loans who has a working spouse with has no loans

The SAVE plan is the best option, if it’s available. It gives you the option to file taxes separately and exclude your spouse's income. If you file married filing jointly, then you have the lowest payment available.

Select PAYE if SAVE isn’t available and you plan to file separately. Otherwise, choose REPAYE.

PSLF for a married physician with student loans who has a working spouse that has loans and is also going for PSLF, working for a qualified employer

Choose SAVE if available, and REPAYE if not, because if both spouses are going for PSLF with loan balances, they are likely to file MFJ, and these plans work best in that scenario.

PSLF for a married physician with student loans with a working spouse that has loans but not working for a qualified employer for PSLF

Select SAVE if available for both borrowers. If it isn’t available, then choose PAYE for both borrowers.

What if I’m not pursuing PSLF in the end?

You don’t have to decide to pay the loans to zero from the day after you graduate medical school. If, instead, you leave the door open to PSLF (and by doing so, prepare for 20- or 25-year forgiveness with a tax bomb at the end), it might actually be the smart money choice.

If you are on the REPAYE plan, the balance grows half as fast as PAYE. If you are on the SAVE plan, the balance doesn’t grow at all! Imagine making a fraction of interest-only payments while in residency and fellowship, then tackling the loan balance to zero as an attending physician.

That could be a LOT less stressful than trying to pay the balance down to zero from the get-go.

A $300,000 loan balance on a 30-year “mortgage” payment would be just shy of a $1,900 per month payment.

Parting thoughts

The figures used in this example may not exactly match your personal situation — you probably don’t owe exactly $300,000 in loans, and your spouse (if applicable) probably doesn’t make exactly $100,000 or owe exactly $150,000 in federal student loans.

One of the beautiful things about the SAVE plan is that it gradually phases out PAYE, old IBR and ICR plans. But we still expect there to be special cases for the PAYE, old IBR and ICR plans for years to come.

In the same way that your “cough” might not necessarily be pulmonary in nature, we can’t recommend the best student loan strategy without knowing more about the etiology of your student loans and its surrounding financial situation.