Starting PSLF- 120 payments immediately at start of residency?

[serimeri]

Hi,
I will be starting residency at a place that qualifies for PSLF. Would it be possible or wise to start my 120 payments during my grace period?

My residency will be 4 years and I am hoping to find employment at a place that qualifies for PSLF after I finish.

Thanks for any tips.

---

Members don't see this ad.

 

[RangerBob]

Unfortunately you can't waive your own grace period--I tried this as well. Though it wouldn't hurt to ask your loan servicer if you can.

To my knowledge, the only way to start PSLF-eligible payments right away is to consolidate your loans. That usually takes about two months, and there are a lot of disadvantages (and few advantages) to consolidating. Generally it only makes sense if you need to bring older FFELP loans into the direct loan program, but you're unlikely to have any of those if you're just now graduating.

 

[serimeri]

Unfortunately you can't waive your own grace period--I tried this as well. Though it wouldn't hurt to ask your loan servicer if you can.

To my knowledge, the only way to start PSLF-eligible payments right away is to consolidate your loans. That usually takes about two months, and there are a lot of disadvantages (and few advantages) to consolidating. Generally it only makes sense if you need to bring older FFELP loans into the direct loan program, but you're unlikely to have any of those if you're just now graduating.

Thanks

Yeah, I don't have any of those at all. My school's financial aid spokesperson told me that I won't have to worry about consolidating since it'll be done for me already?

I don't have those older FFELP loans and have nothing from undergrad.

I was wondering, since the path to PSLF is via PAYE, can I go ahead and switch out from PSLF to PAYE if I change my mind about where I want to practice?

 

[RangerBob]

I'm not sure what your financial aid spokesperson meant by your loans will already be consolidated for you--they won't unless you apply for consolidation. But in a sense, you can think of your loans being "consolidated" if they're all with one lender. However, they're technically still different loans with different rates--just with one payment. But that's good, because then you can selectively pay off loans with higher interest if you want, rather than having one lump sum loan at an averaged (and rounded-up) interest rate.

Also, if/when you submit your PSLF eligibility (it's good to do it about once a year if you're not changing jobs) then your loans would all be transferred to FedLoan anyway, so even if your loans are split among multiple servicers, they wouldn't be for long.

PSLF and PAYE are two different things. PAYE is your payment plan (10% of AGI minus some percentage of the federal poverty level). PAYE does have its own forgiveness after 20 or 25 years. That forgiven amount is then taxed as income. (PSLF is tax-free)

PSLF is purely a forgiveness program--not a repayment plan. To be eligible for PSLF you have to make 10 years worth of eligible payments. IBR, PAYE, and the standard 10-year payment plan (plus ICR and maybe another one or two plans) are all eligible plans.

This means that you will enter PAYE as your repayment plan (assuming you're eligible). You technically never enter PSLF, since you don't apply for forgiveness until that 120'nd eligible payment is made. But you can track/document your payments as mentioned above. You basically give a form to your HR department and they fill out if you're at a non-profit and then they document how long you've been there and submit it to your loan servicer, who then looks at how many PSLF-eligible payments you made during that period. That then gets recorded (ie, you have made x PSLF-eligible payments, and you have 120-x payment remaining). I'd highly recommend you do that at the end of internship--while I still feel the odds of PSLF sticking around in its current form are low, at least this gets you in the door in the event that the gov't "grandfathers" people that already made documented payments into the program. Whether or not they'd do that, who knows, but it just takes a few minutes to get that form filled out and turned in, so you might as well.

You can keep doing PAYE as long as you want--if you decide to work at a for-profit agency then you just don't submit the PSLF eligibility forms, and just keep on making your PAYE payments. Of course, if you start making good money, then you should probably pay off those loans as quick as you can.

 

[serimeri]

I'm not sure what your financial aid spokesperson meant by your loans will already be consolidated for you--they won't unless you apply for consolidation. But in a sense, you can think of your loans being "consolidated" if they're all with one lender. However, they're technically still different loans with different rates--just with one payment. But that's good, because then you can selectively pay off loans with higher interest if you want, rather than having one lump sum loan at an averaged (and rounded-up) interest rate.

Also, if/when you submit your PSLF eligibility (it's good to do it about once a year if you're not changing jobs) then your loans would all be transferred to FedLoan anyway, so even if your loans are split among multiple servicers, they wouldn't be for long.

PSLF and PAYE are two different things. PAYE is your payment plan (10% of AGI minus some percentage of the federal poverty level). PAYE does have its own forgiveness after 20 or 25 years. That forgiven amount is then taxed as income. (PSLF is tax-free)

PSLF is purely a forgiveness program--not a repayment plan. To be eligible for PSLF you have to make 10 years worth of eligible payments. IBR, PAYE, and the standard 10-year payment plan (plus ICR and maybe another one or two plans) are all eligible plans.

This means that you will enter PAYE as your repayment plan (assuming you're eligible). You technically never enter PSLF, since you don't apply for forgiveness until that 120'nd eligible payment is made. But you can track/document your payments as mentioned above. You basically give a form to your HR department and they fill out if you're at a non-profit and then they document how long you've been there and submit it to your loan servicer, who then looks at how many PSLF-eligible payments you made during that period. That then gets recorded (ie, you have made x PSLF-eligible payments, and you have 120-x payment remaining). I'd highly recommend you do that at the end of internship--while I still feel the odds of PSLF sticking around in its current form are low, at least this gets you in the door in the event that the gov't "grandfathers" people that already made documented payments into the program. Whether or not they'd do that, who knows, but it just takes a few minutes to get that form filled out and turned in, so you might as well.

You can keep doing PAYE as long as you want--if you decide to work at a for-profit agency then you just don't submit the PSLF eligibility forms, and just keep on making your PAYE payments. Of course, if you start making good money, then you should probably pay off those loans as quick as you can.

Thank you. I have to check with my servicer to see if I can bypass the grace period.

You mention doing the form at the end of internship, but shouldn't I do it right now as I am about to begin in the even that it doesn't stick around?

I guess what had confused me was the grace period, but your post cleared up a lot of the confusion for me. Thanks

 

[RangerBob]

Thank you. I have to check with my servicer to see if I can bypass the grace period.

You mention doing the form at the end of internship, but shouldn't I do it right now as I am about to begin in the even that it doesn't stick around?

I guess what had confused me was the grace period, but your post cleared up a lot of the confusion for me. Thanks

The form can only be dated as of the date it's filled out--HR can't say your contract ends in June 2016, for example. So the earliest you can submit the form for it to mean anything is after you've made one payment. Most people fill it out when they change jobs, or once a year.

 

[serimeri]

The form can only be dated as of the date it's filled out--HR can't say your contract ends in June 2016, for example. So the earliest you can submit the form for it to mean anything is after you've made one payment. Most people fill it out when they change jobs, or once a year.

Thank you for the good advice. I spoke to my employer and she says that I can fill out the employment verification form. But I can't actually apply for the PSLF until after my 120 payments are in the book.

I am in my grace period right now, and my grandmother was planning on giving me a graduation gift but I'll ask her to put it aside for some of my interest during this time.

It's scary what's going to happen about this forgiveness option.

 

[FutureInternist]

So I'm going to hitchhike on this thread since I have a similar Q

Currently I owe $250,000 (consolidated with NelNet) & am on the standard repayment plan which makes my monthly payments $1300
I do currently work full-time, for a non-profit organisation & plan to go into academics once certain family issues are resolved

If I understand correctly, I will have to make 120 payments of $1300 ($156,000), and hence will save a minimum of $90,000 (possibly more since the accrued interest for anything past 10 yrs is also forgiven)
Also, based on what I read, these payments do not have to be consecutive i.e. I can work for non-profit for 5 years, then work for-profit for 2-3 & then come back into non-profit & only have 5 more years of loan repayments (Very unlikely scenario obviously but just to see if I understand it correctly)

With the standard plan, my minimum payment is the same as it would be under PSLF so the only downside I can see is that I cannot pay anything on top of my minimum payment to cut the time down (i.e. 8 yrs vs 10 yrs) and that if I were to move to for-profit I would have accrued more interest since the remaining balance would be higher

Can someone let me know if I have this correct?

Thanks

 

[Igor4sugry]

Unfortunately you can't waive your own grace period--I tried this as well. Though it wouldn't hurt to ask your loan servicer if you can.

To my knowledge, the only way to start PSLF-eligible payments right away is to consolidate your loans. That usually takes about two months, and there are a lot of disadvantages (and few advantages) to consolidating. Generally it only makes sense if you need to bring older FFELP loans into the direct loan program, but you're unlikely to have any of those if you're just now graduating.

not sure what multiple disadvantages to consolidation are.
The only way to know how many payments you have made that government counted is to submit the employee verification form. You also do this once a year to make sure your payments are actually counted and as evidence to give once you have made 120payments.
When you submit employee verification form your loans are moved to FedLoan servicing which handles all pelf people.

 

[Igor4sugry]

Thanks

Yeah, I don't have any of those at all. My school's financial aid spokesperson told me that I won't have to worry about consolidating since it'll be done for me already?

I don't have those older FFELP loans and have nothing from undergrad.

I was wondering, since the path to PSLF is via PAYE, can I go ahead and switch out from PSLF to PAYE if I change my mind about where I want to practice?

I would in general avoid advice from school fin aid offices as they rarely give any useful financial advice related to student loans. Let alone the complexities of pslf. You can also consolidate your loans with private banks such as DRB and pay $100/mo until you graduate and then enter higher payments as an attending.
I encourage all to read www.whitecoatinvestor.com where he posted on pslf vs consolidation topic few weeks ago.

 

[Bacchus]

I'm not sure what your financial aid spokesperson meant by your loans will already be consolidated for you--they won't unless you apply for consolidation. But in a sense, you can think of your loans being "consolidated" if they're all with one lender. However, they're technically still different loans with different rates--just with one payment. But that's good, because then you can selectively pay off loans with higher interest if you want, rather than having one lump sum loan at an averaged (and rounded-up) interest rate.

Also, if/when you submit your PSLF eligibility (it's good to do it about once a year if you're not changing jobs) then your loans would all be transferred to FedLoan anyway, so even if your loans are split among multiple servicers, they wouldn't be for long.

PSLF and PAYE are two different things. PAYE is your payment plan (10% of AGI minus some percentage of the federal poverty level). PAYE does have its own forgiveness after 20 or 25 years. That forgiven amount is then taxed as income. (PSLF is tax-free)

PSLF is purely a forgiveness program--not a repayment plan. To be eligible for PSLF you have to make 10 years worth of eligible payments. IBR, PAYE, and the standard 10-year payment plan (plus ICR and maybe another one or two plans) are all eligible plans.

This means that you will enter PAYE as your repayment plan (assuming you're eligible). You technically never enter PSLF, since you don't apply for forgiveness until that 120'nd eligible payment is made. But you can track/document your payments as mentioned above. You basically give a form to your HR department and they fill out if you're at a non-profit and then they document how long you've been there and submit it to your loan servicer, who then looks at how many PSLF-eligible payments you made during that period. That then gets recorded (ie, you have made x PSLF-eligible payments, and you have 120-x payment remaining). I'd highly recommend you do that at the end of internship--while I still feel the odds of PSLF sticking around in its current form are low, at least this gets you in the door in the event that the gov't "grandfathers" people that already made documented payments into the program. Whether or not they'd do that, who knows, but it just takes a few minutes to get that form filled out and turned in, so you might as well.

You can keep doing PAYE as long as you want--if you decide to work at a for-profit agency then you just don't submit the PSLF eligibility forms, and just keep on making your PAYE payments. Of course, if you start making good money, then you should probably pay off those loans as quick as you can.

I'd also recommend saving record yourself. I haven't submitted my validated form yet so of my ~20-22 payments so far none are recorded as "PSLF." I'll have to get that signature next week to get it on the books.

 

[RangerBob]

not sure what multiple disadvantages to consolidation are.
The only way to know how many payments you have made that government counted is to submit the employee verification form. You also do this once a year to make sure your payments are actually counted and as evidence to give once you have made 120payments.
When you submit employee verification form your loans are moved to FedLoan servicing which handles all pelf people.

One disadvantage is your interest rate gets rounded up to the nearest eight of a percent. In addition, you lose the ability to selectively pay off your higher interest rate loans (ie, GradPlus). All you gain is all your loans will be with one servicer (which is usually already the case for most, but not all, borrowers). But for those few unlucky enough to have multiple loans with multiple servicers, filling out the employee verification form for PSLF will bring all your loans to FedLoan. Lastly, with consolidation, if you did make any eligible payments on any loans (perhaps undergrad loans), then you now "restart the clock."

I took out a direct consolidation loan so I could bring my 1st year medical school loans into the direct program. It took 5 months to get my interest rate corrected (eventually my financial aid director called in a favor with a higher up and asked her to review my loan consolidation, and quickly saw the problem using the same high-school math that we had used). But it was worth it because in the event PSLF sticks around, those loans are now eligible for forgiveness, and to me that's worth the inability to pay off the higher interest rate loans of that group.

Consolidating also helps people get a jump on PSLF payments. So if all your loans are at the same interest rate, it might make sense to consolidate right away so you can get 6 more months of eligible payments (assuming your residency qualifies, which most do). To me, that'd probably be worth the slight interest rate bump.