Student loan stress is just one piece of the veterinary wellbeing puzzle. After all, federal loan payments have been paused for two years yet veterinary burnout is running at an all-time high. Some even think we are in a veterinary workforce crisis. Hospitals operate with fewer team members and turnover is high. Many doctors are reeling personally and professionally.
This is the second blog in a series that reveals how Megan the associate gains confidence and peace of mind by getting crystal clear on how to manage her student loans.
Megan’s job may feel all-consuming right now but VetMed is only one part of who she is. Focusing more attention and dollars on those areas of life that bring her personal fulfillment is just as important as paying her student loan debt.
Megan puts herself first by following these three rules of thumb:
- Pick an affordable payment. There’s a lot of talk about student loan affordability but what does this actually mean in Megan’s case? Affordable means she is comfortable making student loan payments while, at the same time, allocating dollars to goals that lead to a sense of personal fulfillment. In the next five years, Megan would like to buy a house, get married, and have a couple of kids.
- Take advantage of tax loopholes and workplace savings programs. Income-based plans offer new grads a major tax loophole. Megan has a 2020 tax return on file showing zero earned income so she qualifies for zero payments for the first twelve months of repayment. Furthermore, since she graduated in June her 2021 earned income will be half of her normal salary. This means her monthly payment in 2023 will only be half what her normal income-based payment would be. During the first 24-month of repayment, Megan will make a total of $3,000 of income-based payments compared to a whopping $62,000 if she were to elect a standard repayment plan.
- Keep your plan current. Healthy pets require ongoing care. An optimal student loan plan also requires monitoring from time to time. When picking a plan, most veterinarians make the mistake of only thinking about the beginning of repayment as if there is no middle and no end.
You might be thinking, how do I create an affordable payment? Here’s how…
It starts with knowing your loans. You wouldn’t treat a pet without a detailed medical history. It’s difficult to diagnose and treat your student debt without an understanding of your loans. The VIN Student Loan Repayment Simulator is a free online tool that’s great for quickly assessing your loans.
Knowing your loans is important because your repayment options are governed by your loan details.
The two overarching repayment methods are time-based and income-based. A time-based student loan payment is calculated just like a home mortgage. Whereas income-based payments are not at all like mortgages and work more like an income tax.
Income-based payments are roughly 8% of gross income. From this perspective, enrolling in an income-based plan is kind of like choosing to relocate to Madison Wisconsin from Austin Texas. Wisconsin has an 8% state income tax whereas Texas has no income tax. If a single-digit state tax was such a financial burden, more people would move to Texas or one of the other eight states without an income tax. The point is that an 8% tax or student loan payment is manageable, in the grand scheme of things.
There are four income-based repayment plans. They may all sound the same but they’re not all created equal. Although all four income-driven plans allow you to make a monthly payment based on your income, the plans differ in terms of who qualifies, required minimum payments, and maximum repayment periods.
It’s probably not a leap to assume that most early-career veterinarians are on, or considering, an income-based repayment plan such as Pay As You Earn (PAYE) or Revised Pay As You Earn (REPAYE). PAYE and REPAYE are very similar in some respects but very different in others. Your debt balance and income potential determine which of the two is best for you. In our example, Megan has average veterinary debt and income. She is projected to make the exact same low payments in the first 24-months under both PAYE and REPAYE. However, PAYE’s payment term is five years shorter and results in $90,000 less in total loan costs.
Here’s the point: Everyone’s financial profile is unique and the “best” solution varies quite a bit from one associate to another. That’s why I offer a concierge service that helps veterinarians assess their student loan options, including weighing the pros and cons of switching repayment plans. Book a free consultation and learn more about how I help veterinarians with six-figure debt gain confidence and peace of mind.