If you’ve made the decision to pursue Public Service Loan Forgiveness (PSLF), one of the first things you need to do is consolidate your student loans. The day after you graduate would be a good time.
“Consolidate Your Federal Student Loans as Soon as Possible After Graduation.”
Why Consolidate?
To obtain PSLF, you need to make 120 qualifying payments while completing eligible work. Consolidating your student loans helps significantly with obtaining your 120 qualifying payments. It removes your six month grace period, and it makes any ineligible loans you may have eligible for PSLF.
Typically, you will have a six to nine month grace period before your student loans require you to start making payments. During this grace period, your student loans continue to accrue full interest. Your grace period is no different than if you keep your loans in deferment for that time (never a good idea). Even if you made payments during your grace period, they do not count toward your 120 qualifying payments.
For a doctor pursuing PSLF, your goal is to make as many qualifying payments as quickly as possible, and you want to make those payments as small as possible. A six or nine-month grace period accomplishes neither of these.
Your first twelve qualifying payments may be as low as zero. Even if not zero, they will probably be the lowest payments you make over the next ten years. During your fourth year of medical school, you probably earned little to no income. Your current repayment amount is based on last year’s income. You are expected to pay 10% of your discretionary income toward your student loans. To calculate that amount, take your gross income, less the standard deduction (for 2015, the standard deduction is $6,300) less 150% of the poverty level ($11,770 plus $4,160 for each additional person in your family). So if you made less than $18,000 last year, your student loan repayment is zero dollars a month.
When you complete your consolidation application, you will want to use your tax return from the previous year. Once your consolidation application has been approved, you will be scheduled to make 12 payments at a very minimal payment.
Before you can consolidate your student loans
You need to get your school to update your status at your current student loan servicer. Log on to your servicer’s site to find out your status. If the servicer still has you listed as “in school” you will need to contact your medical school and have them contact your servicer to let them know that you have graduated. This change can take anywhere from one to three weeks.
While you are waiting for your status to be updated, go to StudentLoans.gov and log into your account. Select the “Complete Consolidation Loan Application and Promissory Note” option.
Step 1
Choose Loans & Servicer. You are going to want to choose all of your federal loans for consolidation. Include both your subsidized and unsubsidized loans. FedLoan Servicing will separate your subsidized and unsubsidized loans in the consolidation process. Choose “Do not delay processing” when asked about waiting until your grace period is over. Under Service Selection, answer yes to the question about seeking PSLF. Choosing PSLF will automatically select FedLoan Servicing (PHEAA) as your servicer. FedLoan Servicing is the only servicer who can manage your loans for PSLF.
Step 2
Repayment Plan Request. You will need to enter your tax filing information for last year so they can present you with repayment plan estimates. If you are not accruing a substantial amount of interest during residency, you will probably want to choose Pay As You Earn (PAYE). If you are accruing substantial amounts of interest during residency, Revised Pay As You Earn (RePAYE) is probably your best bet. Choosing your repayment plan will be covered in future articles.
At the bottom of the page select your repayment plan.
On the next page, the answer to “Do you work for a non-profit or government organization?” needs to be “Yes.” If you are not sure if your hospital is eligible, you need to contact them immediately to find out. Go ahead and answer the remaining questions about family size and marital status.
On the next page, you will like your tax return from last year to your account. Just follow the directions. In the IRS Income Confirmation section, you are asked “Has your income significantly changed since you filed your last federal income tax return? For example, have you lost your job, or experienced a drop in income?” answer “No.”
Step 3
Terms and Conditions. Read through all of the information contained on these pages. You will see a green check mark show up in the upper right-hand corner as your progress through the information.
Step 4
Borrower & Reference Information. Make sure all of this information is accurate. You will need to include two references.
Step 5
Review & Sign. The system will show you all of your loans that you are consolidating and what your new consolidated interest rate is. It also shows your income information for last year and your borrower and reference information. Sign and submit!
The process is expected to take approximately three weeks.
You are done. You will need to certify your employer annually and your income annually. Sign up for email updates to be notified when I post this and other helpful information.
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