Written by Josh Lantz, CRPC®/ Chief Investment Officer, Financial Advisor
Doctors’ Student Loan Update
We wanted to update you on the latest developments with student loans now that the One Big Beautiful Bill (OBBB) Act has become law. There are many changes and, even with a new law being passed, there are still details that are unclear. However, there is enough clarity that some of you will be able to take new action steps.
PSLF and IDR Updates
Public Service Loan Forgiveness (PSLF) is still available for existing borrowers. It is still tax-free.
Existing borrowers can still use PSLF for unlimited amounts. Future borrowers will have capped Federal professional loans for medical and dental school. This will greatly impact the future doctors of the world. It will mean that PSLF is limited for them and a larger portion of their loans will include private loans. For brevity this article will not go through the details of those future borrowers but instead focus on existing borrowers.
The biggest change for existing borrowers is a change in the Income Driven Repayment (IDR) plans below. You’ll notice their payment formulas stayed the same, but some of them are phasing out.
Saving on a Valuable Education (SAVE)- Interest is starting 8/1/25 and the Department of Education recently sent out this notice encouraging anyone on SAVE to switch to IBR. SAVE hasn’t been eliminated yet, but interest will start in August, and it doesn’t count towards PSLF payments.
Pay As You Earn (PAYE)- Eligible if you borrowed between 10/1/07 to 7/1/14. PAYE still exists, but is phasing out by 7/1/26. The 10% of discretionary income formula makes this an attractive plan, but you need to consider it is ending.
New Income-Based Repayment (IBR)- For those that borrowed after 7/1/14; The 10% of discretionary income formula makes it more attractive for those that are eligible.
Old IBR- If you borrowed before 7/1/14 or don’t qualify for the other programs above. The 15% of discretionary income formula makes this less favorable, but sometimes it is the only option.
Repayment Assistance Plan (RAP)- This is a new income driven plan created by the OBBB Act and is not available until 7/1/26. Tiered payments and up to 10% of discretionary income formula. You’ll need to wait a year before using.
The net result is some consolidation of income driven plans. Eventually the only payment plans will include New IBR, Old IBR, and RAP.
Borrowers in SAVE
For the borrowers in SAVE, you need to start thinking about what you should do. You didn’t have to pay during the SAVE forbearance, and you didn’t have any accrued interest. However, starting 8/1/25 you will have accrued interest.
The Department of Education is encouraging you to transition to IBR (either new or old IBR). There’s something to be said about complying with the strategy the government is encouraging.
We think most SAVE borrowers who are pursuing PSLF should consider switching to New/Old IBR. As this is the plan the government is suggesting, processing times will likely be shorter. The other advantage is once you’re on New/Old IBR you’ll begin receiving qualifying payments towards PSLF again. Plus, you can apply for PSLF while on New/Old IBR.
PSLF Buyback
There’s a large population of borrowers who have racked up 120 qualified payments while in SAVE and have applied for the PSLF buyback. The PSLF buyback program is for when you’ve hit the 120 payments but have not had them officially tallied. You can go back in time and pay the monthly payment for the past period based on your income at the time. Keep in mind this takes cash upfront to pay.
Studentaid.gov currently lists PSLF buyback on their website as an option. This is still on their website even after their latest updates post the OBBB Act found here under the Q&A.
There are stories online of more borrowers receiving the PSLF buyback recently. However, processing times are many months and a small percentage of those who have applied have successfully received the buyback program.
Therefore, some of you are left evaluating the switch to IBR to finish PSLF for your remaining payments. Do you exchange extra monthly payments and time or do you wait and try for PSLF Buyback (exchange cash up front, plus processing time, plus the uncertainty of whether it will work)?
This is a very hard call. We suggest if you’re in this circumstance that you reach out to your financial advisor for guidance given every situation is case by case and we must take into consideration your tolerance for risk.
Non-Forgiveness Seeking Student Loan Borrowers
If you’re not pursuing any kind of federal student loan forgiveness and you were in a SAVE forbearance, you’ll need to decide what to do next given your interest will start to accrue on 8/1/25. You were interest-free for many months, but now that benefit will end.
If you desire lower rates over the flexibility of Federal loans, then you might look for a private student loan refinance. Please reach out to us if that’s the case so we can find you a lender. Sometimes this means refinancing 100% of the federal loans, but more commonly it means refinancing the portion of student loans that are currently at higher interest rates.
Keep in mind refinancing is an irrevocable decision. You lose some flexibility when you switch from federal to private loans. The political environment can change in 2028 after a new election and there may or may not be more options for federal student loan forgiveness in the future.
Repayment Assistance Program (RAP)
The OBBB Act created a new income driven plan called RAP. It becomes available 7/1/26, so no need to consider it yet. Borrowers who use RAP and work at a non-profit can achieve tax-free PSLF in 10 years, like the other income driven plans. Borrowers who are not pursuing PSLF can receive IDR taxable forgiveness after 30 years of payments.
The payment formula is more complicated. It is a tiered system and eventually caps out at 10% of adjusted gross income. The payment has a minimum payment of $10 per month, so there are no more zero-dollar payment options. It also subtracts out $50 per month per dependent.
One nice feature is there is no negative amortization. Meaning if your RAP monthly payment doesn’t cover your accruing interest, that interest will be waived. The RAP plan also allows you to file married filing separately.
Wrapping Up
We understand dealing with student loans this past year has been very frustrating. We’re here to help! If you have any questions about your student loans, we encourage you to reach out to your financial advisor.
Sources
https://www.congress.gov/bill/119th-congress/house-bill/1/text
https://studentaid.gov/announcements-events/idr-court-actions
Josh Lantz, CRPC®/ Chief Investment Officer, Financial Advisor With over a decade of financial planning experience, Josh has worked on more than 500 doctors’ financial plans. “It’s very hard to find a doctor’s situation I haven’t seen before,” says Josh. This is only a snapshot of the expertise Josh brings to MD Financial. He can be reached at Josh@mdfinancialadvisors.com.
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