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This blog is intended to assist health professionals in analyzing various financial decisions; student loan repayment options, tax mitigation strategies, retirement vehicles, business entities (i.e., sole proprietor, S Corp, LLC), and other personal and business financial topics. Your engagement is encouraged.
An appropriate 1st topic might be the income driven repayment (IDR) options – IBR (Income Base Repayment), PAYE (Pay As You Earn), and REPAYE (Revised Pay As You Earn) – gotta love all the acronyms.
The intent of the IDR programs is to make the monthly payments manageable as the payments are a function of Adjusted Gross Income (AGI). Certainly a welcome outcome with the educational debt levels of many health professionals. My general rule of thumb to calculate the payment is as follows:
IBR ~ 13% of AGI divided by 12 to determine monthly payment. For example, if AGI = $80,000, then ($80,000 x 0.13)/12 = $867/month.
PAYE & REPAYE ~ 9% of AGI divided by 12 to determine monthly payment. For example, if AGI = $80,000 then ($80,000 x 0.09)/12 = $600/month.
Given the relatively recent introduction of REPAYE (Dec. 2015), there are very few cases in which a borrower should remain in IBR. But, there are exceptions and participation criteria. The following table summarizes the IDR program terms and participation criteria:
IDR Summary Table
PAYE & REPAYE are the most atrractive IDR repayment options. But, determining an optimal repayment strategy can seem overwhelming. Combine with the "tax bomb" assessed on any IDR forgiveness, developing a strategy is critical. Please watch the following Youtube video I developed where I suggest various strategies. And I know 46 minutes is long, but it could result in you saving tens of thousands of dollars!
For medical students & residents, a Youtube video discussing your specific circumstances:
What do you think? Please share your thoughts & questions.