Know Your Payment Cap if Going for PSLF
By Weston Manley
February 3, 2020
If you’re going for Public Service Loan Forgiveness (PSLF) then your goal should be to pay in the least amount over the ten years to have the maximum amount forgiven.
Most people in PAYE and IBR don’t realize there is actually a cap on how much you have to pay. While Fed Loan Servicing should automatically cap your payment, I’ve never spoken to someone there who has known this particular rule which provides for obvious concern.
The way it works is your calculated payment (based on your most recent tax return) can never be higher than your original standard 10-year repayment amount. Let’s run through a quick example.
Let’s say you had $250,000 of debt when you finished medical school. The original 10-year standard repayment amount based on a 6% interest rate would have been $2,776 (A).
Fast forward and let’s assume you are an attending in the PAYE plan and are in the following situation: married, file taxes jointly, no kids, and earn $500,000 combined. Your calculated payment would be $3,955 (B).
When you file your IDR recertification form, your payment is the lesser of A and B. As mentioned in another post (link), be sure to always recalculate your payment to ensure Fed Loan Servicing is charging you the right amount. Again, your goal is to pay in the least amount possible!
Tip: If you are currently in REPAYE, calculate your payment under PAYE or IBR (if not eligible for PAYE) to see if you might hit the cap sometime in the future. Note that the standard 10-year repayment amount is based on when you enter PAYE or IBR so if you switch plans and your loan balance is higher than when you first started making payments, the cap will be higher as well.
Be sure to sign up for a complimentary loan consultation for additional guidance.
WM
Weston is a Certified Public Accountant, Certified Financial Planner TM, and holds the Chartered Financial Analyst designation. Weston earned his master’s degree in accountancy from the University of Missouri – Columbia. Weston is active in the St. Louis community and board member of the Anti-Defamation League.
student loan
consultation
for physicians
& dentists
consultation
for physicians
& dentists