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Art by Cristina Rózsa

Dear Dr. Debt is an advice column about student-debt management in the veterinary community. It is adapted from Veterinary Information Network and VIN Foundation message boards where veterinarians and veterinary students ask questions and get answers to help them approach borrowing and repayment strategically.

Over the years, thousands of these online conversations have enabled VIN members to learn the good, bad and ugly aspects of student loans. With Dear Dr. Debt, the VIN News Service extends the conversation to the wider veterinary community, featuring advice from student debt expert Dr. Tony Bartels.

Dear Tony,

I am a 2016 graduate who works in a companion animal practice and is preparing for student loan payments to resume in October, when federal pandemic forbearance benefits end. I'm feeling stressed as a single-income household and wanting to find a balance between preparation and being able to enjoy my time and earnings while I'm still relatively young. 

Here's a breakdown of my finances:

Student federal loan principal: $422,153

Unpaid interest balance: $28,012

Weighted average student loan interest rate: 7%

Repayment plan or strategy: Revised Pay As You Earn (income-driven repayment)

Monthly payment: $438

Annual salary: $150,000

Adjusted gross income (AGI) from most recent return: $172,600

Average monthly expenses: $6,400

Other debt: $312,601 home mortgage 

Pay structure: salary and production bonus

Tax status: single

I am enrolled in REPAYE and anticipate reaching forgiveness and having to pay income taxes on the forgiven balance. I have a small dedicated tax fund of $8,774 tied up in investments, earning 6% a year. I am very much new to investing and doing everything self-directed, so I'm unsure if this is the right move for saving to pay the taxes.

My other concerns are being able to balance paying my bills, saving for retirement and possibly having to care for aging parents who have not prepared for their own retirements, all while making loan payments and preparing for the tax bomb.

I also am unsure of how various bonuses will affect my loan repayment. Last year, I was paid a retention bonus of $60,000, which is why the AGI on my 2022 federal tax return was higher than my salary. I'm about to start a new position at $150,000 a year with a $40,000 signing bonus and the potential for additional production pay. Am I allowed to show only a base paycheck for loan payment calculation?

Lastly, I would like to not feel trapped by having to practice forever, or at least be able to scale back on hours for my mental health without having to worry about the financial implications.

— Comfortable but concerned

Dear Comfortable but concerned,

I think you've been doing exactly what you should be thus far. Let's do a good physical exam of your student loans and see if there is anything else you might do before Sept. 1, when interest on your student debt again begins to accrue, and October, when payments resume.

Your most recent REPAYE anniversary date — the date by which you'd ordinarily be required to update your income information — was Nov. 21. However, no one has been required to renew their income information during the forbearance period. The earliest anyone is required to renew is six months after the payment pause ends, according to updated guidance from the Department of Education.

To calculate your next renewal date, let's first add one year, which gets us to Nov. 21, 2023. Since that falls within the six-month period after the payment pause ends, we can add another year to the deadline for renewing your income information, which brings you to November 2024. That means your REPAYE minimum of $438 a month will remain unchanged for at least another 15 months. Given your current income, that is going to be very beneficial for you!

REPAYE has a maximum repayment period of 25 years before you receive forgiveness. You're approaching seven years of repayment on your consolidated loans. However, because your loans are consolidated, you may be credited with more forgiveness-qualifying payment time under the government's one-time forgiveness count adjustment. 

It looks to me like you made a year or two of payments on the undergraduate student debt you accumulated prior to veterinary school, and those payments, for example, might count toward forgiveness. The count adjustment could bring you closer to the forgiveness finish line by crediting you with eight to 10 years of payments.

A student loan forgiveness plan by the Biden administration might have reduced your balance by $20,000, but the Supreme Court blocked the proposed cancellation. Following that decision, however, has come news that the new Saving on a Valuable Education (SAVE) plan will take effect this fall and replace REPAYE. You will be enrolled in SAVE automatically when repayments resume. The program is similar to REPAYE but offers more benefits, including a more favorable monthly payment calculation and a 100% unpaid interest subsidy.

Borrowers can now project their payments under SAVE by using the VIN Foundation Student Loan Repayment Simulator. According to your simulation results, your monthly payment should be around $347 when repayments resume — about $100 less than your current monthly payment — and your unpaid interest balance will stop growing because the interest on your loans now will be subsidized. As long as your minimum monthly payment is less than your interest accrual, the Department of Education will cover all of the remaining interest for anyone using SAVE. 

Regarding whether you're able to submit a base paycheck as your reported income, even if your retention bonus makes your income higher than usual, the answer is yes. Next time you're due to renew (about 60 days prior to your November 2024 renewal date), look at what your AGI shows on your 2023 tax return. The income-driven renewal application will ask, "Has your income decreased since you filed your last tax return?" If the answer to that question is "yes" because you did not receive another retention bonus in 2024, you can provide a paystub up to 90 days old that shows your base salary and maybe some average amount of production. This is called alternative documentation of income.

When you provide a paystub to renew your income-driven plan, highlight and subtract any pretax items such as health insurance premiums, contributions to flexible spending or health savings accounts and traditional 401(k) contributions. Your payment should be calculated from your taxable income, which is what your AGI shows when you file your taxes each year.

As we've discussed, your lower minimum monthly payment should continue until November 2024. Beyond that, you should prepare your budget for higher payments based on your increased income. The simulator shows that when you renew your income for SAVE, you can expect monthly student loan payments of $1,013.

As for saving for taxes on your forgiven balance, given that you've already put aside $8,774, you'll need to save about $314 a month to pay the projected tax bill when you reach forgiveness about 17 years from now. 

Watch for notifications and statements from your loan servicer in the next month or so. Confirm that your payment will be at the lower SAVE rate and that your renewal date is November 2024. If you don't see that information clearly spelled out when interest starts accruing in September, call your loan servicer and ask for clarification.