New "Pay as You Earn" Student Loan Repayment

The Department of Education is now offering further relief for student loan repayment. If you are a physician who did not have any federal outstanding loans on Oct., 1 2007 (meaning you were a new borrower after that time), then this may be a good option for you, especially if still in residency and fellowship or a lower-paying specialty.

The Pay as You Earn Program is meant to be an even more affordable method than the other income-sensitive repayment program, Income-Based Repayment (IBR). Your required monthly payments are based off of your family size, poverty line per family size and your income. For every $5,000 of annual household income you earn over your respective poverty line, you are required to pay $41.67 per month in loan repayment. Note that the size of the payments in this program do not correlate to amount of loans that an individual has outstanding.

There are a handful of advantages to using this program:

1. The government pays a portion of the subsidized loan interest accruing — the lower your income, the larger of a proportion that they will pick up.

2. You may qualify for loan forgiveness if you are in repayment:

• Under this program for 20 years (but pay taxes on the amount forgiven in the year forgiven which has potential to be a large bill).

• Under a combination of this program and / or the standard 10 year repayment program for 10 years of on-time monthly payments at a qualifying government agency or 501c3 organization.

This is additional information to the article that was previously posted last year on potential loan forgiveness under IBR and the other options that exist in for loan forgiveness.

Also, please note that most federal loans do not need to be covered with life insurance, as they are forgiven in the event of a death, but quite a few disabilities that do not totally and permanently disable you do not excuse you from making payments. This makes disability insurance a necessary risk management piece for those with significant loan payments.

Jon C. Ylinen is a Financial Advisor with North Star Resource Group and offers securities and investment advisory services through CRI Securities, LLC. and Securian Financial Services, Inc., Members FINRA/SIPC. CRI Securities, LLC. is affiliated with Securian Financial Services, Inc. and North Star Resource Group. North Star Resource group is not affiliated with Securian Financial Services, Inc. but is independently owned and operated. The answers provided are general in nature and are not intended to be specific recommendations. Please consult a financial professional for specific advice in relation to your individual circumstances. This should not be considered as tax, specific loan repayment for an individual or legal advice. 640063/ DOFU 3-2013