Whether you’re a veterinary student, recent graduate or established veterinarian, the financial strain of your college loan is likely familiar territory. According to the American Veterinary Medical Association, the average student loan debt for graduates exceeded $147,000 in 2022.
However, you might not be aware of the solutions and resources that can help you navigate your loan debt and repayment options. Revolutionary changes have occurred, and what you thought you knew is almost certainly incomplete and likely inaccurate.
Several repayment plans exist, and forgiveness programs can reduce or even eliminate the debt. By understanding your options and meeting the qualifying criteria, you can significantly ease the financial burden over time.
Let’s delve into the key factors to consider when navigating student loan debt, and then let’s explore the resources available to help you achieve your financial goals.
Know the Effective Interest Rate
The U.S. government sets federal student loan interest rates, also known as the stated interest rate. However, federal student loans often have a lower effective interest rate. Once you factor in income-driven repayment plans, interest subsidies and student loan forgiveness, a federal loan can carry an effective negative interest rate, even when the stated rate is 7%. As a result, the borrower won’t spend a penny servicing the debt and can have the loan forgiven entirely through public service.
To receive a lower effective interest rate, borrowers can apply for income-driven repayment (IDR) and monthly interest forgiveness under the SAVE IDR plan. Whatever interest you don’t pay each month does not accrue and is forgiven, essentially dropping the effective rate to 0% if you didn’t pay anything to service the loan because you qualified based on your income and family size.
A common misconception among borrowers is that refinancing with a private bank is the only way to change an interest rate. The only time refinancing a federal loan is beneficial is when borrowers:
- Earn a very high income.
- Understand how to forecast their loan’s effective interest rate.
- Determine that they won’t qualify for forgiveness.
The vast majority of borrowers are not in that boat. For individuals with private student loans, refinancing through a private bank simply involves seeking a lower interest rate and more favorable terms.
The most crucial factor with federal student loans is determining the difference between the stated and effective interest rates.
Understand Your Options
While worrying about high interest rates might seem a natural concern, the reality is that many borrowers qualify for loan forgiveness and interest forgiveness. However, after working with tens of thousands of borrowers and financial advisers over the past decade, I’ve observed that less than 5% of borrowers fully utilize repayment reduction options.
Among the strategies:
- Student Aid and Vocational Education: The SAVE plan bases payments on a borrower’s income and family size rather than the loan amount. It grants forgiveness for remaining balances after the forgiveness window is reached. This approach brings substantial advantages, as it calculates payments using 225% of the poverty line index, taking just 10% of any income over that amount as the payment amount. Complete forgiveness of negative amortization stands at 100%, rendering federal student loans interest-free, even during periods of $0 payments. Be aware, however, that borrowers maintaining $0 payments throughout the loan term are taxed on the forgiven debt.
- Public Service Loan Forgiveness: The PSLF program incentivizes individuals who have advanced education to work for governmental entities and public service organizations, such as nonprofit groups and charitable institutions. Through the initiative, certain full-time workers can potentially receive loan forgiveness after making 120 consecutive monthly payments while working in a qualifying field.
Some states offer veterinarian-specific loan forgiveness programs. I recommend investigating your state’s initiatives or asking your state’s veterinary medicine governing body to understand the eligibility criteria and benefits better.
Choosing the best loan requires a careful review and thorough understanding of the terms and conditions.
Seek Professional Assistance
Just as taxpayers rely on trained professionals to ensure accurate filings and avoid overpayments, borrowers should seek qualified guidance when navigating student loans. However, unlike tax preparers, student loan debt professionals lack a standardized licensing system. That is why I emphasize choosing reputable companies with a proven track record.
Ideally, your chosen professional should offer expert guidance and comprehensive loan management services. This holistic approach maximizes your repayment strategy’s effectiveness.
Here are critical factors to consider when evaluating a student loan adviser:
- Insurance and legal support: The professional you consider should be insured against errors and omissions and collaborate with a law firm to ensure effective communication with loan servicers.
- Proven track record: Positive reviews and a long history of satisfied clients demonstrate the professional’s expertise and effectiveness.
- Satisfaction guarantee: Seek professionals who offer one.
- Free consultations: Use them to compare options and find a professional who deeply understands your specific needs and the complexities of student loan repayment.
While student loans can present a substantial and daunting financial challenge, success is achievable with proper guidance and expertise. By carefully choosing a qualified professional, you can develop a customized repayment strategy and navigate your path toward financial freedom.
LEARN MORE
The U.S. Department of Education offers an instructional video, “Saving on a Valuable Education (SAVE) Plan,” at bit.ly/3TcWQed.