May 15, 2021

Dr. Michael Miller, co-owner and a veterinarian at four small animal practices in Illinois, said he didn’t plan to pay off his loans last August, but he did.

Federal Student Aid, an office of the U.S. Department of Education, began providing temporary relief for federal student loans in March 2020 when the Coronavirus Aid, Relief, and Economic Security Act was signed into law. The measures in the relief bill include the suspension of loan payments, no collections on defaulted loans, and a 0% interest rate. Educational loan borrowers, including veterinarians, have taken advantage of the changes by paying off their loans or making no payments and saving more. The relief has been extended through Sept. 30.

Then the latest relief package, known as the American Rescue Plan Act, was passed on March 11. Among other things, this act temporarily provides tax-free treatment of forgiven debt for qualified educational loans discharged Dec. 31, 2020, through Jan. 1, 2026.

“When the forbearance began, everything I paid each month went toward bringing down my principal amount,” Dr. Miller said. “The principal shrunk at a much faster rate than I had experienced before since I was not putting a large chunk of my payment each month toward interest. On Aug. 31, I made my final loan payment. I will now celebrate the date of student loan freedom forever.”

Payments

Dr. Tony Bartels, the Veterinary Information Network Foundation’s student debt expert, told JAVMA News he is on an income-driven repayment plan and hasn’t made a payment in over a year.

“For a number of reasons, it makes no sense to make payments,” Dr. Bartels said. “It depends on the specifics of your circumstances. If you are using an income-driven payment plan or you have unpaid interest on your student loans, it doesn’t make sense to make payments during this period.”

However, if a borrower’s debt-to-income ratio—monthly debt payments divided by monthly gross income—is less than one and the borrower will pay off the debt balance in about 10 years or less, then it makes sense to pay down the loan faster, Dr. Bartels said. He added that he would still save the money for the monthly payment to create more financial security and flexibility and then, when the forbearance ends, make one large payment, if desired.

“If you make a payment on Sept. 30, immediately prior to the end of the pandemic forbearance for federally held loans, it will have the same impact,” Dr. Bartels said. “There is not a real benefit if you pay it throughout.”

Dr. Bartels said people who have made payments and could benefit from that extra money should reach out to their loan service provider to request a refund. Anyone who has made a payment since last March can receive a refund.

Dr. Michael Dupor, a large animal practitioner in Indiana and a 2020 graduate of the University of Wisconsin-Madison School of Veterinary Medicine, said: “I haven’t paid a cent on my loans yet. My plan was always to be aggressive and pay it off early, but because of the pandemic I wanted to save some money.”

Dr. Bartels said there is some confusion for current students and recent graduates. Currently, no interest is accruing for students in veterinary school, so students are saving thousands of dollars, but that won’t last. Also, he added that because interest rates are turned off for now, some borrowers don’t know what their interest rates are, and that can be dangerous.

Budget

Dr. Annie Chavent, assistant director for student initiatives at the AVMA, spoke about budgeting and educational debt during the session “The Veterinary Debt Initiative Presents: A One Health Approach to Finances” at the virtual Student AVMA Symposium, March 12-15.

“Finances bring up a lot of emotions, especially when debt is involved, but we must think about it,” she said during the session.

Dr. Chavent suggests that if a budget spreadsheet seems intimidating, consider the idea of a personal finance pie instead.

“The two most important questions to ask about any pie are ‘How big is the pie?’ and ‘How are you going to slice it?’” she said. Dr. Chavent said the first step to forming the finance pie is figuring out your income or how big the pie is. Next, figure out the pie slice sizes by noting fixed expenses such as taxes, rent, or mortgage payments and adjustable expenses such as loan repayments, retirement and savings, and personal or fun spending.

A standard student loan repayment plan is about 10 years but, depending on an individual’s debt-to-income ratio, sometimes those payments don’t fit into the pie, Dr. Chavent said. So, consider other options such as income-driven repayment plans, which have monthly payments based on income. 

However, while the unpaid balance at the end of an income-driven repayment loan term is forgiven, the amount is taxed as income and should be planned for.

“You do have to figure out a way to pay the IRS a tax if it is due,” Dr. Bartels said. “Budget it into household expenses. Plan as if the forgiveness and potential tax is going to happen. Start saving—this is a great time to do it. This is a great time for recent graduates who may have ignored the potential tax on their loans to play catch-up. Your student loan is out of the way right now, so take the time.”