Student loan forebearance

As a healthcare professional, the past two years have been nothing short of stressful and turbulent. And while the government is still scrambling to address the burnout crisis in the healthcare profession, the 2020 CARES Act did offer some relief through student loan forbearance.

For the past two years, you’ve been able to put some of your financial stress around debt aside and focus on taking care of others. 

But student loan payments are expected to resume in September, and you may be facing down tens of thousands of dollars in payments. What’s more, you may have received a report that your payments are significantly past due — despite qualifying for forbearance — which affects both your credit and overall finances. 

You’re already experiencing extreme burnout. The last thing you need is to worry about your finances taking a hit over something you didn’t do. Here’s our breakdown on how student loan forbearance works for healthcare professionals — and what you can do about it.

How federal student loan forbearance typically works 

Student loan debt is a massive financial issue for healthcare workers, affecting 80% of graduating medical students. Of the total $1.6 trillion in federal student loans, around $150 billion is for outstanding healthcare school loans. Nearly all of those loans have all been stuck in forbearance.

‍Student loan forbearance, a type of deferment, allows you to temporarily stop making payments on your loan. Forbearance is different from forgiveness — while forbearance programs only provide temporary relief from your payments, forgiveness can reduce (or eliminate) the amount you have to pay back. 

‍After graduating medical school, most residents automatically receive debt forbearance for a period of time. Many healthcare professionals take forbearance or deferment as long as possible because money is tight during their residency or in their first few years in the industry. 

‍But just because the payments stop, doesn’t mean the interest does. Their student loans will continue to accrue interest that’s added to their balance. 

‍Case in point: The typical resident charged the average interest rate of 6% for a 2020 medical school graduate degree owes more than $12,000 annually in interest alone. Added interest payments consume between 20% and 25% of the income a resident earns during a four-year residency, according to the AAMC. 

‍How the CARES Act Changed forbearance 

The CARES Act includes relief to eligible federal student loans, including:

• Suspension of loan payments until Sept 1, 2022 

• Reducing the interest rate to 0%

• Stopped collections on defaulted loans 

If you owe federal student loans, your payments are essentially frozen in time, with no continued interest grown and no penalties for nonpayment. Unlike other types of forbearance, interest won’t accrue on your loan until the Sept. 1 deadline. Sounds pretty good right? Well not if your loan servicer isnt accounting for forbearance correctly.

‍Some healthcare professionals are dealing with inaccurate credit reports that say their student loans are past due, despite qualifying for federal forbearance. 

‍Missed loan payments are no joke. In the short term, they can lead to late fees and higher interest rates. In the longer term, they can end up on your credit report (for as long as seven years) and make it harder for you to qualify for certain loans, open a credit card or even rent an apartment. Leave a missed payment loan enough and your loans could go into default, which could lead to collections costs, wage garnishment, and tax refund seizure. 

‍But you shouldn’t be dealing with this issue under the CARES Act forbearance, signaling there may be a service error or issue with your lender. 

‍What can you do?

‍First, check your credit report to see if there’s an issue in the first place. The sooner you act on any errors, the better — you don’t want this lingering on your report. Unfortunately, not all loans qualified for forbearance under the CARES Act. Check to make sure you’re eligible first. 

‍You get one free credit report every 12 months from each of the three major consumer reporting companies — Equifax, Experian and TransUnion. You can request a copy from AnnualCreditReport.com.

‍If you have an eligible loan and you see a past-due notice that’s incorrect, contact your lender as soon as possible. Under the CARES Act, you don’t owe any loan payments from March 25, 2020 until May 1, 2022. If your notice says otherwise, that’s a mistake on the part of your lender. 

‍Once you review your credit report for any inaccuracies, it’s a good idea to start thinking about the future. After nearly two years of forbearance, it’s important to be prepared for the resumption of payments. It’s unclear if the expiration date will get pushed out, but having a plan in place is still essential — for healthcare professionals with large loan balances, creating a payment strategy can prevent a surprise bill.

‍Developing a debt management plan that works 

‍Most student loan repayment plans follow a standard 10-year schedule. However, most healthcare professionals make lower income at the beginning of their careers, making it difficult to sustain a regular payment schedule. For example, a doctor with a $200,000 loan would owe close to $2,000 per month on a standard schedule — almost impossible under the average resident salary of $58,921.

‍For that reason, most healthcare professionals use an income-driven repayment plan, which sets the amount you owe based on your income and family size. Under an IDR plan, payments are typically smaller for the first few years of working, and grow as your income does. 

‍However, these plans require annual renewal and recertification, something that many healthcare professionals have let lapse over the past two years. Avoid the potential of a surprise student loan bill coming back online at the full payment amount by re-applying for an income-driven payment plan. This will ensure that when your loan payments do return, they will be much more manageable. Another option is applying for student loan forgiveness, which can potentially reduce or even eliminate your debt.

‍Lastly, if possible, make payments to your student loans. Any amount paid before May 1, 2022 goes directly to the principal of your loan and you won’t pay any new interest. 

Where can healthcare professionals get help with their debt? 

‍Most financial institutions build debt products for an average consumer, and don’t take into account the specific financial situation many healthcare workers find themselves in. And because you have debt, by default they charge you above average interest rate or dont qualify you for a consolidation loan, even though you are a lot more responsible with money than an average consumer.

‍And that is why Plannery exists.

‍Plannery designed a debt consolidation product exclusively to help busy healthcare professionals eliminate debt quickly and efficiently. We know that your credit score is not a true representation of how you responsibly handle money. So we offer below-market rates you can’t find anywhere else, with an APR that is sometimes 50% lower than competitors.