According to the American Association of Colleges of Nursing, 57% of the respondents in a Graduate Student Loan Survey reported that they planned on taking advantage of Public Service Student Loan Forgiveness (PSLF). However, only 22% planned on enrolling in an income-driven student loan repayment plan. This is troubling because the only way to benefit from PSLF is to enroll in an income-driven student loan repayment plan.
Student loan repayment strategy for nurses is difficult for a number of reasons. First, nursing is a field where a great deal of education is required. Second, despite the long hours and lifesaving nature of the work, nursing salaries can make paying off student loan debt difficult. Finally, only a portion of nurses are eligible for programs like Public Service Student Loan Forgiveness. For these reasons it is critical to put together a plan suited to the unique challenges of being a nurse.
Part 1: Federal Loans and Public Service Forgiveness
One of the biggest advantages to federal loans is that they can be forgiven under certain circumstances. Individuals who are employed by a not-for-profit organization or the government are eligible to have their federal student loans forgiven after 10 years, so long as they make minimum payments. Many nurses can take advantage of this program so long as they pay close attention in order to meet the requirements.
The key to successfully getting student loans forgiven under PSLF is to get 120 certified eligible payments. This means that an individual needs to be on the right repayment plan, working for the right employer, and making payments on time. Once an employer certifies the employment, the lender can review the payments to determine whether or not they qualify.
Eligible repayment plans include the standard repayment plan, and the income-driven repayment plans, such as Income Based Repayment (IBR), Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE). Notable plans that are not eligible for PSLF are the extended repayment plan and the graduated repayment plan. It is also worth noting that while the standard repayment plan is eligible for the program, the standard payments are calculated to pay off the student loan in 10 years. Meaning a borrower who makes 120 certified payments on the standard repayment plan will have no debt left to be forgiven at the end.
Anyone considering PSLF should have their student loans certified on at least a yearly basis. The certification form takes a few minutes to fill out and is the only way to verify that a borrower is on the correct repayment plan and that their employer is eligible. Failure to do so could result in years of public service work not counting towards PSLF.
Nurses who are not interested or not eligible for PSLF would still be advised to sign up for an income-driven repayment plan. The lower monthly payments on these plans allow borrowers to target any extra available funds towards the highest interest loans first. The sooner high interest debt is paid off, the less is spent in the long run.
Part 2: Private Student Loans
Unfortunately, there is no public service student loan forgiveness option for private student loans. The trick with these loans is to pay them off as soon as possible so that you can spend as little as possible on interest. Many borrowers opt to refinance their private loans with a consolidation company. This can result in lower interest rates and lower monthly payments. There are a number of companies offering refinancing and consolidation services, and they are able to offer lower interest rates because they target borrowers with good credit scores and solid employment. These individuals are much less of a credit risk than an unemployed college student.
Private loan interest rates can vary greatly from one lender to the next. Some offer outstanding interest rates while others are as high as some credit cards. A smart repayment strategy will target the highest interest rate student loans first.
Finally, any student loan repayment strategy should account for retirement opportunities. Employees can take advantage of matching 401k contributions should consider maxing out this benefit before using extra funds towards student loans. See our student loans and retirement strategy page for more details.
Nurses are in a wonderful position to take advantage of federal programs like Public Service Loan Forgiveness. However, in order to benefit from these programs it is important to plan ahead so that you do not miss any important details for eligibility. Absent a time machine, you cannot go back to fix old mistakes.