Don’t forbear your loans during residency (if you can help it)

The most fiscally responsible thing you can do as a resident with student loans is either enter an income-driven repayment (IDR) program like REPAYE, PAYE, or IBR or (rarely) refinance privately. Please see basically any chapter of the book.

Everyone is currently enjoying a 0% federal interest rate, but that’s set to expire this fall. No one gets a permanent pass on student loan management.

But not everyone is willing or able to do the most fiscally responsible thing. There are many reasons trainees forbear their student loans during residency and fellowship. Some live in high cost of living areas like San Francisco or New York and feel they can’t afford to live and spend a few hundred dollars a month on their loans. Others have families or other obligations that require the redirection of their salary. Still a third group could potentially make payments but is frankly unwilling to because they want to use that money to actually live their life, especially those that are tired of putting said life on hold during school and training while their non-medical colleagues continue to enjoy a higher cost-of-living lifestyle and share well-curated streams of filtered vacation photos (at least pre-COVID).

I’m not judging, but I can say this: very few residents should ever forbear their loans.

Not because it’s not financially responsible (though it’s not), but because if you’re not planning on making payments you should at least look into mitigating the growth of your loans. Government forbearance is the worst of all worlds: none of the perks of an income-driven repayment plan or possible loan forgiveness in a reasonable time frame while also stuck with the high-interest rates of federal loans.

These are the IDR perks you lose during forbearance:

• Interest continues to accumulate on all loans (even subsidized loans, if you have any).
• You get no IDR-derived interest subsidy and you get no 0.25% autopay rate reduction.
• Then, at the end of the forbearance period, the accrued interest capitalizes and gets added to the principal (mean you don’t just owe more money then but your loan will also grow faster in the future).

In other words, the longer you forbear, the worse things get.

If you can stick it out in IDR instead:

• All monthly payments during residency count towards the 120 monthly payments (10 years) needed for public service loan forgiveness. Even if calculated at $0/month.
• Even if you switch to forbearance later, the qualifying payments you make still count for PSLF (they don’t have to be consecutive). Since your remaining loan balance after 120 payments will be forgiven, it is in your best interest to have these payments be as small as possible, so don’t waste your low-pay years as a resident unless you need to.
• Any unpaid interest on any subsidized loans from college is forgiven for the first 3 years
• 50% of any unpaid interest on all loans is forgiven if in REPAYE.
• You get a 0.25% rate discount for enrolling in autopay
• Interest will never capitalize again after entering repayment unless you change plans or you lose your partial financial hardship (for IBR and PAYE).

Those are good reasons to not forbear.

It’s also usually unnecessary. Being proactive means almost no one needs to forbear during their intern year: you’ll likely enjoy $0 payments during your PGY1 year (based on when you were a broke student) and very low payments (based on working only part of the year you graduated) during your PGY2.

So, plan for IDR first. If times get tough in the future, forbearance is only a phone call away.