I will be doing endo residency starting July 1st, 2026 to July 2028. have confusion about my student loans and would appreciate some insight. I am currently on the IBR plan. I have been working for a year after I graduated dental school, so I do have an increase in income (100k in 2025 and probably like 90k for 2026). My endo program has a stipend.
1) Do federal loan repayment automatically pause while I’m in residency? Or if I need to let my student loan provider know, when and how should I do it?
Really confused about this process. Thank you for all the help.
I would highly suggest to continue making payments. If you defer then interest will continue to accrue and you don’t get any months counted toward forgiveness.
The choice comes down to RAP plan or stay on IBR.
For you, IBR is most likely to be the best. (Unfortunate for anyone starting to borrow on RAP only from here on out).
Which means that from now on you cannot switch things up like toggling plans or consolidate. If you consolidate loans from now on (starting July 1) the new combined loan AUTOMATICALLY switches to RAP and you earned yourself an extra decade of loans.
IBR (loans after 2014)
Pros:
- Minimum payments for 20 years leads to “forgovensss”
-Lower monthly payment. It’s 10% of your AGI minus 150% of the poverty line. Rough estimate around $650 a month at 100k income.
Cons:
- Your loan is accruing interest on whatever is left unpaid every month. If you have in 500k student loans and the averages of your interest rates are 8% your loan is adding an extra $40,000 a year. So if you DEFER your loan just went up $120,000.
(Interest only accrues on IBR it is not compounding so your interest will be essentially the same amount yearly and added to a separate interest pile to worry about later).
UNLESS YOU LEAVE IBR and switch to RAP or consolidate later.That triggers capitalization event and would take that interest pile and add it to the main loan that is unchanged because your payments are so small and now are accruing interest at a higher amount.
So let’s say 500k in loans interest rate 8% and let’s say something happens and you are stuck as a forever resident making 100k a year for simplicity.
- 500,000 loan
- 40,000 interest accrue
- Minimum payment around $660/month or $7,800 a year.
- Your original loan stays at 500,000 and you only paid enough to satisfy the federal tithing so your interest is 40k-7.8k or an increase of 32,200.
- End of year one you now owe 532,200.
- Do this for 20 years and you now owe $1,144,000 which is the $500,000 original loan and $644,000 in interest.
- Congratulations your student loan is forgiven but you now owe taxes on that $1.1m plus 100k income which amounts to ~$400k lump sum tax payment.
- In order to plan ahead for this you must save $20k a year for twenty years….which is 3 times more than your minimum payment.
(Obviously this is simplifying everything and you can invest and inflation etc.)
RAP
Pros
- Unpaid interest is forgiven tax free
Cons
- 30 years to forgiveness
- Higher monthly payments as it doesn’t include poverty line buffer of about $100/month.
Our example, $500,000 loans with 100k income. Monthly payment increases to about $750 a month or $9,000 a year. The interest for the year is $40,000 and your payments leave that number at $31,000 interest remaining before even touching the actual loan. However this is entirely eliminated tax free with RAP. So you do this for 30 years and you are left with the exact same $500,000 to be forgiven and you only owe $160k in loans now and you have an extra ten years to “save up” which is about $5,300 a year for 30 years. (Longing the Dollar?)
(Again simplified to the extreme but you can essentially short the dollar naturally this way)
To put this in perspective, if you listen to the Dave Ramsey group on here and paid the $500,000 in 10 years “so you don’t have to think about it”, you would be doing about $6,000/month ($72,000 a year on a 100k income?) (because you aren’t getting interest subsidy) for ten years paying a total of $720,000.
If you do the RAP plan you pay $750/month ($9,000/year) for 30 years which is $270,000 plus the $160,000 owed in taxes from the forgiven debt which totals $430,000 total paid. You essentially get a $70k discount along with more manageable numbers.
- For reference the IBR plan was $7800/yr or $156,000 in payments with taxes owed on the accrued interest that was forgiven being $400,000 tax bomb. Totaling $556,000 in repayment in 20 years.
So for low income, high debt the RAP likely is better on paper. (If you do PSLF the lower IBR payments are superior as the PSLF forgiveness is tax-free so the accrued interest is moot)
However if you made $300k a year With a 500k loan at 8% interest.
Standard 10 yr
- Pay $72,000 for 10 years (nothing forgiven no bomb)
total $720,000
IBR
- $30,000 a year for 20 years.
- Total $600,000
- Interest growing around $40,000 minus payments leaves the interest accruing at $10,000 a year for 20 years.
- $500k loan + 200k interest = 700k + 300k income is a rough estimate of $260k more taxes than normal yearly baseline.
Total Cost over 20 years is $600k+$260k tax bomb or $860,000
RAP
$30k/yr for 30 years is $900k
Plus 500k forgiven adds around $180k in taxes.
Totaling $1,180,000 over 30 years.
$720k over 10 years
$860k over 20 years
$1,180k over 30 years.
Ultimately, get an accountant. But this isn’t something you can ignore, the decision to stick with IBR or go with RAP must be made soon or else the penalty for switching from IBR to RAP is massive interest damages and payback period.
