Question

I heard the One Big Beautiful Bill Act (OBBBA) made significant changes to the federal student loan programs. How should I be managing my student loans now?

Answer

Indeed, OBBBA will have a massive effect on student loan management going forward, particularly for new medical students. For the last decade or more, there was little reason for any student attending an institution eligible for federal loans to use private loans. However, a cap of $50,000 per year ($200,000 total) has now been instituted on professional school borrowing. That means that many medical students will again need to use private loans to pay for a substantial part of their education.

Private loans generally have higher interest rates and worse terms than federal programs, but perhaps most importantly, are not eligible for generous Income Driven Repayment (IDR) plans and the Public Service Loan Forgiveness (PSLF) program, the mainstays of physician student loan management techniques for the past 15 years. This change, along with others, will generally make staying in the federal student loan system and seeking student loan forgiveness less attractive as a strategy. Thus, the alternative strategy of refinancing your student loans (early and often) and paying them off rapidly by living frugally (live like a resident!) as a young attending has become more attractive.

For those who have already completed school but still have student loans, the picture is decidedly better. As expected, not only did PSLF remain completely intact, but current borrowers were mostly grandfathered into existing programs, at least for a while. The biggest changes have occurred with the IDR plans. Within a few years, the only IDR plans that will exist are Income Based Repayment (IBR) plans and a new one, called the Repayment Assistance Plan (RAP). Only RAP will be available to new borrowers.

Out with the Old

The alphabet soup of prior IDR programs, including ICR (Income-Contingent Repayment), PAYE (Pay As You Earn), REPAYE (Revised Pay As You Earn), and SAVE (Saving on a Valuable Education) will all be gone within three years. Although simplification of this system is likely good policy, RAP is not as generous to borrowers as prior programs, especially SAVE. Forbearance and deferment, although never very good options, are also even less generous than they were.

The payments in RAP are based not on discretionary income, like prior IDRs, but on adjusted gross income (AGI), a higher amount. A typical resident will pay something like five to seven percent of their AGI (perhaps $300 per month based on an AGI of $60,000) as a student loan payment and a typical attending will pay 10 percent of their AGI (perhaps $2,500 per month based on an AGI of $300,000). Nobody will have a $0 monthly payment anymore, as there is a minimum required payment of $10 per month.