What July 1 actually changes for your student loans (and what it doesn't)
July 1 is turning into an important line in the sand for federal student loans. A lot is changing on that date, and some of it is on a clock. So I want to walk through what's actually happening, and just as important, what isn't.
Let's take it in pieces.
SAVE Is Ending — You Get 90 Days
If you've been sitting in the SAVE forbearance, you're going to get a 90-day window, starting July 1, to choose a new repayment plan. Borrowers get notified in batches, and you have to apply for the new plan yourself over at StudentAid.gov.
Nobody moves you automatically. Let that window close without acting, and you get dropped into a standard repayment plan, or the new tiered standard plan, which may be nowhere near your best option.
The IDR Menu Is Shrinking
Income-driven repayment, or IDR, is the family of plans where your payment is based on your income instead of your balance. Going forward, for current ODs, that menu narrows to two: IBR and a brand-new plan called RAP, short for the Repayment Assistance Plan. The older options — PAYE, ICR, and SAVE — are phasing out.
There are two versions of IBR, depending on when you took your very first federal student loan:
- Before July 1, 2014: Old IBR - 25-year forgiveness timeline and a 15% of "discretionary income" payment calculation
- After July 1, 2014: New IBR - 20-year forgiveness timeline and a 10% calculation
If you're eligible for the New IBR, you have access to the best income-driven option available.
What about the RAP plan?
It has a 30-year timeline to forgiveness, and calculates the payments differently - as a % of Adjusted Gross Income on your tax return (with other adjustments and features).
What about PAYE?
Unfortunately, PAYE is going away. However, the good news is you don't have to scramble. If you're already on it, you can stay put until July 1, 2028 before you're required to move.
Be Careful Before You Consolidate
This is the one to circle in red.
Consolidating on or after July 1st — or taking any additional federal loans — will lock you out of IBR entirely, leaving RAP or a new tiered standard plan as your only choices.
It seems like a way to tidy up the loans, but it can have major ramifications if you're going for forgiveness.
Please get good advice before you submit anything permanent like consolidation.
The Rules Changed. The Strategy Didn't.
Here's the part I really want you to hear, because all this change can make it feel like the ground moved under you. For current optometrists, the rules changed, but the strategy didn't.
You're still answering the same questions you were a year ago. Are you better off paying these loans down, or steering toward forgiveness?
That still mostly comes down to how big your loans are relative to your income. The tools that lower your loan payments are still the same ones:
- Pretax retirement plans and other tax planning that brings down your AGI, the income figure your payment is built on (aka good tax planning).
- Potentially filing taxes separately from your spouse to exclude his/her income from loan calculations - especially in community property states
New rules, same playbook. It will still come down to the math of your repayment options, your life/career goals, and your values around the debt.
The Recap
If you only remember two things: the 90-day SAVE window starts July 1, and consolidating after that date will cost you IBR. Everything else you can take at a steadier pace — and for current ODs, the underlying strategy hasn't changed.
If your loans are a real part of your financial picture, this is the summer to map it out. And if you'd like a second set of eyes, this is exactly the kind of thing I help optometrists work through. You can reach me at the link below.
In the meantime, have a great weekend!
Evon Mendrin, CFP®, CSLP®
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