Student Loan Stats & News

Current Student Loan Borrower Data

Why do we track data on student loans? Finding trends in the data helps us better understand the impacts of student loans on borrowers over time. 

This data is directly from the Department of Education and is available to the public through their data portal at We used the Federal Student Loan Portfolio data as well as the Loan Forgiveness Reports data. 

As you review the data below, you may notice different timelines. The collection and reporting of data from the Department of Education had varying start times, and previously data was collected on an annual basis. As the Department of Education changes its data collection and reporting policies, those changes will affect our data reporting as well. 

Total Borrowers

Total borrowers have continued to trend downwards for another quarter. As of the first quarter of 2020, there were 42.8 million borrowers who have federal student loans. 

  • Direct Federal Loan Recipients 35.3 million
  • FFEL Recipients 11.8 million
  • Perkins Recipients 1.9 million

Total Loans Outstanding

For the first quarter of 2020, there was $1,251.9 billion owed in Direct Loans, $5.9 billion owed in Perkins Loans, and $257.2 billion owed in FFEL Loans. Because FFEL loans were no longer offered or borrowers after 2010, we expect to continue to see this trend until all existing FFEL loans are paid off. 

Balances by Type of Loan

As of the first quarter of 2020, the majority of borrowers had Stafford Loans, but a large percent had Direct Consolidation Loans. 

  • Stafford Loans $795.8 billion
  • Direct Consolidation Loans $542.4 billion
  • Parent PLUS Loans $95.6 billion
  • Grad PLUS Loans $75.3 billion

Surprisingly, Parent PLUS loans have seen a slight increase over time. This tells us that more parents are paying for their children’s education with student loans. 

Balance by Borrower

The majority of borrowers (55%) owe less than $10,000 on their student loans. Only 6% of borrowers owe more than $100,000. 

The distribution of the total amount owed by the borrower hasn’t changed much since 2017, however, the percentage of borrowers who owe less than $10,000 has continued to slightly decline. 

We’re also seeing many more borrowers with $200,000+ student loan debt. However, the AAMC has actually reported a decline in the percent of graduates with medical school debt  – down to 73% in 2017 from a high of 87% in 2009.

Breakdown of Total Amount Owed by Borrower

The average student loan balance of borrowers has continued to grow for another quarter. As of the first quarter of 2020, each borrower owes roughly $35,397 in federal student loans. 

The Average Age of Borrowers

A very small percentage (5%) of the total debt owed is owed by borrowers who are older than 62, roughly half (54%) of the borrowers are between 35 to 61 years old, and roughly 40% are younger than 34.

What’s interesting is that the average age of borrowers by the amount they owe has been trending upwards over time, especially in the 35 to 49-year-old range. This could either be from borrowers taking out loans later in life to further their education, or from not paying down their loans and seeing their loan balances grow due to interest accumulation. 

Repayment Plan Usage

Over the past year, we’ve seen explosive growth of the use of the REPAYE Repayment Plan, which makes sense as its repayment terms make it one of the most attractive repayment plans to choose from. Fewer borrowers are using the 10-year standard repayment plan. 

Employment Certification Form Data

The employment certification form data is important to track to help gain a better understanding of who is working towards Public Service Loan Forgiveness. This data gives us insights into the type of work they do, how much they owe, and how many borrowers are already at risk for not receiving Public Service Loan Forgiveness. 

Count of Approved Employment Certification Forms

The data for approved employment certification forms is not available before December 2012. Towards the end of 2018, there was a large spike in the number of ECF forms due to media coverage of the low approval rate for PSLF. This led many who were already working towards PSLF to start submitting their ECF forms each year. 

Employer Type for Approved ECF Forms

Although we think about PSLF as a program for Non-Profit workers, surprisingly more than 60% of the borrowers working towards PSLF are actually government employees. 

Count of Ineligible Employment Certification Forms

At the same time, we saw the approved ECF form count grow in late 2018, we also saw the ineligible count of forms grow. 

Reasons for Ineligible Employment Certification Forms

As concerning as the spike in ineligible ECF forms is, only 40% of the initial rush was denied due to having an issue with their loans or repayment plan. The other 60% were denied due to having missing information on their paperwork. 

Outstanding Loan Balance of Borrowers with Approved Employment Certification Forms

This data shows us the cumulative balance of loans outstanding for borrowers pursuing PSLF. This is a good indicator of the future forgiveness stats for PSLF forgiveness. 

Average Loan Balance of Borrowers with Employment Certification Forms

As the PSLF program has grown, and more borrowers are aware of the requirements to obtain forgiveness, the average loan balance per borrower has declined. 

The Distribution of Repayment Plans for Borrowers with Approved Employment Certification Forms

To qualify for PSLF, a borrower must be on an Income-Driven Repayment Plan. According to this data, roughly 20% of borrowers with approved ECF forms are at risk for not obtaining PSLF because they are on the wrong repayment plan. We are seeing the overall percent of borrowers on an Income-Driven Repayment Plan increase, up to 81% from 80% in the course of a year. 

Public Service Loan Forgiveness (PSLF) Application Data

PSLF Approval Rate

As often as these metrics are mentioned in the news, you might think that the chances of obtaining Public Service Loan Forgiveness were unrealistic. Fortunately, the trends have shown a slight improvement in the approval rate and processing of forgiveness of borrowers who applied for Public Service Loan Forgiveness. 

Unique Borrowers Submitting PSLF Applications

Public Service Loan Forgiveness Applications have grown from 25,000 in early 2018, to just under 150,000 as of March 2020. We anticipate this to grow exponentially over the next few years as more later adopters of the program start applying for forgiveness at the end of their 120 payments. 

Total Number of PSLF Applications

Comparing this data to the unique borrowers submitting applications, shows a trend that many borrowers submit more than one application for PSLF. This is most likely due to missing information or incorrect information on their first (or second) application. 

The average applications per borrower ratio is roughly 1.2.

PSLF Applications Pending Processing

This chart shows us the total PSLF applications in a pending status. Because this is trending upwards, it tells us the Department of Education is possibly overwhelmed and experiencing a backlog. PSLF applications are increasing at a rate that the Department of Education cannot process in a timely manner. 

PSLF Applications with Processing Complete

Given the exponential rate of applications and increasing pending application count, it’s not too surprising to see a fairly linear graph of applications with complete processing. If the Department of Education was keeping up with approved applications, this graph should be exponential. 

This delay in processing forgiveness costs borrowers because they are required to continue to make payments until their loans are forgiven. These overpayments are required to be refunded, but an extra year or two of payments could affect the budgets of borrowers while they wait. 

Count of Ineligible PSLF Applications 

As of March 2020, just under 175,000 applications for PSLF have been denied. 

Count of PSLF Applications Approved by the Servicer

As of March 2020, over 3,000 applications for PSLF have been approved. 

Total Balance Discharged for Borrowers with Approved PSLF Application

Unique Borrowers with PSLF Discharges Processed

Of the roughly 3,000 borrowers with approved PSLF applications, ⅔ have had their forgiveness processed. 

Average Balance Discharged for Borrowers with Approved PSLF Application

The average balance of borrowers with processes PSLF ranges from 57,000 to 64,000 and is increasing overtime. 

Distribution of Repayment Plans for Borrowers with Approved PSLF Applications

At the time that Temporary Expanded Public Service Loan Forgiveness was introduced, many applicants for PSLF were on fixed or graduated repayment plans. Overtime, we’re seeing more borrowers on an Income-Driven Repayment Plan. 

Temporary Expanded Public Service Loan Forgiveness (TEPSLF) Application Data 

Temporary Expanded Public Service Loan Forgiveness (TEPSLF) was introduced to help borrowers who did not qualify for PSLF because they were on the wrong repayment plan. Tracking this data helps us see how many borrowers were able to have their loans forgiven through this secondary route to forgiveness. 

Count of TEPSLF Requests Approved

We’ve seen a steady increase of the number of TEPSLF applications that were approved. Roughly 6% of applications were approved as of March 2020. 

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Count of Ineligible TEPSLF Requests

Roughly 94% of applications for TEPSLF were denied as of March 2020. 

Most Common Reasons for Ineligible TEPSLF Requests

The majority of the 94% of denied applications were denied due to not meeting the 120 qualifying payment count. This means that many applicants applied too early or did not have an accurate count of their qualifying payments. 

Total Balance Discharged for Borrowers with Approved TEPSLF Request

This data is important to monitor to track how close this program is to being fully utilized. Congress set aside a limited amount of money, and once that money is used to forgive loans the program could end. 

Unique Borrowers with TEPSLF Discharges Processed

Of the roughly 1,750 applicants with approved TEPSLF applications, just under 75% have had their loan forgiveness processed. 

Average Balance Discharged for Borrowers with Approved TEPSLF Request

Comparing this average balance to the average balance of approved PSLF applicants, we notice a much lower student loan balance for borrowers pursuing TEPSLF. 

Distribution of Repayment Plans for Borrowers with Approved TEPSLF Request

This data is interesting because it wasn’t what we expected to happen. Temporary Expanded Public Service Loan Forgiveness was meant for borrowers who were on the wrong repayment plan, and otherwise would not qualify for the normal PSLF. However, the majority of borrowers with an approved TEPSLF request were on an Income-Driven Repayment Plan. 

Medical School Debt is a Common Problem 

Borrowing money to pay for medical school is extremely common. It’s so common that the only way to attend medical school, unless you are incredibly wealthy, is to borrow the money to pay for it. That includes enough money to cover living expenses for the entire four years that you are in school, in addition to borrowing money for tuition.

There is no work-study available because medical school is such an intensive program. As far as getting a part time job– the coursework is too rigorous.

To become a doctor is essentially a full-time job, no matter how you look at it. Time is short, stress looms large, and focusing on learning what you need to have a job that involves saving lives is not a small endeavor.

Regardless of what school you attend or how good a student you are, while you are in medical school, you will eat, breathe, and live medical school.

If you are finding yourself with a six-figure student loan debt to go along with your medical degree, know that you are not alone. Know, too, that you do not have one reason to be ashamed of this. There are some important reasons why the majority of medical students in the United States graduate with the kind of debt they’ll have to spend the rest of their lives paying back.

Our goal with Financial Residency is to demystify the student loan process, help you take control of your finances, and pay for medical school in a way that will help you create an ideal life. Understanding how and why medical student loan debt is as prevalent as it is is a great first step toward taking back ownership of your finances and moving confidently forward building your financial future.

You’re Not The Only One Figuring Out How to Pay For Medical School Debt

As mentioned above, the only realistic way for most people to afford to attend medical school is to borrow every penny needed to cover tuition and living expenses (including food, rent, clothing, and transportation) for four full years.

The average medical school debt is $190,000. Considering that the average home price in the United States is about the same, you surely see the problem. Newly minted doctors essentially graduate medical school with a mortgage payment to make only they have to pay it back in ten years instead of thirty, and they don’t have a house to show for it.

Why Do People Do It?

There are many reasons why people choose to attend medical school, despite the cost.

If you know that you will graduate from school owing the same amount of money, if not more, than the cost of a house, why go that route at all? Why choose a career where the training is so expensive?

Job Security

You are probably familiar with the expression that there are only two true guarantees in life: death and taxes. What is also true is that we will always need health care, and for that, we will always need doctors. While the demand for certain specialties might change, for example, a greater need for doctors specializing in geriatric medicine as our lifespan continues to increase, the need for doctors will never go away.

So, there is a sense of job security both professionally and personally in medicine because you know going in that you will be employable, be it through a traditional hospital or medical practice, or if you decide to make your own work and start your own practice.

It’s a Calling

For many, becoming a doctor is about more than training for a profession. It’s about realizing your vocation. Healing the sick, helping people stay healthy, and improving quality of life are all very noble reasons to go into the field of medicine, and society is lucky for having people who are so dedicated to this calling that they are willing to put in the work and sacrifice that is necessary to earn the title of medical doctor.

To help make the world a better place

You have probably also heard the adage that it’s important to be the change you want to see in the world. There are lots of ways to do that, across many professions and through volunteer work as well. But, it cannot be denied that as a doctor, you will be able to put your hands on people who truly need your help, and offer them care. You won’t be able to fix all of the problems, surely, but you might mend a broken bone, transplant a heart, remove cataracts, or all sorts of other amazing things.

To helping friends and family

It’s not unusual for people to go into medicine looking forward to being able to guide or advise family members or close friends. While you likely won’t treat people outside of your office, you can offer peace of mind, or be a sounding board for a variety of issues.

To Have a Leadership Role

There are many jobs you can have as a medical doctor other than treating patients in a hospital or private practice setting. Humanitarian work, directing a nonprofit, hospital administration, and teaching are all roles available to someone with a medical degree. These are all positions that provide the opportunity to lead others and to execute one’s own vision for making an impact.

Are There Ways To Earn a Cheaper Medical Degree?

You likely already have the medical degree and the debt to go along with it. But you are also probably someone who wants a better understanding of how borrowing for medical school works. Or maybe you are at the beginning of your education and are trying to decide if medical school is right for you.

We at Financial Residency firmly believe that medicine is a calling, and that regardless of your chosen profession, there is no reason for so many people to graduate so buried in debt with so little financial counseling available.

While with many things in life you get what you pay for, when it comes to medical school, there are some options that can help you earn that degree without the pain of excessive loans.

Consider a state school instead of private – We know there is a lot of cache around a “name” school and that those schools are typically private and cost three times as much as a state university. But, you know what your diploma will say when you graduate, right? Doctor. As long as you work hard to earn that degree from an accredited institution, you can drastically minimize your debt by staying in-state.

Consider geography – Even as an out-of-state student, in some states, like Texas, your tuition and living costs will be far cheaper than any East Coast private school

Consider military service – The military will pay you to go to medical school, though there is a cost in a different sense: the cost of time. Earning your degree through the military means a commitment to spending your medical career serving as a doctor in the military. This is a noble calling for many and can be a great option. Just make sure you do your research before signing up.

Why Does Medical School Cost So Much?

According to the Journal of Biomedical Research, covering the costs of educating doctors costs $100 billion worldwide every year. This is due in large part to supply and demand. The demand for medical school slots is very high, with limited supply available. It’s not as if schools can go out tomorrow and create twenty more slots. An increase in enrollment has other attendant costs and considerations, such as physical space, faculty availability, staffing, and so forth. An overcrowded medical school does not make a great medical school.

Another reason why medical school costs so much is that schools overinvest in resources to attract the best candidates. There is a competition of sorts to be the best, and to have the newest facilities and the most experienced (read highest paid) faculty. Guess who pays for this? You do.

Keeping things shiny and new is also the result of board members feeling motivated to keep costs high to maintain or increase the perceived value of the medical program. The high costs also provide money to fund specific research interests that furthers the agenda of the board of trustees as well as the institution. These things are not necessarily bad. They just are not necessarily making the cost of medical school more affordable for anyone.

Why Does The Debt Mount Up?

So, here you are. You have a medical degree and a large debt to repay. There are probably plenty of people in your life who think that, because you’re a doctor, you can just pay those loans off in one fell swoop and move on to living in a fancy car with a fancy house. Physician lifestyle creep is real.

Don’t judge because most people don’t know better.

To make attending medical school a reality, you likely didn’t work much, if at all, as an undergraduate because you took a challenging course load and studied for the MCATs.

You didn’t work during medical school because there is barely enough time for sleep let alone a job.

Meanwhile, the interest on those loans kept on compounding, which made the bottom line get bigger and bigger, and farther and farther away. When you borrow for school, you don’t just borrow $25,000 (or more) per year. You borrow $25,000 plus interest, which grows each and every month.

Then, you graduate, and earn around $57,000 a year, which is the average starting salary for a resident. You’ll be a resident for 3-7 years, depending on the specialty you chose. During that time, you work up to 80 hours a week, sometimes with 16-28 hour shifts.

Forget about a second job, forget about putting money toward the principle on your loans, and for that matter, forget about your loans for pretty much the entire time you are a resident. You simply have no choice but live in the now and not in the future. You’ll be lucky if you can get enough sleep and proper nutrition. Forget about paying down those loans.

Which means that for the next 3-7 years, that interest increases every month while you defer payment. Deferral helps you maintain a reasonable lifestyle in the short term, so you can pay rent and buy groceries, but does not allow for the $1000+ a month you would have to pay to try to make a dent in those loans. And so the debt gets bigger.

So, Now What?

Your residency is over and you finally have a decent salary. Only now, your loans have compounded. Every month the numbers grow faster than you can get behind them.

The first thing you should do is also the most important thing: accept that this is not your fault.

Did you borrow money? Yes.

Did you know that medical school would be expensive? Yes.

Did you know you would have to pay the money back some day? Yes.

Did you know just how long it would take, how big the payments would be, or how the compounding interest would affect you? Most likely, you did not.

This is because that American schools do not, at any point in the curriculum, teach financial literacy. There is no time in your education when you would have had a teacher cover concepts like budgeting, compound interest, borrowing money, credit scores, or how to live within your means.

What we do have is a culture that praises higher education and pushes students toward it. You were probably admired for wanting to go to medical school. You likely worked your tail off all through grade school and especially high school and probably made a lot of sacrifices with your personal and social life while in college while you studied organic chemistry, and microbiology, and prepped for the MCAT so you’d have a shot at competing for a medical school slot. Who had time to stop and learn about keeping a budget?

You were probably also told along the way that borrowing money is easy. You take out a loan, go to school, become a doctor, make lots of money, and pay the money back. Easy peasy, right?

Then, you, and only you, have to live with the consequences of that lack of information. And you discover what those monthly payments actually look like and how hard – even impossible – they are to make while on a resident’s salary. So you defer payment on them due to financial hardship (oh, the irony of having to declare financial hardship while working as a doctor), and meanwhile, the numbers get even bigger.

Then you’re finally done with your training and maybe you have to move to a new location for your new job, and you finally have a bit of financial breathing room, but you need a place to live and might like to buy a house, only your credit is shot because of your loan payments. Or you would like to start a family (or have already started a family) and have your children’s college educations to start thinking about. When does it end?

I don’t tell you all of this to stress you out. You are living with the debt and so already have plenty of stress. I’m painting this particular picture to show you that you are not alone. This is an all-too-familiar story for so many people in your shoes, not just with medical school but with student loans in general.

So, don’t let anyone shame you into thinking you should have known better. Those lenders are the ones who should have known better before lending sums of money like this without providing a crystal clear picture of what will happen next, month over month, year over year, until it was repaid. They should have given you a chart showing how interest will accrue, as well as what you will owe each month, starting when and for how long.

They should have given you a crystal clear picture of exactly what it would take to repay that money.

Yet, they did not do that because if they did, people might realize they can’t afford the loans. That might lead to people making alternate choices so they don’t borrow as much money, causing the lender to lose out on five or six figures’ worth of interest per loan. The student loan industry is not designed to help students earn an education. It’s set up to help lenders capitalize off of students’ backs and ignorance of the system.

The good news is that there is a way forward from here. Just because you have this debt, doesn’t mean you have to let it take over your life and hijack your financial future.

What Doctors Need to Know About Recent Student Loan News

If you’re a doctor, you know there’s one topic you just can’t avoid: student loans.

This topic is right up there with studying for the boards or matching into a residency. It’s an ever-present and stressful part of being a physician.

Luckily, over the past few years, the government created several new ways for borrowers to pay back student loans and get student loan forgiveness. The most popular one among physicians is the PSLF program.

However, recent updates have many borrowers concerned about their eligibility for PSLF, so here’s what you need to know:

What is PSLF?

PSLF stands for Public Service Loan Forgiveness. According to the Department of Education, PSLF “forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.”

To put it in plain English, PSLF is generally a great option for doctors who enjoy working in the public sector. In a way, it’s almost like a loophole that can enable many physicians to get hundreds of thousands of dollars of student loans forgiven provided their jobs are approved under the plan.

Here’s how it’s supposed to work: If you work in a government organization or qualifying not-for-profit organization for 10 years and make 120 payments, your student loans should be forgiven.

Because many hospitals are not-for-profit, it’s possible for physicians to qualify for PSLF working regular hospital based jobs. Some might even be able to count their residency years towards this as well if they trained in a not-for-profit hospital that qualifies.

Sounds Great. What’s the Catch?

I’m glad you asked. The catch is that no one has actually received PSLF yet. President George H. W. Bush started the program and the first people to make 120 payments are supposed to receive forgiveness this fall.

It seems like everyone just realized how much it’s going to cost though – $24 billion in fact. Because of this, President Trump wants to get rid of the program altogether when Congress votes on the next budget.

Keep in mind, this should not affect people who are currently working towards PSLF. They should be grandfathered in. It will only negatively affect students who take out loans after July 1, 2018.

So, I’m Good Then?

Well, maybe. You see, PSLF really benefits those with expensive educations, like doctors and lawyers, because if they work in the public sector, they could potentially get huge loan balances forgiven.

However, if you read the New York Times article last December about the lawyers who found out they were ineligible for PSLF when they thought they were, you can see why the future really isn’t guaranteed.

In fact, the American Bar Association is suing the Department of Education over this issue. The lawsuit focuses on four lawyers who took jobs in the public sector thinking they qualified for PSLF. Some of them even filled out certification forms every year to make sure and kept the certification paperwork! Then, they got letters from the Department of Education basically saying,  just kidding – none of your loan payments qualified for PSLF after all because your job doesn’t qualify.

Needless to say, since these attorneys thought they were getting hundreds of thousands of dollars of student loans forgiven, this poses a huge problem for them. If they lose this lawsuit, it has big implications for those who thought they qualified for PSLF all along. It makes their future very uncertain. If they win, the Department of Education might not have as much power to take away PSLF from those who received certification that their jobs counted towards it year after year.

Time will tell, which is why I am watching this lawsuit closely. In a perfect world, you should be able to get your loans forgiven after 10 years/120 payments if your job qualifies. However, as evidenced by the ABA lawsuit above, it’s hard to guarantee.

Anything Else I Should Know?

Forbes published a succinct article earlier this year that listed the 7 student loan changes to expect this year. Some of them, like Trump’s plan to end PSLF, made national headlines. However, there are other updates. For example, the good news is that more banks might offer competitive private loans to borrowers. There are also proposals in place to make the FAFSA and student loan repayment plans easier to understand.

Like many things, student loan repayment plans have gotten complicated, and with so many different options, it can be hard to know which one is best for you.

I think PSLF for those who qualify and enjoy working in the public sector is still a great plan provided that they actually give student loan forgiveness as promised. However, borrowers should stay updated on the latest news and updates to ensure they know whether or not they will qualify.

Don’t worry, I’ll do my best to keep updating my clients and readers on these issues so you can make the best possible choice when it comes to repaying your student loans. If you have any questions along the way, keep in mind that initial consultation calls with me are free.

The Federal Reserve just cut interest rates to 0%: Here’s what that means for your student loans.

In an emergency move, the Federal Reserve cut the federal fund rate to 0% to offer relief to Americans affected by the coronavirus pandemic. This move was meant to help ease the flow of credit for businesses and borrowers during tough economic times. 

During the onset of recessions, this is a common move by the Federal Reserve. It is even more likely that the Federal Reserve will keep the federal fund rate at or close to 0% for at least a few months due to the nature of this economic and health crisis. 

If you have student loans a lower federal funds rate could help save you money, here’s how. 

What is the federal funds rate?

The federal funds rate is the rate banks charge each other when they exchange money. 

This is not the only rate that is used to set the rates we pay on debt though. LIBOR, or the London Interbank Offered Rate, is typically used by private lenders, including for variable rate private student loans. LIBOR is the rate that global banks charge each other for short-term loans. 

The federal funds rate and LIBOR are typically in sync with each other. As one falls, the other typically does as well. These two are the most widely used rates in the world, and both are at or close to 0% at the moment. 

Unfortunately, this does not mean all new student loans are offering 0% interest. For a short time frame, all federally owned student loans are not charging interest but this is temporary relief due to the coronavirus pandemic. The administration’s pausing of interest on student loans was likely to encourage borrowers to keep their federal student loans as federal loans, and not refinance them into private student loans during this low-interest rate period. 

Lower Rates for Variable Rate Student Loan

A variable rate loan changes its interest rate as benchmark rates do, unlike a fixed-rate loan. Federal student loans and private student loans can have a variable rate. Variable rates were no longer available on federal student loans that were taken out after 2006. 

Unlike a fixed-rate loan, a variable rate loan changes as the LIBOR or federal fund rate does. Normally, this rate is the benchmark rate plus an additional few percentage points. Some lenders set a cap on how low their variable rates will go, so be sure to check the fine print on the terms of your loan. 

If you have a variable rate loan, your rate will adjust automatically up or down over time. You should see the effects of the fed cutting rates soon if you have not already. 

Because rates are so low right now, it could be time to refinance your variable rate private student loans into a fixed-rate loan to lock in your rate for years to come. If your student loans remain a variable rate loan, you will see an increase in your rate if the Federal Reserve starts increasing the federal funds rate overtime. 

You can also consolidate your variable-rate federal student loans into a federal direct consolidation loan to lock in a fixed rate. If you are already pursuing Public Service Loan Forgiveness, do not consolidate your federal student loans as this will reset your qualified payment count. 

If you are on an income-driven repayment plan you will not see a change in your monthly payment due to this rate cut, even if you have a variable rate loan. You will, however, see a change in how your payment is applied and could see more of your payment go to your principal balance. 

No Changes to Fixed Rate Federal Student Loans

If you have federal student loans with a fixed interest rate, the fed cutting rates will not affect your student loans automatically. To see any benefits from this low-interest-rate environment, you will need to refinance your federal student loans into private student loans. 

Be sure to review the pros and cons of refinancing your federal student loans before signing on the dotted line. 

Should you consider refinancing your Federal Student Loans to Private Student Loans?

If you have any desire to pursue Public Service Loan Forgiveness, do not refinance your student loans. Refinancing your federal student loans into private student loans to save a few percentage points in interest could end up costing your thousands, if not tens of thousands, of dollars in opportunity costs by not having your loans forgiven. 

Once federal student loans become private student loans, you lose all options for forgiveness and income-driven repayment plans. Here is an example of the hidden opportunity cost of refinancing your federal student loans into private student loans if you are pursuing, or thinking about pursuing Public Service Loan Forgiveness. 

  Current Federal Student Loans New Private Student Loan
Loan Balance Now $200,000 $200,000
Rate 6.00% 5.00%
Monthly Payment $390 to $1600 $2,121
Months to Payoff 120 120
Total Out of Pocket $125,500 $254,500
Amount Forgiven $205,000  

Assumptions: A single resident with 4 years of residency left making $65,000 per year, and will make roughly $180,000 per year after that, an annual 3% raise, repayment plan used was PAYE assuming no interest subsidies, they have not earned any qualifying payment counts towards Public Service Loan Forgiveness yet, and we assume that their loans qualify for Public Service Loan Forgiveness. These figures are for illustrative purposes only and are rough estimates. 

For this borrower, refinancing their federal student loans and losing their eligibility for Public Service Loan Forgiveness cost them roughly $129,000 if they would have pursued this forgiveness program. 

If you are not pursuing a forgiveness program and are considering refinancing your federal student loans into private student loans, here is what to consider before you do:

1) Are all of your loans high interest?

It could be that you only need to refinance a portion of your total loan balance or one of many of your loans that are high interest. 

If you are not sure what interest rate your loans are at now, log into the Federal Student Aid website and review your National Student Loan Data File. 

2) Do you need the benefits of federal student loans?

Considering going back to school? Federal student loans could be placed in an in-school deferment period, this is not a given with private student loans. 

Do you want the option to place your loans in forbearance? That is not as easy with private student loans as it is with federal student loans. 

For the next 60-days, federal student loans can be placed in a temporary forbearance as part of the coronavirus relief package from the Department of Education. If you need a break on your student loan payments, now might not be the time to refinance. 

After refinancing your federal student loans you also lose access to all forgiveness programs such as Public Service Loan Forgiveness, Time-Based Forgiveness on an income-driven repayment plan, and other local or state-specific forgiveness programs. 

It may not be best to refinance your loans to save money on interest charges if you need access to any of these benefits of federal student loans.

3) Are you eligible? 

As a resident or fellow, your income to loan ratio is typically fairly high. Many lenders may require a co-signer because of this. If you are unable to or not comfortable adding a co-signer, refinancing might not be an option for you.

Private student loans qualifying requirements may mean you are not eligible to refinance your student loans at this time. 

4) Can you afford the new monthly payment?

If you refinance your loans, chances are your payment will increase. This is especially true if you are currently on an income-driven repayment plan. Before you refinance, check your budget to see if the new payment is feasible for you. 

5) Are you actually saving money?

Refinancing your student loan to a lower rate could actually end up raising your total out of pocket cost. If your term is extended and you are offered a lower monthly payment, be sure to use this quick check to make sure you are actually saving money. 

Total Out of Pocket Cost = Monthly Payment x Number of Months

Here is an example of how a lower rate could actually increase your total out of pocket cost. 

  Current Loan New Loan,

New Payment

New Loan, 

Same Payment

Balance $50,000 $50,000 $50,000
Term 60 120 55
Rate 5.50% 4.00% 4.00%
Payment $955 / Month $506 / Month $995 / Month
Total Out of Pocket Cost $57,300 $60,750 $54,815

Lowering this borrower’s rate by 1.5% but increasing their term, costs this borrower just over $3,450. However, if they continue making the same monthly payment of $955 a month instead of the required minimum payment of $506 a month on the new loan, they could save $2,485 and reduce their payoff timeline by 5 months.  

If you decide to refinance your federal student loans into a private loan, do so with caution. Be sure to consider the benefits of federal student loans, your budget, and the total out of pocket cost before signing on the dotted line. 

Should you consider refinancing your Private Student Loans into a New Loan

With rates at historic lows, you should see lower rates on new loans. 

You could even see lower rates with the lender you are already with. If you see that your student loan lender is advertising lower rates on their website, give them a call! Ask them if you could refinance your private student loans with them at a lower rate for the same term. If they decline your offer, kindly let them know you will continue to shop their rates and may be refinancing your loan to another lender – this may help change their mind. 

Changes to new student loans for the 2020 / 2021 semester

Federal student loan rates are decided by lawmakers between June and July each year for the upcoming school year. It is likely that rates for the Fall 2020 / Spring 2021 semesters will be set during this low-interest rate period; causing federal student loan rates to hit record lows. 

New federal student loan rates are set based on the 10-year U.S. Treasury yield, not the federal funds rate. However, the 10-year U.S. Treasury yield tends to follow the movements of the federal funds rate closely. 

Federal student loans for the current 2019 / 2020 school year will likely not see any impact from the federal funds rate being lowered as these were set in July 2019. 

How does the Federal Reserve’s cutting of the federal funds rate affect your student loans?

Rates for new private student loans are at historic lows, and new federal student loans for the 2020 / 2021 school year probably will be as well. 

If you have considered refinancing your student loans, now might be the time to refinance as rates are at historic lows. Before refinancing your federal student loans into private student loans, review these five points: 

  1. Are all of your loans high interest?
  2. Do you need the benefits of federal student loans?
  3. Are you eligible?
  4. Can you afford the new monthly payment?
  5. Are you actually saving money?

If you have a variable rate student loan, it is likely your rate has already been adjusted or will soon. Be sure to check the terms of your loan to see if your loan servicer has set limits on how low your variable interest rate will go. Consider refinancing your variable rate loan into a fixed-rate loan to lock in a lower rate. 

If you have private student loans now, try calling your loan servicer to see if you can get a lower rate with them. If not, shop their rates and decide if refinancing could save you money. Follow the same analysis under the “are you actually saving money” section under refinancing federal student loans to ensure you are not increasing your total out of pocket cost. 

If you are planning on taking out new loans for the 2020 / 2021 school year, you likely will be able to lock in a low rate, saving thousands of dollars throughout the life of your loan. 

Think carefully before refinancing your loans, but if refinancing makes sense for you – now could be a good time to refinance due to our historically low-interest rates. 

Trump’s Student Loan Relief for 2020

There are a few noteworthy changes to your student loans that arose from the government’s response to the coronavirus pandemic. What does Trump’s Student Loan Relief mean for you?

In President Trump’s press conference on Friday, March 13, among declaring a national emergency he briefly announced that student loan interest would be waived during the novel coronavirus pandemic effective immediately. On March 22 we learned that payments could be paused by requesting a waiver and would be paused automatically if a borrower becomes or is more than 31 days late on their payment. As of March 27, with the signing of the CARES Act, federally owned student loans will have an automatic payment waiver, but borrowers will still earn credit towards Public Service Loan Forgiveness. As new policies are introduced, we will continue to update this article. 

March 13 Update: Federal Student Loan Interest Paused

This new policy on student loans will essentially freeze all new interest charges on federal student loans, in hopes of offering relief to borrowers. 

This comes with some backlash, as many lawmakers argue this is not doing enough to help borrowers as much as some might hope. Other proposals suggest pausing student loan payments altogether, a measure that would help with the cash flow needs of millions of Americans whose income was affected by the coronavirus. 

Senators Patty Murray, Kirsten Gillibrand, and Chuck Schumer introduced a bill, ‘Supporting Students in Response to Coronavirus Act’’. Senate Democrats listed federal student loan payment relief at the top of their list in their COVID- 19 Economic and Community Services Proposal, requesting student loan payment forbearance for six months for all Americans whose income was affected by a coronavirus. 

The problem with offering a suspension on interest charges is that it does not help borrowers right now. The benefits of this policy will not be realized for years to come, as the only true benefit to borrowers is a shortened time frame to pay off their loans. Borrowers pursuing Public Service Loan Forgiveness will not benefit at all from this policy. 

Because payments are not affected by this policy, borrowers are not seeing immediate relief during a time when many need help now – not years from now. Many borrowers are facing a sharp decline in their income, especially those in retail, food service, or entertainment industries. Without relief on their student loan payment, many may choose to pay their electric bill or put food on their table overpaying their student loans causing more loans to become past due or go into default.

March 22 Update: Option to Pause Payments Introduced 

A week after announcing their policy to pause student loan interest, the administration added a new policy to pause student loan payments for at least 60 days if requested through a process called administrative forbearance. Borrowers who are 31 days or more delinquent will automatically have their payments suspended.

According to the Department of Education’s press release on March 20, 2020, borrowers will need to request for payments to be suspended unless they are already delinquent, or become 31 days delinquent.

There are differing opinions on whether or not this policy should be an “opt-in” or an “opt-out” suspension of payments. The National Association of Student Financial Aid Administrators, NASFAA, argues that this should be an opt-out policy. This would effectively pause student loan payments for all federal student loan borrowers, and allow borrowers to opt-out if they want to continue payments. They are also requesting that payment counts towards Public Service Loan Forgiveness and Time-Based Forgiveness for borrowers on an income-driven repayment plan continue even as borrowers are in this automatic forbearance.

There are administrative benefits to changing this policy to an opt-out policy as it could help relieve the burden on loan servicers as they manage the ongoing changes to student loan policies due to the coronavirus pandemic.

March 27 Update: Payments Automatically Paused Until September 30, 2020

On March 27, President Trump signed the CARES Act which added additional changes to your student loans due to the coronavirus response.

The main addition to the existing policies is an automatic waiver of payments for federal student loan borrowers. Incredibly, borrowers who were working towards loan forgiveness programs will still earn credit as if they were still making payments. If you are working towards Public Service Loan Forgiveness, you just received six months of free qualifying payments.

Update: Payments are not paused until Dec 31, 2020.

Which student loans qualify?

Only federally owned student loans qualify for these policies. This includes all Federal Direct Student Loans and Stafford Loans but excludes all private student loans, FFEL loans, and Perkins loans as these are not owned by the government. FFEL loans are held by commercial lenders and Perkins loans are held by schools, the federal government backs these loans but it does not have the same level of control over them as they do with Federal Direct or Stafford student loans.

You can consolidate non-qualifying federal student loans into a Direct Consolidation loan to qualify for the interest waiver. However, the consolidation process, if not done correctly, can derail your path to loan forgiveness and cause your interest to capitalize. 

If you are not sure what types of loans you have, log into the Federal Student Aid website and review your National Student Loan Data File. 

If your loans are in deferment or forbearance, this policy will apply to you as well. Loans that qualify can be on any repayment plan. If you are on an income-driven, standard, or another repayment plan and your loan type qualifies, your interest charges will be waived. 

This does not automatically mean you will pay more towards your principal balance. 

Just because you are not being charged interest on your federal student loan does not mean that your payment will go towards paying down your principal balance. 

You might not be paying towards your principal balance if you have an accrued interest balance, because payments are applied to accrued interest first. So far, there has not been a proposal to waive accrued interest. If you have an outstanding interest balance, your payments will help pay down that portion of your loan first, then go to the principal balance. 

However, during this time your payment will go further than they did before because new interest charges are not being added to your interest balance. 

Principal Balance $50,000 Payment is only applied here once the interest balance is paid
Interest Balance $2,000 Payment goes here first

How will this affect your payment?

Payments will be automatically paused until September 30, 2020. If you would like to make a payment, you will need to call your loan servicer. 

Loan servicers will continue to count these paused payments towards forgiveness programs, such as Public Service Loan Forgiveness as if you were paying as normal.

If you are seeking a lower payment past the September 30th expiration, you will still need to apply for an income-driven repayment plan or recertify your income if you are already on one. If you have lost your income, applying for an income-driven repayment plan could lower your payment to $0. With the pause in interest charges, your loan balance basically stays as is while this policy is in place. By applying for an income-driven repayment plan or recertifying your loan you lock in a lower payment for 12 months, offering relief long after the September 30, 2020 release of the payment waiver. 

What about student loans in deferment or forbearance?

If your federal student loans are in deferment or forbearance, as the policy stands now, interest will be waived for you as well if you have the right types of loans. If you are in deferment or forbearance and your income has dropped significantly because of coronavirus, now might be a good time to apply for an income-driven repayment plan to lock in a low monthly payment. 

For those still in school or have loans that are in a grace period, you will not be charged interest while this policy is in place. There are no known changes to the rules around in school statuses and grace periods for after graduation.  

How much will this save you?

Depending on your loan balance and average interest rate, this policy could save you thousands, or as little as a few hundred dollars. 

If you owe $200,000 in federal student loans at 5%, you could save roughly $5,000 over 6 months in interest charges. For someone owing much less, say $25,000, this policy of pausing interest charges only saves roughly $625 over a 6 month period. 

For the government, this policy is costing them roughly $37.8 billion dollars over 6 months, assuming an average rate of 5%. If we consider there are 42.8 million borrowers, this policy might only be saving each borrower roughly $885 over 6 months. 

However, many argue that this money could be put to better use. With the same $37.8 billion dollars, the government could pay off all student loan balances of less than $5,000, completely paying off the student loan balances of 24% of all borrowers and still have $16 billion left.

What if you are pursuing Public Service Loan Forgiveness?

If you are pursuing Public Service Loan Forgiveness, you will essentially gain six free months towards your qualifying payment count. 

Over the next few weeks or months, your loan balance will not grow, possibly slightly reducing the balance of your loans when they are forgiven. However, your timeline for forgiveness will not change because the payment count is based on how many payments you make, not how that payment is applied. 

Unfortunately, if you are not employed, any payments made towards your loans may not go towards the 120 payments required to get Public Service Loan Forgiveness. The policy states that borrowers will receive payment counts towards Public Service Loan Forgiveness if they would have under normal circumstances. Remember, payment counts towards Public Service Loan Forgiveness do not have to be consecutive. 

What if you are pursuing Time- Based Forgiveness on an Income-Driven Repayment Plan?

If you are pursuing Time- Based Forgiveness on an income-driven repayment plan, you will continue earning payment counts towards the 20 or 25-year requirement for forgiveness, even if you are not making payments due to the automatic payment waiver. This new policy could help reduce your tax burden when your loans are forgiven because interest is also paused. The time it takes to reach the 20 or 25-year requirement for Time- Based Forgiveness will not be sped up by this policy. 

Are they any negative outcomes because of this policy?

There is a negative side effect to this policy, it could cause your tax bill to go up due to a reduction of your tax deduction for student loan interest. Come tax time in 2021, you may be unable to write off your “normal” amount of student loan interest paid because you were not charged as much interest in 2020 as expected. 

If you are used to writing off a large chunk of your student loan interest, it might be time to evaluate your estimated taxes for 2020. 

It is unlikely this policy will continue into 2021, so this increase in taxes should only affect your 2020 taxes. 

Why would Trump enact a policy to pause student loan interest charges?

Due to a low-interest-rate environment, the Department of Education may have been concerned that they will lose borrowers to attractive private student loan offers. However, private loan lenders have started raising rates because of an increase of borrower’s default risk. 

We could see far fewer borrowers refinancing their federal student loans into private student loans during this time. As rates began to fall many borrowers quickly refinanced or seriously considered refinancing their student loans, but now that their federal loans are not being charged interest many will probably wait.

What could go wrong?

It is unlikely student loan servicers will be able to actually implement this new policy without a few hiccups. It is likely that student loan servicers first heard of this policy during President Trump’s press release, and that they are awaiting guidance from the Education Department. 

I would not expect to see your interest waived in your account in real-time, instead expect an adjustment much later. 

Another problem, student loan servicer representatives and administrators may be sent home due to coronavirus, causing a massive backlog. A backlog that will be much worse than we experienced during the government shutdown last year. 

How do you get this interest waiver? 

This student loan interest waiver is automatic, so you will not need to call your loan servicer or fill out another form to be eligible. 

I would suggest monitoring your student loan balance and preparing for adjustments in the future. When you log in to your loan servicer to view your account, you may see that you owe more than you actually do in the coming months.

How do you get the payment waiver? 

The payment waiver is now automatic as well. Payments on federally owned student loans will be waived until September 30, 2020. You can call your loan servicer to voluntarily opt-out of the payment waiver if you would like to make a payment. 

Will this policy help you?

There’s still a lot we do not know about this policy. 

If you are pursuing Public Service Loan Forgiveness the policy to pause student loan interest will not help you financially per se, but it could help ease your anxiety as you will not be watching your loan balance grow as much it has in the past for the next few months. However, because the automatic payment waiver allows you to earn six free credits towards your 120 qualifying payment count – this policy saves you six months of payments. 

For those pursuing Time- Based Forgiveness, the policy to pause interest charges will help when your loans are forgiven by reducing your tax burden slightly. You will also receive six free months of credits towards your 20 or 25-year requirement for forgiveness. 

For everyone else, do not expect immediate benefits from the policy to pause interest charges. The benefits of being charged interest on your student loans will not be realized until many years to come for most. In general, this will reduce the timeline of repayment for many borrowers and reduce their total out of pocket costs over the life of their loan.

This policy essentially freezes your federally owned student loans in place for six months but also allows you to continue earning credit towards forgiveness programs. 


Ryan Inman