Tag: SAVE student loan repayment

Which Student Loan Repayment Plan is Best for the Average Travel Therapist?

~ Travel Therapy Mentor ~ Leave a comment

I’ve been writing and talking about student loans a lot more lately now that it looks like they’re finally going to go back into repayment in September 2023. Most people have thought very little about their student loans for the past 3.5 years while payments and interest have been paused. Now that repayment is about the start again, everyone is trying to determine the best plan for their own student loans, especially with recent changes.

The big change that I wrote about recently is the introduction of the SAVE (Saving on a Valuable Education) plan, which is going to be taking the place of REPAYE (Revised Pay as You Earn). I’d long been an advocate of the REPAYE plan for healthcare travelers, so now that SAVE is taking its place, many travelers have been asking if they should switch to SAVE, or if PAYE (Pay as You Earn) or potentially even the standard 10 year repayment plan would be best for them.

There are many pros of the new SAVE plan over REPAYE, but also a few cons as well. If you’re unfamiliar with the differences, then check out this article to see what all is changing. You can also check out this video we made discussing the new changes.

Some of the questions that we’ve gotten after putting out the above article and video about the new SAVE plan caused me to sit down with an excel spreadsheet to model out some scenarios to determine what is the best choice for the average travel therapist. The conclusion from the article and video were that basically the best choice would depend on your situation, especially what you chose to do after traveling, but that doesn’t really help people practically speaking. I wanted to go more in depth with some numbers and charts to give people a look at what plan might be best for the average traveler, along with the considerations that would impact the choice.

Check out the hypothetical scenario and the results below, which should help you determine the right student loan repayment option for your own situation.

The Average Travel Therapist Scenario

We’ve interacted with several thousand travel therapists over the years and have seen a variety of different situations.

Some travelers travel for only a contract or two and then settle down. Maybe because they found a facility or city they loved and couldn’t leave, maybe because they found their soulmate and decided to stay, or maybe because they decided travel wasn’t a good fit for them so they went back home to find a permanent job.

Some travelers, like us, start traveling and then can’t stop traveling. Either because of the higher pay, the adventure, the freedom, and/or the flexibility, they end up doing travel therapy for 5+ years before settling down somewhere. Some even choose to do a version of semi-retirement and continue to travel indefinitely.

These situations are outliers though. The average traveler travels for 2-3 years before settling down into a permanent position. I wanted this scenario to be representative of the majority of travel therapists to help as many people as possible. So, for the hypothetical scenario below, I chose to assume that this travel therapist graduates from school, travels for three years, then settles down into a permanent position where they receive normal raises over the course of their career.

Here are all of the details:

  • Single individual with no spouse or children
  • Travel therapist for 3 years after graduation
    • Working 48 weeks per year as a traveler and making $25/hour as their taxable wage
    • $15,000/year contributed to 401k for retirement
  • Permanent job starting after year 3 with a beginning salary of $75,000/year
    • 3% annual raises on permanent job salary
    • $15,000/year contributed to 401k for retirement
  • $140,000 in federal student loan debt at graduation, all from grad school, with no private student loans
    • 6% average student loan interest rate
  • The Federal Poverty Line (used to determine payment amounts on SAVE and PAYE) continues to increase at 2.4% per year, which is the average over the last 10 years

The traveler wants to decide between SAVE, PAYE, and standard 10 year repayment for their student loans, with the goal of paying the lowest amount over time.

First, let’s look at what this traveler’s annual taxable income, Adjusted Gross Income (AGI) after 401k contribution, and the federal poverty line will look like over time, to get an idea of how those variables change throughout the repayment period.

Annual taxable income and AGI stay steady for the first few years while traveling before jumping up due to the higher (taxable) pay at the permanent job. (Remember, as travelers our taxable hourly pay is lower than at most perm jobs, and this is what is used to determine student loan repayment, while stipends are not accounted for). After year three, total income and AGI after 401k contribution both rise in tandem at a rate of 3% (assuming 3% raises each year), and assuming the 401k contribution of $15,000/year stays constant. At year 25, annual income ends just below $140,000/year. The federal poverty line increases at the recent average rate of 2.4% starting at $14,580 (the amount for 2023) and ending at just under $26,000 after 25 years.

Payments Over Time

Next, let’s look at how this traveler’s payment would change over time on each of the repayment plans.

On the standard 10 year repayment plan, the payment amount remains constant at $18,648/year ($1,554/month) for the full 10 year term.

The PAYE plan would start with start with a low payment while traveling (under $100/month) before jumping to $3,652/year when beginning the permanent job after year four. This payment would gradually grow over time to $7,103/year ($592/month) in year 20 when the remaining loan balance is forgiven.

The SAVE plan would start with a $0/month payment while traveling (due to the low taxable income) and then jump to $2,478/year ($206/month) when beginning the permanent job after year four. This payment would gradually grow over time to $6,656/year ($555/month) in year 25 when the remaining loan balance is forgiven.

An important thing to point out here is that even though the repayment term on SAVE is five years longer than PAYE, the ending payment amount (and all the payments along the way) on SAVE is lower than the ending payment amount on PAYE due to the difference in how discretionary income is calculated. PAYE bases payments on 10% of the amount over 150% of the poverty line whereas SAVE bases payments for grad school loans on 10% of the amount over 225% of the poverty line. In practice, this leads to lower monthly payments on SAVE than on PAYE for any given income level. You can also see on the graph how the rate of change for payment increases over time is slower on SAVE than PAYE due to this difference.

Increases in Interest on Loans Over Time

Now that we know what the payments would look like over time, let’s compare the interest accumulation on SAVE vs. PAYE.

Here is where you can see where the new SAVE plan shines. Even though payments are lower on SAVE throughout the repayment term, no interest accumulates on the loans at all, no matter how low the payment is each month. The accumulated interest is automatically subsidized each month, which means the loan balance never grows.

On the PAYE plan, interest accumulates more quickly the first three years due to payments being lower while traveling. After year three, the accumulated interest slows down each year since payments are now covering a larger portion of the interest each month, making the loan balance grow more slowly. On PAYE, capitalized interest is capped at 10% of the original loan balance, so no more interest is capitalized after year two, but the interest continues to accumulate on the loans throughout the full term, which will become important at the time of loan forgiveness.

It’s interesting to note that at no point during the repayment term on either of these plans does the monthly payment get high enough to exceed the amount of interest accumulating each month.

The standard 10 year plan isn’t included here since the payment is a fixed amount each month and the loan is paid in full at the end of the 10 year term.

Ending Balance at Time of Student Loan Forgiveness

Now that we know how much interest accumulates each year on SAVE and PAYE, let’s look at what the ending balance will be for each of the different plans at the end of the respective loan period.

The standard 10 year plan would have no remaining balance after year 10. The balance on SAVE would still be the original principal amount of $140,000 at the end of the 25 year term, due to no interest accumulating on the loans over the full repayment term. PAYE would end with a balance of a little over $231,000 since the loan balance gradually grew over time as interest accumulated each month.

Taxes Owed on Forgiven Student Loan Debt

Now that we can see the ending balances for each plan, let’s take a look at how much would be owed in taxes on the forgiven amount at the end of the loan terms.

Currently, taxes are owed on any student loan debt that is forgiven outside of the Public Service Loan Forgiveness (PSLF) program. I believe there’s a fairly high probability that this will change over time, but for now, it’s prudent to plan to pay taxes on any forgiven student loans on the PAYE or SAVE plan.

There’s no way to know exactly how much will be due in taxes, because tax rates and standard deduction amounts change each year, but we can estimate. I think that a realistic estimate is 35% of the forgiven amount for this individual working a full time permanent job at the time of loan forgiveness.

Assuming a 35% tax rate on the forgiven amount, $49,000 would be owed on SAVE, while just under $81,000 would be owed on PAYE. This is a sizable difference between the plans.

No taxes would be owed on the standard 10 year repayment plan since no student debt would be forgiven.

Total Paid Over Time

Now let’s look at the most important part of this hypothetical scenario: how much is paid in total over the life of the loans.

Despite SAVE having the longest repayment term, it would result in the lowest amount paid in total by nearly $30,000!

The total payments over time between SAVE and PAYE were pretty close, but the big difference was the taxes owed at the end of the repayment term, which is due to the very generous SAVE monthly interest subsidy. Not having your loan balance accumulate interest over time is a really big deal.

The standard 10 year repayment plan would be by far the worst choice in this scenario. Not only would this individual pay $42,000 more than on SAVE and $13,000 more than on PAYE, but it would also be paid over a much shorter time frame. This is important due to the effects of inflation over time. $1 paid at year 10 is worth significantly more than $1 paid at year 20 or year 25. A dollar lost over 40% of it’s purchasing power in the last 15 years, to illustrate how significant the effects of inflation can be over time. For that reason, the standard 10 year repayment plan is actually even worse than it looks on this chart in inflation adjusted terms.

Considerations

In this hypothetical scenario for an average travel therapist, SAVE comes out significantly ahead of both PAYE and the standard 10 year repayment plan in terms of total amount of money paid.

Although I think this scenario is fairly close to the average traveler situation, of course everyone’s situation will be different in reality. For that reason, I want to now discuss how changes in various factors would change the outcome.

  • As income increases, PAYE and the standard 10 year repayment plan start to become a better choice. Assuming all variables above stay the same, but starting income at the permanent job increases to $95,000/year with the same 3% annual raises, all three of the repayment plans are actually pretty equal in how much would be paid over time when adjusted for inflation.
  • On the other hand, lower incomes heavily favor SAVE over the other two plans. This could also come into play for those that plan to switch to part time or PRN work at some point in their career, which means a lower income and favors choosing SAVE.
  • The higher your student loan balance, the more the numbers favor SAVE. The lower your student loan balance, the more PAYE and the standard 10 year plan begin to be a better option.
  • Higher interest rates favor SAVE. Lower interest rates favor PAYE and standard 10 year.
  • Higher retirement account contributions favor SAVE due to the lower AGI. Lower retirement account contributions favor PAYE and standard 10 year.
  • Getting married and/or having kids heavily favors SAVE. To illustrate this, let’s say that at the end of year 3, you get married (filing separately) and have twins. With all of the above variables staying the same, SAVE now would come out nearly $100,000 ahead of PAYE and $140,000 ahead of the standard 10 year repayment plan. This is due to how discretionary income is calculated on the plans as I mentioned above.
  • Traveling longer before settling into a permanent job favors SAVE; whereas, traveling for a shorter period before settling down begins to favor PAYE and the standard 10 year repayment plan.
  • There are also some situations where a traveler who thinks they’ll earn a very high income (well over $100k) once they settle down would be best off taking a mixed approach of SAVE while traveling to take advantage of the low payments and interest subsidy, and then paying off their loans ASAP once they stop traveling.

Taking a look at these variables, you can choose which options may more closely align with your actual situation. Then, try to determine which plan would be most favorable for you.

Conclusion

I hope that this article will give you some insight into how to plan for your own student loan repayment. Based on the numbers, it seems that most healthcare travelers will be in the best shape over the long term on SAVE, but there are a lot of variables to consider.

If you’re a traveler who plans to settle down into a normal paying perm job after a few years and have a family while saving for retirement, then it’s hard to make a case against SAVE.

If you’re a traveler who plans to stop traveling, start a business, earn a lot of money, and never have kids, then SAVE won’t be as beneficial.

If you’re a traveler who plans to travel for a long time while saving heavily, then only work part time/PRN when eventually settling down and having kids, then SAVE is a no brainer.

If you’re a traveler with a low student loan balance, then SAVE might not make sense and paying off the loans ASAP may be prudent.

Some people are very debt adverse, and even if it makes more sense mathematically to go on an IDR plan, they’d prefer to just get rid of their debt, and that’s understandable as well. Student loan debt repayment is basically a “choose your own adventure” where a lot of variables and psychological factors come into play. There’s no one size fits all answer for everyone, and sometimes even the best mathematical choice won’t be the right choice for you based on your life circumstances. But, assessing all your options and being well informed is vital.

If you aren’t sure what’s the best choice for you or want to double check your decision, I’d recommend creating an account at FitBux where they can help you assess your personal financial situation.

If you have questions about travel therapy or student loan repayment options for travel therapists, feel free to send us a message. We also have additional resources you can check out below!

If you’re interested in getting started as a travel therapist, check out our free Travel Therapy 101 Series and get connected with the best recruiters by filling out our Recruiter Recommendation form.

Related Articles:

Jared Casazza

Written by Jared Casazza, PT, DPT – Jared has been a traveling physical therapist since 2015. He has become an expert in the field of travel healthcare through his experience, research, and networking over nearly a decade.

SAVE Student Loan Repayment Plan for Travel Therapists

~ Travel Therapy Mentor ~ 2 Comments

After three and a half years, it looks like student loans are actually going to go back into repayment in a couple of months.

I wrote about the student loan pause last year and how I expected it to get extended again after it was scheduled to end in August of 2022. It turns out that it didn’t get extended for just a few more months, but for an entire extra year!

After such a long pause, many borrowers have put themselves in a position where they don’t have extra money each month to make their payments when repayment resumes. To ease some of the pain, the government attempted to give a lump sum in loan forgiveness ($10,000-$20,000) to borrowers, but this ruling was overturned by the Supreme Court. In another attempt to reduce the burden on borrowers, the government has now introduced a new income driven repayment plan that is supposed to be more generous than current repayment plans for cash-strapped borrowers. The Saving on a Valuable Education (SAVE) Plan is slated to take the place of the Revised Pay As You Earn (REPAYE) plan once payments restart.

As long time readers know, I’ve been a big proponent of the REPAYE plan for travel therapists for many years now. I’ve used this plan, via the 50% interest subsidy, to significantly reduce the effective interest rate on my loans while maintaining a $0 student loan payment for several years. This is a unique opportunity available to travel therapists due to our reduced adjusted gross income (AGI) since part of our pay is untaxed. By going this route, paying $0/month, and investing the money I would’ve used toward student loan payments instead: I’m ahead financially by tens of thousands of dollars since graduating PT school. Overall, I’ve been very happy with the REPAYE plan and the benefits it gives to borrowers, especially travel therapists.

If you’re new to this topic and are unsure if going on an income driven repayment plan is the right choice for you, vs. a standard repayment plan or aggressively paying your loans off as quickly as possible, I would recommend reading some of my prior posts on this topic to help you better decide, such as this one: Is it Better to Pay Off Student Loans or Invest?

So, is REPAYE being replaced by SAVE a good or bad thing for travel therapists on income driven repayment plans? Well, the changes are overwhelmingly positive, but there are some negatives as well.

Benefits of SAVE vs REPAYE

Let’s start with all of the positive changes coming with the switch from REPAYE to SAVE.

  • Payments will be lower
    • On REPAYE, your monthly payment was based on any taxable income you made over 150% of the federal poverty line. 10% of any income you earned over 1.5 times the federal poverty line was how much you would have to pay each year, with that amount being split into 12 equal monthly payments. That applied to both undergrad and grad school student loans.
    • On SAVE, payments will be lower because they are based on 225% of the federal poverty line instead of 150%. The same 10% over that level will apply to grad school loans. But for undergrad loans, your payment will be based on only 5% of your income over 225% of the poverty line. For borrowers with a mix of undergrad and grad school loans, what you owe will be based on a weighted average of the loan balances. The 5% of discretionary income for undergrad loans isn’t scheduled to go into effect until July 2024 though.
  • Interest won’t accumulate
    • The thing that made the REPAYE plan so powerful for travel therapists was the interest subsidy. Half of any interest that would have accumulated each month was automatically subsidized. That meant that if you had a $0/month payment, your effective interest rate was essentially cut in half since 50% of the interest was immediately forgiven instead of added to your loan balance.
    • On SAVE, this benefit gets way better! Now, 100% of any accumulated interest is forgiven automatically each month, meaning that if your payment amount isn’t enough to cover the interest, it doesn’t matter because that interest won’t be added to your balance. Now, if you have a $0/month payment, your student loan balance won’t grow at all, and you’ll effectively have a payment-free, interest-free loan. Those $0 payments will still count toward the 25 years of payments needed for student loan forgiveness as well.
    • For anyone on SAVE with a low income (or in the case of travel therapists, a low AGI), it will basically feel like the student loan pause has just been extended indefinitely. $0 payments, no interest accumulating, and progress toward loan forgiveness. That’s very generous!
  • Married filing separate won’t include your spouse’s income
    • Under REPAYE (unlike the Pay as You Earn Plan), if you were married, whether filing jointly or separately, your spouse’s income and student loan balance would be taken into account when calculating how much you owe each month on your student loans. For most people, that meant a higher monthly payment.
    • With SAVE, if you file your taxes separately from your spouse, then your payment will be calculated only based on your income, which will be a benefit for some.
  • Some loans will be forgiven more quickly
    • This won’t apply to many travel therapists, but if your initial student loan balance was $12,000 or less, it will only take 120 monthly payments to qualify for student loan forgiveness instead of the normal 300 monthly payments. Each additional $1,000 in loans over $12,000 will require an additional year of payments to achieve forgiveness. For all of us with more than $27,000 in student loans, it will still take 300 monthly payments to qualify for student loan forgiveness just like under the REPAYE plan, so no real changes there for most travel therapist borrowers.

Downsides of the SAVE Plan

So those are pretty awesome positive changes, but what about the negatives?

  • You won’t be able to switch plans
    • As of July of 2024, you will no longer be able to switch to the Pay as You Earn (PAYE) plan. Part of the rollout of SAVE is making choosing a student loan repayment plan easier for borrowers. This means reducing the number of choices and subsequently the elimination of the PAYE plan. Anyone already on PAYE will be able to continue on the plan though.
    • Why does this matter? Currently on REPAYE, you can freely switch between repayment plans, and all of your payments made on the other plan still count toward loan forgiveness. That means theoretically you could make 19 years of payments on REPAYE, getting the benefit of the interest subsidy during that time, and then switch to PAYE on year 20 and get forgiveness after 20 years instead of having to wait until 25 years like you would on REPAYE. This was a loophole that I always thought would eventually get closed, and it looks like that time has come.
    • It is also proposed that after 5 years of payments on the SAVE plan, you wouldn’t be able to switch to a different repayment plan, further limiting options. For travelers, REPAYE made sense due to the interest subsidy while traveling and having a lower AGI. But once not traveling anymore, there are many situations where PAYE would be better due to the shorter amount of time to loan forgiveness, and potentially a higher payment due to AGI going up at a permanent job (no tax free stipends). In the past, you could get the best of both worlds by staying on REPAYE while traveling, and then switching to PAYE once you settle into a permanent job, but now that won’t be an option.
    • For some travel therapists, especially those who don’t plan to travel long or who don’t plan to contribute heavily to pre-tax retirement accounts to lower their AGI when they’re back at a permanent job, PAYE could be a better repayment option than SAVE while it’s still available.
  • No cap on payment amount
    • This isn’t actually different than the REPAYE plan, but it’s something to be more aware of now that PAYE will be going away and you won’t be able to switch plans after five years.
    • On SAVE, if your income increases significantly, there is no cap as to how high your payment can go, whereas on PAYE it is capped at your 10 year standard repayment monthly payment amount. This won’t apply to many people, but if in the future your income is very high, you may find that your student loan payment is much higher than you expected. If that happened on REPAYE, you could have just switched to PAYE to lower the payment, but now that won’t be an option in the future while on SAVE.
  • Future uncertainty about repayment plans
    • This will be the first time that a student loan repayment plan has been completely replaced by a new plan. That will set a new precedent that big overhauls of repayment plans are possible. Although the changes with SAVE are mostly positive, future changes may not be. If a future president comes in who is much more fiscally minded and thinks SAVE is too generous, it’s possible they could change SAVE into a new plan with worse terms than REPAYE had by executive order. Or, maybe they switch the terms of the plan back to how they were on REPAYE, but now without the ability to switch to PAYE in the future since that plan is gone. Although this is probably pretty unlikely, there’s no doubt that these changes introduce this possibility which didn’t really exist before.

Does SAVE Make Sense for Travel Therapists?

Overall, these changes are pretty awesome. If you’re a travel therapist who is able to get your AGI below about $33,000, on SAVE you’ll have $0/month payments and no interest accruing for the entire time you’re traveling. If you contribute some money to a traditional IRA, 401k, or HSA each year, then having a $0/month payment shouldn’t be hard to achieve at all now, whereas previously having to get below $20,000 AGI on the REPAYE plan to achieve a $0/month payment was difficult for some. Having essentially an interest-free loan with no payments due while traveling makes paying down student loans quickly even less beneficial than before for most travel therapists. Not having to account for your spouse’s income is also a pretty big benefit for married travelers who are willing to file separately. This is very applicable for me and Whitney this year.

Not being able to switch off of the SAVE plan after making five years worth of payments and having PAYE no longer be an option after next year could really be a detriment to some travelers though. Being locked into five extra years of payments (on the 20 vs. 25 year plan) before reaching forgiveness could come back to bite, especially if those last five years are really high earning years for you with no cap on payments.

There will be no one size fits all answer here since most of the choice between SAVE and instead going on PAYE will now depend on what you plan on your life looking like after you stop traveling.

If you plan to transition straight from travel to semi-retirement and then to early retirement like me, or to just do part time work after traveling, then keeping your AGI low to continue to get the benefits from SAVE won’t be an issue, and SAVE will be an awesome option for you.

If you plan to eventually transition to a much higher paying permanent job or open your own clinic with high earning potential after you stop traveling, then you may end up being better off on PAYE and forgoing the interest subsidy on SAVE while traveling.

There’s also the option for some with a reasonable student loan balance to go on SAVE while traveling to take advantage of the interest-free loan, and then just switch to a standard 10 year repayment plan after traveling or aggressively pay off the loans ASAP to get rid of the debt and not worry about forgiveness at all. I can see that being a much more reasonable option now for some.

If you’re planning to work at a non-profit for 10 years in order to get Public Service Loan Forgiveness (PSLF) after traveling, then SAVE would be a good option for you due to the lower monthly payment and the extra 5 years of payments not being a factor.

Overall, I think SAVE will be the best choice for most travelers, but certainly not all.

Summary and Considerations

As you can see, lower payments and no interest accumulation on student loans are very generous new benefits on the SAVE plan. Because of this, many more people, not just travel therapists, will chose to go on SAVE instead of paying off their student loans quickly. Additionally, people already on an income driven repayment plan will now pay back less over the life of their loans.

For this reason, I’m pretty confident that this new repayment plan will be challenged in court, and the changes could end up being overturned. This is exactly what happened to the proposed $10,000-$20,000 in partial loan forgiveness from last year. I’ve waited a long time to write any update about student loans because things have constantly been in flux and uncertain. To a degree, that’s still the case now. But hopefully that doesn’t happen and everything goes through as proposed with the new SAVE plan.

Since switching plans will be less feasible on SAVE, it’s more important than ever to put a lot of thought into your personal situation and future before making a choice on which student loan repayment plan to choose. Before, it wasn’t a big deal if you chose a less optimal path because you could always switch later, but now the consequences are greater. It’s vital to do some calculations to determine what will be the best choice for you over the long term and not just choose SAVE to have a low payment and no interest accumulation while traveling without considering your future after traveling. If that’s not something you’re comfortable with doing on your own, then FitBux is a great place to go make an account and schedule a call with an expert who can help. This is an invaluable resource for all student loan borrowers.

Personally, I will most likely go on the SAVE plan due to the lower payments and enhanced interest subsidy, but I am going to have to put some extra thought into it before making my final decision now than switching to PAYE won’t be possible after next year.

Do you plan to go on the new SAVE plan? Let me know your thoughts in the comments!

If you have questions about travel therapy or student loan repayment options for travel therapists, feel free to send us a message. We also have additional resources you can check out below!

If you’re interested in getting started as a travel therapist, check out our free Travel Therapy 101 Series and get connected with the best recruiters by filling out our Recruiter Recommendation form.

Related Articles:

Jared Casazza

Written by Jared Casazza, PT, DPT – Jared has been a traveling physical therapist since 2015. He has become an expert in the field of travel healthcare through his experience, research, and networking over nearly a decade.