Is income-based the way to go for student loans?

Shutterstock.comQ: I'm a recent veterinary graduate with a lot of student debt. Should I go for a repayment plan that changes based on my income so I can more easily afford my payments? If so, which one is best: Income-Based Repayment (IBR), Pay As You Earn (PAYE) or Revised Pay As You Earn (REPAYE)?

A: Average income for an associate is roughly $75,000 to $100,000, so income-driven repayment plans are a necessity for most young doctors. A standard 10-year student loan repayment plan could mean a $3,000-a-month payment, which doesn't leave much for living expenses.

IBR, PAYE and REPAYE all have specific requirements depending on loan type, loan origination year, loan forgiveness rules and the maximum percentage of income. Most of my clients want to be practice owners so they can have excess cash flow to help repay student loans faster. In the interim, they pursue the option that gives them the most flexibility-meaning lower monthly payments.

The lower payment usually allows my clients to build a small savings or reserve, which can be beneficial when working toward a goal like hospital ownership. I have several clients who purchased practices in early 2016 and were able to apply a substantial amount to the principal after their first year. One applied over $100,000 to his student loan debt.

The best repayment plan (IBR, PAYE or REPAYE) will vary according to the individual. The newest option, REPAYE, is available to more individuals but comes with additional requirements. PAYE limits the maximum payment to 10 percent of income (versus 15 percent with IBR) and reduces the debt forgiveness period from 25 years to 20 years. PAYE is typically most suitable for veterinarians who took out loans starting in 2008 and graduated in 2012 and has less requirements than REPAYE.

Matthew Null is a business development officer with UMB Bank in Kansas City. He works with over 100 local health care practices and leads the practice solutions group for UMB.