End of the Interest-Free SAVE Forbearance - What It Means for Optometrists

Episode Summary

In this timely episode, Evon unpacks the Department of Education’s recent surprise announcement that interest will resume accruing on the SAVE plan’s current forbearance beginning August 1, 2025. We explore what this means for optometrists managing student loans - especially those approaching forgiveness eligibility or considering refinancing.

What You'll Learn

• Surprise Announcement: Why SAVE’s interest-free forbearance ends on August 1, 2025, and how to prepare
• OBBBA Overview: How this new legislation (effective July 2026) changes income-driven repayment plan options - removing SAVE, PAYE, ICR plans as available options for current optometrists
• Repayment Roadmap: How optometrists should evaluate refinancing, staying federal, or switching plans based on degree completion and loan timing
• IDR Plan Comparison: Breaking down olcd vs. new IBR, PAYE, and SAVE rules - including repayment terms like 20‑year repayment at 10% of discretionary income
• Strategic Tax Planning: Using filing status and extensions (especially important in community-property states) to lock in the lowest monthly payment
• Timeline Guidance: When key deadlines hit (Aug 1, 2025; July 2026; July 2028) and how to reconcile existing loans within the new REPAY plan framework

Resources Mentioned

• Department of Education Announcement - SAVE Interest Accrual Begins
• The Optometry Money Podcast Ep 143: How the Final One Big Beautiful Bill Act Impacts Optometrists – Taxes, Student Loans, and More!
• Click here to Subscribe to the Eyes On The Money Newsletter for weekly financial insights tailored specifically to optometrists.
• Have Questions? CLICK HERE to schedule a short introductory call

The Optometry Money Podcast is dedicated to helping optometrists make better decisions around their money, careers, and practices. The show is hosted by Evon Mendrin, CFP®, CSLP®, owner of Optometry Wealth Advisors, a financial planning firm just for optometrists nationwide.

Transcript

Evon: 0:04

Hey everybody. Welcome back to The Optometry Money Podcast. We're helping ODs all over the country make better and better decisions around their money, their careers, and their practices. I am your host, Evon Mendrin, Certified Financial Planner(TM) practitioner, and owner of Optometry Wealth Advisors, an independent financial planning firm just for optometrists nationwide. And thank you so much for listening. Really appreciate your time and your attention today. And on today's episode, we are going to have another week's conversation about Student loans because the Department of Education surprised us all once again by announcing, uh, just after my last podcast episode went live, that they're going to be restarting interest accrual on the SAVE forbearance. And the SAVE forbearance is something we've been dealing with for quite a while now as court cases have been going through the process of trying to determine whether the SAVE plan was legitimate and eligible to exist or able to exist or not. And so that forbearance has been interest free. That meaning interest has not been charged, has not been accruing as it would on a typical forbearance. but that is changing as of August 1st. As the Department of Education announced that starting August 1st interest will begin accruing once again for those of you that are on the SAVE forbearance, and there's been a lot of confusion in terms of what's happening. Is this connected to the law that was just passed, was it not? What seems to be happening is there are two separate things going on at once. Uh, the first thing that's going on is that, The One Big Beautiful BIll Act, the OBBBA? OBBBA? O3B?, I don't know. We'll workshop that. the new law that was just signed the week of July 4th, made sweeping major changes to income-driven repayment plans, for federal student loans if you didn't listen to last week's episode where I dove into that bill. what's happening is that for current borrowers, for current optometrists that have graduated and will not take out new loans after July 1st, 2026, What's happening is that as of July 1st, 2026, ICR. Pay As You Earn, and SAVE will no longer exist as options for income-driven repayment plans. instead they will be replaced by a modified version of IBR, which currently exists and they are keeping the new and the old version of IBR or the brand new repayment assistance plan, which isn't available right now. Probably won't be available till mid next year, 2026. However, for those that are currently graduated optometrists, and you won't be taking out new student loans after July 1st, 2026, or consolidating your loans, you get a few years to transition into the new loan options. So if you are, well currently on the SAVE forbearance, if you are on Pay As You Earn, you have some time specifically up until July 1st, 2028. To eventually decide which of the new options you're gonna be choosing, whether it's going for some sort of standard repayment plan, whether it's the new RAP plan with a 30 year timeline to forgiveness, or whether it's the version of IBR that you qualify for. And if you're on extended or graduated, or standard repayment, you can remain on these as long as you don't consolidate or take out new loans. After July 2026. and so there's this major change as a part of the new law and there's this sort of transition over the next three years or so into the newly available payment options, uh, for those that are currently graduated optometrists. So that's the first thing that's happened. And then separately, and in addition to that last week, the Department of Education said, Hey. August 1st, we are going to start again the interest accrual on the SAVE forbearance. The forbearance itself will continue, remember until these court cases resolved and the courts say something most likely shutting down the repayment plan. The forbearance will continue on. What will change is that it's no longer going to be interest free. Interest will begin to accrue. And so, what should we do then? Right? If you are on the SAVE forbearance, the question is what should we do? Well, I, I don't know specifically what your situation is, but here's some general thoughts around how we should think about this. Number one, if you are planning to pay down your debt altogether, the party's over, unfortunately, right? You've been enjoying for years, really, no interest on your student loans, and you've been enjoying this forbearance under the SAVE plan for quite a while now. And so you have to start making some decisions whether it's going to be sticking on one of the standard plans, in the federal student loan system, whether it's going to be refinancing out the federal student loan system again, depending on the interest rates that you have. you'd want to look for a meaningful enough difference in interest rates. if you're going to refinance outta the federal student loan system and lose all of the protections and flexibility inside of it, but you need to start making some decisions of what you're gonna do. But at the end of the day, the IDR plans don't necessarily impact you too much. You're gonna be paying it down anyways. what if you're going for forgiveness, whether it's. Public service loan forgiveness or whether it's a taxable type forgiveness over, what will be 20 or 25 or 30 years, if you're on the RAP plan. There really is no major reason to remain on the SAVE forbearance. You're probably over the next month going to be, switching to the most relevant. IDR plan that's available for you. And if you're going for PSLF, yes, you can technically count on the buyback program for these months, but it's possible since this forbearance has lasted for over a year, they can still ask for tax returns for these months anyways. and so, there's really no reason to continue on. you should plan on switching to either IBR and, If you were a new borrower before July 1st, 2014, meaning you took out your first federal loans before July 1st, 2014, you are eligible only for the old income-based repayment plan, and that has a 25 year timeline to taxable forgiveness and a 15% of discretionary income loan payment calculation. So it's kind of the least favorable, uh, of the options here. If you're going for PSLF and you're eligible for Pay As You Earn, meaning you were a new borrower after October, of 2007 and you took out another loan in 2011, if you're eligible for Pay As You Earn, you're probably gonna wanna hop onto Pay As You Earn for the next three years. And then hop onto IBR when you absolutely need to, and if you are a new borrower after July 1st, 2014, that means you're eligible for the much better new version of IBR, which was a 20 year timeline to taxable forgiveness. Uh, but importantly a 10% of discretionary loan calculation. So this is essentially a twin for Pay As You Earn. If you're eligible for that, you're just gonna go straight to that anyways. What if you're going for a taxable type loan forgiveness? Well, assuming you've reran the math with these new options that are gonna be available in 2028 and beyond. and it still made sense to you based on either the math itself or your circumstances based on your cashflow priorities to go for a taxable forgiveness. What are your options? Well, you're probably gonna move on to the income-driven repayment plan that is most appropriate for you. Again, if you are a new borrower after July 1st, 2014, and you're eligible for new version of IBR. That's the best option available, frankly. if you were a new borrower after October, 2007 and you are eligible for Pay As You Earn, that's probably what you're gonna be considering over the next three years at least. And then for everyone else, meaning you took out your first federal loans before fall of 2007. Your only eligible option here is old version of income-based repayment. unless you absolutely cannot afford the payments, which is possible because as we think about it it's possible many of you haven't had to recertify your income, re-show your income for several years. and you may now have to, if you've switched repayment plans. You may now have to recertify your income and show higher, more recent income, which is gonna lead to a, potentially much higher, student loan payment. and so, you know, there may be some of you out there where it's gonna be a pretty strong crunch in cash flow, and you have to make some decisions in the short term of what to do. It's also important to point out that if you are, if you are reser, if you are changing repayment plans, they're going to ask for your most recently filed tax return. And for those of you that had filed an extension for 2024's tax return, that's still going to be your 2023 tax return. So that tax planning is something I've been talking about through the year, early in the year. As you know, through this all, all this uncertainty, it may make sense for some of you to file that extension so you have more time to use a previous year's tax return, if, if that made sense. So keep that in mind, and then once that transition to the new plan is finalized, once that has been processed, you can then go ahead and file that 2024 tax return. And moving forward, both of these options, the IBR options as well as the RAP plan, still allow married filing separately. And so all of those strategies related to filing taxes separately, excluding your spouse's income, especially in community property states, all of those are still very valid and maybe become more important moving forward here. And as well as just really good tax planning.'Cause a lot of this is determined based on your income, particularly your adjusted gross income as the default starting point. But if you're able to afford the next payment. And you're going for some type of forgiveness, or if you're just paying it back, you're most likely going to be moving off of the SAVE forbearance onto the next most appropriate option. The exact option may look very different for everyone, but that's most likely what you're gonna be doing. so I just wanted to have an episode about this. I didn't really get to talk about this in depth in the last episode. wanted to give this topic some time as well. And of course, as things are actually implemented from this new law that just passed, because it's one thing to see it enacted into a law. It's another thing to see how it will actually be implemented. All of the different tax and student loan aspects of it. As things are clarified, as new news comes up, I'll be sure to put that all on Future podcast episodes or if you wanna read about it as I write about these things each and every week, I'll put a link in the show notes to sign up for our weekly Eyes on the Money newsletter. you can follow along each and every week as I write about these topics and more. And as you do that, you'll also get a One page PDF guide to all of the tax changes that we're expecting from the new bill as well. And then lastly, if you want to talk through these decisions with somebody, both on the student loan side, if you wanna talk through how new tax provisions or extensions impact you as an optometrist and Optometry practice owner, Uh, reach out. I'll have a link in the show notes and you can schedule a time to have a no pressure, no commitment introductory call. We can talk about what's on your mind financially, and I can share how I help other optometrists navigate those same topics, those same issues all over the country. And so, with that, appreciate your time. We'll catch you on the next episode. In the meantime, take care.