Income-driven repayment plans are a lifesaver if you’ve had shaky income for several years. They not only cap your bill on your federal loans at 10-20% of your discretionary income, theybut also wipe out your remaining balance after making steady payments for 20-25 years.
Normally, the IRS counts the loan amount forgiven as extra income on your tax return. But that’s not true for the next few years. If your loans are forgiven for any reason from now until 2026, you won’t pay taxes on the money written off.
While IDR plans are great for those who’ve struggled with payments and needed forbearances over the years, they aren’t beneficial to higher earners. Because the payments are tied to your income, the more you earn, the more you’ll pay. If you make too much, you’ll pay off your loans several years before they’re eligible to be forgiven.
This is why the smarter financial move for many dentists is to refinance with a private lender to get a lower interest rate. Doing so isn’t without risk — you’ll lose access to federal benefits like affordable student loan payments and forgiveness opportunities from the Education Department. But you’ll pay less interest each month, saving you thousands in the long run.
You can use an online marketplace like Credible to compare multiple rates with different lenders without affecting your credit score.
Related: How to Refinance Federal Student Loans
Also, student loan refinancing won’t cause you to totally miss out on all forgiveness opportunities. Many federal agencies and state and local entities offer loan repayment assistance programs that will contribute tens of thousands of dollars towards paying off your student loan balance in exchange for a full or part-time multi-year service obligation — more on that below.