However, as most of your med school loans are unsubsidized (all loans since 2012) and the subsidized loans are likely the smallest part of your loans, this wont make much of a difference. I wonder if others who are on the PAYE + MFS route could file multiple amended tax returns. Wow, I attend Zucker! The newest IDR program, Revised Pay As You Earn (REPAYE), is better than PAYE in some respects and worse than PAYE in others. The payment cap is $3,483 for this borrower. Unless youre working for Goddard or Google or Einstein on the next cure for anything, the $10 k you can squeeze out of a part-time job is highly unlikely to pay for itself in the number of years youll need to fix up your fracked up GPA. I am non-committal about my future career plans but am considering PSLF. Written by the best-selling author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing, Financial Boot Camp contains step by step instructions that will take you from zero to hero in twelve easy steps. Wow thank you so much for your response, and for all the hard work youve done to educate people such as myself with your writing. You can change Income driven plans. Your thoughts are greatly appreciated! This type of double consolidation needs careful review and is difficult to get right. In addition to the more well-known Public Service Loan Forgiveness (PSLF) program, several of the IDR programs have their own forgiveness programs. Our new partner is starting at $300K with $200K in student loan debt. That way the interest won't be building during medical school and residency. To qualify, your monthly IBR payment needs to be lower than your standard 10-year repayment monthly payment. At any rate, glad the site is helpful to you. You can slay the student loan dragon. This lengthy post is going to cover everything you need to know about managing those pesky student loans from student loan forgiveness programs to the best deals on student loan refinancing. Consider this Student Loans 101. Very detailed article and is a must read for anyone with a student loan or anyone thinking about taking out a loan. No one can predict when the next bear will arrive but prepare for it now. After your first paycheck? Be sure to read the fine print before signing on the bottom line so you know what to expect if any of these unlikely situations happen to you. Since you should only buy insurance against financial catastrophes, someone planning to throw $10K a month at their loans every month for 2 years should not pay extra for a fixed rate. Heres how to calculate the breakeven point: PAYE $3,483 *12 = $41,796 / 10% = $417,960 + 19,320 = $437,280, IBR $3,483 *12 = $41,796 / 15% = $278,640 + 19,320 = $297,960. Many federal student loan borrowers enroll into a standard 10-year payment program for loan repayment paying off your loan in 120 fixed payments over 10 years. I know elsewhere it was recommended to file a tax return before residency even with no income. Ive been copying selections and taking notes to email back to myself. They only want to loan money to people they think will be able to pay the money back. Borrowers will still receive the amazing cash rebates that WCI has negotiated with each lender. You'll have a larger loan balance at the end of residency but will make progress toward reducing the overall amount owed. The program ended in 2010 and all loans are now issued under the Direct Loan program referred to above. Each year this couple will need to decide whether to file taxes as married filing separate or married filing jointly. Is that what youre looking for? I agree with both GK and WCI. That will require you to make one regular payment (typical $2-3000) as you move between the programs. Worst case scenario, if you die they are assessed against your estate. Payments capped at 10% of discretionary income for new borrowers on or after July 1, 2014, Payments capped at 15% of discretionary income for loans taken out before July 1, 2014. Hello. Learn. My calculations show I would ultimately save more with SoFi than with REPAYE > PAYE in the event I dont ultimately go for PSLF. If you make each payment on time it can build your credit history and may even boost your credit score. Do You Need a Cosigner to Refinance Student Loans? With The White Coat Investor, you can increase your financial literacy and stop doing dumb things with your money. 3) Choose the repayment plan that will minimize the total amount paid until the loans are forgiven. ^Best Rate Guarantee, Variable 4.99%-10.89% APR* I know I will have a job as a resident, but I will also be moving to an expensive city after my first year for my advanced position. It works. Overnight, your PSLF side fund has become a fund that can be used to achieve other financial goals. Practicing medicine will be your main income source but look for other avenues of income. The next year rolled around and they re-certified for IBR plan quickly under her same low income, got the 0.00/month payment plan that would ride out the next 12 months. In addition, IDR programs are eligible repayment programs for federal loan forgiveness programs such as Public Service Loan Forgiveness (PSLF) and long-term income-driven repayment forgiveness. I mention it in the text and why I dont support it for the vast majority, but dont include it in the flow chart. But, living modestly is the path to financial independence for most docs. This tends to come up more in for-profit institutions, but its very rare. This is the most expensive of the four payment options. An option to consider is using a physician mortgage loan (also known as a doctor mortgage). I do not recall ever meeting a physician who regretted paying off their student loan quickly. Unlike a mortgage or auto loan, these loans cannot be foreclosed on. Financial Wellness and Burnout Prevention for Medical Professionals, annual ACEP (American College of Emergency Physicians) meeting, The rates vary with different specialties, Do Not Sell at the Bottom of a Bear Market, lose a year of retirement savings at the market opening, Physicians, Bankruptcy, and What to Do If You're Stuck There, 5 Reasons Why Doctors Should Have a Side Hustle, Fire Your Financial Advisor! But even if most of that savings ends up in retirement accounts and you can't (or don't want) to immediately eliminate the loans at that point, at least your net worth will be where it should be. I think learning enough about personal finance to do it yourself and invest in low cost index funds and bonds is spot on advice. Thanks for the solid reminder. Principal balance = $200K Based upon this I am not entirely certain money is the issue but I may be totally off. Should I still consult with you or another student loan advisor on my future financial options? household size = 1, PAYE monthly payment = $450K $19,320 = $430,680 * 10% = $43,068 / 12 = $3,589, IBR monthly payment = $450K $19,320 = $430,680 * 15% = $64,602 / 12 = $5,383. It can be intimidating to watch your loan balance grow significantly during your lower income years. What other advice do you have about them for your fellow White Coat Investors? However, if the borrower enrolled in PAYE or IBR as a resident or before income has jumped, they are able to stay in the program as long as they dont switch repayment plans. Doug Segan, WOW, I AM GOING TO COPY THIS TO MY CHILDREN WHO ARE IN MED SCHOOL. However, it can be a huge mistake for those whove been in training for a couple of years or attendings. I have no income. Only bond options in 401K plan: PIMCO Income Fund PIMCO Low Duration PIMCO Total Return Lets consider what happens when the same couple finishes residency. Have lots of exposure to the US stock market but also have some bond and international exposure. After a couple of payments? The secret to refinancing your student loans is to do it early and often. ** White Coat Investor accepts advertising compensation from these companies. This should be based on the debt load, length of training (since most residency programs are considered qualified PSLF employment), post-residency employment (academics vs. private practice vs. employed vs. employed by 501(c)3), marital status, spouse employment, and willingness to be diligent in certifying employment and qualified payments. We have an upcoming post that discusses Sukuk. If you file taxes married filing separately you can exclude your spouses income from your payment calculation. Learn . If youre not going for forgiveness, and not getting a REPAYE subsidy, why not refinance? Our free financial planning resource covers a variety of topics from doctor mortgage loans and refinancing medical school loans to physician disability insurance and malpractice insurance. Sure, my GPA was only 3.7, but apparently that was good enough. Before you are ever close to delinquency or default, make sure you are enrolled in an appropriate Income-Driven Payment plan to assure the affordability of payments. It helped me create a base for launching financial freedom soon thereafter. Right now most arent refinancing until after Sep 30th anyway. Lets assume that 5% extra you could have paid in extra payments went to your retirement account (15k-20k/yr just guessing) you are investing over a 25 yr investment horizon that is probably a difference of ~500k (assuming 7% annual grown over 25 yrs) you would have extra in retirement savings and obviously bigger the longer the horizon. Thankfully, I had a wise divorce lawyer who told my future ex-spouse and me that someone will decide all these issues, so it might as well be you two. An amicable divorce is no picnic, but at least we did not spend a fortune on legal fees. I assumed the fee based was referring to a defined price to manage your accounts, but I guess that description could be referring a variety of ways to charge. The point of personal finance is not to have the best FICO score, its to not need a FICO score. The abundance of locum jobs now makes it very easy to test out a new practice setting in a new town. These are the ones that get fried and derive little meaning from their vocation. Your financial security is one area of your life that you can not totally outsource. In REPAYE, if your payments don't cover all the interest, up to half of the interest IS NOT being added on to the loan amount. Seriously, though, this is a really helpful overview. Suppose the physician is entering a high paying specialty with median earnings >$400k. Other bonds in portfolio are intermediate munis in taxable and I bonds (small percentage). These are generally academicians, or at least people who are willing to be academicians for a few years at the beginning of their careers. Greatly appreciated! That said, I would think that the extra cash on hand would not be bad during this time. Its getting harder all the time because of the big squeeze between a rapidly increasing cost of education and decreasing/flattening income. If there had been a residency in NYC when I graduated med school in 1978 I would have probably gone there and would probably still be paying for a much higher cost of living. The way it works is that you can either use your last tax return, or provide more recent pay stubs. Like you, I dont even think this should be considered an option for the vast majority of residents and fellows. Not only will the interest rate be lower (5.05% vs 6.6% for the 2018-2019 school year) but the first $5,500 will also be subsidized. I guess what I want to know is what is your familiarity with the opportunity cost of retirement plans and what is your familiarity with the concept of float, as used by Warren Buffett? Private loans generally are also not dischargeable upon death or disability. Interest rate = 7% I tell you about these two programs and give you these links because people wonder about them, not because I think people should actually use them. Hopefully by living like a resident you've been able to max out your retirement accounts AND save this side fund up in a taxable account, and you can simply liquidate the taxable account and use the proceeds to pay off the loans. Id pay it off very quickly upon finishing residency and maybe even during residency. So for this I thank you and all the exceptional physicians like WCI who are willing to help and exchange ideas. So, if you are in the 40 50% of doctors that are experiencing burn out, take the leap and try something different. Here the amount paid to gain a years worth of qualified payments is much more relevant than the total amount forgiven at the end of 120 payments. VERY helpful and VERY informative, Im super grateful to my resident buddy who told me about this site, just going into med school now myself, Im sure Ill be using this resource plenty. Cannot afford to make 4-figure monthly payments The amount of interest capitalized is limited to 10% of the original principal balance at the time the borrower entered repayment. Your recommended this in other posts . IBR is the only IDR you can use with Federal Family Education Loans (FFEL) (although those may be eligible for PAYE or REPAYE after consolidation). Have currently only 7 out of 20 payments made to PSLF qualified. Can I defer my Perkins subsidized loans from Undergrad while in residency and they will continue to not accrue interest? However, I was in your shoes a while ago and I chose to pay off my student debt first before I invested aggressively and looking back it is hard to say if I would have chosen to go about it differently. When going for PSLF, you must continue to make payments in an eligible program. If you already making income in various ways it will be less painful if you have to leave or take a hiatus from your main medical career path. If you are not wired for marriage, then find out early on. A booming town with a booming patient base can significantly boost a physicians income to match a higher cost of living. The general rule is to max out what you can borrow in the federal loan programs before taking on any private loans. application for Federal Student Aid (FASFA) form, notorious for not qualifying for federal loans, William D. Ford Federal Direct Loan (Direct Loan) Program. With Parent Plus loans, the loans are discharged if the student OR the borrower dies. As a resident, it is important to enroll in this program before your payment jumps as an attending, otherwise, you may not qualify. Typically, borrowers (and cosigners) need to be US citizens or permanent residents. If you end up getting divorced, save years of legal fees by not fighting. They used the strategy as the article stated making a gross income of approx 200k, They filed married but separate (MFS) for one year, paid about 13k in taxes as a result of that and took her IBR plan payments to 0.00/month as opposed to $1500/month she would have had to pay had they filed married jointly. First, be careful not to worship at the altar of the FICO score. I am about to finish residency and want to pay off my loans as soon as possible. Depending on what happens to your loans at death and disability, consider carrying a little extra term life and disability insurance coverage to make up it. But I think there may be some fallacies in this statement when considered as a black and white distinction for all physicians. We get woefully little guidance in that department. Your email address will not be published. Defining undue hardship is going to be up to the judge, but I can assure you that if you qualify for it, you're going to be in a terrible place financially either way. Federal loans can offer lower interest rates initially and have an abundance of federal protections private student loans dont offer. The entire accrued interest balance of $50K is capitalized when switching plans. Find the latest WCI products including books, shirts, stickers and more. After one marriage and one divorce, I realized that I am not excellent at this life skill. If I am even considering PSLF, should I just default to REPAYE for now? Thanks! With a doctors income and a good savings rate, Id argue that the passive income that one gets from index funds should be more than enough to provide for an abundant nest egg later in life. The decisions you make with your student loans can easily be worth tens or even hundreds of thousands of dollars. While it is intuitively attractive to borrow at a low rate and earn at a higher rate, this decision often ignores two factors. Some may even borrow more than they need to live a lavish lifestyle on their loans. Prior to consolidation, FFEL Loans are eligible for: After consolidation, FFEL Loans are eligible for: The Federal Perkins Student Loan program was created to provide money for college to students with a particular financial need. Consistent, low cost investing will get you there just fine. For some, it is real estate. Thank you for your articles, but this one in particular! Im just skeptical that there are very many undergrads out there who cant work 10-20 hours a week without affecting their GPA. Most readers of the WCI know that the mantra of live like a resident for 2- 5 years after your residency is critical to financial success. I have looked into refinancing with SoFi, and they offered 4.25% interest with the $100 monthly payments during residency. Page order does not guarantee best possible rate and terms. My question is, would it be more reasonable to save less for retirement (10-15% gross income), avoid any other kind of investment, and throw as much money into my student loans to pay if off quickly? Contact your schools financial aid office for additional details. Some criteria for co-signers include: Let's start at the very beginning. In the book that I am writing (for med students, residents, and early attending physicians), I include a flow-sheet for residents, too, but it doesnt even have forbearance/deferment on there. I: Work for the federal government Super easy. This guest blog has a positive spin in the hopes that new WCIs can also learn from a few of the financial steps that I did correctly. I provide advice to physicians and have shared links to different articles from this site. Private loans were typically taken out by students who have already borrowed the maximum federal loans for the year. If you die or are disabled, what happens with your private loans will be dictated by the terms on their promissory notes. Ten percent of the principal balance is $20K. Let's summarize what to do with your student loans as an attending. Not only would your payments count toward possible forgiveness down the road, but they may be as low as $0 a month anyway. Thanks so much for your kind comments Physician Philosopher! If our physicians are not mentally and physically healthy, the adverse consequenceswill go far beyond the physician and will impact their families, their co-workers, and their patients. Refinance private loans early and often. It would be significant amounts of money the IRS would refund and I doubt the IRS would like that. Right up my alley. Just a thought should this be updated to make a note that currently the strategy should be *not* to refinance any loans through June 2023, while all federal student loans have interest frozen? In some fields/ locations you really can have your cake and eat it too. Dr. Segan, Fixed 4.40%-11.83% APR One concern/question I have now is: Inflation is a hot topic now. Student loan debt = $300K This scenario assumes that the physician is certain about PSLF. Yet, when I was in training REPAYE/PAYE were not even a thing until late in my training. There are plenty of ways to fumble through your medical career. My two cents, thank you again for this amazing resource! Agreed, its optional. After consolidation, Perkins loans are eligible for: Most federal student loans hit you with loan fees when disbursed. Some people with low-interest rate student loans wonder if they should really pay their loans off rather than invest. A wonderful journey. If you choose to fully defer, you will not be required to make any payments required during school including a 6 month grace period after graduation. However, the one thing that is rarely discussed is the economics in higher cost of living cities. Basically, half of the interest above and beyond the required payment is waived. With payments based on a percentage of discretionary income, the monthly amount due may be as low as $0 but is more likely in the $100-$400 range. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); 2023 - The White Coat Investor Investing & Personal Finance for Doctors. Federal loans should also be refinanced and paid off quickly unless you are directly employed by a 501(c)3 AND made a lot of tiny payments during your training. And 20 years? Fixed 4.99% - 9.99% APR Your most important financial asset is your ability to function well as a physician. In this program, you will pay interest only while enrolled in school. Thank you! I guess my question regards the uncertainty due to the pandemic as well. [Editor's Note: This guest post is written by Douglas Segan, MD, JD. Which means the money you receive will be less than the actual amount you borrow. Your parents or siblings etc are never responsible for your loans, but your heirs could be indirectly. I want to clarify because I really value your opinion, I must recertify my REPAYE plan in the next week before the deadline to stay in REPAYE at the lower resident salary payments, If I do nothing before the deadline ie do not recertify, I will automatically be placed back in the standard plan, So just to clarify, when you say you wouldnt do anything in the next month if Im going to refinance, by doing nothing do you mean doing nothing and staying in REPAYE (recertify) or do you mean do nothing (do not recertify by the deadline = let the plan go back into standard), I just want to apologize again for the confusion and taking up your time. In a temporary disability, however, you may be limited to use of the IDR programs, deferment, or forbearance. That said, I have some real estate investments and a side gig and it has certainly improved our financial situation. Give yourself an hour per section. Physician mortgage loans are lending programs that give special treatment to high-income borrowers with a high student loan debt-to-income ratio. Borrowers that qualify will demonstrate a financial need and will not have to pay accrued interest while in school. The first is that most people simply don't invest the difference. My REPAYE payments would be about $356 per month. This option will require you to make a low fixed payment while enrolled in school. We can now go forward and make some real decisions about how we want to live out the rest of our lives. If I remember correctly, WCI has 25% of his fixed income in TIPS. Federal student loans can be consolidated. You can do it, the entire White Coat Investor Community is rooting for you! The purpose is to not die poor. That means if you were using REPAYE during residency and/or fellowship, you probably want to switch to PAYE. Attending income = $450K Find the latest WCI products including books, shirts, stickers and more. It is vital for a borrower to understand the options available to find the most affordable payment, with the least amount of accrued interest, and the greatest level of forgiveness. This is usually relatively easy. My debt load was equivalent to about one year of income when I started. Unsubsidized loans begin accruing interest the moment you receive them. Thank you for you sage advice. Thank you for this blog. Jim, What would you call having a neighbor pay for your kids to do chores at his house and vice versa so both of your households could get Roths started for your children? The husband made $140k/yr and his wife was a resident making 55k/yr and pursuing a fellowship so they had roughly 7 yrs of resident/fellow salary from her income. By making a few smart decisions and working hard as an undergraduate, most of those who will eventually become doctors can avoid having any undergraduate debt at all. The financial muscles you develop paying off your loans quickly are the same ones you will use to build wealth toward financial independence afterward. Or would it be better to hold onto the student loans with 5% interest, pay minimum balance ($3500/month), save 20% gross for retirement, and invest the rest in something with larger returns like starting a private practice, real estate, or stocks/ETFs? There are a number of techniques for lowering the amount of debt you take on for school. Thanks so much ZuckerStudent! While this likely increases their tax burden, it may decrease the required payments significantly, which may, in turn, INCREASE the amount of their loans left to be forgiven.. Or does the standard plan take into account being 5 years into repayment already and then try to divide the remaining balance over the 5 years (ie a higher amount). Total NEW balance = $250K. Whats the big deal if your account is drafted 4 times for smaller amounts or once for a larger amount? I recently attended the annual ACEP (American College of Emergency Physicians) meeting in Washington DC. You can consolidate your loans with the federal government, but to refinance them you must go to a private company and lose the benefits of federal loans such as the income-driven repayment programs and the forgiveness programs. In fact, it may increase it. Main features of PAYE include: Eligibility: As with IBR, a partial financial hardship is required. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); The book summarizes the most important information on the blog and contains material not found on the site at all.