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Financially transitioning from MS4 to residency

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  • Financially transitioning from MS4 to residency

    Despite graduating from one of the most expensive private medical schools in the country my wife and I will finish in May with less that 150K of debt mostly due to savings and her employment. We decided early to put everything we could toward tuition rather than buy a house in medical school.

    So I have several questions now regarding the best plan for us moving forward.

    I have looked in to refinancing and it looks like there are two companies DRB and Link Capital. So far this looks like my best option because we obviously aren't considering PSLF now that we've put 100k+ toward tuition and supposedly Link Capital will even let you refinance during MS4 after the match. Also, we avoided taking out any loans until MS3 so not too much interest has grown and interest capitalization with refinancing wouldn't be as big of a deal. We also have $14k extra that we can take out with grad plus loans at an outrageous 6.8% or something. So my questions

    Would I have any problems taking out the grad plus loan and then almost immediately refinancing?

    Would it be better for any reason to do IBR for a year or two before refinancing?

    Would I be able to take the $14k and use that to pay off all of our interest for tax purposes?

    We plan on using the money for moving expenses and getting settled in residency but are there any other options, like the question above, that might help us maximize our financial opportunities? Like maxing out Roth IRA for wife or next year?

    Any other advice or recommendations?

  • #2
    I meant to say that Link Capital and DRB are the two that will let you refinance in residency.

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    • #3
      You can only deduct $2500 of student loan interest, so paying off $14K of interest isn't going to help much for tax purposes. And if you're married and have a dual income, you may or may not even be able to deduct that (I can't remember the caps, just know that as a single resident, I am far below it).

      Also, if you consider the grad plus loans of 6.8% outrageous, just be glad you didn't have to take any out a few years ago, when they were more like 8.5%. Almost all of my loans are at 6.8% because that was the standard for direct federal loans until a couple years ago. Count your lucky stars.

      You should definitely max out Roth IRA for both you and your wife for this year if you can manage it, because this will be the most tax advantaged year you will have until you retire, unless for some reason you become unemployed. I would not take out loans to do it, though.

      I have no insight into refinancing, though, so I can't help you there.

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      • #4
        I'm not sure how Grad Plus loans work for PLSF and IBR, so I'll just give you the following advice (which may not be 100% accurate due to Grad+).

        Does your wife have an income?  Do you file joint or separate?  I'm not sure if this has changed recently, but all our married residents would file separately so that they could do the IBR/PAYE plans.  As a medical student you have $0 income, therefore, this is how you do it:

        Graduate MS June/July 2016.

        Loan Repayment Begins Jan 2017. --> Consolidate and IBR based of 2015 Tax Return ($0/monthly payments)

        Jan 2018 submit yearly IBR stuff based of 2016 Taxes (half year intern income - payments ~$80/month)

        Jan 2019 - Refinance with LC for $0 payments the rest of residency.

         

        Obviously, depending on what is a better tax benefit and if your wife works, kids, ect, the above plan may need to be modified.  if you file jointly and she works, then IBR will be $400 payments immediately probably.

         

        As for your investments in residency.  You should contribute to your hospital 403b up to the employer match (mine doesnt match anything for residents).  After you get the max match, dump the rest into Roth IRAs for both you and your wife.  Live off the rest of the money and try to enjoy residency.

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        • #5
          My wife does have an income but no longer works full time and probably only makes about $25k/yr now. We have filed jointly in the past. We have one child.

          That is a similar plan that many residents have shared with me. Link capital offers $0 payments through residency and DRB has you make $100/mo so wouldn't refinancing be the better option for me than that plan because I could consolidate my loans and lower the interest rate?

          With IBR your interest is accumulating at the same rate that you took them out at correct?

          Also what to you guys think about the possibility of taking the 14k and maxing out my wife and my Roth IRA for next year, then refinancing immediately to a lower rate, and then working toward paying off our loans as fast as possible? Wouldn't this work out okay in the long run as the compounding interest would continue to grow for 30+ years and I would anticipate being able to pay off all of my student loans within 2-3 years. I guess it would depend on the rate I am able to get as a resident?

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          • #6
            Any thoughts?

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            • #7
              - if you have no plans to pursue IBR or any other loan forgiveness program, then yes, refinance as quick as possible.

              - make sure you check all these companies: https://www.whitecoatinvestor.com/student-loan-refinancing/

              - personally i would not take a loan to fund an IRA. depending on your state/income bracket a trad 401k could even be a better option for your first income.

              - more importantly do you have a will, term like insurance, and specialty specific DI given you have a family to support? all of this is first compared to retirement...

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              • #8
                Thanks for the reply everyone. Very helpful advice. Has anyone here actually refinanced their student loans while in residency. Im still trying to figure out if it would benefit me to do one or two years of IBR before refinancing. I don't think I fully understand IBR and how that works compared to refinancing at a lower rate.

                I'm actually working on finalizing a will. 20 year term life insurance. Will get disability insurance when I start residency.

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                • #9
                  ACN,

                  What would be the difference between your plan and refinancing immediately upon starting residency? What would be the benefit to doing IBR for two years before refinancing? Wouldn't refinancing to a lower interest rate immediately be more beneficial? I don't quite understand that.

                  "Graduate MS June/July 2016.

                  Loan Repayment Begins Jan 2017. –> Consolidate and IBR based of 2015 Tax Return ($0/monthly payments)

                  Jan 2018 submit yearly IBR stuff based of 2016 Taxes (half year intern income – payments ~$80/month)

                  Jan 2019 – Refinance with LC for $0 payments the rest of residency."

                  Comment


                  • #10
                    I refinanced 165,000 this past year with 5-year fixed 3.5% through DRB (and received 300 dollar referral bonus for clicking the link through WCI). They require minimum 100 dollars monthly through completion of residency (fellowship in my case) and the 5 year time period begins following training. They will capitalize the interest only once at the end of training which is nice (rather than annually). I have been paying much above the 100 dollar minimum. I definitely feel that it makes sense to refinance during residency and you can always refinance again following residency/fellowship.

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                    • #11
                      While it is a good move to refinance your private loans upon med school graduation, I think most residents are going to find their effective interest rate in RePAYE is lower than it will be even refinanced at resident rates (usually near 5%). Not a huge difference, and doing one or the other is a good idea, but run the numbers for yourself before refinancing federal loans as an intern.
                      Helping those who wear the white coat get a fair shake on Wall Street since 2011

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