Input on strategy for married resident couple

[babentine11]

Me and my wife recently graduated medical school and are starting intern year. We are seeking some feedback on a loan repayment strategy we have devised based on our personal research as well as old posts in this forum.

 

Me:

- Surgical subspecialty (6 years total)

- $300K in student loans (mix of direct sub, grad plus and perkins loans, including $10K from undergrad)

- $60K salary

- Interested in academic medicine

- Pursuing PSLF

 

Her:

- Primary care specialty (4 years total)

- $150K in student loans (mix of direct sub and unsub, no college debt)

- $60K salary

- Interested in private practice

- Likely not pursuing PSLF

 

Plan:

2016: Consolidate our loans and both enroll in REPAYE. File joint tax returns.

2017-2019: Continue REPAYE and filing jointly.

2020: Wife finishes residency. She will likely seek a private refinance. I will switch into IBR to avoid the marriage penalty since I will continue to be in residency and seek PLSF. We will file married/individual tax returns to avoid her attending-level income counting towards my AGI.

2021-2026: I will continue in IBR and she will pay off her loans ASAP. We will continue to file taxes individually.

2026: I will apply for PSLF.

 

This plan also has built-in flexibility in the event she decides to pursue academics and seek PSLF. If that happens, in 2020, we can continue with REPAYE and continue filing taxes jointly.

 

Any feedback is appreciated.

[ArkyDore]

If you truly think you are going to get your loans forgiven, PAYE for you and REPAYE for her, while filling individually is probably a better deal. It also complicates your finances more than you might want. We were thinking about filling individually, but just didn't think it was worth the loss credits/deductions, having to do backdoor Roth IRA contributions, and we were not completely sure if she will work for a nonprofit/academic.

[canadianoutlaw]

There is some level of irony with the surgical subspecialtist pursuing PSLF and the primary care physician pursing loan repayment. Just shows how screwy the economics/incentives of students loans are.

 

I am not as familiar with the nuances of REPAYE so will let others speak to that, but this sounds like a reasonable and well-thought out plan. Would have to crunch the numbers to parse out the true impact regarding of married filing separately versus married filing jointly from year to year, but your overall approach sounds valid.

 

i would recommend maintaining flexibility, you are just starting residency now and predicting where and what type of employment you will have at the end is hard to predict.

[DMFA]

babentine11 wrote:

 

Plan:

2016: Consolidate our loans and both enroll in REPAYE. File joint tax returns.

2017-2019: Continue REPAYE and filing jointly.

2020: Wife finishes residency. She will likely seek a private refinance. I will switch into IBR to avoid the marriage penalty since I will continue to be in residency and seek PLSF. We will file married/individual tax returns to avoid her attending-level income counting towards my AGI.

2021-2026: I will continue in IBR and she will pay off her loans ASAP. We will continue to file taxes individually.

2026: I will apply for PSLF.

IBR is rarely a good choice if you're eligible for PAYE.  Would your resident income not be a PFH under PAYE?  Why would you choose IBR over PAYE since PAYE has the lower monthly payment?  Note that your interest will capitalize when you change plans - probably won't be very high given the RePAYE subsidy, though.

 

ArkyDore wrote:

If you truly think you are going to get your loans forgiven, PAYE for you and REPAYE for her, while filling individually is probably a better deal. It also complicates your finances more than you might want. We were thinking about filling individually, but just didn’t think it was worth the loss credits/deductions, having to do backdoor Roth IRA contributions, and we were not completely sure if she will work for a nonprofit/academic.

The problem with this is that if she does RePAYE, his income is still calculated for the payment; RePAYE always includes spousal income (and debts).

Backdoor IRA contributions are not a nuisance to do, as per the experts on the site.  Just took a few days for the transfer to occur, no penalty, NBD.  That shouldn't be a factor in deciding to do MFS vs MFJ.

The loss of credits and deductions can be a pain, though - my wife and I did MFS while in residency - but the money saved on the lower monthly payment on a loan you plan on not repaying anyway will probably make up for the tax hit.

Everyone is different - make sure you run all your own numbers and discuss it with a professional first before making a decision regarding repayment plan and tax filing status.

[Joy Sorensen Navarre Navigate]

Nice planning!

An additional strategic detail you may want to consider could reduce your payments and increase your savings.

One of the biggest benefits to the married borrowers is that when you and your spouse file a joint federal income tax return, your servicer will automatically adjust your payment amount proportionally, based on each spouse’s share of the total loan debt. It can significantly reduce your monthly payment amount.

Practically, in my experience, this only happens when loans are serviced by the same servicer.

Because this strategy has many moving parts, please work with an expert to know whether and how to implement it.