Student Loan Repayment Questions for New Grad

[eyedoc11]

First time poster here! I am a PGY4 ophthalmology resident who will graduate next June 2017 and have joined a private practice in a middle-sized town in the south east. My base salary is 300k with a typical bonus incentive. I have around 225k in student loans. My question is, would it be possible for my practice to repay the loans, and for me to take a first year salary of 75K instead (300-225 = 75), and they could then deduct the 225K as a business expense or something of that sort. I figured it could be a win-win for both sides. If not, I completely understand that the loans are my responsibility and I'll plan to knock them out in about 2 years. I know that I can only deduct $2500 student loan interest per year from student loans, but was unsure if the practice could do something different.

 

Thanks for the input! Love reading all the posts and my financial knowledge has grown so much over past 6 months. Looking forward to having a bigger shovel in near future!

[paramount]

If they repay the loan for you it is considered income for you and you will be taxed on it.

[MochaDoc]

"My question is, would it be possible for my practice to repay the loans, and for me to take a first year salary of 75K instead (300-225 = 75), and they could then deduct the 225K as a business expense or something of that sort. I figured it could be a win-win for both sides. If not, I completely understand that the loans are my responsibility and I’ll plan to knock them out in about 2 years."

Anything is possible. You should ask. The worst thing they can say is "No." Even if it's considered income and you pay regular income taxes on this money, if they're willing to pay your loan for you in a  lump sum during your first month or even 1/2 when you begin working and 1/2 at the 6-month mark, it will decrease the amount of interest you ultimately pay.  Furthermore, if this plan is given the greenlight, you can plan/moonlight and save between now and June 2017 in order to smooth out your financial transition.  

Numbers-wise, you'll have about 210,000 after taxes so for your plan to work you'd have to prepare to live off savings (or moonlight) your first year out and you'd owe them 15,000 plus accumulated interest  if they completely paid off your 225k+ loan in one year. This is worthwhile as far as saved interest but you're the only person who knows what you're willing to do to make such a plan work. 

"I know that I can only deduct $2500 student loan interest per year from student loans, but was unsure if the practice could do something different."

Hate to break it to you but that deduction will not be available to you starting in 2017. You'll make too much money.

"if your modified adjusted gross income (MAGI) is less than $80,000 ($160,000 if filing a joint return) there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return before subtracting any deduction for student loan interest. This deduction can reduce the amount of your income subject to tax by up to $2,500."

Source: https://www.irs.gov/publications/p970/ch04.html

[Craigy]

No free lunch here.

To make it worse, they'd have to withhold a big portion of that $225k (and thus not pay it off completely), otherwise you'd get slammed with taxes at the end of the year that you won't have the cash to pay.

[eyedoc11]

Thanks for the replies. That is what I figured, but you never know until you ask. Looks like it'll take about ~10K per month for two years to knock this out. Thats news to me that the $2500 deducting won't be there in 20017, but its a drop in the bucket in the big picture. Main thing for me and other graduating residents is keeping it simple those first years out and hitting the debt hard. Thanks again!

[MochaDoc]

eyedoc11 wrote:

Main thing for me and other graduating residents is keeping it simple those first years out and hitting the debt hard.

Click to expand...

If you're planning to pay your loan in full within two years, instead of trying to utilize Public Service Loan Forgiveness (PSLF), look into student loan refinancing. If you apply through the links included in the post below, you and WCI make $100-$300 when you get refinanced.

https://www.whitecoatinvestor.com/student-loan-refinancing/