Go for PSLF? Need help

[ohehlo]

Hi all, long time reader, first time poster. I've been trying to figure out our situation here and could use some help. Any insight is appreciated. I have filled out the calculators on both the studentloans.gov website and doceden's without much clarity.

Info: 2 MD household, both about to start as attendings at a 503c academic hospital this fall, which qualifies for PSLF.

We have both been on IBR since 2010 (intern year), and have each completed 5 years of residency and 2 years of fellowship. So 7 years of IBR payments already made that qualify for PSLF.

It seems like doing PSLF for just 3 more years makes a lot of sense, the problem I see is our combined salaries will be somewhere around $800,000 a year. My understanding is that we will no longer qualify for IBR or RePAYE, so do we default back to the 10 year standard? Does that count towards PSLF?

At our salaries we will be able to afford to pay back our loans (~270k total) rather quickly, but given that we have and will continue to qualify for PSLF, should we go for it and would we save significant money by doing so? Otherwise if not, we should refinance I would think to try to stop accruing >$1000 in interest each month in the meantime.

Thanks for any and all help, this stuff gets confusing.

[canadianoutlaw]

Sticking with PSLF for three more years sounds reasonable. So long as you are employed by a 501c3 and fill out the PSLF employment certification form (ECF). You will owe the 10-year standard monthly payments because of your income level (this should happen automatically). These monthly payments will still count toward your required 120 monthly payments for PSLF. Have you filled out ECF previously to document how many payments you have made toward the 120?

Had to laugh on this, "the problem I see is our combined salaries will be somewhere around $800,000 a year" - sounds like a good problem to me!  

[canadianoutlaw]

Btw, back of the envelope calculation suggests you would pay <$100,000 over the next 3 years under the standard repayment plan (then followed by forgiveness). Would you rather pay $100,000 (PSLF) or $300,000 (refinance and pay back) over the next three years? The caveat being that, to my knowledge, no one has successfully completed the PSLF program to date so unknowns exists, although your time horizon (only three years) may be favorable

[nachos31]

ohehlo wrote:

 

It seems like doing PSLF for just 3 more years makes a lot of sense, the problem I see is our combined salaries will be somewhere around $800,000 a year. My understanding is that we will no longer qualify for IBR or RePAYE, so do we default back to the 10 year standard? Does that count towards PSLF?

 

Click to expand...

ohelo, based on what you've shared, I would stick with PSLF especially if you're working for a 501(c)3 company that would qualify as a non-profit for PSLF purposes. Submit the form that canadianoutlaw suggested above to ensure that your employers during training as well as current employer do qualify for PSLF.

A very helpful calculator belongs to our very own DocEden: http://doceden.com/PSLFplanner.html

Go here and plug in your numbers. Your IBR payment will increase with your salary up until the it reaches what your 10yr Standard repayment amount would have been on the first day you signed up for IBR. Plugging in rough numbers above for you without knowing any details and grossly overestimating what you'd pay, I arrive at monthly payment of $3100 (using $270,000 as your starting loan amount back in 2010, which I know it wasn't). When you plug in your own numbers into that calculator, for years 8-10 under "monthly payments" you'll see the same amount listed there for each year-- that's your 10 year standard repayment amount based on your initial loan values. Sadly the studentloans.gov loan repayment estimator calculates a 30yr standard repayment amount and NOT the 10 year so they come up with a wildly different number. This calculator will also estimate how much you'll pay in total and how much you will have forgiven. The more detailed and accurate you are in providing the inputs, the better this calculator will work.

Given that some are uncertain of the future for PSLF, it would be prudent in your case to set aside enough money in a taxable account that could cover your entire loan balance should PSLF somehow fall through for you both. You could fund this pretty quickly. Best case scenario: PSLF comes through and you have a bonus taxable amount for your nest egg. Worst case: it falls through and you pay off your loans ASAP.

[DMFA]

Nobody likes my calculator :cry:

Only 3 years to go = PSLF seems like great idea.  You will still be "in" IBR, but your payment will be the 10-year standard rate of what your principal was when you first started payback...which is nice, because I'm sure there's been a significant amount of interest piling up.

*IF* something happens which limits or removes forgiveness, and on top of that *IF* some borrowers like you are not grandfathered in, then your paltry, minuscule, pittance of an $800,000/yr income might barely, just barely, be able to cover for a short-term refi to the lowest possible rate (I'd go variable since you'd be able to knock it out in prob < 1 year if you wanted).

Nachos's taxable idea is great, esp since you prob won't have the tax-advantaged space to save 20% of your income for retirement anyway.

[Joy Sorensen Navarre Navigate]

I agree with the earlier posts. Pursuing PSLF with IBR, and a contingency fund, makes sense given the information you shared.

A couple of details:

1. Make sure all of your loans are Direct loans. Payments on FFEL loans do not qualify for PSLF.

2. Avoid the REPAYE plan, as it does not have a cap on the payment amount.

[nachos31]

DMFA wrote:

Nobody likes my calculator

Click to expand...

Haha, DMFA. I just need to play around on your calculator a little more. It's hard to tell when other cells change when I make a change but that was a few weeks ago. I think I was also trying to figure out some of the formulas and where to make adjustments because I'm on IBR and it's not designed for that. If I have time this week, I'll delve more into it and let you know what I think.

I will say that DocEdens has dropdown menus and colors so he/she wins on the pizzazz factor

[DMFA]

Yeah I didn't do IBR in it because it's basically just 1.5x PAYE, and it's intended for people with newer loans when PAYE was available and there was no sense in doing IBR. So yes, that is indeed a weakness of it

[AO]

I'm also leaving myself out there trying for PSLF and agree with others to send in the paperwork. I hadn't yet but with the recent election and the possibility that the program may "go away" I want to put myself in the best position to be able to grandfather in if that is an option. They will tell you how many "qualifying" payments you have made. I had forgotten the 6 month grace period after graduation and also that it took me many months to sort out with the federal loan people (argh!!) and finally get into IBR, so I only made 52 qualifying payments in my five years of residency plus fellowship.

Another consideration worth mentioning (haven't seen it mentioned on this site and I've been all over it) is that your IBR payments are calculated annually. For me, the request comes in the summer each year, asking for the prior year's tax forms. So even though I am an attending now, the amount I am paying now is based on the 2015 forms we sent in this summer, which reflected the last 6 mos of my residency and the first 6 mos of my fellowship. Next summer we will send in the 2016 forms which will reflect the last 6 mos of my (one year) fellowship and the first few mos of my attending job (I took time off in between). The upshot is that your increase in payments often lags a year behind your salary increase. Play your cards well and you might only make 2 years of standard repayments.

I agree with starting a pot of semi-liquid money with which to pay off immediately if PSLF goes away. Another option is to take out a HELOC and pay off immediately if PSLF goes away. Downside with that is if you (or I) die or become permanently disabled, the fed loan would be forgiven but the HELOC would not. Then again, that's what insurance is for...

[canadianoutlaw]

AO wrote:

Play your cards well and you might only make 2 years of standard repayments.

Click to expand...

yes, good point. this sweetens the deal even further in favor of PSLF

[resident_1]

I agree, you need to submit the PSLF employment certification form. Government will then send you documents showing number of months Of payments that you accumulated towards PSLF.
This will also confirm whether they are counting your residency and fellowship. I'm sure they are but until they send you this document you never know.

[nachos31]

AO wrote:

The upshot is that your increase in payments often lags a year behind your salary increase.

+1. There have been folks who say that you shouldn't do that, but I can't find any solid evidence why not. For example, on one of WCI's posts on student loans, someone had suggested that the govt would invalidate any payments made without full, up-to-date documentation of income at the time of each payment. This poster (don't remember which blog post--although I did copy and paste it on my old computer...that just died...) went on to say that to avoid this we should update our incomes and submit recertifications every time our income changed to not be penalized/denied PSLF.

I did some digging and on the IDR recert application it asks "Has your income significantly changed since you filed your last federal income tax return? For example, have you lost your job or experienced a drop in income?" Note, nothing in there about has your income changed recently, but only since you last filed your taxes. Also, all of their examples are about decreases in income (why so negative?).

Furthermore, on the studentaid.ed.gov site on IDR plans: "Although you’re required to recertify your income and family size only once each year, if your income or family size changes significantly before your annual certification date (for example, due to loss of employment), you can submit updated information and ask your servicer to recalculate your payment amount at any time" (emphasis mine). Nothing here stating that you are required to resubmit.

Therefore, this is a great strategy and works especially well for residents since we tend to have filed prior year's taxes (on full residency salary) in our final year before we start our first attending gigs (typically in July at the earliest).

[nachos31]

Random question: I know PSLF forgiveness is a non-taxable event, but is that both on the federal and state level or just federal level? Would I still be required to pay state taxes on any forgiven amount?

[canadianoutlaw]

nachos31 wrote:

AO wrote:

The upshot is that your increase in payments often lags a year behind your salary increase.

+1. There have been folks who say that you shouldn’t do that, but I can’t find any solid evidence why not. For example, on one of WCI’s posts on student loans, someone had suggested that the govt would invalidate any payments made without full, up-to-date documentation of income at the time of each payment. This poster (don’t remember which blog post–although I did copy and paste it on my old computer…that just died…) went on to say that to avoid this we should update our incomes and submit recertifications every time our income changed to not be penalized/denied PSLF.

I did some digging and on the IDR recert application it asks “Has your income significantly changed since you filed your last federal income tax return? For example, have you lost your job or experienced a drop in income?” Note, nothing in there about has your income changed recently, but only since you last filed your taxes. Also, all of their examples are about decreases in income (why so negative?).

Furthermore, on the studentaid.ed.gov site on IDR plans: “Although you’re required to recertify your income and family size only once each year, if your income or family size changes significantly before your annual certification date (for example, due to loss of employment), you can submit updated information and ask your servicer to recalculate your payment amount at any time” (emphasis mine). Nothing here stating that you are required to resubmit.

Therefore, this is a great strategy and works especially well for residents since we tend to have filed prior year’s taxes (on full residency salary) in our final year before we start our first attending gigs (typically in July at the earliest).

Click to expand...

i agree. i have only updated my income only when it comes time to annually recertify for our IBR plan. thus our IBR payments always lag behind and are based on the prior years salary because of this. each year we file the ECF and have had no issues getting credit.

[canadianoutlaw]

nachos31 wrote:

Random question: I know PSLF forgiveness is a non-taxable event, but is that both on the federal and state level or just federal level? Would I still be required to pay state taxes on any forgiven amount?

Click to expand...

Hm. Good question. This issue has been brought up before elsewhere but I have not seen a clear answer on it. I suspect not, but would be nice to verify.

http://askheatherjarvis.com/forums/viewthread/9909/