Deciding PSLF vs. refinancing

[KidneyBoy]

I'm a first year pediatric nephrology fellow with about $300k in student loan debt. Since my 1st year of residency I've been making payments through the IBR plan that qualify for PSLF. Based on ACGME data it looks like starting attending salaries in my field are around $125-150k/year. I've been doing some moonlighting on the side during fellowship and plan to continue to this to earn extra income.

Once I am an attending I will be tied to an academic medical center like most sub-specialists in my field. At some institutions the hospital writes the paycheck whereas others have a physicians' organization tied to the hospital that cuts the check, so I could potentially no longer be making qualifying PSLF payments. How common is the former vs. the latter for paying attending salaries? Additionally, if I were making qualifying PSLF payments as an attending but took up moonlighting on the side at a hospital that is not a 501c3 or non-profit organization, would I no longer be eligible for PSLF?

[DMFA]

As long as you're a full-time W-2 employee of a non-profit, you'll retain PSLF eligibility.  You still need to recertify your income (for income-driven) and employer (for PSLF) each year.

If your full-time W-2 employer is a healthcare staffing agency, chances are they are probably NOT non-profit.

However, anything you make on 1099 or from a part-time W-2 job (in addition to your full-time W-2 non-profit) doesn't affect your eligibility, but it does increase your monthly payment via a higher AGI (still prob better to have more money, though).

At your income, PSLF is advisable.  Are you stuck with IBR (15% of disposable income)?  If you still have partial financial hardship, you might benefit more from doing PAYE (10% of disposable income).  I think your calculated payment would probably be more than monthly accruing interest (assuming 6.8%, so you might not benefit from RePAYE.

To fully answer what the best course for you would be (which you're probably already on), what are:

1. Your interest rates?


2. Your current repayment plan?  (many people conflate IBR with the other income-driven plans such as RePAYE)


3. Time the loans originated? (different for before/after 2007 esp re: IBR)


4. Your AGI for 2016?


5. Family size?


6. Tax filing status? (single, married/separate, married/joint)


7. The number of PSLF-eligible payments you've already made?  This should include any $0 income-driven repayments you made during training *if* you did residency at a non-profit.  You *might* be able to retroactively certify these payments, though I hear some people have had difficulty getting this done.  If you have consolidated since then, any PSLF-eligible payments on those pre-consol loans won't count (since it's now a different loan).

[Joy Sorensen Navarre Navigate]

Regarding your question: "At some institutions the hospital writes the paycheck whereas others have a physicians’ organization tied to the hospital that cuts the check, so I could potentially no longer be making qualifying PSLF payments. How common is the former vs. the latter for paying attending salaries?"

You are wise to be alert to the tax status of your employer. To check if an employer is a nonprofit, use GuideStar.org. Ask your employer for the federal EIN (Employer Identification Number) of the organization that writes your paycheck. Drop the EIN number into the search bar at guidestar.org to determine if it's a nonprofit.

In my experience many (but not all) hospital physician groups are qualifying nonprofit employers.

[Travis @ Student Loan Planner]

KidneyBoy wrote:

I’m a first year pediatric nephrology fellow with about $300k in student loan debt. Since my 1st year of residency I’ve been making payments through the IBR plan that qualify for PSLF. Based on ACGME data it looks like starting attending salaries in my field are around $125-150k/year. I’ve been doing some moonlighting on the side during fellowship and plan to continue to this to earn extra income.

Once I am an attending I will be tied to an academic medical center like most sub-specialists in my field. At some institutions the hospital writes the paycheck whereas others have a physicians’ organization tied to the hospital that cuts the check, so I could potentially no longer be making qualifying PSLF payments. How common is the former vs. the latter for paying attending salaries? Additionally, if I were making qualifying PSLF payments as an attending but took up moonlighting on the side at a hospital that is not a 501c3 or non-profit organization, would I no longer be eligible for PSLF?

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If you're currently on IBR depending on your family situation (how much $$ your spouse makes if applicable) you should switch to REPAYE. Your interest will capitalize but there's no worry about blowing through the 10 year standard monthly repayment amount where REPAYE would be disadvantageous. Also the capitalized interest won't matter if you're going the PSLF route.

You can do whatever you want on the side so long as your main job qualifies for PSLF. Once you get your first paycheck as an attending I'd submit the certification form to make sure the govt agrees that you qualify.

Another point. You should look at maxing your retirement accounts because that will lower your adjusted gross income and allow you to pay less on your loans. Think of it as a massive incentive to put away every pre tax dollar you possibly can for retirement. Refinancing won't be an option if your attending salary falls in the 120-150k range. You have to have a debt to income ratio below 2 to get a decent rate in my experience

[KidneyBoy]

DMFA wrote:

As long as you’re a full-time W-2 employee of a non-profit, you’ll retain PSLF eligibility.  You still need to recertify your income (for income-driven) and employer (for PSLF) each year.

If your full-time W-2 employer is a healthcare staffing agency, chances are they are probably NOT non-profit.

However, anything you make on 1099 or from a part-time W-2 job (in addition to your full-time W-2 non-profit) doesn’t affect your eligibility, but it does increase your monthly payment via a higher AGI (still prob better to have more money, though).

At your income, PSLF is advisable.  Are you stuck with IBR (15% of disposable income)?  If you still have partial financial hardship, you might benefit more from doing PAYE (10% of disposable income).  I think your calculated payment would probably be more than monthly accruing interest (assuming 6.8%, so you might not benefit from RePAYE.

To fully answer what the best course for you would be (which you’re probably already on), what are:

1. Your interest rates?


2. Your current repayment plan?  (many people conflate IBR with the other income-driven plans such as RePAYE)


3. Time the loans originated? (different for before/after 2007 esp re: IBR)


4. Your AGI for 2016?


5. Family size?


6. Tax filing status? (single, married/separate, married/joint)


7. The number of PSLF-eligible payments you’ve already made?  This should include any $0 income-driven repayments you made during training *if* you did residency at a non-profit.  You *might* be able to retroactively certify these payments, though I hear some people have had difficulty getting this done.  If you have consolidated since then, any PSLF-eligible payments on those pre-consol loans won’t count (since it’s now a different loan).

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My interest rates across multiple loan groups is between 6.55% and 7%. I am definitely in IBR and have several different loans originating between 2009 and 2012 (none before 2007). Our combined AGI is about $90k for 2016, and it's just my wife and me filing jointly. I think I have 32 PSLF-eligible payments that are on-record already. I've submitted the paperwork each year during residency.

[KidneyBoy]

Travis, thanks for the tip. I've had 403b contributions on hold while I've been working on paying down credit card debt and making our Roth contributions for 2016.

When you say refinancing won't be an option once my salary is $125-150k/year, don't they consider spousal income for refinancing too? Granted, my wife makes about $40-45k/year from her job, it'll still improve my chances of getting a better rate. I wonder if they'll consider moonlighting pay too if it's a steady gig (say, 1-2 shifts/month).

[Travis @ Student Loan Planner]

I just put your numbers through my calculator on my site. You didn't mention family size I'm guessing 3 for modeling purposes. Say your income is $140,000 for payment purposes your loan servicer finds this out when verifying income at the end of 2018. You and your spouse's income increases with inflation. I'm assuming 36 mos of payments just bc I haven't built it out to handle anything but years of credit to PSLF yet.

The results:

Total PSLF cost about $94,000. If you did private refinancing at the best possible interest rate of 2.35% variable, it didn't change at all, and you repaid it in full over 5 years at $5300 a month, the total bill would be $321,000.

Private refinancing only takes into consideration one person's income. If your spouse has higher income then they ask you to have them cosign and then the application is based on their credit risk not yours. Yes it would make it easier to make payments but that's the only way it benefits you from a refinancing perspective.

So consider this KidneyBoy (that's a great username btw), why would you ever refinance when you have $300k of student debt with PSLF in the promissory note and a Republican Congress that has only ever proposed repeals of PSLF that grandfather in current borrowers? Why would you ever risk losing out on paying only $0.30 for every $1 you owe.

Not only should you not refinance, you shouldn't pay a dime more on your loans than absolutely required to by law. If you want to hedge your risk, max out your retirement account and invest in a Vanguard taxable account that you can use to pay down debt in a lump sum if policy changes

[KidneyBoy]

Travis @ Student Loan Planner wrote:

I just put your numbers through my calculator on my site. You didn’t mention family size I’m guessing 3 for modeling purposes. Say your income is $140,000 for payment purposes your loan servicer finds this out when verifying income at the end of 2018. You and your spouse’s income increases with inflation. I’m assuming 36 mos of payments just bc I haven’t built it out to handle anything but years of credit to PSLF yet.

The results:

Total PSLF cost about $94,000. If you did private refinancing at the best possible interest rate of 2.35% variable, it didn’t change at all, and you repaid it in full over 5 years at $5300 a month, the total bill would be $321,000.

Private refinancing only takes into consideration one person’s income. If your spouse has higher income then they ask you to have them cosign and then the application is based on their credit risk not yours. Yes it would make it easier to make payments but that’s the only way it benefits you from a refinancing perspective.

So consider this KidneyBoy (that’s a great username btw), why would you ever refinance when you have $300k of student debt with PSLF in the promissory note and a Republican Congress that has only ever proposed repeals of PSLF that grandfather in current borrowers? Why would you ever risk losing out on paying only $0.30 for every $1 you owe.

Not only should you not refinance, you shouldn’t pay a dime more on your loans than absolutely required to by law. If you want to hedge your risk, max out your retirement account and invest in a Vanguard taxable account that you can use to pay down debt in a lump sum if policy changes

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Thanks for the pep talk. I too am hopeful nothing will change with the current laws around student loans, but I can't help but think Uncle Sam will realize how much money he is missing out on and try to screw us over in some way. I'll take a look at the calculator as well. Thanks for the compliment

 

[DMFA]

Why IBR?  Why not PAYE?  Was it not available when you began repaying?  PAYE allows for a lower monthly payment, which if you don't plan on paying back the loan anyway, is advantageous.

RePAYE gives you a subsidy of 50% of your unpaid interest each month.  Monthly interest on $300,000 at 6.55% will be about $1,637.50, so unless your payment is higher than that, RePAYE would give you the benefit.  However, it always includes spouse's income in the calculation, whereas with PAYE you can file separately to reduce the AGI used for the calculation.  Filing taxes separately opens up lots of other possible issues, like separate tax brackets for each of you and ineligibility for several credits/deductions (and direct Roth IRA contributions), so be mindful of those when considering your decision.

The MFS/PAYE/PSLF stack will result in the least paid over the life of your loan, though you might lose some tax advantages with it.  Otherwise RePAYE will probably be best.  Old IBR (15% of disposable income) is rubbish if you are eligible for PAYE or RePAYE (10% of disposable income).

Here are some calculations using my spreadsheet that I use when I help out my students/interns/residents.  You can see the assumptions I used there.  Notice that this does not account for a growing family or for AGI reduction by either student loan interest payments (which you can't deduct MFS) or 401k/403b elective deferrals (up to $18,000), which would reduce monthly payments even further.

Short version: PSLF all the way, consider MFS/PAYE if the tax hit isn't too bad.

[Travis @ Student Loan Planner]

DMFA wrote:

Why IBR?  Why not PAYE?  Was it not available when you began repaying?  PAYE allows for a lower monthly payment, which if you don’t plan on paying back the loan anyway, is advantageous.

RePAYE gives you a subsidy of 50% of your unpaid interest each month.  Monthly interest on $300,000 at 6.55% will be about $1,637.50, so unless your payment is higher than that, RePAYE would give you the benefit.  However, it always includes spouse’s income in the calculation, whereas with PAYE you can file separately to reduce the AGI used for the calculation.  Filing taxes separately opens up lots of other possible issues, like separate tax brackets for each of you and ineligibility for several credits/deductions (and direct Roth IRA contributions), so be mindful of those when considering your decision.

The MFS/PAYE/PSLF stack will result in the least paid over the life of your loan, though you might lose some tax advantages with it.  Otherwise RePAYE will probably be best.  Old IBR (15% of disposable income) is rubbish if you are eligible for PAYE or RePAYE (10% of disposable income).

Here are some calculations using my spreadsheet that I use when I help out my students/interns/residents.  You can see the assumptions I used there.  Notice that this does not account for a growing family or for AGI reduction by either student loan interest payments (which you can’t deduct MFS) or 401k/403b elective deferrals (up to $18,000), which would reduce monthly payments even further.

Short version: PSLF all the way, consider MFS/PAYE if the tax hit isn’t too bad.

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I've never seen a married filing separately case that I thought made sense w/ my sample size of 170 clients over the past 4 months for what it's worth. Not that it can't happen, but the tax consequences especially for those with kids are very real.

The way I look at it is I'd rather put $25,000 towards a lower loan balance than to file separately and lose $20,000 to taxes even though I'm "saving" $5,000. I think PSLF has a high probability of happening of course but doing PAYE with MFS is kinda like putting all your aces on the table. If you like risk though it could totally be the better strategy. I'm just not that bold

DMFA doing spreadsheets for your residents? That's awesome man! They're lucky to have you

[Travis @ Student Loan Planner]

KidneyBoy wrote:

Thanks for the pep talk. I too am hopeful nothing will change with the current laws around student loans, but I can’t help but think Uncle Sam will realize how much money he is missing out on and try to screw us over in some way. I’ll take a look at the calculator as well. Thanks for the compliment

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There will definitely be PSLF changes before you get the loan forgiveness but for you all the risk is with the democratic proposal. Pres. Obama proposed to means test the PSLF benefit so that you only get $57,500 in forgiveness at a maximum. That would've hurt current doctors far worse than the Republican repeal proposal that explicitly grandfathered in current borrowers.

And I saw this really ridiculous video of Georgetown law school basically talking about how Congress has no clue and will realize it when all the bills start rolling in but they won't be able to do anything about it until later. https://www.youtube.com/watch?v=bkqJ2dZD7Y8&feature=youtu.be

Watching that video will hopefully give some perspective on how many people are truly depending on PSLF to bail them out of out of control tuition

[DMFA]

Travis @ Student Loan Planner wrote:

DMFA wrote:

Why IBR?  Why not PAYE?  Was it not available when you began repaying?  PAYE allows for a lower monthly payment, which if you don’t plan on paying back the loan anyway, is advantageous.

RePAYE gives you a subsidy of 50% of your unpaid interest each month.  Monthly interest on $300,000 at 6.55% will be about $1,637.50, so unless your payment is higher than that, RePAYE would give you the benefit.  However, it always includes spouse’s income in the calculation, whereas with PAYE you can file separately to reduce the AGI used for the calculation.  Filing taxes separately opens up lots of other possible issues, like separate tax brackets for each of you and ineligibility for several credits/deductions (and direct Roth IRA contributions), so be mindful of those when considering your decision.

The MFS/PAYE/PSLF stack will result in the least paid over the life of your loan, though you might lose some tax advantages with it.  Otherwise RePAYE will probably be best.  Old IBR (15% of disposable income) is rubbish if you are eligible for PAYE or RePAYE (10% of disposable income).

Here are some calculations using my spreadsheet that I use when I help out my students/interns/residents.  You can see the assumptions I used there.  Notice that this does not account for a growing family or for AGI reduction by either student loan interest payments (which you can’t deduct MFS) or 401k/403b elective deferrals (up to $18,000), which would reduce monthly payments even further.

Short version: PSLF all the way, consider MFS/PAYE if the tax hit isn’t too bad.

Click to expand…

I’ve never seen a married filing separately case that I thought made sense w/ my sample size of 170 clients over the past 4 months for what it’s worth. Not that it can’t happen, but the tax consequences especially for those with kids are very real.

The way I look at it is I’d rather put $25,000 towards a lower loan balance than to file separately and lose $20,000 to taxes even though I’m “saving” $5,000. I think PSLF has a high probability of happening of course but doing PAYE with MFS is kinda like putting all your aces on the table. If you like risk though it could totally be the better strategy. I’m just not that bold

DMFA doing spreadsheets for your residents? That’s awesome man! They’re lucky to have you

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Thanks.  Simple plug and play, really.  Checking the equations took a little while, but since I had to do it for my wife anyway, it was for my own benefit originally.

MFS being advantageous does completely rely upon PSLF happening completely and tax-free.  It also is good if both spouses have similar incomes (since the tax burden will not be significantly different, other than any lost deductions/credits, since the MFS income brackets are just half the MFJ amounts), but have disproportionate debts.  One year when I had health expenses (deductible over 10% of AGI) we were hundreds ahead doing MFS than MFJ, not even including my wife's significantly lower PAYE payment for doing MFS.  The following year she no longer had a PFH so there was no point to MFS, and her income became much higher than mine since I was still in training, so it would have hurt us doubly.

I deal with very similar situations fairly often in my military population, especially in two-doctor households with similar incomes in training, but almost no debt in the military group since our med school was paid for.  One couple had $600,000 from private undergrad and private med school, all on one spouse.  That's basically the situation that MFS was built for.

Basically, I think we share the point that it is not commonly advantageous to do the MFS/PAYE/PSLF stack because of the problems inherent with MFS, but running the numbers of filing separately should be part of the formula in deciding the optimal outcome before pulling the trigger.

[DMFA]

While on the subject, why do I see so many people eligible for PAYE or RePAYE on pre-2014 IBR (with the 15% DI payment)?  I've analyzed the differences and don't really see any advantage of IBR over either PAYE or RePAYE.  I know that many weren't eligible for the newer ones (before 2007, I think) but still know several that are and just haven't changed.  Maybe it's for fear of capitalized interest, but if you're not going to pay it anyway...

[Travis @ Student Loan Planner]

DMFA wrote:

While on the subject, why do I see so many people eligible for PAYE or RePAYE on pre-2014 IBR (with the 15% DI payment)?  I’ve analyzed the differences and don’t really see any advantage of IBR over either PAYE or RePAYE.  I know that many weren’t eligible for the newer ones (before 2007, I think) but still know several that are and just haven’t changed.  Maybe it’s for fear of capitalized interest, but if you’re not going to pay it anyway…

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Bc the new executive order came out in Dec 2015 and the customer service reps at the loan servicers are terrible / scared to death of getting fired and refuse to risk their jobs to go out on a limb to recommend something different from what folks are already doing.

Also there's a really legit reason to stay on IBR if you're a final year resident or fellow. Say you took out loans before Oct 2007 and are PAYE ineligible, which is a ton of people right now in residency. Your choices are REPAYE or IBR. Say you are a neurosurgeon who goes from $80,000 a year to $600,000 a year. Your IBR payments are capped and REPAYE isn't. If you only have 3 years to go to get PSLF, IBR is much much better. Somewhat uncommon though I'll give you that.

Basically super high income earners who had loans before 10/1/2007 who want PSLF should consider IBR

[KidneyBoy]

Travis @ Student Loan Planner wrote:

KidneyBoy wrote:

Thanks for the pep talk. I too am hopeful nothing will change with the current laws around student loans, but I can’t help but think Uncle Sam will realize how much money he is missing out on and try to screw us over in some way. I’ll take a look at the calculator as well. Thanks for the compliment

Click to expand…

There will definitely be PSLF changes before you get the loan forgiveness but for you all the risk is with the democratic proposal. Pres. Obama proposed to means test the PSLF benefit so that you only get $57,500 in forgiveness at a maximum. That would’ve hurt current doctors far worse than the Republican repeal proposal that explicitly grandfathered in current borrowers.

And I saw this really ridiculous video of Georgetown law school basically talking about how Congress has no clue and will realize it when all the bills start rolling in but they won’t be able to do anything about it until later. https://www.youtube.com/watch?v=bkqJ2dZD7Y8&feature=youtu.be

Watching that video will hopefully give some perspective on how many people are truly depending on PSLF to bail them out of out of control tuition

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Wall Street gets their bailout, now we get ours :P