Advice with Student Loan Help-Refinance or IBR

[iGuy]

Hi, appreciate in advance any helpful advice. I am a new attending and my wife is a fellow who has 1.5 years left of fellowship. She has been on IBR for the last 3.5 years on a loan of about 300K at 6.5%. With my recent bump in salary and our filing our taxes jointly, the payment on her loan has gone up substantially under IBR- it is now about 2.5K a month. When we speak with some of the refinancing companies, it seems like we are at a disadvantage to refinance her loans now because her own debt to income ratio is so high. Despite my increased salary.

At this point, we don't know if she will take a job at 503c corp or not when she is done with fellowship. Would ya'll suggest we strongly consider re-financing her loan now, or wait until she is an attending in 1.5 years, in order to hopefully get a better rate (assuming she does not stay in the loan forgiveness program)? Thank you!

[DMFA]

Which financing companies did you talk to?

Why were you on IBR and not RePAYE or PAYE? Old IBR is pretty awful.

You could file separately for a lower payment, but at your disparate incomes, your much higher one will be in a higher bracket that would probably make it not worth it.

If you're not committing to PSLF and you're stuck paying that huge amount at that huge interest rate, you might consider a private refinance. Since she's still in training, it might be tougher. I know DRB is one of the only banks which refinances residents (idk about fellows). There's no reason you can't re-refinance once she's an attending.

Every day that $300k is steamrolling at 6.8% is a bad day (if you're not committing to PSLF).

[iGuy]

DMFA, thanks for the reply.

She was on IBR- as a resident, her payments were reasonable. Then, we got married, my attendinghood started, and her fellowship started, and under joint filing, her IBR payment skyrocketed, prompting me to wonder about refinancing.

I spoke with Sofi and DRB and yes, DRB is willing to refinance her as a fellow. I'm just wondering if now is a good time to refinance with them or wait until she has attending income, and then we could possibly get a lower refinance rate?

In terms of REPAYE, would that be a better option for us than traditional IBR? Our combined gross income right now is about 275K, so 10% of that would still be 27.5K a year, which is not much different from what IBR is having us pay right now per year (30K).

 

 

[MochaDoc]

iGuy wrote:

I’m just wondering if now is a good time to refinance with them or wait until she has attending income, and then we could possibly get a lower refinance rate?

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You may refinance multiple times. The ultimate question is whether or not you all plan to pursue PSLF. If the answer is "yes," don't refinance. If the answer is "no," you should definitely pursue the lowest interest rate possible after deciding between fixed or variable. That's the gist of your decision-making algorithm regarding student loan refinancing.

Ultimately, the question you're asking can only be answered by you and your wife. When will she know her post-fellowship plans? Can you all swing the increased IBR payments until that decision-making point? In the interim, can you all switch to another repayment plan that might be less damaging to you all financially?

[Statbat]

Does anyone know the actual tax burden at the end of the ibr term? My accountant wasn't sure of our tax responsibility at the end of the 25 years. I have been talking with Jim about this and My wife and I are filing separately bc I have 240k and she has 320k at 7%. She is a chiropractor and has very limited options with pslf, if any. She is also working part time and only making 35k, with a max potential salary of really only 50-75k in the future. This limits her ibr payments to 200$/month x 25 years. If we file together, she gets lumped in with my high earning potential >350k and our payments jump drastically especially bc I've already refinanced mine.

[iGuy]

Thanks MochaDoc,

I had an inclination that the real answer here would lie in, "ultimately, the question you're asking can only be made by you and your wife."

We certainly are making the payments fine, and part of me feels that hey, at least we are paying down the debt faster by making these large payments. But eating this loan at 6.8% is torture. She's going to be looking for a job in the next year, so that may ultimately tell us if PSLF will be a realistic option for her loan or not.

By the way, I was always looking at 2017 as an interesting year for PSLF... does anyone know folks who have actually gotten their loans forgiven this year?

[MochaDoc]

iGuy wrote:

Thanks MochaDoc,

I had an inclination that the real answer here would lie in, “ultimately, the question you’re asking can only be made by you and your wife.”

We certainly are making the payments fine, and part of me feels that hey, at least we are paying down the debt faster by making these large payments. But eating this loan at 6.8% is torture. She’s going to be looking for a job in the next year, so that may ultimately tell us if PSLF will be a realistic option for her loan or not.

By the way, I was always looking at 2017 as an interesting year for PSLF… does anyone know folks who have actually gotten their loans forgiven this year?

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You're welcome.

 

Re PSLF in 2017, based on another thread on WCI, it looks like we won't know how well PSLF translates from concept to reality until October 2017 so stay tuned.

[DMFA]

Statbat wrote:

Does anyone know the actual tax burden at the end of the ibr term? My accountant wasn’t sure of our tax responsibility at the end of the 25 years. I have been talking with Jim about this and My wife and I are filing separately bc I have 240k and she has 320k at 7%. She is a chiropractor and has very limited options with pslf, if any. She is also working part time and only making 35k, with a max potential salary of really only 50-75k in the future. This limits her ibr payments to 200$/month x 25 years. If we file together, she gets lumped in with my high earning potential >350k and our payments jump drastically especially bc I’ve already refinanced mine.

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I just threw up in my mouth a little bit. $320k at 7%...to earn...at most...$75,000/yr? How...why...?

You won't even come close to touching interest at $200/month. That will continue to accrue over the years and you'll be due for a massive tax hit since IBR (not PSLF) forgiveness counts as taxable income. By my off-the-cuff calculation, that's going to be $820,000 in 25 years...

At the same time, you're paying horrendous taxes on your income since so much more of it is at the higher brackets from filing separately, not even considering being ineligible for many other deductions/credits.

If you're on the hook for it, the ugly truth is probably that you need to refinance it.

Ugh. I'm sorry for the negativity, but unless I'm missing something big (not impossible) I didn't get the feeling you're aware of how double-plus-ungood that is.

[Statbat]

The situation sounds terrible, But thank you for the frankness of the answers. I haven't been able to get any straight answers to date, not even from my accountant and this seems to be the most straightforward of them.

[Craigy]

Earnest will also refinance a resident.  They don't even ask the question.

[MochaDoc]

Craigy wrote:

Earnest will also refinance a resident.  They don’t even ask the question.

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Really? Are residents offered the best rates?

[Craigy]

MochaDoc wrote:

Craigy wrote:

Earnest will also refinance a resident.  They don’t even ask the question.

Click to expand…

Really? Are residents offered the best rates?

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I don't know everyone's situation, but my wife's loan is less than 100 points from their best advertised rate.  Resident, no cosigner.