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PSLF vs Refinancing Advice

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  • PSLF vs Refinancing Advice

    Here are my details:

    Current PGY-5, will finish fellowship in 2019

    Total loan debt: $177k at 6.5% ($25k Direct Sub, $152k Direct Unsub)

    Qualifying payments made through PAYE: 43 out of 120

    Currently paying $1k per month, which is the minimum payment through the repayment plan (married filing jointly with a current shared income of $170k)


    I am anticipating an attending salary in the range of $300-325k initially (with a spouse who will likely be working at least part time), which when that occurs would ramp up my minimum monthly payment to the range of $1700-2000 or so.  Projecting the payments I will have to make to reach 120 and get loans forgiven (assuming I get a job with a qualifying employer), I will have paid a total of approximately $155k as a rough estimate (note I have already paid $31k in minimum monthly payments, but haven't made a dent in the principal).  I calculate I could potentially get about $50-75k forgiven in the middle of 2024 when I hit 120 payments based on accrued interest.

    Although I have about 8-10 months before I'll start applying, I think there is a much greater likelihood of me getting a job in the private sector.  My question is, should I go ahead and try to refinance my loans privately now to lock in a lower interest rate?  I would love to pay them off within 3 years of finishing fellowship, which would be about 2 years before I would potentially have them forgiven.  Should I keep making the minimum required payment now and just wait to see if I get a job with qualifying employer which would allow me to pursue PSLF?  Any advice is much appreciated.  Thanks.

  • #2
    The best answer is to compare the numbers: how much would you pay if you destroyed the debt a few years after you sign a contract? How does that compare to the 150k that you will pay if you wait for PSLF? Is the difference worth being in debt for five more years? Is it worth the political risk that PSLF will go away or be altered? How much extra interest will you pay at your current rate, compared to a 4% rate at Laurel Road or SoFi, over 3 years?

    The lower your debt, the higher your attending salary, the lower your debt tolerance, and the higher your current interest rate--the less likely you should wait for PSLF.


    • #3
      Your debt load is pretty low compared to your current and future salary. If you refinance now, will your payments still be manageable? I am guessing yes . . . Personally, I'd refinance now as it seems unlikely you will end up qualifying for PSLF and thus will end up paying more in the long run with this higher interest rate you are currently at. But as PP said you'd have to run the numbers to be sure.


      • #4
        I'd wait to refinance, you won't save that much money by refinancing an extra 1.5 years early. I also have 1.5 years left of fellowship then will enter private practice, but once you refinance you can NEVER go back. You may join a practice with an academic affiliation and low and behold they are 503-b. You just won't know until you sign a contract. As physicians, I think we have the luxury of having time on our side to make this decision and don't have to rush into refinancing. It would be one thing to finish med school and know off the bat you aren't doing PSLF, but you've already committed 43 out of 120 payments, just wait and see what happens.


        • #5
          Also you probably won't get that good of a rate as a fellow maybe 6.5%--->5%, but when attending and refinance you can probably get 3-4%.


          • #6
            You are in a good spot. I was in a similar position.

            Forget about PSLF.

            Refinance in the 3s and you can easily pay those loans off in <2 years (and still live very comfortably on attending salary).

            Decision was easy for me. I don't expect or rely on the government to help me. Furthermore, I had to get away from Navient. Scammers.

            Pay off the loans quickly and move on with life.


            • #7
              Here's me showing what you said, some assumptions, and showing the work:

              You'll see some of the numbers are a bit off because I had to make assumptions - if you want to fill in the blanks in what was incorrect, then great, we can get to brass tacks with exact figures.

              At any rate, you'll save a few tens of thousands of dollars sticking with PSLF, but that will bind to working full-time employed by a nonprofit.  If you don't want all three of those things (full-time, employed, nonprofit), esp if you'd earn tens of thousands of dollars more by *not* working for a nonprofit, then I'd refi and pay it off.

              Maybe I don't have a great reason for this, but from my amateur outsider perspective I'm getting a bit more pessimistic about PSLF.  For those with massive debts and low incomes, I still think it's best, but I think you'll easily be able to cover the few tens of thousands of dollars of difference by refinancing and enjoying the further job-finding flexibility you'll have.

              Obv completely up to you.  Def should run the numbers yourself (as you've already started doing) and ensure the goals are in line with your and your spouse's expectations.


              • #8
                Since you are still a couple of years away for knowing for sure that you will take a private sector job, I think it's worth holding onto the PSLF option.  Using my rough numbers based on what you gave me you would be eligible for $75,000 or so of your loan balances forgiven.  That could be even higher if your taxes separately, but I'm assuming you don't want to pay more in taxes to hold onto the option of having more loans forgiven.  A lot can change between chief year and finishing fellowship.  You can always refinance once you are into fellowship and know for sure you are going to take a private sector job.

                Even if you wait to refinance, you should easily be able to pay off your loans within 3 years.  I would think you could do it in less than 2.


                • #9
                  Thanks, everyone, for your great advice.  Much appreciated.  It does seem like the potential savings I would get through PSLF is fairly substantial versus refinancing today with the trade-off of holding onto my loans for another 1-2 years.  Seeing the numbers helps puts things into perspective. Although I am still somewhat pessimistic about PSLF and am generally leaning towards private practice, I think it's probably worth it to wait another year and see what job I get.  Once I sign a private practice job contract, I will immediately refinance and try to knock those loans out within a couple years.

                  I just needed some reassurance and guidance from others that I am not missing something completely obvious or doing something really stupid.  I am new to the site and am quickly trying to learn how to control my financial future better.