Married filing separately?

[spring219]

Hi everyone! I will be graduating medical school May of this year and am looking into loan repayment. My situation is a little different than most medical students so I wanted to see if anyone had advice for me or could point me where to go to figure out my situation.

I will be graduating with about 300k of student loan debt from undergrad/grad/medical school. I am (hopefully) going into internal medicine with future career goal of hospital medicine.

I am married and my husband makes around $120k-150k/year (still waiting on year end bonus). We have 2 children.

I am going to apply for PLSF but I don't want to count on it as a way to pay back the loans.

I am looking into what to do once I graduate. Should we file taxes separately this year so I can make payments under PAYE? Is there somewhere I can go for further information on what makes the best financial sense for my situation? I saw doctors without quarters recommended on a different site, does anyone have experience with this company?

Thank you so much for your help! As the reality of graduating and starting residency is hitting me I'm realizing I need to work on a game plan for these loans!

[hoosier]

My wife and I also will file separately this year to keep her PAYE payments as low as possible. Interested in the answers you get here!

[DMFA]

You will pay a few thousand extra in taxes each year which will offset some of your savings. You become ineligible for several deductions and credits as well as paying taxes on the higher income at a higher bracket.  You also can't deduct TIRA contributions or make direct Roth contributions, but this isn't a big deal because you can just do backdoor Roth IRA.

If you are still on the hook for the loans anyway (i.e. not PSLF), then this just kicks the can down the road until you refinance when you're out of training to the lowest rate and term available.  So yes, this accomplishes the short-term goal of minimizing your payments, but will result in more taxes paid and more loan debt paid over the total life of the loan.  However, those higher payments later will end up being a smaller proportion of your overall income, since you'll make so much more out of training than as a resident.

Simply put, if you can afford RePAYE, you should consider doing it...otherwise, it's fine to minimize your payments on the front end, knowing you'll end up paying more debt on the back end when you've got a higher income (unless you're doing the MFS/PAYE/PSLF stack).

If you want specific numbers, I can give you that...but I think the conceptual explanation ought to suffice  

[spring219]

Thank you for that! What do you think of refinancing privately straight out of medical school? I saw a few advertised programs with minimal payments in residency and it looks like it could reduce my interest rate significantly (hopefully).

Another option- we own the house we live in and have $200k equity (purchased by my husband before we married). We will definitely have to move for residency and are considering renting out our current house so that if we wanted to move back after 3 years we could. We love the area our home is in and it is close to both of our families so it's almost certain we'll move back.

The other option would be to sell it and put that money towards my loans? Would that make more sense in the long run? It definitely sounds nice to pay off a good portion of my loans but will take a lot of convincing to get my husband on board.

[DMFA]

spring219 wrote:

Thank you for that! What do you think of refinancing privately straight out of medical school? I saw a few advertised programs with minimal payments in residency and it looks like it could reduce my interest rate significantly (hopefully).

Another option- we own the house we live in and have $200k equity (purchased by my husband before we married). We will definitely have to move for residency and are considering renting out our current house so that if we wanted to move back after 3 years we could. We love the area our home is in and it is close to both of our families so it’s almost certain we’ll move back.

The other option would be to sell it and put that money towards my loans? Would that make more sense in the long run? It definitely sounds nice to pay off a good portion of my loans but will take a lot of convincing to get my husband on board.

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1. Refinancing as a resident is usually a bad idea.  The interest rate is still high, and the $100/month payment many add still allows lots of interest to accrue.  At 6.8%, a loan of $300,000 will accrue (0.068/12) • 300,000 = $1,700/mo.  That's $56.66 a *day.*  You're on the hook for that eventually.  I think the best thing for you would probably be RePAYE; it will take your husband income into account, so you can still benefit from filing jointly, but the government will cover half the unpaid interest.  At a family size of 4, poverty line is $24,600; hence your RePAYE payment would be, assuming an AGI of 100k for your husband and with additional adjustments like a 401(k) or student loan interest paid, (100,000 - [1.5 • 24,600]) / 120 = $525.83.  That means that $1,174.17 of interest would still accrue; however, the government would subsidize (essentially erase) half of it, meaning $587.09 would be subsidized, and an additional $587.09 would accrue.  This essentially reduces your interest rate to (1700-587.09) • 12 / 300000 = 4.45%.  Not totally awesome, but I assure you, likely better than any refi you could come up with.  You should refi once out of training to the shortest term and lowest rate at which you can afford payments, which is usually a 5-year variable.

2. IDK about that.  Being an absentee landlord when you're not in the metro area can be a pain and can eat into your cash flow you were trying to develop with the house in the first place.  I'm lukewarm to that idea.  You might find that your professional plans about where you may want to work and live may change.  Do you have adequate cash reserves (such as 3-6 months' expenses) built up just in case you have a large expense on the house or you don't find renters in time?  It can be a real boon if it all works out the way you want it to, but you've got to understand that people often find their plans after residency were not what they thought it would be.

3. Hmm.  Not an awful idea, but with RePAYE keeping a lot of interest accrual at bay, and your likely ability to refinance down to the 2-3% range (although that assumes interest rates don't change over 3-4 years) once you're out of training, you'll lose less to finance charges than you otherwise might.  Might even consider just letting it stew in savings earning 1.5% (unless you want to risk it in bond-heavy securities like VWIUX or a blend like VTMFX) and use it for the down payment on your next home; however, since even with the lower tax deductibility of mortgage interest with the new tax bill, it's probably still preferable to have mortgage interest to student debt, and you might just take a high LTV (0-5% down) non-conforming loan like a "doctor loan" for your next house and use the cash for the loans. [basically I'm saying you could prob do anything here and not be "wrong"]

...here's a flowchart WCI made to help discuss what to do with one's student loans, taken from this blog post.