Husband's Medical School Loans

[WTHmedicalschool]

Hi, I'm the wife of a PGY3 neurology resident and he has about 420k in loans which we want to pay off in 3-5 years once he starts practicing. Currently he's on PSLF with many loans at various rates. We don't know much but what would you guys advise? What are good consolidation and refinance options? Where/how can we get the best rate?

[Dicast]

You can check out this WCI blog post about refinancing options while in residency.

You should probably make out a list of loans and interest rates to know where you are starting. Sometimes as a resident the refinancing rates aren't that much better.

If the plan is to pay off 420k loans in 3-5 years you'll need to be ready to send some big checks no matter what your interest rate is.  10k a month is probably in your desired range. Is PSLF not an option?

 

[DMFA]

What kind of loans (federal, etc)? What rates? What kind of work does he plan on doing? Has he certified his payments for PSLF? What's his current repayment plan (RePAYE, PAYE, IBR)?

If all his payments thus far have been appropriately certified toward PSLF, and he stays in it, he'll only have 6 years of payments before the balance is forgiven tax-free (assuming it sticks around). So bear that in mind.

[jfoxcpacfp]

If you plan to stick with PSLF, you won’t be able to refinance. Have you decided yet? You’ve already received some great advice, so do your due diligence before deciding you’re going to leave the PSLF track.

[The White Coat Investor]

WTHmedicalschool wrote:

Hi, I’m the wife of a PGY3 neurology resident and he has about 420k in loans which we want to pay off in 3-5 years once he starts practicing. Currently he’s on PSLF with many loans at various rates. We don’t know much but what would you guys advise? What are good consolidation and refinance options? Where/how can we get the best rate?

Click to expand...

You're not making sense. You're likely in some type of income driven repayment plan such as IBR, PAYE, or REPAYE. You might be certifying for PSLF each year too, but that doesn't really matter if you're planning on paying these back. However, I think with that specialty and that loan burden, working at a 501(c)3 after residency and going for PSLF may be a very good idea. Are you two sure you don't want to do that?

If you're sure, then use that link above to see your options.

[WTHmedicalschool]

Thanks for all of your answers.

He's currently on the REPAYE track in PSLF. His monthly payments came out to be $0, since his income as a resident is so low and we file taxes separately. He has 15 separate loans within the 420k, each at a varying interest rate between 5.41% - 8.21%. Refinancing would give us a consistent rate, and he says he doesn't want to stick to working at a 501(c)3 since he can make much more working privately.

I also read that DeVos might get rid of the PSLF program, would that also mean currently enrolled participants would not be able to stick the course?

Paying off this amount seems so daunting right now. I appreciate everyone's responses!

[Hank]

There’s a pretty good chance that current PSLF participants will be grandfathered, in whole or in part.

That said, it might be prudent to chuck money into a taxable account as if you were paying off the loan on a ten year schedule. If PSLF is cancelled you still can pay off your loan. If you get PSLF, then the money in the taxable account is yours to keep. Win-win either way.

[Going Under]

First step I think would be to determine which loan(s) PSLF would apply to, and then consider the other loans as a separate group that you can do with what you please. Likely you'd be able to consolidate and/or refinance at least below 8% with those even if you changed nothing else.

Second, determine your plan regarding PSLF. My advice would be that if PSLF is still in the running at all, keep those loans on that path and continue certifying them. If you get off the PSLF plan by refinancing privately, it is impossible to go back on. I would guess that the interest subsidies on REPAYE for those loans bring the effective interest down in the same area that you'd be able to refinance to anyway (at least this was the case with my loans), so you're not losing a ton by sticking with PSLF for now. Once you sign a contract with a non-qualifying institution, then refinance those loans. The catch with PSLF both during and after residency is that if you're sticking with the program, you want to minimize payments to maximize forgiveness, but if you're not you want to maximize payments to minimize time in debt/interest. If you're in it but still not sure, one thing you can do is make minimum payments to PSLF loans, but save as if you're making those maximum payments in a dedicated account. If you decide to stick with PSLF and everything gets forgiveness, you have a windfall of sorts to go to other debts/investing per your policy. If you decide to get out of it and refinance, you can apply that saved money to those loans and come close to catching back up to where you'd be if you were making aggressive payments all along.

Third, awesome to hear that you're both on board with aggressively getting the loans paid off. Just remember the key: live like a resident till that's accomplished. Just taking his likely salary into account, this could take putting ~65% of his post tax income towards loans for 4-5 years. That's doable and still gives you together a similar effective income to during residency (his resident salary + whatever you're making). Definitely that amount of loans is daunting. But it might feel a little less daunting if you think about it in terms of just keeping the status quo going for a few years after residency.

Good luck!

[VagabondMD]

I do not follow the alphabet soup of student loans and payback strategies. I do know that the thought of having to pay back $420k on the salary of a neurologist is daunting (and makes me naueous thinking about it). The only things that can make that even more frightening is that he wants to be a private practice pediatric neurologist in San Francisco. Is it too late to make the switch to neurosurgery?

[DMFA]

WTHmedicalschool wrote:

Thanks for all of your answers.

He’s currently on the REPAYE track in PSLF. His monthly payments came out to be $0, since his income as a resident is so low and we file taxes separately. He has 15 separate loans within the 420k, each at a varying interest rate between 5.41% – 8.21%. Refinancing would give us a consistent rate, and he says he doesn’t want to stick to working at a 501(c)3 since he can make much more working privately.

I also read that DeVos might get rid of the PSLF program, would that also mean currently enrolled participants would not be able to stick the course?

Paying off this amount seems so daunting right now. I appreciate everyone’s responses!

Click to expand...

RePAYE always includes spouse's income.  MFS doesn't help you there; it only causes the higher earner to be taxed at a higher marginal rate and denies you several deductions and credits.  Are you sure it's not PAYE?  PAYE is better for PSLF because the payment becomes capped at the 10-yr standard rate and you can file separately to minimize what's paid on the loan, but you have to have a partial financial hardship (calc'd PAYE payment less than 10-yr standard).  RePAYE has no income cap nor payment cap, and if you're not planning on paying the loan back anyway, you don't need the subsidy.

Hey, don't get me wrong, I'd love to make more money as for-profit than non-profit as well...but if you'd have hundreds of thousands forgiven tax-free, that might make it worthwhile as far as total amount paid on the loans.  Take these numbers, for instance, assuming a family size of 4 and that you're not in AK or HI. If you're MFS and he's PAYE, and he makes $250,000 a year, maxes a 401(k) at 18k/yr, his AGI is $232,000 and his PAYE payment is $1,625.83/mo, paid for 72 months = $117,060 paid over the remainder of the life of the loan. Compare this to as opposed to paying the whole thing over 5 years ($420,000 over 5 years at 3.25% = $7,593.60/mo, $455,616.06 total paid).  Plus, if his schedule is easier at a non-profit, then he's free to make more outside of his main job.  PSLF just says you have to be full-time employed by a qualifying employer; it doesn't say you can't make additional income on the side.  This would be different if he were making $350,000 after 3 years as, say EM, vs $250,000 after 4 years of neurology.

I think it's great that you want to go after your debt in 5 years or less.  I love it.  You *should* want to do that.  But with debt that may be nearly twice one's annual income and only one year's difference between when it would be fully paid after a refinance and when it would be forgiven tax-free, I think you should really strongly consider the latter.  And if you think PSLF will get pulled out from beneath us, which is not an unreasonable concern (though I think unlikely for current enrollees), then take whatever other money you'd have put toward paying your loan into a taxable brokerage account invested in low-risk securities (like municipal bonds) as your "loan payoff" fund.