Finished IM residency got new job as hospitalist - IBR PSLF question

[Globetrotterzzz]

 

I finished my IM residency last year and I got a job as a hospitalist and started working Oct 2017 with an annual salary of around 240K. I have a 54K salary as a resident and I only worked half a year in 2017. So I made 27K (resident) + 20K (2 months of hospitalist) = 47K gross income for the year 2017. When I was getting recertified for my IBR, I was asked to disclose any difference in salary during the year. I truthfully disclosed my new income. And I was told that my new payment starting Jan 2018 will be close to 3K per month for IBR. This is a huge jump from the $380 I was paying as a resident.

I thought the IBR payment should be based on last year's tax return. Shouldn't my 2018 IBR payments be based on my 2017 salary then? I have spoken to several different reps on the phone form my loan servicer. They told me that even though I only worked 2 months as a hospitalist and made total 47K in 2017, they have to base the IBR payment on my new salary of 240K. This doesn't seem right to me. Anyone out there familiar with IBR policy or know anything about how it's calculated when transitioning into a new job as attending?

I have 500K student loan debt. FML.

[cgossage]

Typically, they will use old tax returns to support income.  Did you apply online and link your application to you tax return?  Usually you will get fewer questions that way.  They can ask you for pay stubs or any other support of your current income.  You are also supposed to update them on any significant changes to your income between certification dates, but you are not required to do so.

It sucks that your payments are increasing a year earlier than anticipated, but at least you aren't going to get used to a lifestyle you couldn't afford before the payment change.

Are you still pursuing PSLF?  If not, it may be time to refinance.  If so, have you been certifying your employment and are you sure all of your current loans qualify?  Often I see those that think their loans qualify only to find out they have FFEL, Perkins or other loans that don't.

[Ryan]

Globetrotterz,

Welcome to the forum. I hope you get a chance to look around, read some blog posts, and become a part of our community. This is a forum about investing, maximizing assets and minimizing liabilities. Usually, that comes by smart management and savings with our limited but still relatively large incomes. To answer your question, in short, you owe the $3k, as spelled out in section 455(e) of the Higher Education Act of 1965. More on that later.

More importantly, you have $500k debt on $240k salary. Most of us here would recommend refinancing that to a lower rate, living like a resident for a few years, and paying down that debt as soon as possible.

As far as IBR is concerned, the original bill passed in 1965. As you can read on p474--

(3) ADDITIONAL DOCUMENTS

.—A borrower who chooses, or

is required, to repay a loan made under this part pursuant to

income contingent repayment, and for whom adjusted gross in-

come is unavailable or does not reasonably reflect the bor-

rower’s current income, shall provide to the Secretary other

documentation of income satisfactory to the Secretary, which

documentation the Secretary may use

to determine an appropriate repayment schedule.

http://legcounsel.house.gov/Comps/HEA65_CMD.pdf

Clearly, IBR was not meant as a means to defer paying loans that you can currently afford. The most recent calculation, comfortably has you contributing 10% of discretionary income. Be grateful you have a lot of discretionary income on $240k per year.

[Globetrotterzzz]

Correction: it should be 27K (resident) + 40K (2 months of hospitalist) = 67K gross income for the year 2017.

Thanks cgossage and Ryan for your valuable advice.  In addition to my 500K student loan debt, I also have a total of 28K that consists of personal loan, car loan, and credit card debt.  Unfortunately, I might have chosen the path of ignorance is bliss when it comes to my finances and I really should have been more careful with my spending.  I hope it is not too late to wise up financially and hopefully live debt free in the not too far future especially since I have a family to support now.

All my loans are Direct Loans, so I am pursuing the IBR PSLF route.  I have 7 more years to go to be eligible for PSLF after my 3-year residency.

Are you advising that I should refinance and try to pay off the 500K instead of going 7 more years to get PSLF?  My take-home pay is about 12K a month.  The total for my monthly expenses not including the IBR payment is around 4K if living frugally.  So I will have 96K in savings per year.  That would take me close to 6 years to pay off the 500K plus interest compared to the 7 years with PSLF.  The difference doesn't seem too big in terms of the time frame needed to pay off the debt.

[DMFA]

IBR is the worst to do PSLF with because you pay 1.5x as much as you would with PAYE (or RePAYE if you're either single or have a non-working spouse).

...I really, really don't think you *have* to update them when you take a new job until your annual income recertification is due.  I think they give you that option so if your income drops in mid-year, such as if you lose your job, you can pay less.  This is straight from the horse's mouth.

Will I always pay the same amount each month under an income-driven repayment plan?

No. Under all of the income-driven repayment plans, your required monthly payment amount may increase or decrease if your income or family size changes from year to year. Each year you must “recertify” your income and family size. This means that you must provide your loan servicer with updated income and family size information so that your servicer can recalculate your payment. You must do this even if there has been no change in your income or family size.

Your loan servicer will send you a reminder notice when it’s time for you to recertify. To recertify, you must submit another income-driven repayment plan application. On the application, you’ll be asked to select the reason you’re submitting the application. Respond that you are submitting documentation of your income for the annual recertification of your payment amount.

Although you’re required to recertify your income and family size only once each year, if your income or family size changes significantly before your annual certification date (for example, due to loss of employment), you can submit updated information and ask your servicer to recalculate your payment amount at any time. To do this, submit a new application for an income-driven repayment plan. When asked to select the reason for submitting the application, respond that you are submitting documentation early because you want your servicer to recalculate your payment immediately.

You’re not required to report changes in your financial circumstances before the annual date when you must provide updated income information. You can choose to wait until your loan servicer tells you that you need to provide updated income information at the normally scheduled time. If you choose to wait, your current required monthly payment amount will remain the same until you provide the updated income information.

So, anyway, let's deal with what is instead of what could be.  You can still choose to go with RePAYE or PAYE if it lowers your payment by 1/3 from 15% discretionary income to 10%, or (AGI - [1.5*pov])/80 to (AGI - [1.5*pov])/120.  That will also prevent some interest accrual since on an estimated $500,000 of student loans at 6.8%, interest alone is $2,833.33.  Now, if you use an estimated AGI of 240k (which should actually be lower since I imagine you'd contribute $18,000 to a 401(k) that would drop your payment from $3,000 to $2,000, and they'd pick up $416.67 since RePAYE subsidizes the 50% in unpaid interest (which really would have been nice to have prevented from accruing during residency, I bet...hindsight 20/20).

$500,000 on your income is a lot, but not insurmountable.  Sure, it'd be better to have the government pay it, but for PSLF you *have* to work full-time for a non-profit as an employee.  Now, that doesn't mean you *can't* seek outside work, so you can kinda have your cake and eat it too.  However, you'll be on the hook for the bill, up to $5,178.61 (I assumed the principal at time of entering repayment was $450,000) if you're IBR/PAYE and no limit other than (AGI - [1.5*pov])/120 if you're RePAYE.

I would also be prepared for the very possible reality that you could have the rug pulled out from under you with PSLF.  You should have a side fund built up in a taxable brokerage account to be prepared for needing to refinance and pay that debt.  Keep in mind that with your income-driven repayments, even at a higher income, you might barely be beating back interest accrual every month and not even touch principal.

[cgossage]

With $500,000 in student loans I would pursue PSLF as long as its an option and you know you are going to work for a hospital that is a 501(c)(3).  If something changes and you realize your aren't going to be eligible for PSLF, I would then refinance.  When going the PSLF route, go ahead and invest the $96k of savings instead of putting it towards paying down extra debt (other than the personal loans and credit cards of course).

It's definitely not to late to get your finances in order and your situation is very common.

[Globetrotterzzz]

Thanks guys for the great advice.

Good tip about the REPAYE. I have not looked into REPAYE.  However, I did a bit of research online last night.  It appears that it is as you have mentioned, the REPAYE plan is better for me as its payment amount is only 10% of discretionary income instead of the 15% under IBR.  Based on what I read online, switching from IBR to REPAYE will not affect my eligibility for PSLF because they are both PSLF eligible plans that count toward the 10-year forgiveness.  (source: https://studentloansherpa.com/dangers-switching-repaye/)

If I could, I would pay off my debt and not rely on the PSLF.  However, living on 4K a month and saving 96K a year is for a family of two with just me and my wife.  When we have kids or need to buy a house, I will not be able to have 96K in saving each year.  My wife is still going to school and she doesn't have income.  Thus the PSLF is the best option for me.  I am worried too about the rug being pulled from under me with PSLF.  My internet research, however, is telling me that I will be grandfathered in.  I know that it is not a guarantee, but that is all I can hope for with my situation.

It didn't feel right to not disclose my increase in income when they asked me on the IBR recertification form.  I didn't want to lie and I was also concerned that it could be something scrutinized later on to disqualify me from PSLF.

Now I just have to learn more about 401K and other things that can help me save more money. I am really clueless about finances. I will also try to calculate my AGI for 2017 to make sure they didn't make a mistake with my IBR payment amount.

Sometimes I wonder what would happen if I stuck to being an EMT 12 years ago.  I would probably be debt free and have a nice enough house with some good savings in the bank.  But I love what I do now and there is no going back.  Oh well.

 

 

[cgossage]

Globetrotterzzz wrote:

Thanks guys for the great advice.

Good tip about the REPAYE. I have not looked into REPAYE.  However, I did a bit of research online last night.  It appears that it is as you have mentioned, the REPAYE plan is better for me as its payment amount is only 10% of discretionary income instead of the 15% under IBR.  Based on what I read online, switching from IBR to REPAYE will not affect my eligibility for PSLF because they are both PSLF eligible plans that count toward the 10-year forgiveness.  (source: https://studentloansherpa.com/dangers-switching-repaye/)

If I could, I would pay off my debt and not rely on the PSLF.  However, living on 4K a month and saving 96K a year is for a family of two with just me and my wife.  When we have kids or need to buy a house, I will not be able to have 96K in saving each year.  My wife is still going to school and she doesn’t have income.  Thus the PSLF is the best option for me.  I am worried too about the rug being pulled from under me with PSLF.  My internet research, however, is telling me that I will be grandfathered in.  I know that it is not a guarantee, but that is all I can hope for with my situation.

It didn’t feel right to not disclose my increase in income when they asked me on the IBR recertification form.  I didn’t want to lie and I was also concerned that it could be something scrutinized later on to disqualify me from PSLF.

Now I just have to learn more about 401K and other things that can help me save more money. I am really clueless about finances. I will also try to calculate my AGI for 2017 to make sure they didn’t make a mistake with my IBR payment amount.

Sometimes I wonder what would happen if I stuck to being an EMT 12 years ago.  I would probably be debt free and have a nice enough house with some good savings in the bank.  But I love what I do now and there is no going back.  Oh well.

 

 

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I agree with DFMA on changing your payment plan to REPAYE.  At $500,000 its worth rolling the dice to see if PSLF is still around.  As long as you are saving and investing the extra cash you do have you will be in good position down the road even if something happens to PSLF.

When you apply for REPAYE, apply on the studentloans.gov site.  Link your Tax Return and who knows, maybe they won't ask for your current income.  Most cases they just pull it electronically off of the return.

You will still be ahead of most of the population in a few years in either way.  I know things feel really tight right now, but five years into your practice it will feel much different.

[hightower]

cgossage wrote:

With $500,000 in student loans I would pursue PSLF as long as its an option and you know you are going to work for a hospital that is a 501(c)(3).  If something changes and you realize your aren’t going to be eligible for PSLF, I would then refinance.  When going the PSLF route, go ahead and invest the $96k of savings instead of putting it towards paying down extra debt (other than the personal loans and credit cards of course).

It’s definitely not to late to get your finances in order and your situation is very common.

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I agree with this.  In this scenario, given that your debt is so high relative to your income, going for loan forgiveness is your best bet.

Don't get down on yourself about finances.  Just look ahead at the future and keep your eyes on the prize.  Do the right stuff now and in the very near future  you'll be in a nice position and looking back on this year happy that you wised up when you did.

Keep reading and you'll be just as financially savvy as anyone on these forums in no time.

Globetrotterzzz wrote:

Thanks guys for the great advice.

Good tip about the REPAYE. I have not looked into REPAYE.  However, I did a bit of research online last night.  It appears that it is as you have mentioned, the REPAYE plan is better for me as its payment amount is only 10% of discretionary income instead of the 15% under IBR.  Based on what I read online, switching from IBR to REPAYE will not affect my eligibility for PSLF because they are both PSLF eligible plans that count toward the 10-year forgiveness.  (source: https://studentloansherpa.com/dangers-switching-repaye/)

If I could, I would pay off my debt and not rely on the PSLF.  However, living on 4K a month and saving 96K a year is for a family of two with just me and my wife.  When we have kids or need to buy a house, I will not be able to have 96K in saving each year.  My wife is still going to school and she doesn’t have income.  Thus the PSLF is the best option for me.  I am worried too about the rug being pulled from under me with PSLF.  My internet research, however, is telling me that I will be grandfathered in.  I know that it is not a guarantee, but that is all I can hope for with my situation.

It didn’t feel right to not disclose my increase in income when they asked me on the IBR recertification form.  I didn’t want to lie and I was also concerned that it could be something scrutinized later on to disqualify me from PSLF.

Now I just have to learn more about 401K and other things that can help me save more money. I am really clueless about finances. I will also try to calculate my AGI for 2017 to make sure they didn’t make a mistake with my IBR payment amount.

Sometimes I wonder what would happen if I stuck to being an EMT 12 years ago.  I would probably be debt free and have a nice enough house with some good savings in the bank.  But I love what I do now and there is no going back.  Oh well.

 

 

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[MFM DOC]

 

Globetrotterzzz wrote:

 

I finished my IM residency last year and I got a job as a hospitalist and started working Oct 2017 with an annual salary of around 240K. I have a 54K salary as a resident and I only worked half a year in 2017. So I made 27K (resident) + 20K (2 months of hospitalist) = 47K gross income for the year 2017. When I was getting recertified for my IBR, I was asked to disclose any difference in salary during the year. I truthfully disclosed my new income. And I was told that my new payment starting Jan 2018 will be close to 3K per month for IBR. This is a huge jump from the $380 I was paying as a resident.

I thought the IBR payment should be based on last year’s tax return. Shouldn’t my 2018 IBR payments be based on my 2017 salary then? I have spoken to several different reps on the phone form my loan servicer. They told me that even though I only worked 2 months as a hospitalist and made total 47K in 2017, they have to base the IBR payment on my new salary of 240K. This doesn’t seem right to me. Anyone out there familiar with IBR policy or know anything about how it’s calculated when transitioning into a new job as attending?

I have 500K student loan debt. FML.

Click to expand...

As I'm sure you know already, the IDR recertifications are yearly, but it can fall anytime during the year.  I'm 6+ years into PSLF, mine happened to be in August and I have always used my prior year's taxes (August 2016 recertification I used 2015 tax return).  The recertification website will pull over your tax returns automatically and makes the process pretty painless.  I have talked with the FedLoan servicing people about this very situation, and they say you are required to certify every year but are not required to do so more often.  As a resident/fellow/attending, it is to our advantage and perfectly within the rules to use the prior year's taxes.  That being said, if you already put your current salary I would be very surprised if they would let you go back and use your tax return.

I switched to REPAYE after running the numbers and now my recertification is in October.  So for my October 2018 recertification I'll use my 2017 taxes.  Just a heads up, it will take at least 60 days or so and you will miss those two payments at the reduced rate (I think you have the option of staying in the standard parent plan).

As others are saying, run some numbers for IBR vs REPAYE.  The interest subsidy for REPAYE and 10% payment of income needs to outweigh IBRs 15% of income and not having to include spousal income.  There are some good posts about this topic on WCI

[bullsdoc]

Quick related question, thanks for all the help here.  Let's say a similar situation, used pay stubs to certify salary, now want to use AGI which would actually come out to be a bit less due to some income at a resident level.  It is above board to submit this tax return despite previously submitting pay stubs that showed a higher salary?  They may not accept, but wanted to ask if okay to go back to submitting tax returns, even if it does not totally reflect current salary.  Thanks again