Spouse PSLF and combined income

[IHateBuffering]

Hello - love this site and forum! I'm somewhat of an investing newb and have some questions about PSLF and combined income. Here is my spouse and mine's info:

 

Me: Student loans ~$200,000 @6.0%, currently MS4 going into internal medicine with plans for either hospitalist, pulm/crit or cardiology

Spouse: Student loans ~$150,000 @6.0%, currently a physical therapist 1.5 years out from school and doing PSLF

Combined: ~$10,000 in index ETFs and ~$15,000 in Roth IRA through Vanguard

 

My Spouse is currently ~18 payments into PSLF and has been paying about $200/month through IBR. This year her IBR monthly payments will increase because she got a raise last year (now making ~$70,000/year), but probably only a couple hundred dollars or so/month. I am planning on refinancing and aggressively paying off my student loans after residency.

My question is this: when I start residency and then 3-6 years later get an attending salary, how will that affect my wife's IBR payments toward her PSLF? Will our combined income essentially render the PSLF useless because of how high her IBR monthly payments will be? Is there a way (perhaps file taxes separately?) so that her IBR payments remain low because of her lower earning potential as a PT? Many thanks in advance for the help.

[cgossage]

First of all, hi and welcome to the forums.

For PSLF, be certain that both of you are eligible.  Are all of your and your wife's loans Direct Loans?  Is your wife certifying her employment?

Your wife's payment will increase to around $1,260/mo under IBR once you have a salary in residency.  You could file separate taxes, but your taxes will go up $10,000/year compared to filing joint.  The tax problem will only get worse once you have an attending salary, so I would rule out the filing separate taxes option.

A better option is to use REPAYE, which will keep your payment around $840/mo once you start residency.  Once you become an attending, your wife's payments will cap out at her Standard Payment amount which I am assuming is ~$1,665.  Under this assumption, she would still have to make around $135,000 of payments before she receives around $80,000 of student loan forgiveness.  It's not totally useless, but PSLF for your wife isn't as attractive with your dual income.

If we assumed you refinanced her loans at 4.25% instead, she would make $184,000 in payments.  This is probably your best bet if you decide PSLF isn't worth it.  The government could change the program at any time, so who know if it will still be around in another 8.5 years.

[IHateBuffering]

Thank you for the excellent response. That was very helpful.

All of our loans are federal Direct Loans and my wife currently works at a 501(c)(3) organization. She certified her employment for the payments she made in 2016 and part of 2017. She will be working there until we move for residency in June, and which time she'll look for another job at another 501(c)(3) organization. Limits her job options slightly but that's what we get with PSLF.

As a quick clarification - when you say "A better option is to use REPAYE, which will keep your payment around $840/mo...", are you talking about my wife's monthly loan payments or my own? And can she switch from IBR to REPAYE easily?

And I agree - the main reason I'm not doing PSLF is because I don't like the uncertainty of what the program will look like 10 years down the road. Thankfully it hasn't changed much in the 1.5 years my wife has been doing it.

Thanks again - very helpful!

 

 

 

[cgossage]

No problem. All of the numbers I am using is for your wife’s loans only.

It is easy to change to REPAYE (at least as easy as it is to do anything else student loan related). Just apply on the studentloans.gov website and verify your income.