Student Loan Situation

[jkamel]

Hi Guys, New to WCI, will try to make this short:

 

Me: Med student, graduating this year, resident pay check ~55k starting june. Owe 400,000 in loans

Wife: Pharmacist, Currently working, ~110k gross annually. Owes 300,000 in loans

 

Trying to decide what to do here going into residency:

1. Consolidate

2. Dont consolidate, File taxes separately, (benefits here are lower Income based payments for both of us, but lose out on married tax benefits)

3. Dont consolidate, File taxes jointly and pay both loans, ( High payments for both of us, get joint tax benefits )

4. Get private loans

 

Has anyone been in this situation and can help with some advice?

[MaxPower]

What residency program are you in (what specialty)? Advice would probably be different if you’re in peds or ortho.

[hnnguyen3]

If I were in your shoes, I'd look into refinancing my loans to a lower rate.  As for filing jointly or separately, why not try both on the tax software to determine which one is better for you?

[DMFA]

You can't consolidate your loans with each other. They haven't done that for a decade.

For income-driven repayment on federal loans, they're supposed to factor in both debts and both incomes if you file jointly. So it should be as though you're paying one debt with $165k income, and then you pay prorated portions; for example, if her income is twice yours, then you'd pay 1/3 and she'd pay 2/3. Poverty level for a family of 2 is $16,200, so RePAYE would be (165,000 -
[1.5*16,200]) ÷ 120 = $1172.50, so you'd pay $390.83 and she'd pay $781.67.

However, your 2017 AGI is prob zero, so your first year of payments will only be based on her AGI, so a total of $714.17...and then, after intern year, you'll refile with half a year's income for you, so an AGI of about $137,500, and a total of $943.33.

Adjustments to income will lower your AGI and thus your monthly payment. As you can see, every $120 by which you lower your AGI will drop your monthly payment by $1. For an AGI under $150,000, student loan interest is an adjustment up to $2,500, and so that can reduce your payment by $20ish. If you contribute $18,000 to a pretax 401(k), that's another $150 off your monthly payment (though you're likely better served by Roth instead of pretax - different story).

The other thing to consider is whether to pay your loans at all, i.e. go for PSLF. In that instance, your goal is to pay as little toward the loans as possible - the MFS/PAYE/PSLF stack. This penalizes you in a few ways: higher taxes since the higher income will be taxed at a higher marginal rate and you lose eligibility for several adjustments, deductions, and credits, and lots of unpaid accruing interest that, should the program be limited or ended or you don't get a qualifying non-profit full-time employed job for 10 years (residency may qualify), you'd be on the hook for a high interest rate that's been accruing the entire time.

RePAYE is *usually* the best choice since it limits payments and interest accrual while maintaining flexibility for either PSLF eligibility or a private refinance once out of training.

[DMFA]

...but with 3/4 of a million in debt, I'd at least give PSLF a good thought, unless you've got a short training term with high earning potential, like EM, Derm, or Anesthesia.

[Dicast]

I don’t think full repayment is much of an option unless you can live dirt cheap. On a standard 10 years you are looking at a payment of 7-8k a month. You will use your wife’s entire salary to make the payments and that is probably without using any money towards retirement.

If you wife is working retail and not able to do pslf I would have you refinance her loan and work on it. Check out one of the repaye/pslf for yourself depending on your residency.

[The White Coat Investor]

You're leaving out critical details- specifically 501c3 plans, how much of loans are private, how much are federal direct.

[Dilaudidopenia]

As states above, need to know types of loans, your future specialty, whether wife works in 501c3.

If your plan is to stay in academics or other 501c3 and wife is staying in 501c3, get into RePAYE, get that PSLF paperwork in ASAP and pray PSLF exists in 10 years.

If going non-501c3, still do RePAYE to take advantage of interest subsidy, then refinance upon graduation.

MFS / MFJ depends on the numbers.  MFS may save you a net of a couple thousand a year.

I am EM attending (non-501c3) and wife is in peds fellowship (praying for PSLF). We file MFS currently for her loan purposes.  I privately refinanced mine x 2, now at 3.1% fixed 5 year.

[The White Coat Investor]

Dilaudidopenia wrote:

 

If your plan is to stay in academics or other 501c3 and wife is staying in 501c3, get into RePAYE, get that PSLF paperwork in ASAP and pray PSLF exists in 10 years.

 

 

Click to expand...

That may not be good advice. He is quite likely to be better off in PAYE and file MFS if he is going for PSLF.

[Dilaudidopenia]

The White Coat Investor wrote:

Dilaudidopenia wrote:

 

If your plan is to stay in academics or other 501c3 and wife is staying in 501c3, get into RePAYE, get that PSLF paperwork in ASAP and pray PSLF exists in 10 years.

 

 

Click to expand…

That may not be good advice. He is quite likely to be better off in PAYE and file MFS if he is going for PSLF.

Click to expand...

Agreed. Sorry, I forgot that you can't play the MFS strategy is you go RePAYE.  My wife is PAYE and we do MFS currently.  When she is attending, we will switch to MFJ as the benefit will disappear.

[jkamel]

Thanks for all you replies, very very helpful. All of it is federal loans (split between the normal one and PLUS loans), I will be going into dermatology. Wife is Retail CvS (for profit). For my future, possible to stay in academics, nothing for sure though. Ps, Great Online course WCI! Now that you know I'll be going into derm, how does that change the plan?

 

EDIT: Seems like REPAYE until I graduate, then switch it over to variable rate private loans and pay it within 5 years?