Student Loan Plan... Anything I'm missing?

[ktehc]

Hey everyone,

I'm an MS4 who just finished interviews, and I'm now solidifying my financial plans for the coming years (ofc, assuming I match in ~6 weeks). Been fortunate to have been a longtime WCI reader. Hoping to get some kind souls to look over my plan as it stands now, and see if there are any other avenues I may be overlooking. Thanks in advance for reading!

About me: Current MS4, applying to orthopaedics. Currently have $9k in the bank to last me until first residency paycheck, but looking to get a low-key job during Spring quarter for some extra vacation money.

My loans: Total of $139k at time of graduation.
- Perkins: $9k @ 5% fixed
- Fed Direct: $63k @ 5.63% effective (range 3.4 - 6.21%) fixed
- Loans for Disadvantaged Students (LDS): $47k @ 5% fixed
- Sallie Mae Relocation Loan: $20k @ 5.5% + 1 month LIBOR = 7.125% currently, variable

My strategy:

1) Consolidate the Perkins in with the Fed Direct and enter REPAYE on the $72k total. Required payments will be ~$3k annually, while interest is ~$3.9k annually. I'll save 50% of unpaid interest in a savings account (or another easily accessed account with no/minimal fees?), while the other 50% is subsidized per REPAYE terms. That will give me a pool of money to cover the interest generated prior to capitalization, which I will pay off just prior to leaving REPAYE to refinance as an attending.

2) Float the LDS loans until I can consolidate with the aforementioned REPAYE amount and refinance as an attending. LDS loans are subsidized throughout residency and fellowship, so that's 6 years of interest free on the $47k.

3) Payoff the relocation loan ASAP, possibly refinance if I can find someone to do it.

4) Refinance all loans as an attending at the lowest rate possible, and accelerate payoff schedule (by my calculations, I could pay off in as little as 2 years).

I'll be making sure to save up an emergency fund, max retirement accounts, purchase the appropriate insurances, rent vs buy (based on NYT calculator and trying to get that 5% home buyers grant), etc. Gf and I are looking to tie the knot in the next 1-2 years, kids 1-2 years after that. She'll graduate with teaching credential (high school level) this summer with about $3k of debt. I know that her income (~$50k from what I've seen) will be factored into REPAYE payments, pushing them up and potentially negating any interest subsidy; however, if we can live off her income, I can put more of mine towards an early payoff.

I thought about getting a medical residency forebearance on the Direct+Perkins loans and just saving the equivalent of the interest payments; the advantage there being that I won't have any required payments and freeing up cash flow during residency. But the REPAYE interest subsidy is too good to pass up. I'm not going for PSLF even though my plan is to work in academics, as I think my income will still be too high to realize any forgiveness.

This all seems solid to me after running a few different scenarios, but is there anything else I need to consider?

Thanks again everyone!
K

[hightower]

Yeah, this sounds great for an MS4!  You're ahead of the curve if you ask me.  And if you get into Ortho you'll be able to pay off your loans first year of attending salary no problem

[The Physician Philosopher]

Have you looked into the four residency refinance programs to do the math to see how much they'd cost? There are four programs (Laurel Road, SoFi, Link Capital, and Splash Financial) that allow you to refinance privately as a student.

If you are certain you aren't doing PSLF, I would look into those.  The monthly payments range from 1$ (Splash) to 75-100 (the other three).  IF you refinance with commonbond after you have a contract in hand the last year of residency you'll get an attending rate and no payment for that year (though you can pay on it if you want without incurring fees).

Making a student loan resource page right now so this is all fresh on my mind.

REPAYE is definitely the best governmental option during residency...but would only stick with that if I did the math to see if it made sense (forgiveness on remaining interest versus a lower interest rate of 5-5.5% with privately refinanced loans).

[DMFA]

ktehc wrote:

My loans: Total of $139k at time of graduation. – Perkins: $9k @ 5% fixed – Fed Direct: $63k @ 5.63% effective (range 3.4 – 6.21%) fixed – Loans for Disadvantaged Students (LDS): $47k @ 5% fixed – Sallie Mae Relocation Loan: $20k @ 5.5% + 1 month LIBOR = 7.125% currently, variable My strategy: 1) Consolidate the Perkins in with the Fed Direct and enter REPAYE on the $72k total. Required payments will be ~$3k annually, while interest is ~$3.9k annually. I’ll save 50% of unpaid interest in a savings account (or another easily accessed account with no/minimal fees?), while the other 50% is subsidized per REPAYE terms. That will give me a pool of money to cover the interest generated prior to capitalization, which I will pay off just prior to leaving REPAYE to refinance as an attending. 2) Float the LDS loans until I can consolidate with the aforementioned REPAYE amount and refinance as an attending. LDS loans are subsidized throughout residency and fellowship, so that’s 6 years of interest free on the $47k. 3) Payoff the relocation loan ASAP, possibly refinance if I can find someone to do it. 4) Refinance all loans as an attending at the lowest rate possible, and accelerate payoff schedule (by my calculations, I could pay off in as little as 2 years).

Click to expand...

Good call.  Those relocation loans are abhorrent.  RePAYE should be sufficient during residency, then just do a private refi when out of training and pay off in a couple years.  That small of an amount should be less than a third of an orthopaedic surgeon's gross salary.  You could even do it in a year if you were so inclined.

[ktehc]

The Physician Philosopher wrote:

Have you looked into the four residency refinance programs to do the math to see how much they’d cost? There are four programs (Laurel Road, SoFi, Link Capital, and Splash Financial) that allow you to refinance privately as a student.

If you are certain you aren’t doing PSLF, I would look into those.  The monthly payments range from 1$ (Splash) to 75-100 (the other three).  IF you refinance with commonbond after you have a contract in hand the last year of residency you’ll get an attending rate and no payment for that year (though you can pay on it if you want without incurring fees).

Making a student loan resource page right now so this is all fresh on my mind.

REPAYE is definitely the best governmental option during residency…but would only stick with that if I did the math to see if it made sense (forgiveness on remaining interest versus a lower interest rate of 5-5.5% with privately refinanced loans).

Click to expand...

Thanks for the input! With the 50% subsidy, my effective interest rate comes out to 4.90%, better than most of the rates listed on the private companies' websites (have not yet obtained a formal quote, planning to after Match day). But now that you mention it, if I get to the point where the subsidy phases out due to higher payments, I can always refinance then.

DMFA wrote:

ktehc wrote:

My loans: Total of $139k at time of graduation. – Perkins: $9k @ 5% fixed – Fed Direct: $63k @ 5.63% effective (range 3.4 – 6.21%) fixed – Loans for Disadvantaged Students (LDS): $47k @ 5% fixed – Sallie Mae Relocation Loan: $20k @ 5.5% + 1 month LIBOR = 7.125% currently, variable My strategy: 1) Consolidate the Perkins in with the Fed Direct and enter REPAYE on the $72k total. Required payments will be ~$3k annually, while interest is ~$3.9k annually. I’ll save 50% of unpaid interest in a savings account (or another easily accessed account with no/minimal fees?), while the other 50% is subsidized per REPAYE terms. That will give me a pool of money to cover the interest generated prior to capitalization, which I will pay off just prior to leaving REPAYE to refinance as an attending. 2) Float the LDS loans until I can consolidate with the aforementioned REPAYE amount and refinance as an attending. LDS loans are subsidized throughout residency and fellowship, so that’s 6 years of interest free on the $47k. 3) Payoff the relocation loan ASAP, possibly refinance if I can find someone to do it. 4) Refinance all loans as an attending at the lowest rate possible, and accelerate payoff schedule (by my calculations, I could pay off in as little as 2 years). 

Click to expand…

Good call.  Those relocation loans are abhorrent.  RePAYE should be sufficient during residency, then just do a private refi when out of training and pay off in a couple years.  That small of an amount should be less than a third of an orthopaedic surgeon’s gross salary.  You could even do it in a year if you were so inclined.

Click to expand...

Yeah, the relocation loan is usually a questionable call, but it enabled me to have enough cash reserves to take off a full quarter of tuition this Spring in addition to helping with residency expenses. If I didn't have it, the only option would've been for me to use credit cards at higher interest rates or doing rotations I didn't need to do (and pay for) to get another financial aid disbursement for living expenses. Borrowing $15k to get $6k back didn't seem reasonable (though I know a few of my classmates who are doing just that). I suppose I could have opened a new credit card and gotten some intro 0% APR deal to last me 3 months, but I didn't think about it.

 

[kzbt19]

ktehc wrote:

I know that her income (~$50k from what I’ve seen) will be factored into REPAYE payments, pushing them up and potentially negating any interest subsidy; however, if we can live off her income, I can put more of mine towards an early payoff.

Click to expand...

Can you explain this? Or direct me to where I can read more about this? I am also an M4 thinking REPAYE is my best bet and I'll be getting married to a non-physician in March 2019. I have ~180k in direct unsub loans, and he has ~150k in loans. So when we get married next year, how does this affect the interest subsidy under REPAYE? Thanks!

[cgossage]

kzbt19 wrote:

ktehc wrote:

I know that her income (~$50k from what I’ve seen) will be factored into REPAYE payments, pushing them up and potentially negating any interest subsidy; however, if we can live off her income, I can put more of mine towards an early payoff. 

Click to expand…

Can you explain this? Or direct me to where I can read more about this? I am also an M4 thinking REPAYE is my best bet and I’ll be getting married to a non-physician in March 2019. I have ~180k in direct unsub loans, and he has ~150k in loans. So when we get married next year, how does this affect the interest subsidy under REPAYE? Thanks!

Click to expand...

The extra income from being married only impacts the interest subsidy in that it increases your payment.  If your payment is higher you are likely either paying all of the interest that is being accrued, so no need for the subsidy, or your payment is closer to covering all of the interest accrual for the month, so the subsidy will be less.

Based on what you have said about your situation, I would think REPAYE is your best option.  The only reason to use PAYE would be to have the option to use a Married Filing Separately strategy to reduce your monthly payment (which is really only used if one of you is going for PSLF and want to only include your own income) or that you would be in a situation where your REPAYE payment would be higher than your payment under the standard 10-year payment plan (which from your situation doesn't sound applicable).

[ktehc]

kzbt19 wrote:

ktehc wrote:

I know that her income (~$50k from what I’ve seen) will be factored into REPAYE payments, pushing them up and potentially negating any interest subsidy; however, if we can live off her income, I can put more of mine towards an early payoff. 

Click to expand…

Can you explain this? Or direct me to where I can read more about this? I am also an M4 thinking REPAYE is my best bet and I’ll be getting married to a non-physician in March 2019. I have ~180k in direct unsub loans, and he has ~150k in loans. So when we get married next year, how does this affect the interest subsidy under REPAYE? Thanks!

Click to expand...

Like @cgossage mentioned, the problem stems from having too high of a combined income such that your minimum payments under RePAYE approach or overtake the amount of interest generated on the loans.

In my case, while single, my minimum payments will be about $3k annually, while my interest accrues at $3.9k annually; the subsidy will be equivalent to 50% of the $900 difference = $450. But once married and having to list spouse income, my minimum payment may jump to $4k while interest is essentially unchanged... There would be no unpaid interest, so I get no subsidy.

The higher your loan balance (and thus interest) and the lower your pay (fairly standard across the board in residency), the better the subsidy.

[SerrateAndDominate]

kzbt19 wrote:

ktehc wrote:

I know that her income (~$50k from what I’ve seen) will be factored into REPAYE payments, pushing them up and potentially negating any interest subsidy; however, if we can live off her income, I can put more of mine towards an early payoff. 

Click to expand…

Can you explain this? Or direct me to where I can read more about this? I am also an M4 thinking REPAYE is my best bet and I’ll be getting married to a non-physician in March 2019. I have ~180k in direct unsub loans, and he has ~150k in loans. So when we get married next year, how does this affect the interest subsidy under REPAYE? Thanks!

Click to expand...

As others have said, REPAYE considers joint income regardless of tax filing status.  If your spouse is not a high earner, REPAYE may be the way to go.  I've been wrestling with how to manage my loans as well.  My wife is a dentist with no student debt.  The big lynchpin for us is finding out what exactly she will do when I start fellowship in upstate NY this summer.  NY has weird rules for getting a dental license (do a residency or have practiced for 2 years, neither of which apply for her)

[MollyRohenBarlow]

My wife and I are also MS4s and we are doing the exact same thing as you have planned! Consolidate loans to enter RePAYE asap. We are going to still check rates one match day has arrived with those private companies mentioned above, if I can get an equivalent or lower interest rate compared to my effective rate with RePAYE (and have a lower monthly payment w private refinance) then we’ll do that instead.

But still get the ball rolling ASAP on consolidating and entering RePAYE bc I’ve already hit speed bumps with incompetent loan servicers.

Best set of luck on match day!

[kzbt19]

ktehc wrote:

kzbt19 wrote:

ktehc wrote:

I know that her income (~$50k from what I’ve seen) will be factored into REPAYE payments, pushing them up and potentially negating any interest subsidy; however, if we can live off her income, I can put more of mine towards an early payoff. 

Click to expand…

Can you explain this? Or direct me to where I can read more about this? I am also an M4 thinking REPAYE is my best bet and I’ll be getting married to a non-physician in March 2019. I have ~180k in direct unsub loans, and he has ~150k in loans. So when we get married next year, how does this affect the interest subsidy under REPAYE? Thanks!

Click to expand…

Like @cgossage mentioned, the problem stems from having too high of a combined income such that your minimum payments under RePAYE approach or overtake the amount of interest generated on the loans.

In my case, while single, my minimum payments will be about $3k annually, while my interest accrues at $3.9k annually; the subsidy will be equivalent to 50% of the $900 difference = $450. But once married and having to list spouse income, my minimum payment may jump to $4k while interest is essentially unchanged… There would be no unpaid interest, so I get no subsidy.

The higher your loan balance (and thus interest) and the lower your pay (fairly standard across the board in residency), the better the subsidy.

Click to expand...

So when you are the point of getting no loan subsidy, will you refinance? Or stick with RePAYE?

Since I'm getting married in March 2019, can I file taxes prior to that and not have to include my spouse until I file in 2020?

[ktehc]

kzbt19 wrote:

ktehc wrote:

kzbt19 wrote:

ktehc wrote:

I know that her income (~$50k from what I’ve seen) will be factored into REPAYE payments, pushing them up and potentially negating any interest subsidy; however, if we can live off her income, I can put more of mine towards an early payoff. 

Click to expand…

Can you explain this? Or direct me to where I can read more about this? I am also an M4 thinking REPAYE is my best bet and I’ll be getting married to a non-physician in March 2019. I have ~180k in direct unsub loans, and he has ~150k in loans. So when we get married next year, how does this affect the interest subsidy under REPAYE? Thanks!

Click to expand…

Like @cgossage mentioned, the problem stems from having too high of a combined income such that your minimum payments under RePAYE approach or overtake the amount of interest generated on the loans.

In my case, while single, my minimum payments will be about $3k annually, while my interest accrues at $3.9k annually; the subsidy will be equivalent to 50% of the $900 difference = $450. But once married and having to list spouse income, my minimum payment may jump to $4k while interest is essentially unchanged… There would be no unpaid interest, so I get no subsidy.

The higher your loan balance (and thus interest) and the lower your pay (fairly standard across the board in residency), the better the subsidy.

Click to expand…

So when you are the point of getting no loan subsidy, will you refinance? Or stick with RePAYE?

Since I’m getting married in March 2019, can I file taxes prior to that and not have to include my spouse until I file in 2020?

Click to expand...

Since I am not going to go for PSLF, I will refinance privately once the effective interest rate on RePAYE overtakes whatever rate I could get with the refinance.

Not 100% sure. Since you use your previous years taxes for each recertification, I would think that you could get away with just your income showing up. But there may be a situation when you refinance that you would include both partners individual tax returns from the previous year for the current recert. Probably good to look into