I'm considering giving up on PSLF

[PMR]

About me:

6.5 years into the PSLF program

Attending, currently making around $480k, my employer does qualify for PSLF

Maxing out all available retirement accounts and backdoor roth for my wife and I.

Currently in the REPAYE program with payments at $2300/year

Current students loans: $293K at 7%, Remaining Mortgage: $230K. No other debt

 

I have $170k saved up so far in my "what if PSLF falls through" fund and I'm adding about 10k/month into this savings account. My previous plan had been to save $300k in to this savings account by the end of this year and when they forgive my loans in 3.5 years, pay off the remainder of mortgage (if I have any mortgage left).

 

Why I'm considering leaving PSLF: Last year when I submitted my employment certification form, they said that after making an additional 12 payments for the year, my total qualified payments actually decreased. I asked for a recount and they said it would take 90 days. It's been 5 months.

I have been obsessively listening to Dave Ramsey and although I don't think he gets everything right with physician finances, he does motivate like no one else to get out of debt. Even though the math doesn't make sense, I am so tempted to refinance and knock out my student loans during 2018 (currently have 170k saved and can easily get to the 300k mark with my current savings rate.  I just hate paying $2300/month for 3.5 years while watching the principle stay the same when I can pay off the debt this year and be done with it.  I still have not heard of anyone actually getting the loan forgiveness.

Am I crazy to walk away from potentially 290k loan forgiveness???

Side note, I would love the WCI to try a Dave Ramsey style call in show for physicians that he could post on his podcast. I learn a lot from hearing other people discuss their financial dilemmas.

 

Thanks for your suggestions!!

[The White Coat Investor]

PM&R wrote:

About me:

6.5 years into the PSLF program

Attending, currently making around $480k, my employer does qualify for PSLF

Maxing out all available retirement accounts and backdoor roth for my wife and I.

Currently in the REPAYE program with payments at $2300/year

Current students loans: $293K at 7%, Remaining Mortgage: $230K. No other debt

 

I have $170k saved up so far in my “what if PSLF falls through” fund and I’m adding about 10k/month into this savings account. My previous plan had been to save $300k in to this savings account by the end of this eyar and when they forgive my loans in 3.5 years, pay off the remainder of mortgage (if I have any mortgage left).

 

Why I’m considering leaving PSLF: Last year when I submitted my employment certification form, they said that after making an additional 12 payments for the year, my total qualified payments actually decreased. I asked for a recount and they said it would take 90 days. It’s been 5 months.

I have been obsessively listening to Dave Ramsey and although I don’t think he gets everything right with physician finances, he does motivate like no one else to get out of debt. Even though the math doesn’t make sense, I am so tempted to refinance and knock out my student loans during 2018 (currently have 170k saved and can easily get to the 300k mark with my current savings rate.  I just hate paying $2300/month for 3.5 years while watching the principle stay the same when I can pay off the debt this year and be done with it.  I still have not heard of anyone actually getting the loan forgiveness.

Am I crazy to walk away from potentially 290k loan forgiveness???

Side note, I would love the WCI to try a Dave Ramsey style call in show for physicians that he could post on his podcast. I learn a lot from hearing other people discuss their financial dilemmas.

 

Thanks for your suggestions!!

Click to expand...

# 1 - Don't give up yet. Just keep that side fund. Even Dave Ramsey approves of that approach. When the side fund = debt, consider it paid off mentally.

# 2 - Maybe we could try doing a "call-in podcast" once and see how it goes. Some technical aspects to doing that, aside from the fact that people would actually have to call in while we were doing it! Maybe we could do it as a webinar and then put the audio up as a podcast.

[Donnie]

This is a conundrum since the interest rate is high, but math can help us here.  Dave Ramsey's advice is right that 7% debt should be paid off, but walking away from $290k is likely a bad idea.  The way to see this is an expected value (EV) analysis. I don't follow PSLF closely enough to know what the likelihood is that your debt won't be forgiven in 3.5 years.

You need to compare the expected value of (i) paying off the loan now versus (ii) waiting to see if your debt is forgiven in 3.5 years and paying off the loan then.  I went though this quickly so maybe there is a mistake, but the idea is as follows:

• Option (i) EV is basically equal to the $290k debt pay off, or -$290k


• Option (ii) EV is basically equal to minimum payments of -$8k, less loan balance in 3.5 years times probability of PSLF failing.  Assuming loan balance is around $360k in 3.5 years (add $70k of interest), the EV of staying in the program is -$188k with a 50/50 success rate of PSLF.

The point is that there has to be a really high likelihood of PSLF going away to make dropping out a good idea.

[cgossage]

PM&R wrote:

About me:

6.5 years into the PSLF program

Attending, currently making around $480k, my employer does qualify for PSLF

Maxing out all available retirement accounts and backdoor roth for my wife and I.

Currently in the REPAYE program with payments at $2300/year

Current students loans: $293K at 7%, Remaining Mortgage: $230K. No other debt

 

I have $170k saved up so far in my “what if PSLF falls through” fund and I’m adding about 10k/month into this savings account. My previous plan had been to save $300k in to this savings account by the end of this year and when they forgive my loans in 3.5 years, pay off the remainder of mortgage (if I have any mortgage left).

 

Why I’m considering leaving PSLF: Last year when I submitted my employment certification form, they said that after making an additional 12 payments for the year, my total qualified payments actually decreased. I asked for a recount and they said it would take 90 days. It’s been 5 months.

I have been obsessively listening to Dave Ramsey and although I don’t think he gets everything right with physician finances, he does motivate like no one else to get out of debt. Even though the math doesn’t make sense, I am so tempted to refinance and knock out my student loans during 2018 (currently have 170k saved and can easily get to the 300k mark with my current savings rate.  I just hate paying $2300/month for 3.5 years while watching the principle stay the same when I can pay off the debt this year and be done with it.  I still have not heard of anyone actually getting the loan forgiveness.

Am I crazy to walk away from potentially 290k loan forgiveness???

Side note, I would love the WCI to try a Dave Ramsey style call in show for physicians that he could post on his podcast. I learn a lot from hearing other people discuss their financial dilemmas.

 

Thanks for your suggestions!!

Click to expand...

I wouldn't give up yet either.  There are people getting the loan forgiveness (keep in mind, 2017 was the first year anyone could qualify).  I'm all for getting out of debt, but why pay all of it out of your own pocket if there is a program you have every right to qualify for.

FedLoan screws up pretty much everyone's student loans that have any complexity to them at all, so it's not just you doing something wrong.  Expect to have to jump through a few hoops to get $290,000.  It will be well worth it when you have it forgiven and can put that $300k you have saved elsewhere.

[jhwkr542]

Don't give up the free money.

[hnnguyen3]

I'm in a similar boat.  My employer helps with loan repayment yearly for the next few years.  I hate seeing that student loan balance, and keep telling myself it is "paid off" mentally.

[StarTrekDoc]

Free money is free money -- even if it's deferred.   Mentally watch the side-by-side savings and that'll ease the brain.  Net worth increases regardless which is saved/paid off; then 3 years from now -- BOOM.   Vaca time.

[hightower]

I agree you should keep building your "just in case" fund.  Once you hit 293k, consider your loans paid off, continue making your minimum payments and await  "forgiveness day."  The good news is you'll reach 293 in no time and be able to start shifting money into other places and ignore the student loans because no matter what they're gone.  Yes, it would be nuts to walk away from it at this point.  If you still had 9 years to go it would be a different story.  But, we're talking about just 3.5 years.  And you'll have the funds to pay them off instantly at any time.  No brainer.  Stay in the program

[bonehead]

Very similar boat here, numbers and all.  I feel the same way sometimes.

Agree with sticking it out.  In poker terms, the "pot odds" are too great to not stay in the hand.

If you're investing within your side find, take a lot of comfort knowing that it likely grew 20+% in the last year.  You're doing better than paying off the loan.  If you had paid it off early, you'd have come out behind.  This may change in the future of course, but it helps for now.

You also getting lots of protections with fed loans.  If your income magically disappears, you'll never owe more than the 10% of your discretionary income on whatever you do make.  If you die, your estate doesn't owe on the loans (not sure about taxes, but that's far less).

 

[The Physician Philosopher]

Agree with above. Stay the course.

[ChristopherMD20]

This is the absurdity of this program that has been discussed on another thread. This is effectively taking away $290k from the pot that people who actually need it like social workers working in inner city Baltimore making $30k with $80k student loans. The OP can easily pay this money off but will be taking out of the pot. I have an ethical problem with the program as I see it as a much less egregious corollary to people taking advantage of welfare and disability etc. etc.

PM&R wrote:

Am I crazy to walk away from potentially 290k loan forgiveness???

Click to expand...

Yes.... yes you would be crazy to do this. As much "shade" as I am expressing above, it is not toward the OP. I hate the game not the player. I think you would be very silly not to continue on with the PSLF program from a logical/math perspective. Even if we said the likelihood of PSLF failing was 20% (which is a gross overestimate) you holding back and waiting to pay it off is a positive EV play.  Just stay the course it is well worth the "risk."

[childay]

Don't be crazy.

I did not go for PSLF but can only imagine how irritating it would be with these loan servicers any more than I did already.  If they screw up your approvals or payments it could cost you big $$ and they are among the most incompetent companies I have ever dealt with.

[Kamban]

I agree with Christopher MD20. As much as I feel that PSLF for physicians is not right I think the OP should stick it out, pay the 3.5 years and be done with. Rules are rules and I feel that grandfathering is an important part of any past agreements that might be changed.

[Panscan]

so the current prevailing thought is just have a taxable account and instead of paying off loans(in event of PSLF) to just invest in the taxable, right?

[The Physician Philosopher]

The taxable account approach is an insurance policy that the government changes the program and cans it at the end.  If that happens, you'll have the money to still pay back the money you owe.  If the program remains (and your debt is forgiven), you are now just ahead of the game in terms of being closer to retirement.