Couples matching, unique debt situation. Unsure about best course of action.

[brbr122]

So my partner and I are couples matching into medicine and peds. I have been lucky to have no debt due to parental help and a significant scholarship and my partner has ~185k in student loans. So theoretically, we could jump right into the standard 10-year repayment plan at $2k per month during residency with our ~110k combined income. However, I am worried if that amount will hurt our quality of life pretty significantly throughout the 6-7 years of residency and fellowship (we both are planning on specializing). Also, I am wondering if there is a better way to approach this such as using REPAYE for some interest forgiveness and then paying off all the loans in 1-2 years after finishing fellowship while preserving a high quality of life during residency.

What would you do in this situation?

[Joseph]

brbr122 wrote:

while preserving a high quality of life during residency.

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That is really funny.  I am not sure what you are expecting but I have NEVER heard of residency as the time of a "high quality of life".

Good luck in your decision. You didn't explicitly state whether you are married.  Not to question your commitment, but a partnership can go south in a hurry.  Not to say that marriages don't fail as well, but if you are talking about paying the other's debt....well it is a definite consideration.

[brbr122]

Soon to be married. And as someone currently living in a $300/month room in a shared house, a solid $1500/month apartment would be a heavenly quality of life. However, I doubt that would be feasible if we are making full payments.

[Diggidy]

Even if you're going to be soon married, I believe your wife (who is doing Peds, I presume?) and you could file "Married filing separately", and she could put her loans into IBR and make minimum payments without your income jacking up the required minimums. Given that many Peds jobs seem to qualify for PSLF, she could continue to stay with IBR for the first 7 years of her career (or go into fellowship for 2-3 more years), and try to get PSLF.

There is the question that I've seen posed, by WCI himself actually, that I don't know the answer to -- if you would be able to go into REPAYE during residency to lower your effective interest rate, and then convert to IBR upon completion of residency. I don't know the specifics, but REPAYE could become a wash in your situation as I don't believe you're able to hide your income by filing separately in REPAYE, so your minimum payments would be higher than with IBR.

 

[Zaphod]

I am also unsure of this residency "quality of life". You'll be working so much you shouldnt spend too much money. If you have a chance not to let it grow or even better knock it down or rid yourself of it before residency is over you should. I'd get on the level 10 year and knock it out, doubtful you'd ever regret that. Get a reasonable apartment, and survive residency like everyone else.

110k-15k taxes (could be higher or lower depending on state/deductions)=95k. You could probably make this zero with a roth/401k contributions.

95-18=77k

77-24=53k

53k after taxes, housing, and knocking out the loans to cover all other expenses. Seems totally doable. Try not to pay taxes by doing retirement instead. Get Turbo tax or your fav program and play with the numbers to where it works out the best.

 

[brbr122]

Zaphod wrote:

I am also unsure of this residency “quality of life”. You’ll be working so much you shouldnt spend too much money. If you have a chance not to let it grow or even better knock it down or rid yourself of it before residency is over you should. I’d get on the level 10 year and knock it out, doubtful you’d ever regret that. Get a reasonable apartment, and survive residency like everyone else.

110k-15k taxes (could be higher or lower depending on state/deductions)=95k. You could probably make this zero with a roth/401k contributions.

95-18=77k

77-24=53k

53k after taxes, housing, and knocking out the loans to cover all other expenses. Seems totally doable. Try not to pay taxes by doing retirement instead. Get Turbo tax or your fav program and play with the numbers to where it works out the best.

 

Click to expand...

how do you get 15k taxes on 110k?

If you use this calculator: http://www.adp.com/tools-and-resources/calculators-and-tools/payroll-calculators/salary-paycheck-calculator.aspx even for no state income tax states a salary of 110k becomes ~74k take home after federal, medicare, and social security.

[jfoxcpacfp]

Zaphod wrote:

110k-15k taxes (could be higher or lower depending on state/deductions)=95k. You could probably make this zero with a roth/401k contributions.

Click to expand...

Questioning your assumptions above. And a Roth will have no effect on taxable income. If they marry this year, the marginal tax rate will be 25% for Fed only, then there is FICA, and possibly state/local. Since they are renting, highly doubtful they will be able to itemize and will take the standard deduction. I doubt they can get to zero taxes with retirement contributions and have enough left for living expenses.

[brbr122]

jfoxcpacfp wrote:

Zaphod wrote:

110k-15k taxes (could be higher or lower depending on state/deductions)=95k. You could probably make this zero with a roth/401k contributions. 

Click to expand…

Questioning your assumptions above. And a Roth will have no effect on taxable income. If they marry this year, the marginal tax rate will be 25% for Fed only, then there is FICA, and possibly state/local. Since they are renting, highly doubtful they will be able to itemize and will take the standard deduction. I doubt they can get to zero taxes with retirement contributions and have enough left for living expenses.

Click to expand...

 

This is what I was thinking. I was thinking of maximizing our Roth IRA's (another ~1k/month out of living expenses between us) which really would leave us with no additional money for savings accounts that could affect taxes. Would you recommend a different approach to savings in our case?

[jfoxcpacfp]

Yes, I agree with you. Get those Roths maxed out and let the tax-free growth begin! That's the silver lining to being in a low tax bracket  

[Zaphod]

brbr122 wrote:

Zaphod wrote:

I am also unsure of this residency “quality of life”. You’ll be working so much you shouldnt spend too much money. If you have a chance not to let it grow or even better knock it down or rid yourself of it before residency is over you should. I’d get on the level 10 year and knock it out, doubtful you’d ever regret that. Get a reasonable apartment, and survive residency like everyone else.

110k-15k taxes (could be higher or lower depending on state/deductions)=95k. You could probably make this zero with a roth/401k contributions.

95-18=77k

77-24=53k

53k after taxes, housing, and knocking out the loans to cover all other expenses. Seems totally doable. Try not to pay taxes by doing retirement instead. Get Turbo tax or your fav program and play with the numbers to where it works out the best.

 

Click to expand…

how do you get 15k taxes on 110k?

If you use this calculator: http://www.adp.com/tools-and-resources/calculators-and-tools/payroll-calculators/salary-paycheck-calculator.aspx even for no state income tax states a salary of 110k becomes ~74k take home after federal, medicare, and social security.

Click to expand...

Thats just what HR blocks quick calculator said, maybe its terrible. Yours was good for a single paycheck but wasnt good for annual stuff. A couple of things though. Your first year will only be 6 months so you'll be shouldnt have any taxes really as it will be half. Just put your numbers into a tax software and play with the numbers until it achieves your goals. Theres no way your taxes should be at a higher effective rate than mine at less than 1/3rd of the salary, and Im in California.

Put as much into your 401k as allowed or to hit goals, you may have an option to convert to roth after or not, this should be up to 18k (for each of you) and will decrease your marginal rate, but does really depend on your employer and specifics, etc...hence the higher/lower/deductions/state. It is always preferable to save for retirement vs. pay taxes instead so find the balance there. Unfortunately at this stage the rules of your plan and its choices are really up to the institution so you can only do whats allowed, but should still have some latitude.

Just hard for me to see that living expenses are going to be that bad, unless youre going to be in SF/NYC/LA. You'll both be making more than the average person, and so busy you wont have a lot of time to just spend. Goal should be to learn as much as possible and set yourself up for future success and enjoyment once out. Its doable, very doable. Where are you going to be doing residency? If finances are an issue, choose a lower cost of living place. It is much much much easier to keep a chill lifestyle now than later on while you make more money, always easier to pick the low hanging fruit and not to go against your human nature to adapt and inflate lifestyle. Tough it out now, live well sooner.

 

[brbr122]

Zaphod wrote:

brbr122 wrote:

Zaphod wrote:

Click to expand…

Thats just what HR blocks quick calculator said, maybe its terrible. Yours was good for a single paycheck but wasnt good for annual stuff. A couple of things though. Your first year will only be 6 months so you’ll be shouldnt have any taxes really as it will be half. Just put your numbers into a tax software and play with the numbers until it achieves your goals. Theres no way your taxes should be at a higher effective rate than mine at less than 1/3rd of the salary, and Im in California.

Put as much into your 401k as allowed or to hit goals, you may have an option to convert to roth after or not, this should be up to 18k (for each of you) and will decrease your marginal rate, but does really depend on your employer and specifics, etc…hence the higher/lower/deductions/state. It is always preferable to save for retirement vs. pay taxes instead so find the balance there. Unfortunately at this stage the rules of your plan and its choices are really up to the institution so you can only do whats allowed, but should still have some latitude.

Just hard for me to see that living expenses are going to be that bad, unless youre going to be in SF/NYC/LA. You’ll both be making more than the average person, and so busy you wont have a lot of time to just spend. Goal should be to learn as much as possible and set yourself up for future success and enjoyment once out. Its doable, very doable. Where are you going to be doing residency? If finances are an issue, choose a lower cost of living place. It is much much much easier to keep a chill lifestyle now than later on while you make more money, always easier to pick the low hanging fruit and not to go against your human nature to adapt and inflate lifestyle. Tough it out now, live well sooner.

 

Click to expand...

 

Thanks that was very helpful. We won't find out where we will be until match day, but most of our top choices are at a chicago-level cost of living cities.

I am in agreement with you about focusing on taking a big chunk out of the debt in residency. Taking this mindset, doesn't it seem like the best approach for us would be to refinance right away to a ~3% interest rate and start making payments on a 10-year plan?

[Zaphod]

brbr122 wrote:

Zaphod wrote:

brbr122 wrote:

Zaphod wrote:

Click to expand…

Thats just what HR blocks quick calculator said, maybe its terrible. Yours was good for a single paycheck but wasnt good for annual stuff. A couple of things though. Your first year will only be 6 months so you’ll be shouldnt have any taxes really as it will be half. Just put your numbers into a tax software and play with the numbers until it achieves your goals. Theres no way your taxes should be at a higher effective rate than mine at less than 1/3rd of the salary, and Im in California.

Put as much into your 401k as allowed or to hit goals, you may have an option to convert to roth after or not, this should be up to 18k (for each of you) and will decrease your marginal rate, but does really depend on your employer and specifics, etc…hence the higher/lower/deductions/state. It is always preferable to save for retirement vs. pay taxes instead so find the balance there. Unfortunately at this stage the rules of your plan and its choices are really up to the institution so you can only do whats allowed, but should still have some latitude.

Just hard for me to see that living expenses are going to be that bad, unless youre going to be in SF/NYC/LA. You’ll both be making more than the average person, and so busy you wont have a lot of time to just spend. Goal should be to learn as much as possible and set yourself up for future success and enjoyment once out. Its doable, very doable. Where are you going to be doing residency? If finances are an issue, choose a lower cost of living place. It is much much much easier to keep a chill lifestyle now than later on while you make more money, always easier to pick the low hanging fruit and not to go against your human nature to adapt and inflate lifestyle. Tough it out now, live well sooner.

 

Click to expand…

 

Thanks that was very helpful. We won’t find out where we will be until match day, but most of our top choices are at a chicago-level cost of living cities.

I am in agreement with you about focusing on taking a big chunk out of the debt in residency. Taking this mindset, doesn’t it seem like the best approach for us would be to refinance right away to a ~3% interest rate and start making payments on a 10-year plan?

Click to expand...

Its not a bad plan at all. Itd be pretty awesome to be nearly or completely debt free by the time youre finished, you could do whatever you wanted.

[Dicast]

If you can afford to pay off loans while in residency I don't see a reason why you shouldn't.  You are too busy in residency to enjoy spending much anyway.  Time is a sunk cost.  After residency you'd be much happier to spend time however you want while finishing off smaller loans.

[theplumber]

As far as a "high quality of life" during residency, my wife and I had three kids and lived in a 625 sqft apartment for $850/mo during my entire residency. This allowed us to save and still enjoy life while living only on my 45 - 50k per year. You never know what will happen in the future and whether you both will be able or willing to work in your speciality. One of my fellow residents had a wife that became a specialist and was absolutely going to practice in her speciality. Once she had kids, she changed her mind and decided to stay at home. He had to pay back both of their loans and was pretty frustrated by that.

Although your circumstances are unique to you, I would always consider the opportunity cost that you pay for a more extravagant lifestyle and make sure that the extra happiness that it brings is worth it. In my case, my wife and I took a week off to vacation without kids in the middle of residency and it was totally worth the cost in terms of strengthening our marriage add giving us a much needed break.

Good luck to you guys!

[jpa]

no matter what you do, refinance!