Non-Physician with student loands married a MS4 with NO LOANS! PLEASE HELP!

[watkintl]

The WCI has given me so much great information concerning the benefits of different financial strategies. Here are a few of the topics I want to get feedback on regarding our situation! Thank you all so much!

1. PAYE/REPAYE vs current IBR plan {No PSLF}


2. Should we MFS or MFJ due to our current AGI and expected AGI on resident -> fellow -> attending salary?? Follow different strategies during residency/fellowship vs. attending?


3. From my calculations, MFS and switching to PAYE appears to be the most beneficial in terms of cash flow and amount forgiven after 25 years (although I’m worried about $292,000 forgiven as taxable income TAX BOMB!)


4. MFJ reduces the benefit of my lower AGI, as minimum payments will rise (although be capped at $1751/month in PAYE)


5. Refinancing (some or all)???


6. Avoiding actively managed mutual funds and individual stock investments


7. Should we transition some of our assets into an Index Fund? ETF?


8. Rolling Simple IRA to Roth IRA + Starting wife on Roth IRA in residency (plan to max tax-deferred retirement accounts)


9. Resident buying/renting a home (albeit 7 years in 1 location is a serious possibility)


10. With some decent current assets, where could/should they be best allocated and put to best use? Down-payment? Utilized Physician Mortgage and pay down debt?

Here is some detail of our scenario!

Personal Student Loan for Physical Therapy School (Non-physician, no PSLF)

Direct Plus	$43409	7.9%
Direct Subsidized	$8809	6.8%
Direct Unsubsidized	$12659	6.8%
Direct Plus	$44871	7.9%
Direct Unsubsidized	$3062	6.8%
Direct Unsubsidized	$19029	6.8%
Direct Plus	$21920	6.4%
Direct Unsubsidized	$21742	5.4%
Unsubsidized Fed Stafford	$3716	6.8%

= ~$180,000 at 7.1% average interest rate

Been on IBR x4 years (payments currently ~$800/month)

Salary $75000/year

ASSETS:

Brokerage Account $45000 DIS, XOM + $10000 MCD (stock gifts from growing up)

Retirement Simple IRA through work $12000 (annual 3% contribution matched by employer)

Married 12/31/17 (yay!) to MS4 à PGY1 start June 2018

No student loan debt

Salary start June 2018 $55000 resident x 4 years

-Fellow (projected): 2022 $60000 x 3 years

-MD (REI is the goal): ~$100,000 ?

ASSETS:

Fidelity Investment just transferred from a money market account $115000

No Retirement accounts

 

My biggest questions concerning our new financial outlook concern appropriate 1. student loan management plan 2. Tax planning now married 3. Investment strategy for assets 4. Retirement planning 5. Home buying/mortgage decision.

[SerrateAndDominate]

Hi there,

 

I will defer to the more experienced to help you break it down, but I give props for being so detailed and thinking ahead.  That already makes you ahead of many others!

 

I didn't see your location/region, which is fair considering you two are awaiting the Match.  Best of luck with that!  I highly recommend renting over owning.  I've already made that mistake of buying a house in residency thinking I would be an internal for a highly competitive fellowship.  It didn't work out.  Hope for the best plan for the worst.  I highly recommend renting a house or an apartment.  I understand it's nice to live in your own space and not worry about noise that comes with apartment.  Sure it sucks to dish out rent, but after selling a house and you only have enough to pay off the mortgage balance (IF you are that lucky), you still end up paying somewhere to live.  Being a landlord from afar (in this type of situation) is the worst, and it will always loom over your head.

 

I suggest once you know for sure where you are Matching, do some intense house and apartment hunting.  Most residents will tell you the good and bad areas.  Some may even be moving out of a residence or know a great landlord.  Some hospitals even have "preferred" complexes or management groups to help you find a good rental.

Again, I get where you're coming from.  I'm the resident with school debt, and my wife is the one with  no debt and higher income.  It's tricky waters to navigate, but I think you are doing an excellent job breaking things down and forging ahead.

 

 

[DMFA]

If you're on the hook for the debt, i.e. not doing any forgiveness program, then you'll have to pay out eventually. Hence you should do the best mix of an affordable payment while mitigating interest accrual, which would be RePAYE. You can calculate your "effective" interest rate by subtracting the subsidized amount (50% of unpaid interest) from total accrued, and if that's better than what you'd get for refinance rate, stick with it.

If your calculated payment gets close to the accruing interest each month, then you'd get less benefit from RePAYE, at which point you could consider either MFS/PAYE or a private refinance.

[cgossage]

From one physician spouse to the other, welcome to the forum.  I'll try and give my advice from both peronal and professional experiences.

1. Student Loans - PAYE with MFS would give you the lowest payment, but I wouldn't recommend doing that in your circumstances.  Do you really want to be paying on these loans for another 20 years and have a tax hit at the end of it?  The two of you are in much better shape than most residents in training.  You have a dual income, and some investments and money saved up.  My recommendation would be to refinance the loans with whatever payment term works within your budget and pay them off.  With both of you working, you should be able to budget yourselves to make a major dent in those loans before your wife is out of training.


2. Rent or Own - The short answer is to rent.  We bought a house in residency (Unfortunately in Arizona and in 2008, ouch!).  We rented in fellowship.  It's much easier to be a renter in residency.  You don't have to worry about maintenance, buying a place, or what to do with the place once you move.  It's not worth the hassle for building equity that you are going to give to the realtor the day you sell your house.


3. IRA's.  You can't roll your Simple into a Roth account.  You can either convert the account to a Roth (And pay taxes on the amount converted) or roll the Simple into a 401(k) when you take your next job (if the plan accepts outside rollovers).  The third option, is if you have any self-employment income, create a solo-k and then roll your Simple into it.  You can still contribute directly to a Roth IRA in the mean time since you don't have to worry about the pro-rata rules that come with a Backdoor Roth.


4. For your investments, keep them in a low-cost index fund and all in stocks at this point.  Focus on only investing in Roth accounts or accounts that have an employer match.  Otherwise, put that money towards paying off those loans.

Regards,

[wideopenspaces]

With the two of you making about 130k together next year, why not refinance privately and knock out those loans over the next 5 years? You can do it and you might as well not let interest accrue. Rent an apartment, live like the rest of the residents for 4 years and you'll be able to do whatever you want financially after your wife is done with residency.

This is the strategy I used and I don't regret it. Only had 70k in loans but we had a kid in med school so had to pay for childcare. We had our loans paid off 6 months within finishing residency and it allowed us to buy a house, for me to work part time, and to have another child without feeling any financial stress.

[watkintl]

Thank you everyone for your responses!

I've since done some calculating, googling, interwebbing and come up with some new data for student loan refinancing strategy

Currently: IBR repayment x4 years, $179k total balance, payments are around $690/month

$12730 interest accrued/year for mostly UNSUBSIDIZED loans, meaning they would subsidize ~$2225/year ($12730 - $8280 paid/year = $4450 non-covered interest subsidized at 50%)

Options: 

1. A CommonBond estimate gave me the following

10year fixed at 6.02% $1992/mo

15year fixed at 6.05% $1517/mo

15year variable at 5.8% $1,493/mo

20year fixed/variable at 6.05/5.92 $1280/mo

-These terms would not change given my wife's increasing AGI during residency and after training

2. Through RePAYE, I believe I would be eligible for a government subsidy of 50% on interest due because my payments do not cover interest accrued.

-one bummer being that all current outstanding interest will capitalize if I switch to RePAYE (~$16000)

-My math is sketchy at best, but this subsidy would save me ~$50000 in interest accrued over the 25 year repayment term

-per DMFA above (thank you!) my "effective interest rate" with the gov't subsidy lowers to ~5.85% (down from 7.1%)

-monthly payments will range from $617-$2200 with ~$58k forgiven and taxed upon closure of loan

-These terms make my monthly payments always variable depending on wife's income.

3. PAYE: lowest monthly payments now and moving forward, with least amount paid over length of repayment (I've read "any tax deferred, is tax gained" - money now always costs more than money in the future?)

-If taxes filed MFJ: $234k paid over 25 year, $161k forgiven, $617-1750/mo

-if taxes filed MFS: $134k paid over 25 year, $292k forgiven, $291-$926/mo

 

I'm so bogged down with this stuff!! Also don't want to overthink it.

 

[adventure]

watkintl wrote:

1. student loan management plan 2. Tax planning now married 3. Investment strategy for assets 4. Retirement planning 5. Home buying/mortgage decision.

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watkintl wrote:

Brokerage Account $45000 DIS, XOM + $10000 MCD (stock gifts from growing up)

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What if you:

#1 - make a monthly cashflow/budget for what it takes to get move (MS4 -> PGY1)... make sure you're covered for that tranistion first. (aka, are you moving for residency?)

#2 - use all the Fidelity money markey taxable account and stocks (save some $ for taxes on gains as needed), and pay off as many of the direct loans as possible? Then refinance the rest. (5 or 7 years, depending on total left, and what you can afford). You'll get a better interest rate on the refinance if you owe less overall (better debt to income ratio). Depending on how stable you are post #1, you will get a better refianance rate (so refi again then!) after you both have paychecks in July or August. So, this is sort of accurate:

watkintl wrote:

-These terms would not change given my wife’s increasing AGI during residency and after training

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meaning the terms of that specific refi won't change, but you can refi again with CB or any of the other lenders.

 

#3 - Both of you should fill up the retirement accounts each paycheck (401k/403b), roths this year, and then focus all extra cash on finishing your loans. Shouldn't take too long.

Then you're done. And you're rebuilding the retirement/taxable/house saving accounts each month. No debt. Some great freedom there.

watkintl wrote:

2. Tax planning now married

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Check your withholding once you both start working. Page 2 of the IRS Form W-4 "two earners" spreadsheet will help you get the right withholding in July after you both get paid. Fill up retirement accounts. Enjoy wedded bliss!

And... double check that MD will only earn 100k/year as REI.