Which loan do I pay first?

[aparsons3]

I am finishing up residency and taking a job as a hospitalist. I have 180k in student loans, recently refinanced through DRB at 4.25% interest. I am currently paying 100/month but will begin a much higher repayment plan (to pay off in 4 years) once I begin my job in July.

My wife is a beginning resident. She has 220k in student loans...all at the standard 6.8% interest. She is currently on the RPAYE plan, making minimal payments.

Our plan is to live off her 50k/year resident salary for the next 4 years while using my 200k/yr attending salary to focus on loans.

 

Which loan should we payoff first? My wife's loan is larger and at a higher interest rate, but we can also make minimal payments on this using RPAYE while my smaller loan is refinanced and will require higher monthly payments. Also, we currently have 40k cash from an unrelated venture to put towards one or both of the loans. How should we divvy it up? Our goal is to be debt free when my wife graduates residency in 4 years.

 

All thoughts appreciated. Thank you.

[The White Coat Investor]

aparsons3 wrote:

I am finishing up residency and taking a job as a hospitalist. I have 180k in student loans, recently refinanced through DRB at 4.25% interest. I am currently paying 100/month but will begin a much higher repayment plan (to pay off in 4 years) once I begin my job in July.

My wife is a beginning resident. She has 220k in student loans…all at the standard 6.8% interest. She is currently on the RPAYE plan, making minimal payments.

Our plan is to live off her 50k/year resident salary for the next 4 years while using my 200k/yr attending salary to focus on loans.

 

Which loan should we payoff first? My wife’s loan is larger and at a higher interest rate, but we can also make minimal payments on this using RPAYE while my smaller loan is refinanced and will require higher monthly payments. Also, we currently have 40k cash from an unrelated venture to put towards one or both of the loans. How should we divvy it up? Our goal is to be debt free when my wife graduates residency in 4 years.

 

All thoughts appreciated. Thank you.

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As an attending, I don't think your goal should be to minimize payments (you should be maximizing them) but rather to minimize interest. That said, don't start refinancing or paying off your wife's loans if she may get them forgiven. So I'd compare her effective interest rate under RePAYE to your interest rate. I bet hers is still higher, so if she's not going for PSLF, then sure, pay them off first. But be darn sure.

Use that $40K first for an emergency fund, then throw the rest at the loans. If you guys really buckle down, it's possible that all $400K in loans is gone before she graduates. That would be pretty cool. The order/interest rate doesn't matter so much as how much you're throwing at them each month.

[aparsons3]

Thanks for the response.

I figured with my attending income that my wife's RPAYE monthly payments would be so high (based on joint household income) it wouldn't be worth waiting on loan forgiveness. Not doing loan forgiveness on her loan would also allow her to refinance during residency using DRB or a similar company. Does this sound reasonable?

So with this plan, it sounds reasonable to pay on her loan first (maximizing monthly payments and minimizing interest accrued) based on your reply.

[shantster]

aparsons3 wrote:

Thanks for the response.

I figured with my attending income that my wife’s RPAYE monthly payments would be so high (based on joint household income) it wouldn’t be worth waiting on loan forgiveness. Not doing loan forgiveness on her loan would also allow her to refinance during residency using DRB or a similar company. Does this sound reasonable?

So with this plan, it sounds reasonable to pay on her loan first (maximizing monthly payments and minimizing interest accrued) based on your reply.

Click to expand...

I would look into refinancing her loans first to see what rate you get there. Then I would make the minimum on the lower interest loan and knock off the higher one with your salary. That would maximize payments and minimize interest.