About to start PGY2, substantial debt, need advice

[drlespaul]

Hi all,

First post here. I'm about to start my PGY2 year in a Psychiatry residency program and I have some questions regarding how to best proceed with my debt and retirement. not sure if this is in the right forum, so I apologize in advance!

Background information:

1. PGY2 psych resident, income is approximately $56k/year (pretax), wife makes about $33k/year, and we have a 6 month old newborn at home

2. student loans: $350k balance, all direct or grad plus loans, interest rate anywhere from 6.41% to 7.8% for each loan, I once calculated the weighted average of my loans and it's just under 8%, I've accrued about $11k in interest since my loans capitalized when i started PAYE in January 2016.

i did not consolidate my loans, partly because out of ignorance that I was unsure if this would somehow affect me negatively in the future, as I was partly hoping to keep my options open for PSLF. I pay ~$129/month at the moment

3. my program DOES remove a portion of my paycheck each month for a 403b (currently has roughly $3500), and in addition I started saving up for a roth IRA, I currently have $3k and I was going to open an account with vanguard. Prior to this, I have not saved up for retirement (I'm currently 30 years old).

Not sure how to best proceed with my debt and retirement. I read a previous blog post that it would be smart to try to max out my roth IRA while in residency and it sounds like this would still be the case in spite of my substantial medical school debt. Was wondering if there was any additional advice on how to manage my debt, aside from pay it off ASAP once I graduate residency... thank for all your help!

[Guest]

[Post deleted at author's request.]

 

[The White Coat Investor]

drlespaul wrote:

Hi all,

First post here. I’m about to start my PGY2 year in a Psychiatry residency program and I have some questions regarding how to best proceed with my debt and retirement. not sure if this is in the right forum, so I apologize in advance!

Background information:

1. PGY2 psych resident, income is approximately $56k/year (pretax), wife makes about $33k/year, and we have a 6 month old newborn at home

2. student loans: $350k balance, all direct or grad plus loans, interest rate anywhere from 6.41% to 7.8% for each loan, I once calculated the weighted average of my loans and it’s just under 8%, I’ve accrued about $11k in interest since my loans capitalized when i started PAYE in January 2016.

i did not consolidate my loans, partly because out of ignorance that I was unsure if this would somehow affect me negatively in the future, as I was partly hoping to keep my options open for PSLF. I pay ~$129/month at the moment

3. my program DOES remove a portion of my paycheck each month for a 403b (currently has roughly $3500), and in addition I started saving up for a roth IRA, I currently have $3k and I was going to open an account with vanguard. Prior to this, I have not saved up for retirement (I’m currently 30 years old).

Not sure how to best proceed with my debt and retirement. I read a previous blog post that it would be smart to try to max out my roth IRA while in residency and it sounds like this would still be the case in spite of my substantial medical school debt. Was wondering if there was any additional advice on how to manage my debt, aside from pay it off ASAP once I graduate residency… thank for all your help!

Click to expand...

Sounds like you're doing okay to me. Consider switching to REPAYE (run the numbers first). I think you should definitely be able to do your 403b minimum contribution (make it Roth if possible) as well as a personal and spousal Roth IRAs on your numbers. If you're not going for PSLF, you can also throw some extra at your loans if you like, but I would mostly plan to pay the debt off as an attending. Start on your first year of attendinghood written financial plan now. You will need to live like a resident for a while to get rid of that debt. Perhaps as long as five years as a psychiatrist.

[drlespaul]

thanks to both of you for the above advice! am definitely going to take it into consideration in how i manage my retirement and debt from here on out.

[consultpsych]

Also my advice as a young(er) attending psychiatrist: moonlight! All psych programs arent't the same, but if you are in one of the many that has a lighter workweek each year and lets you moonlight starting around PGY-2 year, I would strongly consider it.

 

[FCP]

I also recommend moonlighting.  I am a pgy-4 child fellow, and I've been moonlighting since the moment I started my PGY-3 year.  I make anywhere between $10,000 and $20,000 a month moonlighting as a fellow, which has helped with loans (I had the same amt as you as a PGY-3) and savings.

[Joy Sorensen Navarre Navigate]

Yes, $350k is substantial debt, yet you're not alone. Most of the providers who consult with us for student loan repayment advice have $250k-$350k in student debt. For some, it's higher.

Since you want to keep your options open for PSLF, I would investigate these questions:

1) Which repayment plan meets your needs best: PAYE or REPAYE? If PAYE, would it make sense to file taxes married separately, or not?

2)  Is it better to use your most recent tax return, or your most recent paystubs to document income?

3) Have you submitted your PSLF Employment Certification form?

Always, you can find your best repayment options by understanding the programs, crunching your numbers and comparing the scenarios. With good data the options become clear. Feel free to email if you have specific questions.

 

[drlespaul]

I understand if I leave PAYE or if my payments become more than the standard 10 year repayment, the interest on my PAYE loans will capitalize.

What is stopping someone like me from just paying off the balance early while on PAYE? Like, say if I make more than the minimum PAYE payment.

I was unaware (due to my ignorance) that the interest will capitalize on my loans if i leave PAYE, which makes it problematic if I give up on PSLF and I decide to go to a standard 10 year repayment plan or consolidate with a company like DRB.

[John Shackleford]

In addition to the above, I would recommend starting to think long and hard about where you would like to practice.  The difference between a midwestern/southern, semi-rural practice and a large urban practice for psychiatry can mean double or triple the income - I am obviously not aware of the discrepancy for other specialties, but for psychiatry it can be very large.  As a psychiatrist, you won't earn surgery money without starting your own business, but you can break into the $400k income category with creativity and the right location.  There are costs involved (like having to live in a smaller town with less "culture"), but if you are planning for your financial life, it deserves consideration.  In addition, NHSC programs are available in many of these areas.

I am a PGY4 psychiatry resident who recently shopped the market in the midwest and south - trust me, the opportunities are out there.

[childay]

Just wanted to second the moonlighting if your program allows.  Also agree with John one can make a relative lot as a psychiatrist in the boonies such as myself.

[Joy Sorensen Navarre Navigate]

Regarding paying off the balance early while on PAYE. Yes, in my experience a number of physicians choose to remain on PAYE and pay off the balance early, especially when career plans shift, resulting in additional income.

Keep in mind the eligibility requirement for Partial Financial Hardship. From Studentloans.gov, "For Pay As You Earn, a circumstance in which the annual amount due on your eligible loans, as calculated under a 10-year Standard Repayment Plan, exceeds 10 percent of the difference between your adjusted gross income (AGI) and 150 percent of the poverty line for your family size in the state where you live."

[drlespaul]

Thanks for all the advice, everyone.

I spoke to a consultant about my loans. Basically, I decided to stay on an income-driven repayment plan rather than refinance, because I want to keep the doors for PSLF open.

Having said that, my consultant recommended REPAYE due negative amortization and the interest subsidy REPAYE provides. I know several of you suggested REPAYE as above.

My main concerns about switching to PAYE to REPAYE are as follows:
1. Currently have ~350k in debt at ~7% weighted interest, only direct loans, with ~12k in interest, I know switching from PAYE to REPAYE will cause my interest to capitalize. My math, if correct, says even so I will save maybe ~$10k per year for the next few years I am in residency.

2. My question is, once I earn attending-level income, potentially could the advantage of interest subsidy be moot? Going REPAYE would mean interest subsidy which will help me out if I decide to forego PSLF and try to pay off my debt ASAP. However, (please pardon the potential stupidity), how would I figure out the income at which my payments would negate the utility of having an interest subsidy? I am trying to figure out if switching from PAYE to REPAYE, resetting my PSLF payments, capitalizing my interest, would be worth it and for how long, assuming at some point I will no longer benefit from the interest subsidy? I am guessing my starting income will be around $220k-$240k.

I know if I am for sure wanting to bank on PSLF, then PAYE would be the way to go. I just want to keep my options open. It sounds like REPAYE will give me a balance of keeping these options open (e.g. PSLF option, while paying more each month due to spouse's income, and of course the interest subsidy). But the question I have above is making me a bit hesitant on pulling the trigger.

Would appreciate any input from any of you. Thank you so much!

[Sergio Estavillo]

I've attached a spreadsheet PDF simulating your REPAYE repayment given some information you provided.  It appears that you would no longer benefit from the REPAYE interest subsidy when your AGI approaches $290K.  I'll follow-up with more details soon.

[Sergio Estavillo]

Also, this thread might be relevant:

https://www.whitecoatinvestor.com/forums/topic/idea-to-enter-repaye-early/

 

[drlespaul]

So by the sounds of it... it sounds like it would be wise to enter REPAYE in my situation. Not sure if I'm going to be making $290k any time soon after graduation, and not at a government institution at that.

I can't really think of any downsides aside from having to pay a large monthly payment than PAYE, and for my interest to capitalize now (really kicking myself for not reading or knowing about REPAYE prior to entering repayment), although long-term the interest subsidy should still make it worth it.

Any other thoughts? Thank you so much for all your help!