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  • Loan Consolidation and RePAYE Monthly Payments

    I graduated from medical school in May and am now a first year resident working on a plan for my student loans.

    Current status of my Federal Loans is as such:

    From Undergrad: $2.5k Direct Loans Subsidized at 4.5% Interest Rate; ~$27k Direct Loans Unsubsidized at 6.8% = Total of $29.5k.  I graduated early from college and used the grace period on these loans already, so since June, I have already technically been making "payments" under the RePAYE plan, although since my income was $0 last year and I applied for RePAYE in May 2016 prior to starting residency, my monthly payments are currently $0.

    From Med School: ~Four Stafford loans, all unsubsidized, totaling $126k with most interest rates 5.4-5.8%; $2k in Perkins Loans, in Grace Period until March 2017

    I can consolidate the Direct Loans and the Perkins Loans into a Direct Consolidation Loan totaling ~157k at 5.875%.

    My initial plan was to pay off the Perkins Loan this year before the first payment is due to avoid interest, but upon realizing that consolidation for it is an option, which would make it eligible for PSLF, I'm thinking it may be wiser to save that $2000 for my emergency fund or apply toward a Roth IRA.

    Again, my grace period for my medical school loans ends in November, and for my undergrad loans, I am currently making $0 monthly payments under RePAYE that I assume qualify for the 120 payments needed for PSLF.  Although, ten years down the road, one wonders if you can receive PSLF for two separate loan groups, one from undergrad and one from med school, six months apart (?).  If I consolidate now, I realize that question would be moot since by switching to a Direct Consolidation Loan, I would be wiping out the two (2/120) $0 monthly payments I have made for my undergraduate Direct loans.  By consolidating now, I would also wipe out the relatively small extra benefits of RePAYE toward the $2.5k subsidized loans that I have (government pays 100% of the interest accrued for first three years vs. only 50% of accrued interest for unsubsidized).  Also, by consolidating now, would I immediately have to begin making non-zero monthly payments based on my new residency income?  I applied for RePAYE in May before my residency job had started and basing my income on my Federal tax return from 2015 (income was $0), hence my current payments are $0.

    In summary:

    (1) In my specific situation, should I pay off the Perkins Loan this year, or should I consolidate, and if I should consolidate, when should I do it, considering the loans that are currently in grace period? (may be informed by answers to questions 2, 3, and 4...)

    (2) Can you receive PSLF for two separate loan groups given that without consolidating, I'll have made 120 monthly payments for my undergrad loans before I have made 120 monthly payments for my medical school loans?

    (3) By consolidating now, would I immediately have to begin making non-zero monthly payments based on my new residency income?

    (4) Since I am already on RePAYE for my undergrad loans, will I have to resubmit my income information in November when the grace period for my medical school loans expires and thus begin having to make real monthly payments (~$300) then anyway?  Or will my $0 monthly payment persist for a year until May 2017?  My undergraduate and medical school Federal Loans are with the same service provider.

    Confused yet?  I am, too... Thoughts?  Let me know if I can provide more detail that would help with advice.

  • #2
    Are you sure PSLF is right for you?  Do you want to go into a high-paying specialty?  It's good to keep the door open, but you might find that if you have a shorter residency and/or higher income, the math might not favor it.

    1. Adding $2k to your consolidation is kind of a drop in the bucket, isn't it?  I admit I know very little about Perkins loans, other than they don't qualify for PSLF as they aren't technically Federal Direct Loans (unless you consol).  If you consolidate it, are you on the hook for the interest?  That's often how those loans go.

    2. Given what your income will be out of residency, it's doubtful any of that $29.5k will even be around by the time you'd be eligible for PSLF in 10 years.

    3. Consol'ing now should be based on your prior year's AGI.  That's how it worked when my wife consol'd mid-year.  That's one of the reasons why it's so important to file taxes as a med student, even if you have no income.

    4. You have to submit your income when you a) set up an income-driven plan and b) annually thereafter, but again that should be based on your tax return from the prior year (mine and my wife's both were).  You only have to recert once each year, so if you have a big leap (e.g. graduating from residency), you don't have to report it until the year is up.  On the other hand, if your income goes down, you can recert right then.  If you didn't file taxes, you're stuck providing pay stubs, which would result in your increased payment.

    I'd definitely stick with RePAYE during residency to have the lowest amount owed afterward, which gives you the greatest flexibility between doing a private consol and paying it down after residency or doing PSLF.  The only way in which that wouldn't benefit you is if you were married and had astronomical debt, in which case committing to PSLF, filing, MFS and doing PAYE *might* be better.  Keep in mind that MFS does *not* benefit you in RePAYE because it always includes spousal income.

    This is a good read: https://www.whitecoatinvestor.com/what-should-i-do-with-my-student-loans/

    Comment


    • #3
      I'm at the Lake for a few days. Ahh....
      Short answers:
      #2 Yes
      #3 It depends on how you approach it
      #4 You can have a different repayment plan for each loan, if desired.
      I agree with DMFA about needing answers to the strategy questions.
      Feel free to schedule an appointment to discuss further.
      --Joy
      PS. Good news--due to WCI's upcoming Recommendation, Navigate will offer discounts to WCI readers.

      Comment


      • #4
        I'm doing a residency in diagnostic radiology, which means at least 5 years of residency and with probable fellowship, at least 6 years of RePAYE.  My strategy is do RePAYE to maintain eligibility for PSLF should I take a job that would qualify upon finishing fellowship.  If I work in a non-qualifying job, then I would refinance and pay off loans as soon as possible.  I'm not married, so RePAYE definitely seems like the best strategy during residency.

        DMFA, the Perkins Loans accumulate no interest at all until the grace period expires (March 2017), so by consolidating them now, there should be no interest that capitalizes.

        I did indeed file a tax return last year for a medical school income of $0, so based on your answers, it sounds like my monthly payment will stay $0 even after consolidating.

        Comment


        • #5
          If you're rads, you'll probably be bringing in around $300-400k meaning it would probably be best to RePAYE during residency and then annihilate it as quickly as possible after a private refi when you graduate.  Your RePAYE payments would be so high after residency, you'd probably end up paying off the balance with them over a roughly similar time frame, and consolidating at that point would mean less interest.

          There are really only a few instances in which RePAYE during residency isn't best, which is basically for low-ish earners with huge debt or those who have very long periods without earning much (e.g. 7 years of GME without moonlighting and no spousal income).

          Sitting down or VTCing with a planner is a great idea, for things way beyond student loans.  Several advertise on this site or post in this forum (like Joy above).  Peers like me are great for tips here and there, but you should really hear it from an expert.

          Comment


          • #6
            If you include the Perkins ($2k) in the consolidation, it will lose its interest subsidy.  But, REPAYE will provide a 50% interest subsidy to offset the 100% interest subsidy for Perkins through its grace period.  Suggestion - don't include the Perkins in the initial consolidation as you have 180 days to add loans.  Add the Perkins to the consolidation as you approach the end of your Perkins grace period.  You might save $10 to $15   .

            To the larger issue, I've attached a spreadsheet REPAYE simulation projecting the amount forgiven with PSLF.  Please let me know if you would like to modify the AGIs.

             

            Comment


            • #7
              Sergio,

              Thanks a lot for that spreadsheet!  I'm being a bit more conservative with my AGI by assuming a starting salary of ~$250k.

              By adding the Perkins loans at the end of the 180 day consolidation period, would I be resetting my PSLF qualifying payments, wiping out the $0 monthly payments I would have made prior adding the Perkins loans?

              Comment


              • #8




                Sergio,

                Thanks a lot for that spreadsheet!  I’m being a bit more conservative with my AGI by assuming a starting salary of ~$250k.

                By adding the Perkins loans at the end of the 180 day consolidation period, would I be resetting my PSLF qualifying payments, wiping out the $0 monthly payments I would have made prior adding the Perkins loans?
                Click to expand...


                No, adding loans to a consolidation will not reset the PSLF clock to zero.

                Attached is a revised spreadsheet with an attending AGI starting at $250k.

                 

                 

                Comment


                • #9







                  Sergio,

                  Thanks a lot for that spreadsheet!  I’m being a bit more conservative with my AGI by assuming a starting salary of ~$250k.

                  By adding the Perkins loans at the end of the 180 day consolidation period, would I be resetting my PSLF qualifying payments, wiping out the $0 monthly payments I would have made prior adding the Perkins loans?
                  Click to expand…


                  No, adding loans to a consolidation will not reset the PSLF clock to zero.

                  Attached is a revised spreadsheet with an attending AGI starting at $250k.

                   

                   
                  Click to expand...


                  You 100% sure about that? https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service

                  "If you have both Direct Loans and other types of federal student loans that you want to consolidate to take advantage of PSLF, it’s important to understand that if you consolidate your existing Direct Loans with the other loans, you will lose credit for any qualifying PSLF payments you made on your Direct Loans before they were consolidated. In this situation, you may want to leave your existing Direct Loans out of the consolidation and consolidate only your other federal student loans."

                  It hits a sore spot for me because this happened to my wife, no matter how much I raised ************************ to the Fed Loan people about it...

                  I'd double/triple check if that applies to you before pulling the trigger.  It *might* not - I don't know all the details of your loans - but make totally sure all the aspects of it are sussed out before you do something irreversible.

                  Comment


                  • #10










                    Sergio,

                    Thanks a lot for that spreadsheet!  I’m being a bit more conservative with my AGI by assuming a starting salary of ~$250k.

                    By adding the Perkins loans at the end of the 180 day consolidation period, would I be resetting my PSLF qualifying payments, wiping out the $0 monthly payments I would have made prior adding the Perkins loans?
                    Click to expand…


                    No, adding loans to a consolidation will not reset the PSLF clock to zero.

                    Attached is a revised spreadsheet with an attending AGI starting at $250k.

                     

                     
                    Click to expand…


                    You 100% sure about that? https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service

                    “If you have both Direct Loans and other types of federal student loans that you want to consolidate to take advantage of PSLF, it’s important to understand that if you consolidate your existing Direct Loans with the other loans, you will lose credit for any qualifying PSLF payments you made on your Direct Loans before they were consolidated. In this situation, you may want to leave your existing Direct Loans out of the consolidation and consolidate only your other federal student loans.”

                    It hits a sore spot for me because this happened to my wife, no matter how much I raised ************************ to the Fed Loan people about it…

                    I’d double/triple check if that applies to you before pulling the trigger.  It *might* not – I don’t know all the details of your loans – but make totally sure all the aspects of it are sussed out before you do something irreversible.
                    Click to expand...


                    Yes, I'm confident.  In your situation, you could have consolidated just your non-Direct Loans (FFEL), leaving your Direct Loans outside the consolidation. This would have resulted in two PSLF clocks, so to speak, one for the Direct Loans and a second for the newly consolidated loans.

                    OP, if you have any concerns with PSLF clock reset, just include Perkins in the initial consolidation application.  But, it's my position PSLF will be modified in next several years to close the "doctor loophole".

                     

                    Comment


                    • #11
                      Unfortunately, other than the Perkins Loans, I have no non-Direct Loans, and my understanding is that you must consolidate the Perkins Loans into an existing Direct Loan.  How about I leave my undergrad loans out of the consolidation and just consolidate my medical school loans, for which I have no made no monthly payments, with the Perkins Loans?  It seems like a win-win given the factors we've been discussing.  That way my clock for the undergrad loans isn't reset, and my PSLF clock for the Direct Consolidation Loan will begin a few months early (by that I mean before November 2017 when grace period for medical school loans would have been up) with $0 monthly payments (since I filed a 2015 tax return with $0 income)?  And if PSLF stays around, I can get it in two separate installments six months apart.

                      I was on Capitol Hill in March lobbying for PSLF forgiveness to remain uncapped.  We'll see.

                      Comment


                      • #12




                        Unfortunately, other than the Perkins Loans, I have no non-Direct Loans, and my understanding is that you must consolidate the Perkins Loans into an existing Direct Loan.  How about I leave my undergrad loans out of the consolidation and just consolidate my medical school loans, for which I have no made no monthly payments, with the Perkins Loans?  It seems like a win-win given the factors we’ve been discussing.  That way my clock for the undergrad loans isn’t reset, and my PSLF clock for the Direct Consolidation Loan will begin a few months early (by that I mean before November 2017 when grace period for medical school loans would have been up) with $0 monthly payments (since I filed a 2015 tax return with $0 income)?  And if PSLF stays around, I can get it in two separate installments six months apart.

                        I was on Capitol Hill in March lobbying for PSLF forgiveness to remain uncapped.  We’ll see.
                        Click to expand...


                        Your strategy seems spot on.  Another motivating factor to immediately consolidate (in your case your medical school loans and Perkins) is to benefit from the REPAYE 50% interest subsidy ASAP.

                        Good luck!

                        Comment


                        • #13
                          I am filling out my loan consolidation application at the moment.  I linked to my 2015 tax return, but then the attached question appears.  Am I at risk of breaking laws or jeopardizing eligibility for PSLF later if I say "no?"

                          Comment


                          • #14
                            I guess this is why you consolidate before you start your residency program

                            Comment


                            • #15




                              I am filling out my loan consolidation application at the moment.  I linked to my 2015 tax return, but then the attached question appears.  Am I at risk of breaking laws or jeopardizing eligibility for PSLF later if I say “no?”
                              Click to expand...


                              Yup, a bit of an ethical dilemma. I would advise you to respond truthfully.  They will annualize your pay stub to determine income.  If your calculated income = $50k, then REPAYE payment is ~$270/month.  Keep in mind, when you complete your 2016 Federal Income Tax Return (with expected AGI significantly less than $50K), submit to the loan servicer to re-assess your monthly payment.

                              Comment

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