best strategy for my loans

[throckmortonDO]

Hey guys, looking for a little clarity over some ideas regarding my loans, overall debt balance and attending employment.

details: 4 year EM residency. my student loans 350k , Wifes 90k. with interest call my 'total' loan balance 450k coming out of residency. wifes earning potential is about 65-85k/yr once her degree is complete. we have small kids and currently she isn't working.

currently my student loans are in IBR but not consolidated. wifes are mostly sallie mae/FFEL not consolidated.
my average interest rate is 7.4%, hers is 6.8%. ( in a nutshell, 450k loans at ~7.15%). ive made 2 yrs payments on IBR ($50/month). waiting to consolidate as I would try to include her loan as well ( she will be done with school in 6 months.

est monthly expenses as an attending: house 300k (2500/mo), child care, heat/light/water etc 2000/mo.
have 2 cars that are paid off, no need for upgrading.

Scenario 1.
Consolidate all our loans in 6 months ( clock would be reset and I would start from scratch for the 120 payment IBR PSLF qualification) Complete residency, do a 1-2 yr crit care or hyperbarics fellowship. (6 yrs residency total). work in academics for 6yrs and hope PSLF comes through. at salary of ~180k in academics, monthly take home pay will be 11k take home/monthly after taxes, IBR payment would be $1750. with 4500/mo in expenses as above - $4750/mo to live on/save/invest.

if PSLF is scratched, ill be SOL here and owe 900k in loan payments/25 yrs plus get hit with the tax bomb.

Scenario 2.
No fellowships after residency. consolidate loans with SoFi or similar company at end of residency. rates 3.5% for 5 year, 4.6% for 10 year with credit score >720. Work as community attending for ~200/hr/135hrs/month= $324k salary.
This will leave me 19k after taxes/month -4500/expenses as above = 14500.
5 year loan repayment -8100/mo = $6400/mo to live on and invest. loan free in 5 yrs.
10 yr loan - 4700/mo= $9800/mo to live on and invest
I could leave all loans as IBR, but with community salary I will be bumped off IBR and put on standard 10 yr repayment plan, however interest will still be 7+ %. which is why I would probably be better off financing in this scenario.

Scenario 3.
No fellowships or possibly 1 yr fellowship after residency. get academic gig as above 180k. moonlight few shifts a month if possible, maybe extra 4-5k for moonlighting pre-tax. after taxes 11k +3k=14k. IBR payment will be 2600/mo. after expenses above and loan payment = $6900/mo to live on and invest.
Possibly PSLF comes through (by that time I will have paid 218k on loan which will barely cover the interest, full balance still 450k). if not, im hosed and have to get community gig to try to pay off loan.
likely will be working heavily and have poor work/life balance if I have to moonlight on top of an academic gig.

in scenario 1- I will have paid ~145k out to the loan, if PSLF.
scanario 2 - guaranteed debt free after intervals as above. will have paid 491k/5yrs with inflation calculation making this approx 445k in todays dollars paid. 562k/10 years with inflation adjustments 442k in 'todays' dollars.
scenario 3. 218k paid total if PSLF. if no PSLF, then stay on IBR 25yrs, 540k paid to loan balance. total balance is ballooned to 918k, I get hit with 400k tax bomb at year 25.

So if you were in my position, would you gamble on PSLF, make that much lower salary for 6-7 yrs, have no investments or savings ( but likely have 401k/pension etc) or do the sure bet and pay the sucker off in 5-10 yrs above? with my own saivngs on the side. As a caveat, I am ambivalent about fellowship at this time, would not consider it a 'must'.

I know that was a mouthful, but hopefully many of you have considered something similar. any advice would be appreciated! thanks

---

Members don't see this ad.

 

[link2swim06]

I would refinance for a 5 year plan and pay it off on your own. You will pay less net interest and it would be easier to pay them off while you are young.

The government loan forgiveness plans could vanish at anytime and although we 'might be grandfathered' it's a huge risk imo.

 

[RustedFox]

Scenario 2 FTW.

 

[gman33]

The best plan depends on what is important to you.
From a financial standpoint, you will do much better in the community gig paying the loans yourself.

If you want an academic career. go that route.
You will still have money to pay bills and have a comfortable life.

 

[Postictal Raiden]

I'd do the IBR thing, make the monthly IBR-sized payments while depositing another amount into a savings/CD account to take care of the tax bomb, in case PSLF is no longer an option. This way, you are not completely gambling on having the forgiveness program sticking around, and, at the same time, you are not missing out on any saving you get from the forgiveness.

In few years, I will be in the exact same situation you are in, so I am interested in knowing what other people on this forum got to say.

 

[link2swim06]

I'd do the IBR thing, make the monthly IBR-sized payments while depositing another amount into a savings/CD account to take care of the tax bomb, in case PSLF is no longer an option. This way, you are not completely gambling on having the forgiveness program sticking around, and, at the same time, you are not missing out on any saving you get from the forgiveness.

In few years, I will be in the exact same situation you are in, so I am interested in knowing what other people on this forum got to say.

But you essentially are.... If they pull the program then you have just wasted a decade of your loans accumulating interest when you could have been paying them down.

Lets say an average balance of 100,000 you could have paid off in that period. At 7% interest you would have accumulated $70,000 (ballpark) additional interest. Maybe your savings would have net you $30-40K in interest over the same period. That's a $30-40K loss (these are very rough numbers but you get the idea).

Let's say you invested that 40K instead. By the time you would retire you would have had made a $140,000 mistake.

 

[5739]

There are very few reasons not to pay off debt as fast as possible at as low an interest rate as possible. Every dollar of interest you pay is free money in someone else's pocket that you could have pocketed yourself.

Accept longer repayment periods and higher interest rates only for exceptionally good reasons.

PSLF seems like a poor choice for anyone who wasn't already planning on that type of career, especially given the uncertainty of its future.

Scenario 2 gets my vote.

 

[future_dr_house]

Scenario 2. The 5 yr vs 10 yr refinance will be better evaluated closer at the time that you need to make that decision. All depends on if you need more funds available or not.

Fwiw I came out of school with 220 in debt. In residency I did IBR, it ballooned to 240. I moonlit some my last 8 months and knocked it to 200. Then thanks to WCI I refinanced with sofi. I did 5 year variable (credit score was 705). Currently, I put 5k towards loans which will pay them off in 4 years.i could put more towards them but decided I wanted more travels and investing.


Sent from my iPhone using Tapatalk

 

[The White Coat Investor]

First decide whether you want to do a fellowship or an academic career.

Then decide how to deal with your massive student loan burden. If you do want to do fellowship/academics/501c3 etc, then go for PSLF, saving on the side in case it goes away. If it doesn't you've got a great start on your nest egg. If it does, you can still be out of debt just like if you hadn't gone for PSLF. If you don't want to have a 501(c)3 job, then refinance your loans at residency graduation and live like a resident until they're gone. Either way, given your relatively massive loan burden, if you really want to do okay financially in life, you absolutely must do the live like a resident thing for 2-5 years.

 

[Cheese Whiz]

I chose option 2. IBR during residency. Began following White Coat Investor and decided refi was a good plan for me. My $340K post-residency was refinanced from 7s to 4% (with credit score was 760) for 5 years. Definitely doable and can't wait for the loans to be gone.

 

[Groove]

<Whistles...> Man... and here I thought that I was the only one who graduated residency with that kind of debt.

A few things:

1) You seem to be very pro-academics. If you are dead set on academics, then a one year fellowship to give you that "niche" contribution and set yourself apart will likely go a long way. Just pick something thats very academic friendly. Caveats to academics which I'm sure you've already realized include significant decreased pay. I'd love to work in academics at this point but with my loans... I simply can't afford to take a 200K+ pay cut. You will not only lose salary by working in academics but you're going to lose lots of benjamins compared to PP. Do the math and it might make you feel differently about taking a private gig for at least 2 years to do nothing more than pay your loans down. Every job I've taken has been for the singular goal of maximizing my ability to pay down my loans and after they are all gone THEN I'll look for my dream job.

IBR hoping for PSLF is financial suicide. I would absolutely not recommend letting your loan interest accrue over 10 years hoping for a hail mary. If you lose, you will likely be financially devastated and have to prolong retirement by at least 10+ years.

Also, keep in mind that you feel very pro academics now but who's to say in 8 years? 6 years? You may find yourself hating academics and wishing that you worked in the private sector.

2) Refinance with SOFI or Common Bond, etc.. for at least half your current interest. This is a no brainer and you should definitely do it if you can. That will turn your ridiculous loan interest into something more reminiscent of a pre-2005 educational loan with many more comfortable repayment strategies.

3) Call me jaded but I would seriously recommend paying your loans off first and then moving on to your wife's. Can she pay on them at all? You're going to feel pretty stupid if you paid hers off first and then find yourself in an unexpected divorce a few years down the road where she's leaving you for the honduran pool boy. Hey, it could happen. The judge might take your retirement, savings, assets, etc.. but he'll never make you pay off her educational loans. Just food for thought. I'm trying to be pragmatic over here.

Anyway, it sounds like you have it figured out. Some variant of option #2 would probably work best. Don't bank on PSLF...that's insane. Once you graduate, just focus on your loans regardless of academics vs PP... I don't think there's any easier way. I pay over 10K a month (stupidly paid IBR my first year). It's painful. I hate it. I can barely invest...(though I'm trying to max out my SEP while I pay the loans) but I'll have all my loans paid off in under 5 years post residency (Mine were huge...400+K). It's completely worth it.

 

[The White Coat Investor]

You're definitely NOT alone. I run into people all the time with $400K+ in student loan burdens (record is $950K for a two-doc couple and something like $600K for a single doc). Even if you graduate med school with only $350K, by the time you finish residency you're in the $450K neighborhood. 7%*350K= $24,500 per year in interest.

 

[RustedFox]

Dude, soon - we want to see you post "Debt Retired" on here.

Think about how good that will feel.

 

[TooMuchResearch]

<Whistles...> Man... and here I thought that I was the only one who graduated residency with that kind of debt.

A few things:

1) You seem to be very pro-academics. If you are dead set on academics, then a one year fellowship to give you that "niche" contribution and set yourself apart will likely go a long way. Just pick something thats very academic friendly. Caveats to academics which I'm sure you've already realized include significant decreased pay. I'd love to work in academics at this point but with my loans... I simply can't afford to take a 200K+ pay cut. You will not only lose salary by working in academics but you're going to lose lots of benjamins compared to PP. Do the math and it might make you feel differently about taking a private gig for at least 2 years to do nothing more than pay your loans down. Every job I've taken has been for the singular goal of maximizing my ability to pay down my loans and after they are all gone THEN I'll look for my dream job.

IBR hoping for PSLF is financial suicide. I would absolutely not recommend letting your loan interest accrue over 10 years hoping for a hail mary. If you lose, you will likely be financially devastated and have to prolong retirement by at least 10+ years.

Also, keep in mind that you feel very pro academics now but who's to say in 8 years? 6 years? You may find yourself hating academics and wishing that you worked in the private sector.

2) Refinance with SOFI or Common Bond, etc.. for at least half your current interest. This is a no brainer and you should definitely do it if you can. That will turn your ridiculous loan interest into something more reminiscent of a pre-2005 educational loan with many more comfortable repayment strategies.

3) Call me jaded but I would seriously recommend paying your loans off first and then moving on to your wife's. Can she pay on them at all? You're going to feel pretty stupid if you paid hers off first and then find yourself in an unexpected divorce a few years down the road where she's leaving you for the honduran pool boy. Hey, it could happen. The judge might take your retirement, savings, assets, etc.. but he'll never make you pay off her educational loans. Just food for thought. I'm trying to be pragmatic over here.

Anyway, it sounds like you have it figured out. Some variant of option #2 would probably work best. Don't bank on PSLF...that's insane. Once you graduate, just focus on your loans regardless of academics vs PP... I don't think there's any easier way. I pay over 10K a month (stupidly paid IBR my first year). It's painful. I hate it. I can barely invest...(though I'm trying to max out my SEP while I pay the loans) but I'll have all my loans paid off in under 5 years post residency (Mine were huge...400+K). It's completely worth it.

$200k pay cut between academics and community?

Around here, if you factor in benefits, retirement matching that come with the academic/hospital employee role, it's maybe a $30-80k cut with a somewhat cushier job. The trade off is that it's basically impossible to break into that market without fellowship or community experience here.

 

[JMC2010]

I definitely recommend scenario #2 and agree with most of what Groove said. Only if you are dead-set on academics would I consider a fellowship which means another year or two of interest piling up. 450K is serious debt and will take a lot of discipline to dig out of, I know because I have been attacking 250K for the last 2 years. Looking back with what I know now after paying 5K per month for 2 years, I'm so glad I took a PP job. I would even consider moving to a LCOL area to pay that loan down even faster.

I wish I had refinanced immediately out of residency instead of waiting a year. I finally did refinance 6 months ago to the 3% variable rate (incentive to keep paying off aggressively) and just yesterday I refinanced again to the new 2.69% variable rate (which i learned about from the whitecoatinvestor.com-->hopefully you've already read this site backwards and forwards).

Pay it off ASAP. Don't count on the government erasing your loans. Imagine that first NYtimes article that says 300K physician earner has 200K in loans wiped out and see how long it sticks around.

 

[throckmortonDO]

I'm not dead set on academics truthfully, I like ICU as much as EM, and could do both, so that's why I was thinking of the fellowship in order to 'rack up' a couple more years on PSLF/IBR, however if that isn't necessary then no need really.

has anyone moonlighted on top of an academics gig or would that be burnout city?

What are the caveats to the 'variable interest' loan vs fixed rate? say for 5-10 yrs?

 

[Birdstrike]

I'm not dead set on academics truthfully, I like ICU as much as EM, and could do both, so that's why I was thinking of the fellowship in order to 'rack up' a couple more years on PSLF/IBR, however if that isn't necessary then no need really.

has anyone moonlighted on top of an academics gig or would that be burnout city?

What are the caveats to the 'variable interest' loan vs fixed rate? say for 5-10 yrs?

I just want to give you props for working the term "throckmorton" into your screen name. As far as your loan situation, I break out into a cold sweat, get weak and dizzy when I see the words "debt" and lots of zeros, myself.

 

[future_dr_house]

With sofi the 5 year variable is a base percentage (3.3% for me) plus the monthly libor rate. Currently, the libor rate is at an extremely low point of around 0.17%. In the last decade it has been as high as around 5.8%. My loan contract with them states the maximum rate on the loans is 8.95% regardless of the libor rate. There is also no rule against refinancing to a fixed rate or having another company refinance your loans to become your new lender. There are also no fees associated with overpaying. So for now while my loans are at 3.6% I pay 5k per month. If it starts rising some then I get more aggressive with Payments. If the libor goes to more than 3% that would make my total percentage 6.3% or greater and I would refinance the loan to a fixed rate. There is no guarantee however that a lower fixed rate would be available in that event.


Sent from my iPhone using Tapatalk

 

[dchristismi]

Groove mentioned something that no one really wants to think about, but I'd have my loans paid off by now if I hadn't forked over 100K in alimony. White Coat's book (which you should definitely pick up) also hits on this - divorce is the most expensive hit most people will ever face. No one thinks it will happen to them, but it can and it does.

As it is, I consolidated at a ridiculously low interest rate (such that it's been the lowest of all my debt for years, and I've now knocked out everything but the last 70K and my current mortgage, which is also dropping like a rock.

 

[EctopicFetus]

I like option 2. The financial decision is one thing but you have to pick a career where you will be happy (Academics vs community vs ICU etc).

Once you figure out your path then you can focus on your debt. The interest rates these days are criminal. While banks are lending money for essentially 0 student loans are at 7%+.

Long story short I just paid off all my loans that are over 2% interest. I believe debt is crippling and one of the main reasons ED docs burn out. Our pay structure is such where we figure out what a shift is worth and work more and more to accumulate crap, spend on stuff or try to keep up with the Joneses.

Get out of debt, understand being an ED doc isnt like starting facebook, and you will likely have a very happy life and career. Oh, and make sure your spouse knows the same.

 

[IlDestriero]

You left out the option where you move to a less desirable low cost area for a few years and use the additional income and lower expenses to pay down your debt while renting an inexpensive home. Kill the debt then move to your desired city/job with little to no debt and a few years of experience.

 

[Hamhock]

What about "investing" 50% bond fund/50% equity aggressively (eg 7-9K/mo) in a taxable brokerage account while waiting to see if PSLF kicks in?

If PSLF is taken away, the lump sum from the taxable account can pay it off immediately. If it does kick in, well...

My significant other already has 5 years of "PSLF service" banked with 6-7% student loans. She is about to work as attending for a non-profit. I am trying to decide if the above method is unwise.

HH

 

[throckmortonDO]

What about "investing" 50% bond fund/50% equity aggressively (eg 7-9K/mo) in a taxable brokerage account while waiting to see if PSLF kicks in?

If PSLF is taken away, the lump sum from the taxable account can pay it off immediately. If it does kick in, well...

My significant other already has 5 years of "PSLF service" banked with 6-7% student loans. She is about to work as attending for a non-profit. I am trying to decide if the above method is unwise.

HH

Not a bad idea, however with an academics salary, after paying $1750 a month, I'll have about 8500 left over. if you take out rent/mortgate (2k), and approx 2k to live on (food, child care - I have currently 2 kids, car insurance, heat/light/water) I'll have about $4500 left over. not quite 7-9k to invest to really have that banked in case PSLF doesn't happen.

Scenario 2 - where attending salary ~325k, would effectively bump me off of IBR as my 15% >150% of the poverty line payment > 10 yr repayment plan. So in essence I would be 'forced' to pay the loan down quickly or face exponential accumulation at 7.4% by the government. So in this case I'd have to refinance at a lower rate, hopefully < 4%, or less.

I am interested in moving to a low cost of living/rural area as long as it has good schools, regardless of the above factors. it appears scenario 2 - with paying down loans fast would probably be the best fiscal option if I went PP.

The additional caveat is that I will be 35 years old coming out of residency, as being a physician is my second career, and I'm wondering if it would be overall responsible for me to do a fellowship ( in which currently my/and wifes loans would accumulate 30k per year effectively making my loan balance coming out of training >500k) or whether I should just go directly into PP and try to pay down this 450k that I will have coming out of training.

if I did gamble on fellowship and PP, then the above salary would be applied to loan balance >500k
if I gambled on fellowship and went academics, at the end of 10 yrs, if PSLF did not come through then I would be looking at a loan balance of 660k. if PSL comes through I ended up spending 125k in payments towards IBR/PSLF.

overall quite a risky gamble.

 

[gman33]

Another thing to look into are community jobs that will give you some money for your loans.
There are jobs out there that will pay $100-200k in loans for some period of service.
Some of these jobs compensate very well at the same time.
5 years to have all your loans wiped out and significant money in the back might be worth it.

You can also always do a fellowship or find an academic job later on if that is what you want.

 

[throckmortonDO]

You can also always do a fellowship or find an academic job later on if that is what you want.

How easy is it to get into a fellowship after being an attending for a few years? my interests include hyperbarics and CCM ( outside of EM).

 

[gman33]

It should be fairly easy to get a fellowship later on.
The main issue will be wanting to give up your paycheck.

Unlike other specialties, EM fellowships don't result in a pay raise after training.
For that reason, many spots go unfilled every year.

 

[The White Coat Investor]

It should be fairly easy to get a fellowship later on.
The main issue will be wanting to give up your paycheck.

Unlike other specialties, EM fellowships don't result in a pay raise after training.
For that reason, many spots go unfilled every year.

Not necessarily true. While a fellow doesn't necessarily make anywhere near what a full-time attending makes, they often work something like half time in the ED as an attending and so make much more than they did as a resident. Someone correct me if I'm wrong, but that was my understanding.

 

[coachB]

Not necessarily true. While a fellow doesn't necessarily make anywhere near what a full-time attending makes, they often work something like half time in the ED as an attending and so make much more than they did as a resident. Someone correct me if I'm wrong, but that was my understanding.

It depends on a lot of factors including the fellowship, the institution, whether or not it's ACGME recognized, the amount of clinical time, and more. There are EM fellows getting paid as PGY-4s and 5s and there are others who are better paid. Most fellows are able to supplement with some moonlighting, but this is variable as well.

Regardless, it's probably not too difficult to obtain a fellowship spot after being out for a few years. And I think the community experience can be valuable in honing your skills and helping you to identify your priorities.