Paying back student loans, ibr + pslf or refinancing with fixed interest?

[Leather waffles]

Which strategy has the most value?

income based repayment + public service loan forgiveness

refinancing to a fixed rate and auto paying for 10 years

I owe about 250k in loans and I am considering ibr + pslf. My main worry is that pslf rules will change before 10 years and I might not be grandfathered in. My hope however is that pslf foregives a large amount of my loan or interest. Does anyone know how much you might save doing this method?

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[aboveliquidice]

IBR plus public service loan forgiveness.

 

[Carboxide]

IBR + PSLF. It is highly unlikely that they will change it and not grandfather us in. It is a gamble - but historically they have grandfathered.

 

[Dred Pirate]

You took out a loan and signed a contract - pay your dang loan off like your promised

 

[Digsbe]

Make sure the forgiven amount isn't tacked on as earned income or you'll pay taxes on it. I'm going to be in an almost identical situation as you when I graduate in May. You have to consider if you want to have more monthly take-home pay or if you want more net wealth via less interest. I think public service loan forgiveness is the best option, but that also typically means working for a non-profit hospital or gov job which will likely pay you less. It also means you need that job, and must stay full time there for 10 years.

As far as "value" goes with you keeping most of your earned money through the lifetime of the loan, the best is to blitz it off as fast as possible.
PSLF with an IBR payment of around 1.3k a month (what I think most single pharmacists will likely pay, at least according to a calculation I did for myself) will mean you pay about 160k of the loan and the rest is forgiven assuming that actually happens and the forgiven amount isn't tacked on as income (in which you may be taxed on an income near 300k that year).

For paying the loan at the lowest interest loss the best bet is to refinance for 5 years, if you can get an interest rate of 4.25% (which I think is doable on a 5 year term) you'll pay roughly 56k a year in loans for 5 years about 278k on the loan itself, making your interest loss less. It means during those 5 years you'll live like a student again taking home little after taxes (sucks that the loan payments aren't tax deductible).

 

[awval999]

IBR + PSLF. It is highly unlikely that they will change it and not grandfather us in. It is a gamble - but historically they have grandfathered.

Hey brah... did you see how in the most recent budget Congress passed and the President signed, literally eliminated, overnight, people's Social Security who were claiming spousal/survivor benefits as "deemed/filed" and "partner benefits under suspension of benefits of the wage earner" that were ALREADY getting benefits. Like boom, no more benefits unless the wage earner claims. No more strategy claiming spousal benefits. GAME OVER.

Let me fill you, and the OP, in on how much student loans have been forgiven under IRB/PSLF
[ ] Some
[ ] A lot
[ ] One, red f***ing cent
[ x ] Literally, not one red f****ing cent

They will change it when they always do. At the last moment. Under the cloud of darkness. Say, "it wasn't intended for that purpose!".

You really, honestly, think the Federal Government of the United States, is going to forgive, hundreds of thousands of dollars of student loans, to health care professionals making >$100,000. To pharmacists? To physicians? To dentists? Never.

Edit: I want to make clear. I'm all for gaming the banks. The credit card companies. And the government. But honestly, the government is much, much smarter than you. When push comes to shove, they do what they have to do. After all of the kabuki theatre. They will rescind or drastically reduce the PSLF forgiveness.

 

[Digsbe]

Hey brah... did you see how in the most recent budget Congress passed and the President signed, literally eliminated, overnight, people's Social Security who were claiming spousal/survivor benefits as "deemed/filed" and "partner benefits under suspension of benefits of the wage earner" that were ALREADY getting benefits. Like boom, no more benefits unless the wage earner claims. No more strategy claiming spousal benefits. GAME OVER.

Let me fill you, and the OP, in on how much student loans have been forgiven under IRB/PSLF
[ ] Some
[ ] A lot
[ ] One, red f***ing cent
[ x ] Literally, not one red f****ing cent

They will change it when they always do. At the last moment. Under the cloud of darkness. Say, "it wasn't intended for that purpose!".

You really, honestly, think the Federal Government of the United States, is going to forgive, hundreds of thousands of dollars of student loans, to health care professionals making >$100,000. To pharmacists? To physicians? To dentists? Never.

Edit: I want to make clear. I'm all for gaming the banks. The credit card companies. And the government. But honestly, the government is much, much smarter than you. When push comes to shove, they do what they have to do. After all of the kabuki theatre. They will rescind or drastically reduce the PSLF forgiveness.

If I'm not mistaken I think the administration has talked about changing rules for higher earning grad school graduates.

The plan was put in place to buy the votes of kids that spent too much on useless degrees to bail them out, not help graduates keep more of the earnings through any kind of loan forgiveness. They don't care about the burden of those making 6 figures, if anything you are their cash cow since you pay interest on the loans and higher taxes too. I'd plan on paying it all back, I highly doubt the gov is going to give pharmacy grads a break.

 

[confettiflyer]

You took out a loan and signed a contract - pay your dang loan off like your promised

My MPN mentioned IBR & PSLF, so utilizing IBR + PSLF is adhering to the terms of my contract. Wahoo.

 

[confettiflyer]

Hey brah... did you see how in the most recent budget Congress passed and the President signed, literally eliminated, overnight, people's Social Security who were claiming spousal/survivor benefits as "deemed/filed" and "partner benefits under suspension of benefits of the wage earner" that were ALREADY getting benefits. Like boom, no more benefits unless the wage earner claims. No more strategy claiming spousal benefits. GAME OVER.

Uhm yo...are you talking about the rarely used file/suspend loophole? Because they changed it, and they're giving everyone a 6 month heads up that it's going to change so people can file it, and they're not touching anyone who's already done it. No "overnight elimination of social security"... that's a gross misrepresentation of what actually was passed on Monday.

See: https://www.washingtonpost.com/news...gies-for-married-couples-is-being-eliminated/

Let me fill you, and the OP, in on how much student loans have been forgiven under IRB/PSLF
[ ] Some
[ ] A lot
[ ] One, red f***ing cent
[ x ] Literally, not one red f****ing cent

Because...the law was passed in 2007, and literally we have not invented time travel yet because the absolute earliest anyone can get ANY debt relief is 2017. Literally. No Delorean. No hoverboards. No flux capacitor.

Saying no forgiveness has happened is like jumping up and down proclaiming the 2016 Olympics in Rio have not happened yet and that it's a big deal....except, no ****, it's November 2015.

 

[confettiflyer]

If I'm not mistaken I think the administration has talked about changing rules for higher earning grad school graduates.

The plan was put in place to buy the votes of kids that spent too much on useless degrees to bail them out, not help graduates keep more of the earnings through any kind of loan forgiveness. They don't care about the burden of those making 6 figures, if anything you are their cash cow since you pay interest on the loans and higher taxes too. I'd plan on paying it all back, I highly doubt the gov is going to give pharmacy grads a break.

Why...would a sitting president, in his 2nd term, pander to people who don't vote, using...an executive order? What? How does that make sense?

Administration talked about capping PSLF benefits going forward but that never came to fruition. Negotiated rule making just finished for the EO expanding PAYE. The entire congress is going to have to come together, come up with legislation, get it passed, and go against historic precedence to retroactively claw back a benefit that may or may not be legal based on some legal theories of the MPN constituting a legal agreement between DOE/gov't and borrowers.

 

[confettiflyer]

My head hurts. So much dumb.

 

[rxlea]

Cubs lost. No free Deloreans, damnit.

 

[Digsbe]

Why...would a sitting president, in his 2nd term, pander to people who don't vote, using...an executive order? What? How does that make sense?

Administration talked about capping PSLF benefits going forward but that never came to fruition. Negotiated rule making just finished for the EO expanding PAYE. The entire congress is going to have to come together, come up with legislation, get it passed, and go against historic precedence to retroactively claw back a benefit that may or may not be legal based on some legal theories of the MPN constituting a legal agreement between DOE/gov't and borrowers.

All I'm saying is I highly highly doubt they care much about helping grad students or people making 6 figures having more ease in repayment. There is a reason why there is an income cap on when you can claim student loan interest on your taxes.

 

[confettiflyer]

All I'm saying is I highly highly doubt they care much about helping grad students or people making 6 figures having more ease in repayment. There is a reason why there is an income cap on when you can claim student loan interest on your taxes.

Uhm...

...you do know that the student loan interest deduction stems from historical tax code where all interest used to be deductible, right?

Every deduction has a phase out, student loan interest is no different. Then there's AMT.

Anyway, that deduction got nixed in 1986, but TRA 1997, EGTRRA 2001, and TRA 2010 actually expanded the scope and amount of the deduction.

And backtracking, but what better way to help six-figure making people than by lowering their marginal tax rates in 1986?

So basically...everything Congress/Washington has done since 1986 has been to benefit high income earners with progressive expansion of the student loan interest deduction since 1997. The same "six figure grad school attendees" got unlimited PSLF in 2007, generous 10% IBR in 2012-ish, and then everyone got 10% IBR in 2015 via EO/neg reg.

So...where's the actual legislative or executive action/evidence to back up your statement?

 

[awval999]

One. The social security change was a big one. Go over to Bogleheads... There's a 250+ post on it already boohooing. Obviously millennials like us dismiss Social Security changes as "whatever", "minor" and "meaningless". But trust me that on the retirement forums it's a huge "shots fired".

Two. I will be here in 2017. We will see if the first wave of students get anything forgiven. When I see the screenshots of the student loan balances of posters go to "zero". I'll say I was wrong. I've been wrong before.

 

[confettiflyer]

One. The social security change was a big one. Go over to Bogleheads... There's a 250+ post on it already boohooing. Obviously millennials like us dismiss Social Security changes as "whatever", "minor" and "meaningless". But trust me that on the retirement forums it's a huge "shots fired".

The base at bogleheads? Seriously? Of course they're gonna whine about it...but that's such a specific sliver of retiree AND they got six month lead time? You still assert they're clawing back benefits?

It's a huge deal to a small group of wealthy people with the means to file/suspend....those already in are in.

Two. I will be here in 2017. We will see if the first wave of students get anything forgiven. When I see the screenshots of the student loan balances of posters go to "zero". I'll say I was wrong. I've been wrong before.

We'll see them.

 

[BMBiology]

Don't mess with confettiflyer's bread and butter!

 

[Digsbe]

Uhm...

...you do know that the student loan interest deduction stems from historical tax code where all interest used to be deductible, right?

Every deduction has a phase out, student loan interest is no different. Then there's AMT.

Anyway, that deduction got nixed in 1986, but TRA 1997, EGTRRA 2001, and TRA 2010 actually expanded the scope and amount of the deduction.

And backtracking, but what better way to help six-figure making people than by lowering their marginal tax rates in 1986?

So basically...everything Congress/Washington has done since 1986 has been to benefit high income earners with progressive expansion of the student loan interest deduction since 1997. The same "six figure grad school attendees" got unlimited PSLF in 2007, generous 10% IBR in 2012-ish, and then everyone got 10% IBR in 2015 via EO/neg reg.

So...where's the actual legislative or executive action/evidence to back up your statement?

All I'm saying is grad students and higher earners are not the focus of student loan forgiveness and it wouldn't surprise me if they started changing things to prevent higher earners from taking advantage of some repayment options or forgiveness.

They've kept student loan interest deductions, but I believe the cap is around people who make 78k a year (no where near what pharmacists do), again showing that help isn't geared towards helping higher earners or easing the burden.

The gov has taken no steps to help with tuition inflation and the answer has been to throw more high interest money into the loan system. I don't think student loans, at least for grad students, are not operating at a net loss since we pay them back with hefty interest.

I'll buy into things when people actually have debt forgiven under PSLF or IBR without some massive tax attached to their bill. I just think the safest approach is to pay it off and not rely on government forgiveness or aid, at least for pharmacists or others who earn 6 figures on average. If they've already discussed possibly changing the rules for grad students that's a red flag to me and I don't think their focus is to aid in our financial prosperity, but to reap from it. Higher earners, as pointed out, do not get to take student loan interest deductions off their taxes because of the cap, grad loans have higher interest rates that undergrad with less aid and services available. The system favors undergrad loans, with profit coming from graduate earners and grad loans. I highly doubt our financial prosperity and security is a priority of anyone in Washington, they care about those who got expensive undergrad degrees and paid way too much for them compared to what they will be earning with it.

I think they are doing what they can for undergrad borrowers or lower-income borrowers. But those routinely taking out 6 figures to get a doctoral or graduate degree that earn more than 80k a year aren't seeing many breaks. PSLF is on the books right now, but even with IBR or PAYE forgiveness the forgiven amount is still tacked onto your income to be taxed on. They're going to get their money's worth out of us unless you work for the government or a non-profit and the rules don't change down the road.

 

[Gombrich12]

Of course PSLF is going to be capped, the proposals have already been floated for just that. I don't think confetti and others currently on PSLF have much to worry about though. They will be grandfathered in and getting a deal of a lifetime.

http://educatedrisk.org/analysis/public-service-loan-forgiveness-real

 

[confettiflyer]

All I'm saying is grad students and higher earners are not the focus of student loan forgiveness and it wouldn't surprise me if they started changing things to prevent higher earners from taking advantage of some repayment options or forgiveness.

They've kept student loan interest deductions, but I believe the cap is around people who make 78k a year (no where near what pharmacists do), again showing that help isn't geared towards helping higher earners or easing the burden.

The gov has taken no steps to help with tuition inflation and the answer has been to throw more high interest money into the loan system. I don't think student loans, at least for grad students, are not operating at a net loss since we pay them back with hefty interest.

I'll buy into things when people actually have debt forgiven under PSLF or IBR without some massive tax attached to their bill. I just think the safest approach is to pay it off and not rely on government forgiveness or aid, at least for pharmacists or others who earn 6 figures on average. If they've already discussed possibly changing the rules for grad students that's a red flag to me and I don't think their focus is to aid in our financial prosperity, but to reap from it. Higher earners, as pointed out, do not get to take student loan interest deductions off their taxes because of the cap, grad loans have higher interest rates that undergrad with less aid and services available. The system favors undergrad loans, with profit coming from graduate earners and grad loans. I highly doubt our financial prosperity and security is a priority of anyone in Washington, they care about those who got expensive undergrad degrees and paid way too much for them compared to what they will be earning with it.

I think they are doing what they can for undergrad borrowers or lower-income borrowers. But those routinely taking out 6 figures to get a doctoral or graduate degree that earn more than 80k a year aren't seeing many breaks. PSLF is on the books right now, but even with IBR or PAYE forgiveness the forgiven amount is still tacked onto your income to be taxed on. They're going to get their money's worth out of us unless you work for the government or a non-profit and the rules don't change down the road.

I do have to point out, in support of your post, that the latest expansion of more generous IBR (REPAYE) did reduce the benefit for graduate students by extending terminal loan forgiveness to 25 years vs. 20 years for undergrad only loan balances for non-PSLF borrowers.

But the underlying argument I'm making is that high-income individuals have ALWAYS reaped a disproportionate benefit with the U.S. tax system overall. Be it mortgage interest deductions, the treatment of passive income streams, or long term capital gains. The targeting of which frames the discussion--example, student loan interest was deductible in the 1980's for everyone, then no one, then 1997 only $1k for everyone within 5 years of graduating, then the cap increased, then stopped increasing, all the while pharmacist salaries exploded and blew past "the cap" which to me doesn't signal intent on the authors of TRA 1997 to "target" lower income people (more like...limit the cost and liability to the system overall).

But when you look across the board from 1986 on, isolated blips aside, high earners have benefitted disproportionately. IBR/PAYE/REPAYE and unlimited PSLF are the current iterations of that. The Rubio-Warner legislation was the closest we saw to a non-retroactive elimination of PSLF, but it introduced other interest accumulation controls that also disproportionately benefits highly leveraged individuals...which were incorporated into REPAYE (capitalization limits to 50%).

I've said this before, you cannot write effective legislation that is excessively narrow. Sure, one day PSLF will go away, all the current loan programs might cease to exist for new borrowers, but whatever comes down the government pipeline will not suddenly revert to a PROgressive posture.

EDIT 11/19, I bolded my edit, I realized I meant progressive, not regressive.

 

[DaTruMD]

Posting to follow this thread in the future.

 

[BC_89]

I definitley understand that school is expensive and "things happen" but were you not aware of what you were getting yourself into???? I've budgeted, forming a mutual fund, wife and kids and working while in school, yet if i get off right at 100-110k when its all said and done ill be happy (especially since extra expenses for my wifes citizenship)! why?? I plan on living like a college student without actually having to take classes or do rotations anymore for the next 3 - 4 years WHEN I GET MY JOB. Pay that stuff!!! You borrowed it, you knew what this field is like, and now reap the rewards of your paycheck AS WELL as the "side-effects" that come with it (student loans). I think its great that they have plans set up of which we can get loan forgiveness...why risk your family or your sanity if a bump on the road comes and they say "oops, cant pull it off, sorry america." I may or may not be wrong when and if this happens...All i know is before the 120 minimum installments take place (for myself since ill pay more than the minimum) I will be debt free...DEBT FREE...it can be done. Got in over your head??? so did many other people...many many other people.

 

[pezdispenser]

I definitley understand that school is expensive and "things happen" but were you not aware of what you were getting yourself into???? I've budgeted, forming a mutual fund, wife and kids and working while in school, yet if i get off right at 100-110k when its all said and done ill be happy (especially since extra expenses for my wifes citizenship)! why?? I plan on living like a college student without actually having to take classes or do rotations anymore for the next 3 - 4 years WHEN I GET MY JOB. Pay that stuff!!! You borrowed it, you knew what this field is like, and now reap the rewards of your paycheck AS WELL as the "side-effects" that come with it (student loans). I think its great that they have plans set up of which we can get loan forgiveness...why risk your family or your sanity if a bump on the road comes and they say "oops, cant pull it off, sorry america." I may or may not be wrong when and if this happens...All i know is before the 120 minimum installments take place (for myself since ill pay more than the minimum) I will be debt free...DEBT FREE...it can be done. Got in over your head??? so did many other people...many many other people.

I think you'll do well. I also did the 'live cheaply and blitz the loans' strategy. Paid off $400k total of student loans AND a mortgage in 7 years. My net worth is now around $700k and growing fast. Being debt free feels amazing! Good luck to you and others who follow this path.

My advice to everyone is that it is extremely important to be able to:
1. control your spending
2. find contentment in what you have
3. stay away from debt so that you don't accidentally fund a lifestyle that you can't afford

If you have $250k in student loans and you're looking to the government for help (oh boy) through PSLF or REPAYE, then obviously you have NOT learned this and you will probably always be in some form of debt for your entire life. Debt will hinder your ability to build massive wealth and achieve true financial independence, because you will always have to make payments, and thus you will always be tied to a job (or even limited to a PSLF job).

 

[confettiflyer]

http://www.king.senate.gov/download/?id=9CD8B23D-0FF8-4880-A656-4C7767EE4FA7&inline=file

The above is why I think PSLF will be around. Look at the co-authors (and turn to page 18).

1) Sen. Marco Rubio - possible president of the united states
2) Sen. Lamar Alexander - the future chair of the Senate Heath, Education, Labor and Pensions committee and thus controlling the HEA reauthorization process.
3) Sen. Warner -- Democrat, wrote the dynamic repayment act w/ Sen. Rubio.

 

[Student Loan Planner]

PSLF is written into the promissory note for most folks with direct student loans. I expect a limitation of the programs benefits in the near future though for new borrowers