Does it ever make sense to go the full 25 yrs in REPAYE?

[shaggybill]

First about me: I am 38 years old. I was a late bloomer and I graduated med school in 2016. I had no retirement saved up prior to this. Married, wife makes about 45k as a nurse. She has 100k in federal loans. No kids yet, but plan to start trying this spring.

Right now I have about $460k in federal loans. No private loans. Avg interest rate is about 6.7%. Income at the 1099 job I start in January will be ~$200k. Right now I am on REPAYE. If I'm not mistaken, I think my interest alone is around 30k/yr.

After taxes/tithes, I will be looking at take home of ~$130k.

With this in mind, is there a scenario where just going with the minimum payments makes sense? I understand the tax bomb at the end of the 25 years. I'm wondering if anyone has a plan where they just save extra money every month (probably $1000/month for me in an interest bearing account) for the taxes and live a semi-comfortable life in the meantime. I'm aware of how lazy this sounds but I'm not a super financially savvy fella so I wanted to ask if there's a threshold for a debt burden to income ratio where it just makes more sense to do the minimum payments.

(Also, there's a financial guru somewhere around here that makes an amazing Excel spreadsheet showing what that will look like and the tax liability at the end. If you read this, I'd love to see one for my situation.)

Lastly, I'm not really liberal politically, but I wouldn't mind seeing ol' Bernie win a 4 year term, just long enough to get rid of my student debt. Or maybe in 25 years enough millennials will be in congress to pass a bill to do away with taxing the forgiven debt amount.

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[SigmaFS]

Per your request, below is a series of screenshots:

REPAYE simulated payment schedule:

10-year Standard repayment schedule:

 

[shaggybill]

This is awesome. Thanks so much! Could you explain the difference between NPV and Total Paid? Is that the difference between the two totals adjusted for the inflation difference between now and 25 years?

 

[SigmaFS]

Net present value is the current value of your project payment stream including the tax bomb discounted by a inflation rate. This is one of the better apples to apples metric along with the effective interest rate. Total payments calculates payments made based on income but does not include the tax bomb.

 

[The White Coat Investor]

Yes, it can make sense to go for IBR/PAYE/REPAYE forgiveness and it probably does in your case, although I suspect PAYE would work better than REPAYE. You know what would be even better for you though? Take a PSLF qualifying job. Either way, get some student loan specific advice from a specialist. I keep a list of them on my website.

 

[RangerBob]

$200k for a 1099 job (or even an employed job) sounds really low for most specialties. Keep in mind you’ll have to pay full cost of social security/Medicare taxes, malpractice insurance, etc.

Is there a possibility of going for a higher paying job in the future? That could change your math. Otherwise I agree you may be one of the few people who’d be better off making minimum payments and planning for forgiveness in 25 years.

Or, just keep paying that 10% per year in perpetuity-I’m not sure you’re actually better off getting those loans forgiven as they balloon over the next 25 years, or that you’re required to apply for forgiveness after 25 years... But maybe income driven forgiveness will become tax free in the future...

 

[shaggybill]

Thanks for the replies. I threw the number $200k out there as what I expect to make the first year. It's 100% fee for service compensation, but $250k+ is definitely possible once I'm at capacity. My malpractice is partially paid for, I think my share is $60/mo. My employment options should expand in the future as I gain experience, as should my compensation (marginally) and benefits. For now my options are limited because I am not board certified.

I didn't think about just paying the 10% in perpetuity, that may be better than the tax bomb at the end.

WCI, is there a particular reason why PAYE may be better than REPAYE in my case?

Lastly, we are meeting next week with a financial planning firm that only works with physicians and dentists and does a lot with student loan planning, so I'm hopeful they can give us additional insight.