how to manage student debt

[Debt Free Doctor]

---

Members don't see this ad.

Dear MS4 (&PGY) around the world:

Congratulations for coming this far! This is your match day/ early medical school graduation present from DWM.

I hope this chart will serve you throughout your residency & fellowship.

I will continue to update this chart with legislative changes and new players in the student loan refinancing industry.

 

[Debt Free Doctor]

Here's a flowchart to specifically address whether REPAYE is for you.

 

[Debt Free Doctor]

by the way, i have been receiving great questions via private messages.
if you don't mind, you can either comment on my blog with questions or comment in this thread, so that others can learn from our discussions too.
one thing i learn along this long and tortuous career path is that the more we help each other out the better,
since very few other professions advocate for us doctors/dentists/etc., it behooves us to share information (good and bad experiences, successes and lessons) to help one another out.

 

[DragonDO]

When you guys have any dying for questions regarding the loan repayment options or any financial questions, check this website out, http://drwisemoney.com/

It is super helpful that answered my questions clearly and the author is very sincere trying to help other fellow med or other professional students who are in debt! I Love it!

 

[Debt Free Doctor]

with the permission of SDN participants who asked me questions.
I've posted our Q&A here. The questions from the SDN participants show lots of initiative and thoughts. It's prove that if we can take on a career as challenging and demanding as medicine, we can utilize just 3% of our brain power to take care of ourselves and our families financially.

Hello,

Your story was inspiring and thanks for your knowledge and story!

I am one of ATSU-KCOM Class of 2016 graduates this year and will be going into radiology residency with internship starting this July. I have few following questions that I want to get help, if you can help me here.

For future radiology residents, what are the good option for the loan repayment? My plan was to do the Income Based Repayment (IBR) for the next 6 years (1 intern, 4 radiology, 1 fellowship) and get a job at the non-profit organization for 4 yrs so the leftover amount will be forgiven after 10 yrs with PSLF or be on IBR for 6 yrs and switch to standard payment for 2-3 yrs to pay aggressively to pay off, completely. The latter option is what I intend to do since my ultimate goal is to pay off the loans as quickly as I can rather than paying it for a long term payment. Currently, I owed 228k with federal student loans only (no other private loans) . Do I have to consider the consolidation or refinance loans. I am a single at the moment.

Most radiologists are hired by private groups even at the academic center which most people think those centers are non-profit, but it may not be. For people who are not sure whether they will do private practice (for profit) or academic (non-profit), which loan repayment is the most appropriate (IBR vs PAYE vs RePAYE) during my 6 yrs of residency training AND for after training?

Appreciate it for your valuable time and input!

DWM response:
first of all, congrats for making it this far! and you are way ahead of the game, taking the student loan issue seriously now 🙂

here's a post that could help you get a sense for whether PSLF is for your or not:
http://drwisemoney.com/2016/03/16/your-personalized-student-loan-management-strategy/

once you know which way you lean, it seems that you are more about paying the debt off yourself, which i concur, as i'm radiology pgy2 myself 🙂
here's my thoughts on PSLF:
http://drwisemoney.com/2015/07/24/pslf-is-a-trap-for-the-wishful/

due to more private/non-profit W2 jobs ratio & higher income in private in radiology; makes more sense for rads to Not go for PSLF.

then you are left with

1. refinance your student loans now with DRB or LinkCapital (who's out of money for the time being.) you can apply here http://drwisemoney.com/refinance-and-save/
2. IBR
3. PAYE
4. REPAYE

I would first of all apply for free to DRB and see what rates they offer you. It could be both the best interest rate you'd get & the smallest amount of monthly payment you need to make. (DRB only requires $100/month throughout 6 years in pgy radiolgoy training + 6 months after fellowship completion). So this gives you Max cash flow compare to option 2-4 above. Why does cash flow matter? (It matters a lot because of time value.)

You can read about why one will refinance ASAP (DRB actually refi MS4 with contract in hand, so if you get approved, you can start saving interest on your student loan while everyone else is just waiting and letting their loan grow...9 months of 3% interest savings on 200k is pretty substantial)

http://drwisemoney.com/?s=best+of+both+worlds

Now if you don't need the extra cash flow from getting Refi vs. option 2-4, and you are pretty sure you want to go for PSLF, the choice is relatively simple...

Go to https://studentloans.gov/myDirectLoan/mobile/repayment/repaymentEstimator.action
and plug in your numbers.
you'll get what you need to pay monthly on option 2-4.

Be sure to run a couple different income that applies to you
for instance, your payment is based on prior year tax return.
2014 tax return is small as MS4
2015 tax return is half pgy1 income
2016 tax return is half pgy1, half pgy2 income
2017 tax return is half pgy2, half pgy3 income

so even though for most pgy1 their fed payments are approx $0
most rads pgy2+ start making a couple hundred dollar payments

once you have an idea of big of deal these payments are to you (ie. does it limit your ability to contribute to Roth IRA or take advantage of company employer match for retirement, etc.)
you can decide whether you want to stick with fed repayment options or refi.

if you do choose to stick with fed repayment, i would choose Repaye because there's 50% interest subsidy on the difference between your Repaye payment & your monthly accrued interest. i'll sign up for PSLF immediately so the 120 payment clock starts ticking...


good luck! let me know if you have any other question.
best way to get answers is comment on my blog

i check my blog more frequently than SDN

Basic Comparison of the 4 IDR plans.


IDR Plan

Payment Amount

Repayment Period

Interest Benefit

Forgiveness without PSLF

Forgiveness with PSLF


RE-PAYE

10% of discretionary income

20 years if only undergraduate loans


25 years if any graduate loans

If your monthly payment doesn’t cover the full amount of interest that accrues, the government pays


The full amount of the difference on your subsidized loans for the first three years, and half of the difference after the first three years, and


Half of the difference on your unsubsidized loans during all periods

After 20 or 25 years if you have graduate loans. Forgiven amount is considered taxable income.

After 120 qualifying payments, Forgiven amount is not taxable.

PAYE

10% of discretionary income, but never more than the 10-year Standard Repayment Plan amount

20 years



If your monthly payment doesn't cover the full amount of interest that accrues on your subsidized loans, the government pays the difference for the first three years

After 20 years. Forgiven amount is considered taxable income.

After 120 qualifying payments, Forgiven amount is not taxable.

IBR

10% of your discretionary income* if you're a new borrower on or after July 1, 2014


15% of your discretionary income* if you're not a new borrower on or after July 1, 2014


*Never more than the 10-year Standard Repayment Plan amount.

20 years if new borrower on or after July 1, 2014


25 years if borrower before July 1, 2014

If your monthly payment doesn't cover the full amount of interest that accrues on your subsidized loans, the government pays the difference for the first three years


After 20 or 25 years. Forgiven amount is considered taxable income.

After 120 qualifying payments, Forgiven amount is not taxable.

ICR

The lesser of either:


20% of your discretionary income or


What you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income.

25 years

No interest benefit


After 25 years. Forgiven amount is considered taxable income.

After 120 qualifying payments, Forgiven amount is not taxable.

 

[Debt Free Doctor]

More Q&A

Appreciate your details and sincere answers! I still have follow up questions. Also, I am more glad to bump into you who is also pursuing a radiology 🙂

My current debt: Only Direct federal loans = 228k with avg 6.08% Interest Rate, currently.
My loan servicer: FedLoan Servicing (PHEAA)

Q1. First of all, I applied to DRB with my current income of $0 with current debt, I got denied. Should I have put my future PGY1 salary on my application?

Q2. Refinancing vs. Fed payment with PLSF? Since I am a single and have no desire to spend on unnecessary things during my residency training, currently, I don't think I will need extra cash flow from refinancing/consolidating my loans. If I am left with only fed loan repayment options, you recommended RePAYE with PLSF, due to the fact gov. pays the interest subsidy. If I apply to PLSF with RePAYE, am I locked in myself to only applying to 501(c) job positions during my job hunting time? If my assumption is correct and if you can recommend just one of IDR options, will you still just recommend me to be on RePAYE without PLSF (since radiologists are mostly privately contracted) compared to others like IBR or PAYE plans? If my ultimate goal is to pay off loans within 8-10 yrs starting this yr as I will start internship in July, 2016 (6 yrs being on one of IDR options and 2-4 yrs paying off aggressively by switching to standard 10yrs repayment after I become an attending) for a current 228k loan, what is the most appropriate option for myself who is trying to pay off as quickly as I can without letting the interest building up for a long term? I do not want to pay the government more than I need to, but during my time in residency, I have no confidence to go with standard or graduated or extended graduated plans since my cost of living at Houston won't be cheap (where my radiology training will be at next year).

Q3. Even if you are on one of the IDR plans, you can always pay more than your monthly payment to pay quicker, right? If I am willing to pay extra monthly on top of whichever one of the IDR plans requires me to pay during my next 6 yrs, isn't IBR the best option for me during 6 yrs where I can pay more monthly to get rid of interests hopefully during 6 yrs compared to other PAYE or RePAYE? I will for sure also run for moonlight opportunity during my rads residency so I will likely use that into a loan payment as extra on top of monthly loan repayment trying to pay quicker.

Q4. Let's say I am on one of the IDR plans. There is no limit or restriction on me if I will change from IDR to standard 10 yr plan, correct?

I really appreciate your responses and huge help so far!


--
DWM response:

no problem, my pleasure.

answers below

Q1. First of all, I applied to DRB with my current income of $0 with current debt, I got denied. Should I have put my future PGY1 salary on my application?

-yes PGY 1 income.

Q2. Refinancing vs. Fed payment with PLSF? Since I am a single and have no desire to spend on unnecessary things during my residency training, currently, I don't think I will need extra cash flow from refinancing/consolidating my loans. If I am left with only fed loan repayment options, you recommended RePAYE with PLSF, due to the fact gov. pays the interest subsidy.

-yes Repaye makes senses as long as you are not paying more than the monthly accrued interest. remember the interest subsidy is 50% of the Difference between your monthly accrued interest and your monthly repaye payments.
so as your income grow, and your mandatory Repaye payments will too grow, then that will lead to a smaller absolute value of interest subsidy.

by the time you are able to make Repaye payment greater than the monthly accrued interest, there will no longer be any interest subsidy.
so repaye is truly designed for the high debt/income ratio folks (like us in PGYs').

If I apply to PLSF with RePAYE, am I locked in myself to only applying to 501(c) job positions during my job hunting time?

-no, you apply to IDR and PSLF separately.
residency counts towards PSLF 12o payment requirement
when you finish training, you can choose any job you want.
although people who allow their debt to grow out of control tend to limit themselves to non profit PSLF eligible jobs so that they can get their debt forgiven in 4.5 years. (assuming they enrolled in PSLF right after the grace period, in mid PGY1)

but you also CAN choose the job you like the most even if it's Not non-profit
at which point, you will know definitely that PSLF is not for you and you can refinance your loans ASAP to a much lower rate (hopefully rates will be still low then. rates are probably lowest now. but no one really has the crystal ball about rates/ just like stock market.)

If my assumption is correct and if you can recommend just one of IDR options, will you still just recommend me to be on RePAYE without PLSF (since radiologists are mostly privately contracted) compared to others like IBR or PAYE plans?

-If you choose and IDR, definitely sign up for PSLF too, because that's the only reason one will sign up for IDR rather than refinance. signing up for PSLF doesn't hurt you but can potentially get your debt forgiven if you fall in love with an academic or government job.

If my ultimate goal is to pay off loans within 8-10 yrs starting this yr as I will start internship in July, 2016 (6 yrs being on one of IDR options and 2-4 yrs paying off aggressively by switching to standard 10yrs repayment after I become an attending) for a current 228k loan, what is the most appropriate option for myself who is trying to pay off as quickly as I can without letting the interest building up for a long term?

-great plan, you can definitely plan to pay off your loan within 2-4 years of finishing training.
if that's your plan, i really recommend refinancing now. because that means you get the low interest locked in and can start aggressively paying your loan down during residency. check out if your program offers moonlighting. some of my seniors make 90k/year with moonlighting, which means you can really pay the interest and pay some principle down each month, which put you in a much better position than letting your loan negatively amortize (balance grow larger and larger when you are paying just IDR (Repaye, paye, ibr) minimums).
in the even that you are seriously paying down your debt, Repaye is Not good at all because it does NOT subsidize interest at all when you pay off the interest accrued each month. In other words, your interest rate will be 6.08% on all IDR including repaye.
but DRB refi rate can probably get you 4.5-5.5 %.

I do not want to pay the government more than I need to, but during my time in residency, I have no confidence to go with standard or graduated or extended graduated plans since my cost of living at Houston won't be cheap (where my radiology training will be at next year).

-check for moonlighting opportunities in your rads program
-make projected income and budget to see how much you can realistically throw at your student loans
-you may be surprised, i was throwing $2000/mo at my student loans during intern year at times.

Q3. Even if you are on one of the IDR plans, you can always pay more than your monthly payment to pay quicker, right?

-yes, but what sucks is the interest rate.

If I am willing to pay extra monthly on top of whichever one of the IDR plans requires me to pay during my next 6 yrs, isn't IBR the best option for me during 6 yrs where I can pay more monthly to get rid of interests hopefully during 6 yrs compared to other PAYE or RePAYE?

-if you want to pay extra, the best plan is refi, because you will have a lower interest rate to start with. potentially 4.5%... this rate does not change and is lower than fed rates by 1.5%. where as repaye says it subsidize, but rate increases anytime you make a larger payment.

I will for sure also run for moonlight opportunity during my rads residency so I will likely use that into a loan payment as extra on top of monthly loan repayment trying to pay quicker.

-great if there's extra income in rads, you are well set.
if i were you, i'll just refinance ASAP and get the lowest interest rate i can, and start paying down VERY aggressively.

Q4. Let's say I am on one of the IDR plans. There is no limit or restriction on me if I will change from IDR to standard 10 yr plan, correct?

-definitely no restriction going from anything to standard 10 year, currently no restriction changing between IDR either. but there may be restriction in the future to change from repaye back to paye/ibr.

 

[Debt Free Doctor]

More Q&A

Now, I have a better idea for my options with your help, but still have questions about which option will work the best for me...

FYI, with my current 228k fed loan, my daily interest dollars are $33 which makes it $1,000 interest accruing monthly, roughly.

Option 1. Refi for lower interest (Which refi market is the best? I know you are for DRB, but any others I should consider?)
- I am not confident to make monthly payment more than $1,000 during my first 6 months right after graduation in May, 2016 since I have to relocate to internship site in Reno, Nevada. What does DRB make me do in this case? Even though if I get 4.5% fixed rate, for 228k loans, monthly payment is easily over $2100 for 10 yrs plan when I used the DRB loan calculator with their rough estimator. Is there some flexibility for residents in terms of how much I can pay per month depending on emergency situations that may happen out of nowhere, for example? I believe that I will be able to pay ~ $1,000/mon for student loans or little bit more if have a room, but not more than $2,000/mon until I go into more upper level of PGY 4-5 with more moonlight chances in Houston.

Option 2. RePaye with PLSF
- I am not sure if I want to go into academic or private practice for radiology (50/50 for now). But, if I want to make my both options open, like you mentioned, should I still apply to PLSF? For this option 2, this only benefits me if I pay the very minimum of their required monthly payment for next 6 yrs so I can save from the interest subsidy and then get a job at non-profit for 4 more years to get leftover amount forgiven (with current allowable maximum amount forgiven is $57000, right?). In this plan, I will have some cash flowing on me since I am not a big spender and won't be one during residency, what will I do with these cash flow? Save them for maybe emergency fund? I rather prefer to spend this extra to pay loans during residency to pay off quicker. Since I cannot pay more than or close to the interest accruing each month under this option of RePAYE with PLSF, I am not sure if this option is the BEST plan for me because I am willing to pay at least $1,000 a month consistently starting internship. RePAYE without PLSF option won't work for me neither if I want to pay more monthly...

Option 3. IBR without PLSF (I do not think I am considered new borrower since I borrow my first Direct Stafford loan in 2012)
- Under this plan, I am expected to pay at least $500 a month starting in PGY2. For every IDR options, I do not need to start making payment for a whole year during my internship, correct? I believe this option is better than option 2 in my situation where I can/am willing to pay more monthly, but compared to option 1, option 1 will save me more money from less interest during the waiting time before I can start pay under IBR option, correct?

Option 4. PAYE without PLSF
- I am going without PLSF if I decide to go with either IBR or PAYE since I am willing to make more monthly payment as I stated above. I believe that to get the best benefit with PLSF and any of the IDR options is to make the minimum monthly amount for 6 yrs and work at the non-profit for 4 more years. But with a good salary from radiologist compared to other specialties, I think PLSF is not a viable option for most radiology residents? Compared to IBR vs PAYE, the key difference will be paying 15% and 10% of discretionary income, respectively and for just during my next 6 yrs, isn't IBR option giving me slightly faster way to cut down the interest since I am forced to pay more under IBR compared to under PAYE? If I have to choose between IBR and PAYE, what would you recommend, realistically?

Overall, I am leaning toward either refi option vs. IBR(or PAYE) without PLS for 6 yrs and then refinancing when I earn attending salary since I am willing to make at least $1,000 monthly consistently during my residency to at least equal out my interest accruing monthly.

Which market should I apply and compare from each other? I will reapply to DRB and call Fedloan servicing (my lender) to get their opinions, too.

I apologize to bother you with my long words...I am really bad with finance and you really guided me to understand this process by far!

--
DWM's response:

FYI, with my current 228k fed loan, my daily interest dollars are $33 which makes it $1,000 interest accruing monthly, roughly.
when you graduate, the interest you accrued during medical school will capitalize, which means, you will have all 228k fed debt as principle, but now accrued interest on the day that the previously accrued interest capitalize. so going forward, your 6% federal interest rate will be accruing simple daily interest on 228k of principle debt.

so daily interest is 228k (debt principle) x 6.08%/365= $ 38/day = $1140/mo.

Option 1. Refi for lower interest (Which refi market is the best? I know you are for DRB, but any others I should consider?)

there are only 2 companies that will refinance residents & fellows. the other companies only qualify people with attending level income.
LinkCapital and DRB. Because there are only 2 banks, they got so much business from PGY's that LC ran out of money to lend (LC is in a capital raise and will contact me as soon as they have money to lend. because they also will give DMW readers a cash back bonus.) So this leaves DRB the only company that refinance residents and fellows with high debt-to-income ratio. Even with DRB, I have noticed that they are taking longer to get the whole process done. I have a co-resident who got 4.5% rate offered a few months ago, but DRB has yet bought his federal loans (in other words, his fed loans are still feds, collecting 7% interest.)

Once you pay down your debt more and/or make more income, your debt-to-income ratio will come down and more banks will refinance your student loans, and you will have more options such as common bond, first republic (the lowest most amazing interest rate i've seen, but again, only will qualify people with attending level income, given a typical debt burden of 200k or so), earnest, etc.

- I am not confident to make monthly payment more than $1,000 during my first 6 months right after graduation in May, 2016 since I have to relocate to internship site in Reno, Nevada. What does DRB make me do in this case?
For DRB, you monthly minimum payment is $100/month; LinkCapital, you monthly minimum payment is $0/month during training. So you can choose to be aggressive, and throw all your $5000 tax refund at your student loan one month and the next month only pay the $100 requirement. The $100/month minimum with DRB ends 6 months after you become an attending/finish fellowship, so your payment will jump then, but you should be able to afford that payment. Plus your goal and all pgy's goal should ideally be to pay off all student loan w/n 2-5 years of finishing training (which I think with your mentality, you are well on track to do so.)

Even though if I get 4.5% fixed rate, for 228k loans, monthly payment is easily over $2100 for 10 yrs plan when I used the DRB loan calculator with their rough estimator. Is there some flexibility for residents in terms of how much I can pay per month depending on emergency situations that may happen out of nowhere, for example? I believe that I will be able to pay ~ $1,000/mon for student loans or little bit more if have a room, but not more than $2,000/mon until I go into more upper level of PGY 4-5 with more moonlight chances in Houston.
See above.

Option 2. RePaye with PLSF
- I am not sure if I want to go into academic or private practice for radiology (50/50 for now). But, if I want to make my both options open, like you mentioned, should I still apply to PLSF?
Yes definitely.

For this option 2, this only benefits me if I pay the very minimum of their required monthly payment for next 6 yrs so I can save from the interest subsidy and then get a job at non-profit for 4 more years to get leftover amount forgiven (with current allowable maximum amount forgiven is $57000, right?).
Yes, the maximum interest subsidy occurs when you pay minimum Repaye. In other words, you are encouraged/incetivized to let your student loan grow larger. The bigger the difference it is between your monthly payment and your monthly debt growth, the greater the absolute amount of Repaye subsidy there will be.
No, currently there is no cap on amount of forgiveness, but there has been lots of talk of it, with Obama attempting to cap all forgiveness at $57,000. So if you want to sign up for PSLF, do so ASAP before anything changes.
Remember, most people are able to sign up for IDR and PSLF after grace period, which usually ends December the year of medical school graduation. This means that you will get 5.5 years out of training, then you will need 4.5 years as attending radiologist in a non-profit as W2 employee.

In this plan, I will have some cash flowing on me since I am not a big spender and won't be one during residency, what will I do with these cash flow?
Any freed up cash, I'm a big proponent for Roth IRA, getting company match, etc. i.e. start saving for retirement. Put your dollar to work early in your career, so that it can work as hard as you. But if you refinance your student loans as PGY, you get even MORE cash flow. because usually the $100/mo requirement is lower than the IDR repayment monthly requirement. read the top post in this search, it gives you an idea where to best put your money

http://drwisemoney.com/?s=where+to+put+my+dollar

Save them for maybe emergency fund? I rather prefer to spend this extra to pay loans during residency to pay off quicker.
I agree with you. I like the idea of putting my money where I get the most return. In the case of student loans with 4.5% interest rate, I know every dollar I put towards this loan will get me guaranteed, post-tax, return of 4.5%.

here's my idea of rainy day funds. Not everyone agrees but it has served me well in helping me pay off my student loans and now saving 23.5k/year in retirement.

http://drwisemoney.com/2015/06/19/rainy-day-fund/

Since I cannot pay more than or close to the interest accruing each month under this option of RePAYE with PLSF, I am not sure if this option is the BEST plan for me because I am willing to pay at least $1,000 a month consistently starting internship. RePAYE without PLSF option won't work for me neither if I want to pay more monthly...
you hit the nail right on the spot, I cannot pay more than or close to the interest accruing each month under this option of RePAYE with PLSF.
exactly, the whole idea of PSLF or Income Driven Repayment is that you are Encouraged to let your debt grow rather than to take it seriously and pay it down. that's why I'm pretty much fundamentally against PSLF for doctors. in fact, PSLF was initially designed for school teachers with 100k debt and will make 50k for the rest of their lives, not for doctors. But companies which give "financial advice" start telling PGY's how much "they can save" by taking advantage of this doctor's loop hole. and this get people into the mentality of the more i borrow, and the less i pay for the next 10 years (given that i get a 503c W2 job right out of training), the more i save!
this mentality is quite opposite to yours and mine. my blood gets boiling when i see my debt get larger rather than smaller.
so yes, if you are committed to paying your student debt DOWN during training, PSLF is NOT for you, none of the IDR plan is for you.

Option 3. IBR without PLSF (I do not think I am considered new borrower since I borrow my first Direct Stafford loan in 2012)
yes you are new borrower.
- Under this plan, I am expected to pay at least $500 a month starting in PGY2.
good, but i hope that you will pay $1000/mo so you can get your debt to not grow or even become smaller.

For every IDR options, I do not need to start making payment for a whole year during my internship, correct?
All IDR monthly payment are calculated based on your prior year tax return. Assuming you made little in tax year 2015, you are probably required to pay $0 to $50 dollars/mo with any IDR plan (including IBR, REPAYE, PAYE, ICR.) Your 2016 tax year will be composed of half a year of nearly no income as a MS4 and half a year of PGY1 income, so the payment may not be as high as $500/mo either.
But again, if your goal is to make more payment anyways, it does not make sense to stick with federal loans and pay the higher interest rate.
The only reason to pay the higher interest rate while paying Down your debt aggressively is to keep your option for potential PSLF open.

I believe this option is better than option 2 in my situation where I can/am willing to pay more monthly, but compared to option 1, option 1 will save me more money from less interest during the waiting time beforeI can start pay under IBR option, correct?
To start repayment, you will need to waive out of the grace period. Contact your loan servicer to find out how (if they allow you to do so.) The other benefit to waive grace period and to consolidate your loans into one direct consolidation loan now is that you can start counting your 120 PSLF payments as soon as July hits and you are working as a residents. For most others, they just wait till the grace period ends and the loan company to contact them for first payment, so their PSLF repayment clock does not start until 6 months into residency, which pushes back their potential forgiveness by another 6 months.

IBR is not necessarily better than PAYE or REPAYE when you make payment equal to or greater than your monthly accrued interest; because all IDR share the same interest rate when you are paying down your loans. They just have different payment requirement which you can see by using the loan repayment estimator.

https://studentloans.gov/myDirectLoan/index.action

The differences between IBR(PAYE) vs. REPAYE are

1. REPAYE will count your spousal income for payment requirement regardless how you file (where as IBR/PAYE don't count your spousal income if you MFS, married filing separately.)
2. REPAYE does not have a payment cap (where as IBR/PAYE cap your monthly required payment at 10 year standard payment on the loan amount you entered IDR with.) This means for those going for PSLF, you pontentially will pay back more on REPAYE compared to PAYE/IBR after training/lower income years.
3. If you are currently in IBR/PAYE, to switch to REPAYE, you will be entered into 10 year standard repaymen plan first, then make at least one payment, before you can elect REPAYE. Plus, your interest accumulated under IBR/PAYE will capitalize when you leave IBR or PAYE.

Option 4. PAYE without PLSF
- I am going without PLSF if I decide to go with either IBR or PAYE since I am willing to make more monthly payment as I stated above. I believe that to get the best benefit with PLSF and any of the IDR options is to make the minimum monthly amount for 6 yrs and work at the non-profit for 4 more years. But with a good salary from radiologist compared to other specialties, I think PLSF is not a viable option for most radiology residents?
i agree with you. this is why I was so aggressive with paying off my student loans.

"best benefit with PLSF and any of the IDR options is to make the minimum monthly amount for 6 yrs and work at the non-profit for 4 more years."
I did not like the idea of PSLF for the following reasons

1. it's not a guarantee that i can find a PSLF-eligible job.
2. i like my job options to be open and not limited by the fact that i NEED a PSLF-eligible job for my out of control debt.
3. the whole ideal of PSLF creates an internal conflict for me in that on one hand, I hate seeing my debt grow but on the other "potentially" all my growing debt will be forgiven via working for a PSLF-eligible job right out of training.
4. i could not stand watching my debt grow at 6.8% for 6 years wondering whether i'll be the one paying these interest or not.
5. there are still more private jobs than PSLF-eligible jobs in radiology. even if you work for the hospital, most of the time you belong to a private radiology group that contracts with the hospital. so most radiologists are NOT going to be W2 employees to 503c hospitals, which is what PSLF requires.
6. i like the idea of being paid as a contractor 1099 rather than W2 employee because there's much more flexibility in taxes and retirement savings. again only W2 employees of 503c organizations are eligible for PSLF.

Compared to IBR vs PAYE, the key difference will be paying 15% and 10% of discretionary income, respectively and for just during my next 6 yrs, isn't IBR option giving me slightly faster way to cut down the interest since I am forced to pay more under IBR compared to under PAYE? If I have to choose between IBR and PAYE, what would you recommend, realistically?
If i'm choosing between IBR and PAYE, and PAYE requires less payment, I'd go for PAYE, knowing full well that I will be paying way more than both out of my motivation to become debt free. I think you are in the same boat. All the IDR repayment amounts are just the minimum you HAVE to pay, you can always pay above and beyond. It's completely up to you. For instance, I like the fact that my mortgage is $925 on a 7/1 arm 30 year rather than $1500/mo on 15 year fixed, this is because it gives me the flexibility to pay however much i'd like above $925 but does not require me to pay $1500/mo minimum.
You sound very conscientious about finances/debt, you probably have the discipline to pay the amount You are committed to, rather than just the bare minimum required under a plan. So ask yourself, if you choose a lower payment required plan (lowest is Refi at $0 or $100/mo), will you still be make the largest payment you can afford to annihilate your debt? If so, it actually doesn't matter which plan you pick at all.

Overall, I am leaning toward either refi option vs. IBR(or PAYE) without PSLF for 6 yrs and then refinancing when I earn attending salary since I am willing to make at least $1,000 monthly consistently during my residency to at least equal out my interest accruing monthly.
this is my suggestion if you are committed to pay the $$1140/mo. during intern year.

1. refinance now, you can pay as little as $100/mo or as much as you'd like (but you enjoy a lower interest rate and faster pay down no matter how much you choose to pay)
2. throughout residency, re-evaluate debt-to-income ratio
3. reapply to different companies to re-refinance your student loans. (when companies compete, you win the best deal)
4. when you become attending, there will be many many more banks other than the current 2 (LC and DRB) that will refinance you. because you are a much lower risk with an attending income than you are with PGY income. people who are attending now are enjoying rates as low as 1.95% with first republic.

the principle is lower your interest rate whenever you can. there is no fee in refinancing your student loans and you can re-re-refinance as many time as you want. it's completely up to you, if you pit banks offer to refinance you against one another, you'll get the best rate.


Which market should I apply and compare from each other?
right now as PGY, only LC and DRB.
but lets say somehow your debt become 100k and you are making 100k as pgy3 with moonlighting income. then potentially other banks MAY consider you because you'd demonstrate a much lower debt-to-income ratio than you do now.

I will reapply to DRB and call Fedloan servicing (my lender) to get their opinions, too.
definitely call Fedloan servicing to grill them with questions. they are collecting 6.08% interest on your 228k. ask them all the questions you have and get a clearer idea of how things work specifically with them.

I apologize to bother you with my long words...I am really bad with finance and you really guided me to understand this process by far!
No worries, you reminded me of myself when I was MS4. If you are diligent (to do all the homework and learn everything, ask the question as you do now) and disciplined (to stick with your debt-destruction plan whether you are pushed externally or not), you will be debt free way sooner than you'd imagine. I didn't know I would be able to pay off all my student loans as an intern either!


With your permission, I'd like to publish our SDN Q&A anonymously on my blog http://drwisemoney.com/.
your questions can help many others too.

 

[Debt Free Doctor]

More Q&A

Your blog and your strategy inspires me! Appreciate for your sincere advises and feedback so far, Dr. Amanda Liu! Please, use our discussion on your blog 🙂 I emailed to Alex, by the way. Let me know if I can help you further. Also, I asked him if I can re-apply with expected PGY1 income. I tried to reapply online but I couldn't b/c I was already rejected with $0 income input on my previous application...Maybe I should call DRB tomorrow. Is there an adviser or person you would recommend me to talk to in DRB? Is it better to stay on fixed or variable interest rate when refinancing?

If you were me with $206,400 principle from all med school only ($21,386 interest, currently) with avg. 6.08%, which option would you go with personally? From your voice, it sounds like you will definitely go with refi and use the cash flow into retirement savings account. If I go with this refi route, is it more beneficial for me to use the cash flow to pay more monthly for student loans or making minimum monthly/putting cash flow into retirement savings/emergency funds? OR, maybe I can pursue both which is doable during my 6 yrs training?

Can you briefly explain when and how I can start investing into IRA ROTH and company match? Do you recommend to start opening account starting at PGY1?

With your big help so far, I narrowed down to two choices as below with my goal for the loan repayment option (have the option that provides me the most minimum monthly repayment so I can have more flexibility or room to pay more if I choose to with less interest rate; pay off completely within 2-3 yrs of post-residency training):

1) Refi with DRB now (if approved) for 6 yrs and then re-Refi when becoming attending
- Is it worth a lot if I refi now from 6.08% to 4.5% using DRB? Is 4.5% under 10 yrs plan guaranteed most of time when I apply, recently?
- Under this plan, you mentioned I can keep re-refinance. Is there a penalty from DRB (assumed I refi with them), when I refi again after 6 yrs (when I get a job) to different bank?
- From your comments above, you mentioned that someone was approved for 4.5%, but fed interest rate of 7% is still alive? This didn't make sense to me. If refi worked, fed interest rate should go away and that person will be locked in with 4.5% right after he was approved as a fixed rate, no?

2) PAYE(or RePAYE) with PSLF for 6 yrs and then re-Refi when becoming attending
- I totally agree with you that PSLF is not going to help us (Radiology) much. But, based on your wisdom, I might as well apply to PSLF (if I have to choose one of IDRs) since it won't do me any harm even if I will get my 1st job at the profit organization which most rads people get.
- Out of other IDRs options, if you were to choose one of IDR with my mentality and will to make extra monthly payment, would you still go with RePAYE over PAYE due to interest subsidy? If I can make extra monthly, I think being on either of these PAYE vs. RePAYE won't be matter, right? I mean it will be ideal if I pay the most minimum under RePAYE to get the most benefit, but now I feel like being on RePAYE won't hurt me neither if I choose to pay more monthly (close to interest accrued) ~$1100/month.
- When I switch from PAYE (or RePAYE) to refi after 6 yrs, unpaid interests during these 6 yrs will be capitalized and these total amount will be refinanced, correct?
- If I go with either of PAYE vs RePAYE, will Direct consolidation provide me lower rate than current average rate of 6.08%? I will ask the lender this question, also.

It is awesome to see that you are a 1st yr rad at UofA!! I went to undergrad there. Currently, I just finished all of my clinical rotations here at Phoenix before graduation in May. I am going to Univ Nevada at Reno for my medicine internship this year and Univ Texas at Houston for my radiology training starting next year. Where did you do your intern year? Anyhow, I am so glad to bump into you here at SDN especially when I meet someone like you who really understands my dilemma and concerns over this student loan issue! Thank you for your big help!!!

--
DWM response:

Your blog and your strategy inspires me! Appreciate for your sincere advises and feedback so far! I can re-apply with expected PGY1 income. I tried to reapply online but I couldn't b/c I was already rejected with $0 income input on my previous application...Maybe I should call DRB tomorrow. Is there an adviser or person you would recommend me to talk to in DRB? Is it better to stay on fixed or variable interest rate when refinancing?

If you were me with $206,400 principle from all med school only ($21,386 interest, currently) with avg. 6.08%, which option would you go with personally? From your voice, it sounds like you will definitely go with refi and use the cash flow into retirement savings account. If I go with this refi route, is it more beneficial for me to use the cash flow to pay more monthly for student loans or making minimum monthly/putting cash flow into retirement savings/emergency funds? OR, maybe I can pursue both which is doable during my 6 yrs training?

Can you briefly explain when and how I can start investing into IRA ROTH and company match? Do you recommend to start opening account starting at PGY1?

With your big help so far, I narrowed down to two choices as below with my goal for the loan repayment option (have the option that provides me the most minimum monthly repayment so I can have more flexibility or room to pay more if I choose to with less interest rate; pay off completely within 2-3 yrs of post-residency training):

1) Refi with DRB now (if approved) for 6 yrs and then re-Refi when becoming attending
- Is it worth a lot if I refi now from 6.08% to 4.5% using DRB? Is 4.5% under 10 yrs plan guaranteed most of time when I apply, recently?
- Under this plan, you mentioned I can keep re-refinance. Is there a penalty from DRB (assumed I refi with them), when I refi again after 6 yrs (when I get a job) to different bank?
- From your comments above, you mentioned that someone was approved for 4.5%, but fed interest rate of 7% is still alive? This didn't make sense to me. If refi worked, fed interest rate should go away and that person will be locked in with 4.5% right after he was approved as a fixed rate, no?

2) PAYE(or RePAYE) with PSLF for 6 yrs and then re-Refi when becoming attending
- I totally agree with you that PSLF is not going to help us (Radiology) much. But, based on your wisdom, I might as well apply to PSLF (if I have to choose one of IDRs) since it won't do me any harm even if I will get my 1st job at the profit organization which most rads people get.
- Out of other IDRs options, if you were to choose one of IDR with my mentality and will to make extra monthly payment, would you still go with RePAYE over PAYE due to interest subsidy? If I can make extra monthly, I think being on either of these PAYE vs. RePAYE won't be matter, right? I mean it will be ideal if I pay the most minimum under RePAYE to get the most benefit, but now I feel like being on RePAYE won't hurt me neither if I choose to pay more monthly (close to interest accrued) ~$1100/month.
- When I switch from PAYE (or RePAYE) to refi after 6 yrs, unpaid interests during these 6 yrs will be capitalized and these total amount will be refinanced, correct?
- If I go with either of PAYE vs RePAYE, will Direct consolidation provide me lower rate than current average rate of 6.08%? I will ask the lender this question, also.

It is awesome to see that you are a 1st yr rad at UofA!! I went to undergrad there. Currently, I just finished all of my clinical rotations here at Phoenix before graduation in May. I am going to Univ Nevada at Reno for my medicine internship this year and Univ Texas at Houston for my radiology training starting next year. Where did you do your intern year? Anyhow, I am so glad to bump into you here at SDN especially when I meet someone like you who really understands my dilemma and concerns over this student loan issue! Thank you for your big help!!!

--
DWM response:

I tried to reapply online but I couldn't b/c I was already rejected with $0 income input on my previous application.


Definitely call DRB tomorrow and have them manually change your income so that your application will reflect your PGY 1 rather than your MS4 income. One of the big benefit DRB advertises is the fact that they go one step further than refinancing PGY’s, that they will refinance MS4 with contract in hand after match day.


Is there an adviser or person you would recommend me to talk to in DRB?

I was rejected by DRB when I applied for student loan refinancing as an intern. That was before they started offering student loan refinancing for residents and fellows. I worked with Jason, who really knew his stuff, but I felt so frustrated because their rules back then was that you had to have $3,500/mo. after paying all your bills to be even considered, even though I had 800+ credit score. But I’m really glad to see that many of my friends are able to take advantage of student loan refinancing as PGY’s now after DRB started offering PGY refinancing in mid-2015.


Is it better to stay on fixed or variable interest rate when refinancing?

Since you are at the beginning of your training, I’d recommend staying with fixed rate. However, you can always re-refinance again if you selected variable interest rate right now and the rate went up. You can refinance your loans with DRB with DRB again or with LinkCapital (hopefully they are able raise capital and start refinancing PGY’s again.)


For example, if you refinance with DRB right now and got a much lower variable rate than you would if you select fixed interest rate under the same 10 year long term, and in 2 years, the rate went up by 1%, and you really don’t like the new rate. Then you can apply to LinkCapital for either a fixed or variable rate interest loan. If LinkCapital offers you good deal, then you can bring the deal back to DRB, ask DRB if they want to beat the deal from LC, then they can keep your business.


The only downside to selecting variable rate & re-refinancing if rate increases and starts cutting into your savings are:

1. No one can really predict how rates will go. Yes federal government is increasing the prime interest rate where banks can borrow money gradually, already by 0.25% this year. But if economy sucks, like it sort of does now, the interest rate of refinancing student loans and mortgage, etc. will stay low.

2. There are only 2 banks offering PGY refinancing right now, and one of them LC is out of money to lend/currently in the process of trying to raise more money. So DRB pretty much has total monopoly of the PGY student loan refinancing market right now! Great position for DRB to be in, not the best for the PGY’s who need these refinanced student loans to save money. So if your variable interest rate increases with DRB, and there’s only LC (assuming they get enough money and start lending to PGY’s again), then you may not get a great deal when you re-refinance.


So it is personal decision whether to refinance to variable or fixed but in general, variable rate is fantastic when interest rate drifts down from the time when you sign up rather than drift up. But no one can count on a borrower-favoring downward trend just as banks can’t count on a lender-favoring upward trend. What you need to do is to consider the worst case scenario: If your variable interest rate goes up, and you cannot get out that high interest rate by re-refinancing, what can you do? If you are an attending, you can probably pay off your student loans rapidly, within a year or two by just tightening your belt a bit or re-refinance, but if you are PGY, you may be stuck with the high inter rate until it adjusts down (economy down turn, federal government decreases prime rate, etc.) or when you get to refinance again as an attending.



If you were me with $206,400 principle from all med school only ($21,386 interest, currently) with avg. 6.08%, which option would you go with personally?


I would refinance because I don’t like debt. I will choose a 7 year or 10 year fixed interest rate loan. I’d imagine that my rate will be around 4.5% or so. Even if it is 5%, I’d still refinance because I will be very aggressive with paying down my student loan throughout training (since our training is so long, 6 years.)


From your voice, it sounds like you will definitely go with refi and use the cash flow into retirement savings account. If I go with this refi route, is it more beneficial for me to use the cash flow to pay more monthly for student loans or making minimum monthly/putting cash flow into retirement savings/emergency funds?


I will

1. Make a budget and see how much money I can allocate to building my net worth by decreasing debts and increasing assets.

2. As an intern, I was targeting $2000/mo. towards increasing my net worth. I focused on attacking my student loans first because my interest rate was 6.8%. I was very happy to throw $2000/mo. towards my student loans and every extra penny I had towards them because I knew I was making 6.8% return on every dollar I used to pay down my loans.

3. As soon as I killed my student loans, I started to max out my retirement funds, which means to max out both Roth IRA and 403b Roth at BUMC, a total of 23.5k/year.



OR, maybe I can pursue both which is doable during my 6 yrs training?

Yes, you can definitely do both. Whether you decrease your debts or increase your assets (saving more in retirement accounts), you are increase your net worth.

Can you briefly explain when and how I can start investing into Roth IRA and company match?

Read these posts.

http://drwisemoney.com/?s=bitter+sweet

http://drwisemoney.com/2016/01/27/where-to-put-limited-pgy-dollars/

http://drwisemoney.com/?s=company+match

http://drwisemoney.com/2015/12/12/christmas-a-gift-that-keeps-on-giving/

For company match, contact your hospital HR/benefits department to find out if they offer residents/fellows a match. If they do, definitely open a 401k or 403b account to take advantage of the match. UA did not use to offer company match for retirement savings, but thankfully Banner bought UA and starts offering 4% company match on 7/1/2016 for PGYs. So yay, that’s another 2-4k/year of money one can get by putting away 2-4k themselves into their 401k.


Do you recommend to start opening account starting at PGY1?

Yes, definitely start Roth IRA ASAP. You can read this post and learned from my biggest mistake J I would have started Roth IRA in medical school if I knew how wonderful Roth IRA savings are.

http://whitecoatinvestor.com/hitting-a-net-worth-of-0-as-an-intern/

With your big help so far, I narrowed down to two choices as below with my goal for the loan repayment option (have the option that provides me the most minimum monthly repayment so I can have more flexibility or room to pay more if I choose to with less interest rate; pay off completely within 2-3 yrs of post-residency training):

1) Refi with DRB now (if approved) for 6 yrs and then re-Refi when becoming attending
- Is it worth a lot if I refi now from 6.08% to 4.5% using DRB?

So rough math is 228k x (6.08% - 4.5%) x 6 years of training = $20,520 guaranteed post tax savings even if you choose to pay nothing like in the case of $0 monthly requirement by LC.

That’s about half a year of post-tax income as a PGY1. I think it’s a big deal, but others may think differently.


- Is 4.5% under 10 yrs plan guaranteed most of time when I apply, recently?

No, not guaranteed. Could be higher or lower. Apply for free and find out.


- Under this plan, you mentioned I can keep re-refinance. Is there a penalty from DRB (assumed I refi with them), when I refi again after 6 yrs (when I get a job) to different bank?

DRB currently has NO pre-pay penalty; you can refinance with anyone that wants your business.


- From your comments above, you mentioned that someone was approved for 4.5%, but fed interest rate of 7% is still alive?

My colleague signed the paper agreeing to have DRB buy his loans from the federal government, who’s charging him 7% currently. However, DRB has been really slow at moving forward. They are probably getting too much business. That’s why I recommend that anyone who is even considering refinancing to apply ASAP, because the borrower can get the DRB deal in hand first and still have time to think about the best course of action, After learning what rates/terms DRB will offer the specific borrower.


This didn't make sense to me. If refi worked, fed interest rate should go away and that person will be locked in with 4.5% right after he was approved as a fixed rate, no?

You are totally right. As soon as DRB go ahead and buy the student loans from the federal government, my friend is set on his fixed 4.5% interest rate until the end of his selected term (I believe he selected 7 year term because he is a pgy3.)

2) PAYE(or RePAYE) with PSLF for 6 yrs and then re-Refi when becoming attending
- I totally agree with you that PSLF is not going to help us (higher paying specialties) much. But, based on your wisdom, I might as well apply to PSLF (if I have to choose one of IDRs) since it won't do me any harm even if I will get my 1st job at the profit organization which most rads people get.

Yes staying with IDR/PSLF combination only hurts you if your interest rate on IDR is higher than that of refinancing with private banks.


- Out of other IDRs options, if you were to choose one of IDR with my mentality and will to make extra monthly payment, would you still go with RePAYE over PAYE due to interest subsidy?

If I plan to pay minimum, I’d stick with RePAYE so I can get maximum interest subsidy.


If I can make extra monthly, I think being on either of these PAYE vs. RePAYE won't be matter, right?

If I plan to pay anywhere close to the monthly accrued interest, causing nearly $0/mo. interest subsidy on RePAYE, then I’d go with PAYE. I am saying this because RePAYE beats other plan like DRB/PAYE by interest subsidy. On the other than IBR/PAYE beats RePAYE by 2 things that may become relevant to you in the future:

1. IBR/PAYE will not count spousal income as long as you file taxes separately. (RePAYE counts spousal income always no matter how you file taxes.)

2. IBR/PAYE lifetime maximum payment requirement is capped by the monthly payment you get under standard 10 year repayment plan at the time you enroll with IBR/PAYE. (RePAYE has no payment cap, so you can potentially make enough money as an attending that your monthly RePAYE requirement gets higher than monthly IBR/PAYE requirement.

However, these 2 issues make no difference to someone who’s paying down their student loans aggressively rather than paying the monthly IDR plan requirement waiting for PSLF. But since you don’t know for sure that you won’t get PSLF, IBR/PAYE are better than RePAYE.


I mean it will be ideal if I pay the most minimum under RePAYE to get the most benefit, but now I feel like being on RePAYE won't hurt me neither if I choose to pay more monthly (close to interest accrued) ~$1100/month.

RePAYE won’t hurt you as long as

1. You can switch back to IBR/PAYE, when you the above mentioned 2 points are relevant to you and that you’d rather pay less on IBR/PAYE so that you get More forgiven under PSLF.

2. If you don’t get a PSLF-eligible job and you are going to pay off your debt yourself ASAP anyways, you can just refinance from RePAYE to a private bank and destroy your debt within 2-4 years after training.


- When I switch from PAYE (or RePAYE) to refi after 6 yrs, unpaid interests during these 6 yrs will be capitalized and these total amount will be refinanced, correct?

Yes. When you finish training, you will no longer qualify for PAYE because you no longer demonstrate partial financial hardship. When you leave PAYE either voluntarily or due to non-qualification, your interest will capitalize too. Interest will capitalize whether you get automatically switched from PAYE to standard 10 year repayment or you refinance.


- If I go with either of PAYE vs RePAYE, will Direct consolidation provide me lower rate than current average rate of 6.08%?

No, Direct consolidation loan is usually 1/8% higher than your current weighted interest rate, so your rate will likely be 6.125% instead of 6.08%. You can confirm this with your servicer. The only reason people consolidate is to make sure that All of their federal government loans become PSLF-eligible. But if all your current individual loans are Direct; they are all PSLF-eligible already. Federal loans like Grad Plus loans are not PSLF-eligible, so a borrower with Grad Plus loans should probably consolidate.

It is awesome to see that you are a 1st yr rad at UofA!! I went to undergrad there. Currently, I just finished all of my clinical rotations here at Phoenix before graduation in May. I am going to Univ Nevada at Reno for my medicine internship this year and Univ Texas at Houston for my radiology training starting next year.


Where did you do your intern year?

U of A too. It was important to me that I can do all my PGY in the same place and not move my family around again.


Anyhow, I am so glad to bump into you here at SDN especially when I meet someone like you who really understands my dilemma and concerns over this student loan issue! Thank you for your big help!!!

My pleasure.

 

[Debt Free Doctor]

More Q&A

Well, I submitted the application to DRB and we will see if I can be qualified with a rate quote...Do you know how this process will take usually? If the processing will take few months even up to my grace period (Dec, 2016), is it still better for me to stay on refi compared to PAYE (or RePAYE)?

Regarding the PAYE vs RePAYE, I know you answered redundantly on this. But, I want to see if my logic is correct.

Q1. As we know, under RePAYE, it benefits me the most if I pay the minimum required monthly payment that bases on previous tax income return throughout my 5-6 yrs of residency training to get the most interest subsidy accrued. So, if I am going to be on RePAYE starting this year for me this December, it will benefit me the most if I continue to stay on this plan till I pay off aggressively within 2-3 yrs of physician salary because if I move plan from RePAYE to standary 10 yr plan (or any other IDR) or to refinance after residency/fellowship, all the interest subsidy accrued as well as unpaid interests during my residency years under RePAYE will be capitalized back onto my principle amount, doesn't it? So, if I am going with RePAYE/PSLF option, I may have to stay continuously until I pay off completely, huh? Unlike PAYE, where I will be automatically dropped out after 6 yrs due to attending salary, RePAYE doesn't have that automatic drop out.

Q2. Under RePAYE, a minimum required monthly payment is calculated/updated per year based on the previous income tax return report, correct? I expect that I will be involving heavily for moonlight starting PGY2. During my PGY2-3, I am expected to make $1,400 monthly from moonlight and $2,800 monthly during PGY4-5 based on the current residents' hearsay in Houston. It could be more...If I perform moonlight during residency and be on RePAYE, it seems like my required monthly payment will be recalculated as higher each year so I will get less or no interest subsidy during these 4-5 yrs of moonlighting? What is the best possible solution here for me to get the most benefit if I still choose to stay on RePAYE with moonlight income?

Q3. Is the interest amount monthly accrued consistent throughout my residency? I have a current total of 228k with 6.08% interest. So, I expect about $1150 accrued each month. Is this amount consistent until I can pay the principle, correct? (which I can after earning physician salary or pay extra monthly when starting RePAYE during residency which will reduce the interest accrued and possibly pay off principle monthly?)

Q4. PAYE for 6 yrs and then refinance trying to pay off within 2-3 yrs thereafter vs. Stay on RePAYE during residency for 6 yrs and continue to stay on RePAYE trying to pay off within 2-3 yrs. If you compare these two options, I will still benefit from RePAYE, right? Even though PAYE caps the maximum monthly based on 10 yr standard, if my goal is to pay within 2-3 yrs of becoming attending, I don't see any harm of choosing RePAYE over PAYE unless like you mentioned above about the possibility that I will get married and consider spouse income which makes my required monthly so high? But this shouldn't matter so much on me who wants to pay aggressively monthly trying to pay off, anyway?

Q5. Regarding DRB, if I get an approval for 4.5% for 10 yrs, my monthly roughly will be $2300/mon for 10 yrs. If I only pay half of this amount monthly during residency, then the other leftover of half will be accrued as interest and be capitalized on my principle amount like a federal loan's interest capitalization? I want to get a clear understanding on this, if you can help.

--
Other updates from my lender (Fedloan servicing):

* No way to waiver a grace period if choosing any IDR options with this lender
* Can sign up for ETF to get 0.25% interest deduction a month prior to IDR application
* Can sign up for IDR options 2-3 months prior to grace period ends
* I do have two GRAD PLUS loans, but I didn't want to risk to utilize Direct consolidation since it may raise up my overall rate...

Here is my last rambling of me on my choices:

RePAYE for 6 yrs during training (no PSLF) then refinance thereafter VS. Refi now for 6 yrs and Re-refi thereafter

When transitioning from RePAYE to refinance, all of my unpaid interests accrued monthly leftover even after 50% interest subsidy monthly will be capitalized on my principle when refinancing, correct? I learned something huge today that even if I leave RePAYE to something else (other IDR or Refi), I still get to keep the benefit of 50% interest subsidy from previous years I was on. So, I thought this was a sweet deal! That is why I am only gonna stay on RePAYE during training only before my physician income earning.

Can Refi now with 4.5% beat the RePAYE for 6 yrs (where I get the money back from 50% interest subsidy) then switch to refi? What do you think on this? I am now sure I am going to decide either of this way. But, I am more leaning toward why not being on RePAYE --> Refi option if DRB can't approve a good rate on me. Since I am going to know that I will only stay on RePAYE for only 6 yrs, I see no reason to apply to PSLF anymore...

HUGE THANKS!!!

--
DWM's response:
RePAYE for 6 yrs during training (no PSLF) then refinance thereafter VS. Refi now for 6 yrs and Re-refi thereafter

When transitioning from RePAYE to refinance, all of my unpaid interests accrued monthly leftover even after 50% interest subsidy monthly will be capitalized on my principle when refinancing, correct? I learned something huge today that even if I leave RePAYE to something else (other IDR or Refi), I still get to keep the benefit of 50% interest subsidy from previous years I was on. So, I thought this was a sweet deal! That is why I am only gonna stay on RePAYE during training only before my physician income earning.

Great job contacting your federal loan servicers to get more information.
Yes, whatever interest subsidy you get will Not be added to your principle.
However, any time you no longer demonstrates partial financial hardship, your unpaid accrued interests will be capitalized into your principle debt.
Starting attending job is usually the point where people no longer show partial financial hardship; so all the interests that one has not paid during training will capitalize in the year of transitioning into attendinghood.
For some of my co-residents, who are making much moonlighting income like you'd expect you would in pgy4,5, they stop qualifying for IDR due to lack of partial financial hardship in pgy5 (which is a great thing!)
So this is what you need to do. Run the numbers on how realistic is it to actually get RePAYE subsidy.
Your monthly accrued interest is fixed throughout training as long as you don't switch from IBR to RePAYE (which you won't anyways) or leave any other IDR plan voluntarily or stop demonstrating partial financial hardship/ and no longer eligible for IDR.
However, with your income increasing dramatically with moonlighting, your monthly required RePAYE will get larger and larger, which will also close the GAP between your monthly accrued interst and your payment. Since RePAYE subsidizes 50% of the Gap/Difference between your payment and the accrued interest, you might end up getting 0% subsidy; which will leave you at your currently interest rate -0.25%= 5.83%. Which is not that bad, compared to the 7% that my co-residents are paying.

Since you are pretty set on not even signing up for PSLF, I'd say see if you can get a rate lower than 5.83% from DRB. If not, go with RePAYE.


Can Refi now with 4.5% beat the RePAYE for 6 yrs (where I get the money back from 50% interest subsidy) then switch to refi?
Yes if you start making $1,400/mo. more from moonlighting as PGY2, include that income along with your PGY pay into the repayment estimator.
Assuming you are single and make 70k including moonlighting in PGY2, the loan estimator said your monthly RePAYE is $435, which means the difference between your monthly accrued interest and payment is $705, and your RePAYE subsidy is $352.5 (50% of $705).

-->the actual amount of interest you pay After the subisdy is $1140-$352.5= $ 787.5

-->annual interest of $9450, and annual interest rate of $9450/228k = 4.1%
now again, notice that the more you pay aggressively on RePAYE, the more you close the gap and decrease the subsidy and potential savings.

So even though this 4.1% rate seems sweet, it will only get higher as you make more income.
And if you are aggresive with your debt and always paying equal to or above the monthly accrued interest, you will never get a subsidy; so your interest rate on RePAYE is the same as all other IDR plans and most likely higher than refinanced rate.

So I'd say come up with an expected income table for your pgy1-6
calculate your RePAYE payment each year based on prior year tax return
and calculate your True interest after RePAYE subsidy
and you can see when the interest rate on RePAYE is higher than Refinance (that's the year you'd like to refiannce if you plan to make MINIMUM payment on RePAYE.)

but it seems that you want to make much larger payment than minimum required on RePAYE, which means you will enjoy less subisdy than those who pay minimum.
if you plan to pay more than RePAYE minimum, it makes most sense to refinance instead because the rate you get with refinance does NOT increase when you make more payemnt, where as RePAYE interest rate does increase when you pay more towards your loans.

Does this makes sense?

The number one quesiton you want to ask yourself is how much do you want to pay down your student loans?
Will you truly be making large payments equal or greater than the monthly accrued interest?
If you are, RePAYE does not benefit you at all. Refinance to even 5.0% makes more sense than RePAYE.

But if you are going to make minimum RePAYE payment and use the money for something else, like investment, than RePAYE could be a good deal for a few years in residency (before you make too much from moonlighting).

 

[Debt Free Doctor]

Latest Q&A

Current loan = 229,000 with avg. 6.1%, Interest accrued = $1,150/mon or $13,800/yr

From PGY2 till Fellow, I included rough estimate of moonlighting income. Will AGI be actually be low, actually? Like, I should've minus the $2,500 for student loan deduction? Anyhow, under repayment calculator, they want AGI. Numbers below didn't consider any other deductions, so we are overestimating somewhat...If you have time, can you double check my table, please?

Under RePAYE

AGI Req. Monthly 50% Int. Subsidy/mon Int. accrued/yr Int. Rate
PGY1 50,000 268 441 5292 3.72%
PGY2 72,126 453 349 4188 4.20%
PGY3 74,000 468 341 4092 4.24%
PGY4 83,000 543 304 3648 4.43%
PGY5 92,000 618 266 3192 4.63%
Fellow 94,000 635 258 3096 4.67%
0% sub 155,800 1150 0 0 6.08%

* Total 50% Int. Subsidy (or interest accrued) for 6 yrs training = (441 x 12)+(349 x 12)+(341 x 12)+(304 x 12)+(266 x 12)+(258 x 12) = $23,508

* How I calculated Int. Rate for PGY1, for example: (Int. Accrued per yr)-(50% Int. Subsidy per year) = $13,800-5292 = $8508, then...$8508/229,000 = 3.72% (rounded)

Assuming my calculations are close with rough overestimation on AGI values, take home point is that I can definitely benefit from the RePAYE during PGY1-->Fellow.

So, if I decide to be on RePAYE for 6 yrs and then refinance thereafter once I get a job to get a lower interest rate to pay off within 2-3 yrs, then...my interest accrued over 6 yrs will be $23,508 which will be capitalized on the principle amount, correct?

Here is my question...

What if I pay only extra payment to cover the amount of interest accrued per month? For example, during my PGY1, $441 will be accrued each month. So, if I pay extra $441 for 12 months on top of required payment ($268), then there will be zero interest accrued on me, right? If this is the case, I can just bring my total principle of 229,000 for 6 yrs till I refinance with private bank. This option benefits me since there will be no unpaid interest capitalized on me. Even after this extra monthly payment, if I have leftover amount which I will, I may utilize them into retirement savings. (I WILL LIKELY CHOOSE THIS OPTION so I can be more flexible and have more cash flow for both savings and emergency funds) UNLESS if I will get an approval of 4.5% with DRB.

If I pay extra payment more than interest accrued allowed per month, then, like you mentioned, my interest rate will go up subsequent year. And, the calculation will be totally different since I may start to cut down the principle amount which will bring down the original monthly int. accrued ($1,150) down to smaller value --> closing the gap for 50% int subsidy difference --> less benefit...

I really appreciate your time to read over my words...You've been a rescuer for me to understand this loan issue!

So, I will just wait and see what DRB offers me with what rate and then will compare with RePAYE one more time. Once I submitted my application, do you have any rough idea when it will be processed? I know they have lots of demands at the moment with delay.

Meanwhile, I will read more about your blogs about retirement savings, etc.

--
DWM's response:

good job with the table. your approach is correct.

your monthly accrued interest is always $1,150/mo.
-> your RePAYE subsidy is 50% of ($1,150/mo.-payment you make)

i.e. very important point about RePAYE subsidy that confuses everyone is that RePAYE subsidy is Not fixed, it decreases whenever you pay more...

so your proposal of paying additional $441 will not work.
when you pay additional $441, your RePAYE subsidy is 50% of ($1,150/mo.-payment you make (here you add $441 to your RePAYE estimated required payment)
-> you see how the RePAYE subsidy decreases, and your effective interest rate increases with every penny you pay above the RePAYE estimated required payment?

So on RePAYE or any other IDR, the only way to avoid unpaid interest accrued, which will capitalize upon turning attending, w/ or w/o refinancing is to actually pay the Entire interest.

The major benefit of RePAYE is the subsidy, which brings the true interest rate down like you demonstrated in the table, but the subsidy vanishes when you pay the entire monthly accrued interest.

In other words, if your goal is to avoid unpaid accrued interest, you will pay all the accrued interest yourself and will get $0 in RePAYE subsidy, and your interest rate is 6.1%, not the lowered/subsidized interest you calculated in the table.

I hope this makes sense. Take a little break and maybe call the servicer again and see if they can tell you more about how RePAYE subsidy works.
DRB may take a while, meanwhile, doesn't hurt to just enroll in RePAYE and wait for DRB's offer. Since the worst case scenario on RePAYE is NOT getting subsidy and paying the same interest rate as the other IDR.

 

[Debt Free Doctor]

REPAYE is the new kid on the block of student loan repayment option.
It's great news for many.
Let's look at some scenarios and see how it may work for you or not now (as graduating MS) & later as you progress through PGY and start making some money moonlighting.
Point is always good to know what may come in the future, at least have a ball park idea, so you can plan accordingly.
If you see that your effective interest rate is getting higher each year, that's expected as it is IDR, driven by your income, not by your indebtedness.
With REPAYE, since it subsidizes 50% of the difference between your monthly accrued interest (which depends on debt) and your monthly payment (which depends on AGI, "adjusted gross income"), the interest rate after subsidy is related to your debt/income ratio.

Let me know if you have any question. Thanks for looking ahead and taking charge of your personal finances.

for printable, larger PDF, here

http://drwisemoney.com/wp-content/uploads/2016/03/REPAYE-cases.pdf

 

[Handinhand]

So I have been reading over REPAYE -- and it seems that you get the MOST benefit (aka, most interest subsidized) by paying the fewest dollars per month possible, is that correct?

I am very similar to a post above -- 212,000$ principal, 22,000$ in interest accrued over the previous 4 years of medical school which will capitalize at the end of my 6 month grace period, and my interest rate averaged over the 4 years is 6.01%.

My plan for residency is contribute $2500/year towards my loans, or $208/month, to take full advantage of the federal loan interest tax deduction, and then invest my remaining cash into a Roth IRA w/ low cost Vanguard index funds. I feel like over 5 years of investing through residency, I can hope to expect at LEAST a 4% ROI in the Roth, so my money would break even (Roth IRA vs. guaranteed ROI of paying off loans) in the short term, and long term I would benefit significantly more by contributing to a Roth in my "youth".

Thoughts?