Loan repayment advice for a soon to be married MD grad

[badasshairday]

Hi,

I will be graduating with my MD this May 2012 with ~200K in debt (~140ish K unsubsidized. 34K subsidized, and the rest is instituational loans that can be deferred through training.).

I am trying to understand what the best repayment option will be for me. IBR or forebearance? If I forbear I will make interest payments and some change to pay down debt during residency.

My situation is a bit unique, because at cursory glance it would appear the IBR is by far the best option. However, I am planning on getting married early this summer 2012 and my spouse will be making somewhere between 60-90K (variable due to incentive payment structure). We plan on filing jointly in 2013.

Now if I do IBR this year, I would have zero income for since I have been in school so my IBR for subsidized loans will be zero and I benefit from the government paying my interest. I will continue to pay the interest and a little more to pay down debt this year as well. But I definitely would get a couple hundred dollar benefit due to the government paying my interest on the subsidized portion. My question is, can I even do this even if I plan on filing jointly in 2013 and my spouse will be starting her relatively high paying job this summer? Then change to forbearance for 2013 payments

Should I avoid headaches and just forbear and make payments but ultimately lose out on the government payed interest on my subsidized loans?

Cliff notes:
-graduating May 2012
-IBR vs. Forbearance (but would pay monthly to avoid accruing debt and to pay down principle.
-getting married Summer 2012
-Spouse starting her first job out of school which pays 60-90K
-Can I do IBR this year and benefit from my zero income and have the government pay all my subsidized interest this year? Then change repayment to forbearance in 2013 since we will file for taxes together in 2013?

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[TMP-SMX]

Run the IBR calculators and rethink that you can't afford payments. On a two person income you should be able to afford the payments. If you are married after you file your repayment forms you have to tell them you are married and note the spousal income accordingly. So you may not have 0 payments depending on the forms you file monthly income vs. annual vs. previous year income etc. For example: IBR Calculator recommends that you use prior income tax year for your AGI UNLESS you have since become married and plan to file jointly for the current year. In which case, you would estimate the combined AGI. Importantly, you are estimating the 2012 income so you would have half a year's income to add on to your wife's income. You would make somewhere between 80000 on the lowest end to 120000 on the highest end depending on the combined income. Payments aren't nothing (Probably somewhere between $725 and $1225) unless you guys pop out some babies which will reduce your payments by increasing your family size to a small degree.

When you say you plan on filing jointly for 2013 you do mean for tax year 2012?

 

[badasshairday]

Run the IBR calculators and rethink that you can't afford payments. On a two person income you should be able to afford the payments. If you are married after you file your repayment forms you have to tell them you are married and note the spousal income accordingly. So you may not have 0 payments depending on the forms you file monthly income vs. annual vs. previous year income etc. For example: IBR Calculator recommends that you use prior income tax year for your AGI UNLESS you have since become married and plan to file jointly for the current year. In which case, you would estimate the combined AGI. Importantly, you are estimating the 2012 income so you would have half a year's income to add on to your wife's income. You would make somewhere between 80000 on the lowest end to 120000 on the highest end depending on the combined income. Payments aren't nothing (Probably somewhere between $725 and $1225) unless you guys pop out some babies which will reduce your payments by increasing your family size to a small degree.

When you say you plan on filing jointly for 2013 you do mean for tax year 2012?

Yes I mean tax year 2012. I am just wondering what this variability in her income will do to the IBR. And if we do file together for tax year 2012 how am I suppose to tell my loan servicer what our income "will be" since she has not even started her job yet. She is finishing school at the same time as me, so she also has had an income of zero dollars this past year.

Also I did run the numbers on the IBR calculator (thanks for the link), and worst case if we make 130K AGI my payment will be ~1400$ a month or so. This would be near what I would pay if I forbear and make payments for a 30 year repayment type plan.

So here is my question. If my IBR payment ends up being 1300$ a month due to my spouses income, will this cover all my interest and then some? My whole goal during residency is to keep interest from capitalizing and hopefully try to pay down 100-200$ a month or so on principle monthly if possible. My interest on my unsub loans will be approx ~1000K, and the interest on my subsidized loans is probably going to be ~300-400$. I'm just confused as to how they allocate the IBR payment to the sub loans and unsub loans.

 

[shantster]

Yes I mean tax year 2012. I am just wondering what this variability in her income will do to the IBR. And if we do file together for tax year 2012 how am I suppose to tell my loan servicer what our income "will be" since she has not even started her job yet. She is finishing school at the same time as me, so she also has had an income of zero dollars this past year.

Also I did run the numbers on the IBR calculator (thanks for the link), and worst case if we make 130K AGI my payment will be ~1400$ a month or so. This would be near what I would pay if I forbear and make payments for a 30 year repayment type plan.

So here is my question. If my IBR payment ends up being 1300$ a month due to my spouses income, will this cover all my interest and then some? My whole goal during residency is to keep interest from capitalizing and hopefully try to pay down 100-200$ a month or so on principle monthly if possible. My interest on my unsub loans will be approx ~1000K, and the interest on my subsidized loans is probably going to be ~300-400$. I'm just confused as to how they allocate the IBR payment to the sub loans and unsub loans.

They put a percentage of your payments towards the subsidized that is equal to the percentage of your loans that are subsidized. So assuming you did all $8500 per year in subsidized, you should have $34k in subsidized loans. To make it easy for calculations, let's say that you have $100k total in loans (so $66K in unsubsidized). So your subsidized loans make up 34% of your loans. Therefore, 34% of your monthly payment would go to the subsidized loans. If your payments are $1300, then 34% of that would be $442 to the subsidized and then the remaining $858 to the unsub. Obviously adjust the total loan amount to whatever your total amount is and do your own calculations.

 

[badasshairday]

They put a percentage of your payments towards the subsidized that is equal to the percentage of your loans that are subsidized. So assuming you did all $8500 per year in subsidized, you should have $34k in subsidized loans. To make it easy for calculations, let's say that you have $100k total in loans (so $66K in unsubsidized). So your subsidized loans make up 34% of your loans. Therefore, 34% of your monthly payment would go to the subsidized loans. If your payments are $1300, then 34% of that would be $442 to the subsidized and then the remaining $858 to the unsub. Obviously adjust the total loan amount to whatever your total amount is and do your own calculations.

I see.

I do have 34K in subsidized loans and 142K in unsub loans as well as 17K of interest on these loans during school.

So the interest on my subsidized loans is 34K x 6.8% / 12 months = ~200$ interest per month on my subsidized loans. So my subsidized loans will be 17% of my loan burden. If my IBR is at worst 1400$ per month, I will be putting 96$ to my subsidized loans. This will not cover the full interest on my subsidized loan and the government will pay the remaining 104$ on my subsidized loan interest.

The other 1304$ will go towards my unsubsidized loans. And my unsubsidized loan interest payment witll be [142K (principle) + 17K (interest during school)] x 6.8% / 12 months = ~900$ a month. So I would essentially pay down ~400$ of principle per month.

Is my understanding correct?

If so, it seems like IBR may be best.

 

[shantster]

I see.

I do have 34K in subsidized loans and 142K in unsub loans as well as 17K of interest on these loans during school.

So the interest on my subsidized loans is 34K x 6.8% / 12 months = ~200$ interest per month on my subsidized loans. So my subsidized loans will be 17% of my loan burden. If my IBR is at worst 1400$ per month, I will be putting 96$ to my subsidized loans. This will not cover the full interest on my subsidized loan and the government will pay the remaining 104$ on my subsidized loan interest.

The other 1304$ will go towards my unsubsidized loans. And my unsubsidized loan interest payment witll be [142K (principle) + 17K (interest during school)] x 6.8% / 12 months = ~900$ a month. So I would essentially pay down ~400$ of principle per month.

Is my understanding correct?

If so, it seems like IBR may be best.

Your total debt will be $193k once the interest capitalizes at the end of the grace period, with $34k being subsidized. This makes 17.6% of your debt subsidized (34/193 = 0.176...). 17.6% of $1400 is $246.40 (1400*0.176 = 245.40) that goes to your subsidized loans and the remaining $1153.60 goes towards your unsubsidized loans.

I have no idea where you get $96 going to your subsidized payments. That would only apply if your subsidized loans made up ~6.9% of your total loan debt.

 

[badasshairday]

I have no idea where you get $96 going to your subsidized payments. That would only apply if your subsidized loans made up ~6.9% of your total loan debt.

Thanks for catching that. Yeah, I think I plugged in 6.8ish because that is the interest rate, my mistake.

Anyways, I contacted my servicer (all my loans are Direct Loans) and they told me that if I apply for IBR before getting married than my future spouse's income doesn't matter. They said that next year when we have to renew IBR for 2013, we would combine our incomes for the new IBR payment.

Overall, I realized even if I was already married to her, she has not had any income for this past tax year as she has been a student as well. So basically we both have an AGI of zero before I go into repayment. So even if she earns 80K it doesn't matter because for 2012 she has no recorded income like myself.

I guess I will do IBR this year, so I can benefit with ~200$ a month payed by the government. But next year, I think I will forebear since I get no benefit from IBR anymore (likely will not qualify for 10 year PSLF, and 25 year foregiveness of loans will never happen for me as our income will make my IBR so high we will pay it all off well before the 25 year mark). I rather just forebear and pay off my interest a then some during training so I have more discretionary income as a resident.