PSLF vs. Aggressive Payoff

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M

MrWonderful

I considered posting this in the finance section of SDN, but I think the Psych subforum is one of the more economically shrewd on this entire forum (and active, mind you). I was wondering what your opinion is for one considering PSLF vs. aggressively paying off loans especially when I am uncertain what I plan to do after residency

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I'll add in some anecdotal info. Not my situation, but a colleagues. PSLF can make you feel trapped in a certain job, or setting. My colleague absolutely hates their job in the VA, but is relying on the program for their loans. Not much else in his area of residence besides the IHS and one non-profit system with a poor reputation. Also, as Shikima pointed out, fed loans only, specifically Fed Direct Loans. Last, as you can see from the last tax bill discussion, it's always vulnerable to political whim.
 
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With high debt burdens, it makes financial sense to go the PSLF route. Let the program work for you, because the govt is getting a good deal from you
 
I considered posting this in the finance section of SDN, but I think the Psych subforum is one of the more economically shrewd on this entire forum (and active, mind you). I was wondering what your opinion is for one considering PSLF vs. aggressively paying off loans especially when I am uncertain what I plan to do after residency

I'm still a med student, but I think this decision is as much emotional as financial. WisNeuro said, it's possible to feel trapped while in PSLF (I've seen this with a friend in a non-medical field relying on PSLF). You have to reckon with the uncertainty of whether or not the government will actually follow through. How much simply being in debt bothers you is personal. How much of your income you need to sustain the lifestyle you want vs paying down the loans is very personal (single? married? kids? only happy in NYC/Boston/SF?).

If I continue on my current path I expect to not count on or use PSLF. I would rather dig in, pay things off, and feel in control of my financial future. But things may change, especially if I don't stay single.
 
PSLF is usually only available in some of the worst areas and worst jobs, but I'm sure it's possible to find a good one. PSFL is only for federal loans. VA has EDRP which can match what you pay each year to either federal or private loans.
For me a good strategy is to pay off whatever debt I have that is highest interest first, as aggressively as I can. I can almost taste the freedom already.
 
PSLF is usually only available in some of the worst areas and worst jobs, but I'm sure it's possible to find a good one. PSFL is only for federal loans. VA has EDRP which can match what you pay each year to either federal or private loans.
For me a good strategy is to pay off whatever debt I have that is highest interest first, as aggressively as I can. I can almost taste the freedom already.
Depends on your definition of "worst." Last I checked (years ago, pre-gigafactory), pretty much all of Reno qualified (to give an example of a perfectly livable mid-sized city.)

IMO PSLF only makes sense with a high loan burden AND a long period of residency+fellowship. Taking advantage of it basically involves making otherwise terrible financial decisions and betting on how you think congress will feel when it's time to get your payout.
 
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I have a somewhat similar question:

I’m in a job that qualifies for PSLF (not why I took it just coincidence) that I enjoy and will probably be here for a while. I’d have a little over 5 years left. Got about $420k in loans. Getting $25k/yr repayment from job. Debating on consolidating and paying off vs. PSLF. I’m not certain how much breath I’ll hold for PSLF when my time would come and don’t want to be holding the big bag of interest at the end.
 
I have a somewhat similar question:

I’m in a job that qualifies for PSLF (not why I took it just coincidence) that I enjoy and will probably be here for a while. I’d have a little over 5 years left. Got about $420k in loans. Getting $25k/yr repayment from job. Debating on consolidating and paying off vs. PSLF. I’m not certain how much breath I’ll hold for PSLF when my time would come and don’t want to be holding the big bag of interest at the end.

Do you have only five years left of PSLF? If so, you are significantly invested in the program; with that big a debt burden it would make financial sense for you to enroll in REPAYE (if not already enrolled) to reduce your monthly payments to 10% of your discretionary income, while finishing out your PSLF term. Five years of aggressive repayment would leave you with minimal savings, whereas with the PSLF route, you can max out your 401k and HSA over five years, which in turn will further reduce your monthly payments because of a lower discretionary income. You can then route excess funds into a taxable investment account or a mortgage, depending on your risk tolerance.
 
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Personally, given the inherently political nature of PSLF, I would not count on this program remaining in its current form (cue "BUT WE'LL GET GRANDFATHERED"). I would advise planning and moving forward as if PSLF will not exist, and if it does, then great, it's a nice cherry on top. If you are someone strapped with a huge amount of debt, then I would try and find non-PSLF alternatives to facilitate paying off your debt.

As mentioned above, qualifying for PSLF may require significant sacrifices on your end - be it the job you choose, deciding to refinance/consolidate loans vs. not, etc. - but there is absolutely no guarantee that the literal pot of gold will be waiting for you when you become eligible to claim the benefit. I would hate to make those sacrifices just to find out that, for one reason or another, you aren't eligible to have your loans paid off.
 
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The legislation has already been proposed via the PROSPER Act by the GOP and has been supported by high-ranking members of the DOE. I wouldn't be surprised if they remove it at some point, but even the existing legislation does include a grandfather clause.

Interestingly, some Democrats had proposed a cap rather than an elimination of the program, which would benefit those who may begin making payments in the future, but would actually be more egregious to those already enrolled in the program.

Long story short, if you've been making qualifying payments already the chance is you will receive PSLF in the end. If you haven't yet begun, I'd still look into it but keep a wary eye.
 
Well, I'm not necessarily trapped by it, but I have chosen to minimize my payments in anticipation of PSLF. It might be financially in my interest in the future to take a non-qualifying job, but I will have capitalized a lot of interest I could have afforded to pay off if that's the case. Plus, there's a chance the program will disappear or be modified prior to my opportunity to discharge the debt.
 
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PSLF almost never makes sense if you weren't doing PAYE throughout residency.

And if you're not committed to working 501(c)3 it might not make sense either. There'a pretty huge wage gap between (for instance) academic and private. My friends who went private are generally making 80-120k pretax more than me, and that's before their more lucrative call coverage and RVU bonus structure, and several of them have student laon repayment matching on top of that. Giving up that income difference for 5-6 years (or longer depending on if you were making qualifying payments during residency) is VERY hard to make the math work. Especially when you bring refinancing through DRB or SoFi into the mix as well.

Resident Refinance vs PSLF Good post with math, but DOESN't account for giant pay discrepancies very well.
 
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I think it depends on what your goals are.

For one thing, residency and fellowship count for PSLF, so right there, you have 4-5 years. You only need another 5 or 6 years to get forgiveness and if you like academics or plan to work for a hospital anyway, it should qualify. If your goal is private practice, you'll probably make more and can aggressively pay it off without having to sacrifice those 5 years post-residency at a non-profit.
 
I'm going to pay half of it off aggressively. If PSLF is still standing by the time I'm done, I'll think some more about it. I don't have much faith the governments going to come through for me but maybe they will
 
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I'm going to pay half of it off aggressively. If PSLF is still standing by the time I'm done, I'll think some more about it. I don't have much faith the governments going to come through for me but maybe they will

The problem with this plan is you might end up discharging half your loans but finding that you paid out $80k (or something) unnecessarily. If you can convince yourself that you did so due to reasonable civic duty or that the overpayment was insurance against the plan being cut, I like the approach. I think I'd be kicking myself, though.
 
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The problem with this plan is you might end up discharging half your loans but finding that you paid out $80k (or something) unnecessarily. If you can convince yourself that you did so due to reasonable civic duty or that the overpayment was insurance against the plan being cut, I like the approach. I think I'd be kicking myself, though.

It's all about risk tolerance. I'm planning on pursuing a similar strategy (paying off, but probably still leaving a 6 figure chunk for PSLF), and I'd rather have paid more than I 'could have' for the peace of mind that my financial future is not at the whim of a bunch of politicians. My debt total is so high that paying the minimum is going to keep my loan balance growing, and that makes me actively unhappy, so I'm not going to do it even if I would pay less overall IF PSLF comes through. I don't consider PSLF safe at all given a)the current political climate b) that when it was developed, no one seemed to realize that doctors would be trying to get hundreds of thousands of dollars in loans forgiven. Politicians are going to be looking to save money and neither side cares about doctors.
 
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has anyone gotten the forgiveness already? from my understanding, the program began in 2007 and the first cohort that would qualify for the forgiveness just completed the 10-year term.

I'll graduate in few months with more loans than most people (~500k). I'm going to do RePAYE. I am not going to count on PSLF because it's just too good to be true. RePAYE/PAYE/IBR are a much safer bet.
 
has anyone gotten the forgiveness already? from my understanding, the program began in 2007 and the first cohort that would qualify for the forgiveness just completed the 10-year term.

I'll graduate in few months with more loans than most people (~500k). I'm going to do RePAYE. I am not going to count on PSLF because it's just too good to be true. RePAYE/PAYE/IBR are a much safer bet.

PSLF is not an alternative to REPAYE. PSLF is a separate entity whereby if you are employed in a qualifying job and make 10 years worth of payments under a plan like REPAYE/PAYE/IBR, your remaining balance is forgiven.

The question being discussed above is more whether to stick with minimum payments for 10 years under REPAYE/IBR/PAYE, which for many of us with high debt (yourself included) would result in our debt totals continuing to climb because the minimum payments will not be enough to decrease our principle OR to remain enrolled in the income-based plans while paying more than the minimum, thus servicing the debt and potentially leaving money on the table if PSLF remains intact.

As to the question of whether or not people have actually have had their loans forgiven, I've seen rumors on reddit but nothing documented. I know white coat investor is looking actively for people whose loans have been forgiven for real and planning to write something up on his website when (if) he finds them, but I don't think we have any hard proof yet.
 
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As to the question of whether or not people have actually have had their loans forgiven, I've seen rumors on reddit but nothing documented. I know white coat investor is looking actively for people whose loans have been forgiven for real and planning to write something up on his website when (if) he finds them, but I don't think we have any hard proof yet.

Should be interesting to see real world data points for this.

But I'm not overly confident about the viability of PSLF (at least for us with high amounts of loans) plus with my current employer I would not qualify anyway and so I am currently on a very aggressive track to pay down my loans.
 
PSLF is not an alternative to REPAYE. PSLF is a separate entity whereby if you are employed in a qualifying job and make 10 years worth of payments under a plan like REPAYE/PAYE/IBR, your remaining balance is forgiven.

The question being discussed above is more whether to stick with minimum payments for 10 years under REPAYE/IBR/PAYE, which for many of us with high debt (yourself included) would result in our debt totals continuing to climb because the minimum payments will not be enough to decrease our principle OR to remain enrolled in the income-based plans while paying more than the minimum, thus servicing the debt and potentially leaving money on the table if PSLF remains intact.

As to the question of whether or not people have actually have had their loans forgiven, I've seen rumors on reddit but nothing documented. I know white coat investor is looking actively for people whose loans have been forgiven for real and planning to write something up on his website when (if) he finds them, but I don't think we have any hard proof yet.

If you can absolutely guarantee that you will be in a PSLF-qualifying job for 10 years and that the program will still be available at the end of the 10 years, then it is 100% the right decision to pay the minimum even when the minimum is less than your interest on the debt. Also keep in mind that residency is a time that qualifies for PSLF and doesn't pay enough to allow anyone with a moderately high amount of debt to cover their interest, so you'll be ~40% there by using IBR or REPAYE during residency. Even if the amount you pay is nominal during residency, being on a payment plan is much better than deferment because a portion of the interest is subsidized under these plans. But, of course, there is no guarantee of those factors.

All this said, the vast majority of us are going to walk into high-paying jobs that allow us to pay off our debt on a reasonable schedule no matter how high it is. And if we screw up our financial planning for a short time pretty badly, we can get hired for even more money somewhere else within a week. It is rare that something like major medical problems derails that, and even then it would be foolish not to have very good long term disability coverage to protect us (foolish, but many people don't have this or don't have it adequately). We'll all be financially OK, and if we are not, it's not because of the choices we made in paying off our loans. Some of us will be in better places than others from these decisions, but I think the debate has more to do with our feelings about our choices and future and the weight of debt, etc., than making the most practical financial choice.
 
I considered posting this in the finance section of SDN, but I think the Psych subforum is one of the more economically shrewd on this entire forum (and active, mind you). I was wondering what your opinion is for one considering PSLF vs. aggressively paying off loans especially when I am uncertain what I plan to do after residency
So...

PSLF has a big downside, as it is best utilized by making minimum payments and hoping for the government to cover their end of the bargain tend years down the line. Minimum payments often do not cover interest, and thus you will accrue interest for ten years. This can really, really add up, resulting in ballooning debt that is double or more what you originally owed, depending on how high your interest rates are. Now, if the government chooses not to uphold their end of things (which they could very well do, though it would be legally dicey the simple fact is that Congress holds the pursestrings and if they decide that purse is getting closed, it's getting closed) you're left holding that big-ass wad of debt.

Aggressive payoff has the downside of delayed gratification and loss of investment potential, but the upside of being low-risk and giving you a relatively long period of debt freedom. The emotional release of not having debt is different for different people.

I think I'm going to split the difference- aggressive initial payoff on my highest-interest loans, followed by attempting to PSLF the remaining half or so of my debt that has low interest rates while investing the difference between my aggressive payoff period and my PSLF payments. This hedges my bets against our dysfunctional government and minimizes interest accrual while also allowing for early investment. Most people like an all-or-nothing approach, but I see nothing wrong with splitting it down the middle.
 
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I think I'm going to split the difference- aggressive initial payoff on my highest-interest loans, followed by attempting to PSLF the remaining half or so of my debt that has low interest rates while investing the difference between my aggressive payoff period and my PSLF payments. This hedges my bets against our dysfunctional government and minimizes interest accrual while also allowing for early investment. Most people like an all-or-nothing approach, but I see nothing wrong with splitting it down the middle.
Agreed. I think there's a false dichotomy here, unless I'm missing something here.

What is to stop people from doing a PSLF-acceptable loan repayment and paying off additional volunteer payments every month? You can pay off as aggressively as if you weren't on PSLF, while still making qualifying payments towards PSLF should it come in?

Also, the low payment IBR pretty much ends with residency, no? I was switched into a much higher payment schedule since I no longer qualified for IBR after finishing fellowship.
 
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Agreed. I think there's a false dichotomy here, unless I'm missing something here.

What is to stop people from doing a PSLF-acceptable loan repayment and paying off additional volunteer payments every month? You can pay off as aggressively as if you weren't on PSLF, while still making qualifying payments towards PSLF should it come in?

Also, the low payment IBR pretty much ends with residency, no? I was switched into a much higher payment schedule since I no longer qualified for IBR after finishing fellowship.
Depends on which specialty you end up in
 
Agreed. I think there's a false dichotomy here, unless I'm missing something here.

What is to stop people from doing a PSLF-acceptable loan repayment and paying off additional volunteer payments every month? You can pay off as aggressively as if you weren't on PSLF, while still making qualifying payments towards PSLF should it come in?

Also, the low payment IBR pretty much ends with residency, no? I was switched into a much higher payment schedule since I no longer qualified for IBR after finishing fellowship.

I was under the impression that no matter your salary, IBR would be 15% of it, even after residency.
 
I was under the impression that no matter your salary, IBR would be 15% of it, even after residency.
I don't think so. When I went to recert my IBR and plugged in my salary, I was told I no longer qualified for IBR and needed to choose another.
 
I don't see how specialty relates to this?
Some specialties benefit more from PSLF. It If you're in academic ID with 400k in debt you'll have to live like a pauper to pay down your loans early, as the after tax salary runs around 100k in my state and CoL is high. PSLF would give you payments of around 9k/year and have you paid off in five years post-fellowship. If you're in anesthesiology and pulling 350k with 400k in loans, you could pay them down in thre years and still live very comfortably. Money and practice environment matters, and specialty is the largest determinant of these factors.
 
@notdeadyet that's because your 15% would be higher than what you'd pay under the standard 10-year repayment plan.
 
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