Student loan strategies following graduation

[NicMouse64]

hey all, wanted to start a discussion about student loan strategies, especially with graduation coming up. Our school advised us to consolidate once we graduate, start repayment through REPAYE/PAYE and not take the deferred 6 month period, but given the deferred repayment to August 31st, would this still be the best strategy? What will you all do?

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[mrbreakfast]

Whether or not to refinance is a bit more nuanced, but the general advice is to enter REPAYE and decline the grace period. The deferred payments just means that a) you don't have to make monthly payments for that period, and b) (much more importantly) your interest rate on affected loans is 0%. What the best thing to do with that extra money is highly personal, but if you're looking to build a small emergency fund, this is a good way to start.

 

[DrStephenStrange]

Ok, I just learned all of this this morning, so I'm sorry if I get anything wrong. Someone correct me if I'm not correct.

First of all, you should have filed taxes this year to show no income and have $0 payments in intern year that still count towards repayment and possibly forgiveness (PSLF). The deadline to file taxes is today, so probably too late.

Then, you would defer the 6 month grace period by consolidating all your loans and enter the REPAYE payment plan. REPAYE is a 25 year plan where you pay 10% of what your income is (hence why you needed to file taxes because otherwise they will use your residency salary as base income). REPAYE is better than the PAYE (which is a 10% and 20 year plan) in the fact that REPAYE has interest subsidy which saves you money in the long run in your interest accumulation. Then, as long you're in the PAYE or REPAYE income based repayment plan, those payments can be used towards the 120 payments required for PSLF (including 12 $0 payments made in intern year if you filed taxes this year) as long your Hospital or where you work in the future after residency are eligible institutions for PSLF which you can find out either on studentaid.gov or by asking around. Usually most non-profit tax exempt institutions qualifies.

 

[sloop]

As stated above, you’re supposed to file a tax return the year you graduate. For most students this is going to wind up being a $0 tax return. That allows you to have $0 qualifying “payments” for the first year, followed by a year of very low payments (based on effectively half of your yearly salary reported in your first tax return of residency). I did this, and it worked great.

 

[voxveritatisetlucis]

Pay the minimum but save as if you were paying it off. Wait to see if they get cancelled.

 

[sloop]

Pay the minimum but save as if you were paying it off. Wait to see if they get cancelled.

They’re not getting cancelled. It’s possible (but not necessarily even probable) that there will be some level of forgiveness for federal loans on the order of like 10-50K or so. Even then, Biden has expressed that he doesn’t think he has the authority to do this by executive order and it would have to come from Congress. If you have few enough loans as a doctor where that level of forgiveness would make much of a difference to you, you should probably just refinance to a private servicer with a low rate and pay it off quickly.

For most physicians, their debt burden is so high that they’re not likely to be significantly impacted by the sort of forgiveness that has any chance of happening. What you’re talking about is total forgiveness. As much as I would love that policy personally, the reality is that this is nothing more than a fringe left-wing talking point and pipe dream. The only people during the last election who talked about any level of forgiveness that would be meaningful for physicians were Warren and Sanders, and even those developed significant caveats that would have limited their impact for physicians. Right now, only a few of the most liberal Democrats support any sort of broad debt cancellation, and such a policy lacks broad support even among Democrats. There is basically no chance that this is going to happen any time soon.

 

[voxveritatisetlucis]

They’re not getting cancelled. It’s possible (but not necessarily even probable) that there will be some level of forgiveness for federal loans on the order of like 10-50K or so. Even then, Biden has expressed that he doesn’t think he has the authority to do this by executive order and it would have to come from Congress. If you have few enough loans as a doctor where that level of forgiveness would make much of a difference to you, you should probably just refinance to a private servicer with a low rate and pay it off quickly.

For most physicians, their debt burden is so high that they’re not likely to be significantly impacted by the sort of forgiveness that has any chance of happening. What you’re talking about is total forgiveness. As much as I would love that policy personally, the reality is that this is nothing more than a fringe left-wing talking point and pipe dream. The only people during the last election who talked about any level of forgiveness that would be meaningful for physicians were Warren and Sanders, and even those developed significant caveats that would have limited their impact for physicians. Right now, only a few of the most liberal Democrats support any sort of broad debt cancellation, and such a policy lacks broad support even among Democrats. There is basically no chance that this is going to happen any time soon.

The number one rule of public policy is that you can never take away a benefit. It’s much better to never give a benefit in the first place than to take it away. I have seen some proposals from warren, padilla, jayapal to eliminate debt of healthcare providers completely (due to pandemic). Will it happen? Unlikely. Could it? Possibly. If not just use savings/investments to pay balance in full

 

[sloop]

Could it? Possibly.

Depends on your threshold for considering something “possible,” I guess. It is possible in the sense that there is nothing fundamentally preventing them from passing such a bill. It is not possible in the sense that it has no realistic chance of happening with Congress as it is now.

 

[deleted1100659]

At first my intent was to pay off my 320k student loans asap. In one year I reduced it from 368 to around 320 because interest was paused. But, 4 years of residency counts towards PLSF. Plus im finishing my first year as an attending at a place that qualified for it so im at 5 years.

So it would be stupid to try to pay them off in 3-4 years and spent quite a good bit of money that way. Instead im making reasonable payments to lower the overall balance each month, with the mindsey that if something happens in the next 5 years to where i cant do plsf then I will refinance at that point.

But ill take 50k loan forgiveness, biden. 10k pshhh.

 

[Thesimplelifeofamyloid]

Ok, I just learned all of this this morning, so I'm sorry if I get anything wrong. Someone correct me if I'm not correct.

First of all, you should have filed taxes this year to show no income and have $0 payments in intern year that still count towards repayment and possibly forgiveness (PSLF). The deadline to file taxes is today, so probably too late.

Then, you would defer the 6 month grace period by consolidating all your loans and enter the REPAYE payment plan. REPAYE is a 25 year plan where you pay 10% of what your income is (hence why you needed to file taxes because otherwise they will use your residency salary as base income). REPAYE is better than the PAYE (which is a 10% and 20 year plan) in the fact that REPAYE has interest subsidy which saves you money in the long run in your interest accumulation. Then, as long you're in the PAYE or REPAYE income based repayment plan, those payments can be used towards the 120 payments required for PSLF (including 12 $0 payments made in intern year if you filed taxes this year) as long your Hospital or where you work in the future after residency are eligible institutions for PSLF which you can find out either on studentaid.gov or by asking around. Usually most non-profit tax exempt institutions qualifies.

I'm pretty sure you can file late if you don't owe anything (student)

 

[aldol16]

The way I see it, there are 2 main options that are most financially responsible: standard payment where you're paying as much as possible to get it paid off as soon as possible or public service loan forgiveness program if you intend to do that. Other options will result in longer loan repayment periods and higher interest paid. Unfortunately, many/most interns will not make enough money to be making $1000+ loan repayments to do the standard plan and if you do income-based repayment without going through the public service loan forgiveness program, you end up paying a lot in interest because while your payments up front are lower and a fixed percentage of your income, interest is still accruing on your loan (well, when interest resumes accruing which will be soon).

 

[voxveritatisetlucis]

The other option is if you have a very low interest rate <4.5%

Then one can make minimum payments and put the rest into the market. Eventually, enough will be generated to pay the loan off

 

[pawprint]

I'm pretty sure you can file late if you don't owe anything (student)

Yes, this is correct. The tax deadline is the deadline to pay money that you owe to the government. If you don’t owe anything, you can file at any time.

 

[aldol16]

Then one can make minimum payments and put the rest into the market. Eventually, enough will be generated to pay the loan off

Would not recommend doing this. Markets are volatile and while those taking the long-term perspective will see, on average, positive returns, this doesn't necessarily have to be the case. Past performance is not an indicator of future performance.

 

[voxveritatisetlucis]

White House looking to cancel “substantial” amount of federal loans per CBS News. Wonder if this will be proactive. Ie anybody borrowing for this academic year basically gets free money.

Don’t refi just yet!

Would not recommend doing this. Markets are volatile and while those taking the long-term perspective will see, on average, positive returns, this doesn't necessarily have to be the case. Past performance is not an indicator of future performance.

Source:

Biden tells Congressional Hispanic Caucus he's looking at forgiving some federal student loan debt

He shared his plans during a 90-minute White House meeting with the Hispanic Caucus Monday.

www.cbsnews.com

Article says 10k but sources indicate that White House may be looking to do much more than the initial 10k

 

[sloop]

White House looking to cancel “substantial” amount of federal loans per CBS News. Wonder if this will be proactive. Ie anybody borrowing for this academic year basically gets free money.

Don’t refi just yet!



Source:

Biden tells Congressional Hispanic Caucus he's looking at forgiving some federal student loan debt

He shared his plans during a 90-minute White House meeting with the Hispanic Caucus Monday.

www.cbsnews.com

Article says 10k but sources indicate that White House may be looking to do much more than the initial 10k

Nobody should be refinancing right now because the interest is paused. That literally makes no sense. As a long-term strategy, though, once payments and interest start back up, there are limited reasons to keep federal loans. If you’re going for PSLF or some other type of forgiveness that requires you to have federal loans, then go ahead and keep the federal loans and see if some amount gets cancelled. But if you’re planning to actually pay the loans back, you should refinance with a private company because the interest on federal loans is comparatively not very good. Keeping federal loans in the long term because you’re hoping that some order or legislation will be passed canceling your debt is a terrible idea.

Again, the highest number I’ve even seen being considered is $50K, and that was what left-leaning Democrats were pushing Biden to do. Are you seriously expecting that it’s going to be more than that, or that there is going to broad cancellation of hundreds of thousands of dollars per borrower? Doctors have high debt loads. They also have high incomes, so you need to get to relatively high debt loads before it makes sense for them to do anything other than just pay them off quickly. This becomes even more stark because once you pursue a forgiveness option, your balance snowballs due to making minimum payments and the accumulating interest. My loan balance is over $300K, and this is not uncommon for doctors pursuing PSLF. If they forgave 50K, it would not really make a different strategy more beneficial. That balance would still be enough that I should just pursue PSLF.

 

[mvenus929]

Ok, so in a world where people aren't trying to game the system (not making a value judgement about whether they should or not), you would get a 6 month grace period, then start making payments based on last year's income (so you should file a tax return. Unless you actually made money, this is just paperwork and you can do it for free). In this case, the current student loan deferment makes 0 difference to you--you'd be in the grace period anyway and would not be making any payments. [Note, I presume the student loan waiver means that your loans aren't currently accruing interest even though you're not in payment, so you're still benefiting from it]

A lot of people are trying to maximize forgiveness with PSLF--pay as little as they possibly can. In this case, consolidating your loans results in them immediately entering repayment (you're giving up the 6 months where you didn't have a payment), but you're still going to be "paying" $0 payments based on last year's tax return. If you do this, the student loan deferment through August 31st just means you won't be accumulating interest, but you would've had $0 payments either way. Those 'payments' count towards PSLF.

Note that in the past, income verification was based on either last year's tax return or your paystub--you don't ever have to submit a paystub, but there was a question previously on the application asking if your income had 'significantly changed' since you filed taxes. If you now had a job but filed taxes saying you had a $0 income, ethically, you should've answer 'yes' and submitted income verification, which would result in non-$0 payments. Now, they've changed the wording on the question so they ask if your income has significantly decreased, which you can ethically answer 'no' to, and keep to $0 payments.

So your end payment would not change whether you consolidate or not, but if you consolidate and then after residency (and fellowship, etc) take a job that qualifies for PSLF, you have 6 months of additional payments, so you get your debt forgiven 6 months sooner (and the payments were $0, so you save a lot of money in payments on the back-end). If you take a job that doesn't qualify for PSLF, you may end up paying *slightly* more because the consolidation makes all your accrued interest part of your principal balance now (so you'll be paying interest on interest), but since we've had 2 years of 0% interest, that amount will be much less for you than in years past.

 

[aldol16]

White House looking to cancel “substantial” amount of federal loans per CBS News. Wonder if this will be proactive. Ie anybody borrowing for this academic year basically gets free money.

They've been saying this for 2 years.

 

[collegestud2013]

Among physicians PSLF is only financially worthwhile for those with high debts (usually around $300k and above) and longer training residency/fellow times (usually 6 years or more). It's largely intended for "public service" as those jobs typically pay less than the private sector. In medicine this usually means academic medicine or government such as the VA (though there are some exceptions like certain non-profit health systems that may still qualify and still pay more than your typical academic/VA salary), and in those settings you will likely take a paycut than working in a more lucrative private sector job. Expect to be paid anywhere between $50-200k per year less as an entry-level attending depending on specialty and specific practice set-up. So even 4-5 years as an attending in academic medicine or the VA you probably made anywhere between $200k-$1million LESS than in PP, which is often the about the same amount or more than what you would get forgiven under PSLF. during that time, and So I would not limit your employment options post-residency/fellowship to a PSLF qualifying employer mainly for the purpose of getting PSLF since you may actually end up in a similar financial position or be a bit worse off; instead only take a PSLF qualifying job job if it suits you for other reasons.

And of course this is assuming PSLF stays unchanged during your entire time. There have been previous attempts to cap the amount of forgiveness at amounts that are relatively low for debts many physicians are carrying (Eg $50k by previous administrations) so for those of you still with 5+ years away from forgiveness there can be significant changes as well.

 

[voxveritatisetlucis]

Among physicians PSLF is only financially worthwhile for those with high debts (usually around $300k and above) and longer training residency/fellow times (usually 6 years or more). It's largely intended for "public service" as those jobs typically pay less than the private sector. In medicine this usually means academic medicine or government such as the VA (though there are some exceptions like certain non-profit health systems that may still qualify and still pay more than your typical academic/VA salary), and in those settings you will likely take a paycut than working in a more lucrative private sector job. Expect to be paid anywhere between $50-200k per year less as an entry-level attending depending on specialty and specific practice set-up. So even 4-5 years as an attending in academic medicine or the VA you probably made anywhere between $200k-$1million LESS than in PP, which is often the about the same amount or more than what you would get forgiven under PSLF. during that time, and So I would not limit your employment options post-residency/fellowship to a PSLF qualifying employer mainly for the purpose of getting PSLF since you may actually end up in a similar financial position or be a bit worse off; instead only take a PSLF qualifying job job if it suits you for other reasons.

And of course this is assuming PSLF stays unchanged during your entire time. There have been previous attempts to cap the amount of forgiveness at amounts that are relatively low for debts many physicians are carrying (Eg $50k by previous administrations) so for those of you still with 5+ years away from forgiveness there can be significant changes as well.

Don’t some private or community hospitals in the Midwest and southeast pay as a way to get people to stay for a while?

 

[CanIBeAnonymous]

Ok, I just learned all of this this morning, so I'm sorry if I get anything wrong. Someone correct me if I'm not correct.

First of all, you should have filed taxes this year to show no income and have $0 payments in intern year that still count towards repayment and possibly forgiveness (PSLF). The deadline to file taxes is today, so probably too late.

Then, you would defer the 6 month grace period by consolidating all your loans and enter the REPAYE payment plan. REPAYE is a 25 year plan where you pay 10% of what your income is (hence why you needed to file taxes because otherwise they will use your residency salary as base income). REPAYE is better than the PAYE (which is a 10% and 20 year plan) in the fact that REPAYE has interest subsidy which saves you money in the long run in your interest accumulation. Then, as long you're in the PAYE or REPAYE income based repayment plan, those payments can be used towards the 120 payments required for PSLF (including 12 $0 payments made in intern year if you filed taxes this year) as long your Hospital or where you work in the future after residency are eligible institutions for PSLF which you can find out either on studentaid.gov or by asking around. Usually most non-profit tax exempt institutions qualifies.

Saving this for later because I wanna throw up every night thinking about my debt lmao. I have hefty undergrad and grad under me as well, which since I'm a non-trad has accumulated heavy interest in the interim especially since I started school in a recession when rates were high 🙂)

I expect to graduate with 600k debt

 

[sloop]

And of course this is assuming PSLF stays unchanged during your entire time. There have been previous attempts to cap the amount of forgiveness at amounts that are relatively low for debts many physicians are carrying (Eg $50k by previous administrations) so for those of you still with 5+ years away from forgiveness there can be significant changes as well.

Most of your post is accurate in the sense that, unless you have a relatively high debt burden, PSLF usually doesn’t make sense. The portion quoted above, however, is not accurate in its implications.

First, PSLF is detailed in the master promissory notes for current borrowers. It’s not at all clear that it would even be legal to get rid of PSLF or make significant changes to the program for current borrowers. Additionally, all prior proposals to change the PSLF program only applied to future borrowers. Even if those proposals passed, those who were already pursuing PSLF would have been unaffected. Add to that the fact that all of those proposals have failed, and the reality is that the terms of PSLF are pretty much assured for current borrowers.

 

[collegestud2013]

Don’t some private or community hospitals in the Midwest and southeast pay as a way to get people to stay for a while?

Yeah, some offer loan repayment as part of the compensation package but it is from a private employer, this is effectively the same as just taking it out of your compensation (you could argue they should just put whatever amount they would pay for your loans and it would the same as putting it your salary). The only cases where you're really getting "extra" money is when it comes from and outside source. For example, some states will also pay for your loans if you work in an underserved primary care area for a specified amount of time, and the military can pay as well for a specified service requirement (though you usually make a lot less in the military employment settings that you may be breaking even financially unless you just have a crazy high amount of loans).

 

[mvenus929]

Most of your post is accurate in the sense that, unless you have a relatively high debt burden, PSLF usually doesn’t make sense. The portion quoted above, however, is not accurate in its implications.

First, PSLF is detailed in the master promissory notes for current borrowers. It’s not at all clear that it would even be legal to get rid of PSLF or make significant changes to the program for current borrowers. Additionally, all prior proposals to change the PSLF program only applied to future borrowers. Even if those proposals passed, those who were already pursuing PSLF would have been unaffected. Add to that the fact that all of those proposals have failed, and the reality is that the terms of PSLF are pretty much assured for current borrowers.

FWIW, the wording on my MPN was something along the lines of 'you may be eligible for loan forgiveness if you work for a qualifying employer for 10 years while making payments.' They don't actually spell out the requirements in the MPN. I'm sure lawyers (who also likely benefit from PSLF) would be all over it if they made changes, but I also don't think the details in the MPN are ironclad against changes in the future.

 

[voxveritatisetlucis]

Does one have to pay taxes if an employer pays the loans?

 

[CanIBeAnonymous]

Yeah, some offer loan repayment as part of the compensation package but it is from a private employer, this is effectively the same as just taking it out of your compensation (you could argue they should just put whatever amount they would pay for your loans and it would the same as putting it your salary). The only cases where you're really getting "extra" money is when it comes from and outside source. For example, some states will also pay for your loans if you work in an underserved primary care area for a specified amount of time, and the military can pay as well for a specified service requirement (though you usually make a lot less in the military employment settings that you may be breaking even financially unless you just have a crazy high amount of loans).

Is it possible some entities get some sort of tax break if part of their package is used for paying off loans rather than paying for salary? If so I can see the incentive for these larger sign on bonuses for these employers.

 

[CanIBeAnonymous]

FWIW, the wording on my MPN was something along the lines of 'you may be eligible for loan forgiveness if you work for a qualifying employer for 10 years while making payments.' They don't actually spell out the requirements in the MPN. I'm sure lawyers (who also likely benefit from PSLF) would be all over it if they made changes, but I also don't think the details in the MPN are ironclad against changes in the future.

One of the lawyers at our school argued that since we signed the MPN, while dubious as you said, there'd be too strong a case from the X amount of folks who would lose the benefits if they did change them.

However, this is the opinion of just one lawyer.

 

[sloop]

FWIW, the wording on my MPN was something along the lines of 'you may be eligible for loan forgiveness if you work for a qualifying employer for 10 years while making payments.' They don't actually spell out the requirements in the MPN. I'm sure lawyers (who also likely benefit from PSLF) would be all over it if they made changes, but I also don't think the details in the MPN are ironclad against changes in the future.

I never said it was ironclad, but I do think it means that it is not obvious that significant changes to the program for future borrowers would be legal.

The fact that the MPN references the availability of PSLF creates an implication that the borrower’s acceptance of the loan was contingent on the availability of PSLF in the terms spelled out at the time they took out the loan. It doesn’t necessarily matter that they don’t spell out the entire program in the MPN itself. If I you bought a product and signed a contract that stated “your product may be eligible for free service as described on our website” and your product qualified based on the separately described policy, you would have a good argument that the service was promised to you at the time of sale.

The idea that the DoE can point borrowers to PSLF (a policy that they themselves administer) at the time they are taking out loans, imply that borrowers might qualify if they meet the requirements of the program, enshrine that in the MPN, and then later make significant changes to the program for borrowers who have been working towards forgiveness seems pretty preposterous. I’m not saying it’s impossible that they could legally make such changes, but it seems unlikely. This fact is also of limited importance currently because all prior proposals have grandfathered current borrowers.

 

[CyrusHabs7695]

Could really use someones help, my school literally provided no help at all. Have read WCI and other sites and just want to make sure im doing the right thing, thank you in advance. My situation is: ~250k debt, all direct unsub & grad plus. Just graduated last week, going into Radiology. From what I gathered, my best bet would be to consolidate them all into one on student aid.gov, then enter the REPAYE program? I just want to make sure that is the right thing to do & that I shouldn't refinance through a private company? Really appreciate anybody's help

 

[collegestud2013]

Could really use someones help, my school literally provided no help at all. Have read WCI and other sites and just want to make sure im doing the right thing, thank you in advance. My situation is: ~250k debt, all direct unsub & grad plus. Just graduated last week, going into Radiology. From what I gathered, my best bet would be to consolidate them all into one on student aid.gov, then enter the REPAYE program? I just want to make sure that is the right thing to do & that I shouldn't refinance through a private company? Really appreciate anybody's help

No point in refinancing now when federal loans are at 0% and without required payments until at least August 31st. If you're going for PSLF then consolidate now and enter a PSLF eligible income-based payment plan so your patients with count toward PSLF. But once the 0% interest rate expires you will likely pay a higher interest rate on federal loans than some private loans. If you have a good credit history you may be able refinance to a private loan with a lower interest rate. This will save you a ton of money in the long run if you aren't planning on going for PSLF but you will lose the ability to have those loans forgiven through PSLF.

 

[CyrusHabs7695]

No point in refinancing now when federal loans are at 0% and without required payments until at least August 31st. If you're going for PSLF then consolidate now and enter a PSLF eligible income-based payment plan so your patients with count toward PSLF. But once the 0% interest rate expires you will likely pay a higher interest rate on federal loans than some private loans. If you have a good credit history you may be able refinance to a private loan with a lower interest rate. This will save you a ton of money in the long run if you aren't planning on going for PSLF but you will lose the ability to have those loans forgiven through PSLF.

From what I gathered its relatively rare to be eligible for PSLF as a radiologist, so my best bet would be consolidate now, enter REPAYE now, and then when the 0% interest era is over, refinance privately correct?

 

[mvenus929]

From what I gathered its relatively rare to be eligible for PSLF as a radiologist, so my best bet would be consolidate now, enter REPAYE now, and then when the 0% interest era is over, refinance privately correct?

With REPAYE, you get an interest subsidy for 3 years. You usually aren't making high enough payments to pay off interest, so your effective interest rate is actually lower. Interest rates in general are going up right now. If I were you, I'd hold onto the federal loans until you get your first job--if it's a PSLF job, great, you're already part way there. If not, you can shop around for private companies to consolidate with that will give you the best terms at that time. Many private companies will currently give you a grace period while in training, or have something like $100/month payments while in residency, but hard to say if all will give you that deal (with a lower interest rate) right now with the economy in flux.

 

[mrbreakfast]

Is it possible some entities get some sort of tax break if part of their package is used for paying off loans rather than paying for salary? If so I can see the incentive for these larger sign on bonuses for these employers.

They do get a tax break on student loan contributions.

Does one have to pay taxes if an employer pays the loans?

Yes, though only on part of it. This is (one of the reasons) why loan payment incentives are often annual, rather than lump sum - the annual deduction limit is an absolute value, not a percentage. Similarly, many hospitals will offer residents a signing bonus, because a $30,000 bonus is taxed quite differently at resident salary vs attending salary. Depending on your field, it's quite possible to earn a six-digit (pretax) salary during the last year of your residency.

The loan payment bonuses, at least what I've seen, are generally relatively small, like 5-6% of the total compensation for the length of the initial contract. That's still a five-digit number/year, so it's worth negotiating for if not offered.

From what I gathered its relatively rare to be eligible for PSLF as a radiologist

I just want to point out that there is little benefit to pursuing PSLF unless you are planning on doing a long fellowship/multiple fellowships, are planning on working for an academic institution that pays close to market value, or would choose an academic career over a community one regardless of salary.

A math problem you can do is multiply your current loans by, say, 1.6x (accounting for four years of interest + federal taxes + a relatively high state income tax) then divide it by 10 minus the number of years of residency you'll have.

E.g. you have 250K in loans. 250K * 1.6 = 400K. Hypothetically you're in a 4-year residency, so 400K/6 = ~67K.

Now ask yourself if the difference between community vs academic salaries in your field is greater than 67K. If so, you can pay your loans off more quickly with your post-tax excess salary than PSLF and still be in a higher-paid job.

 

[CyrusHabs7695]

With REPAYE, you get an interest subsidy for 3 years. You usually aren't making high enough payments to pay off interest, so your effective interest rate is actually lower. Interest rates in general are going up right now. If I were you, I'd hold onto the federal loans until you get your first job--if it's a PSLF job, great, you're already part way there. If not, you can shop around for private companies to consolidate with that will give you the best terms at that time. Many private companies will currently give you a grace period while in training, or have something like $100/month payments while in residency, but hard to say if all will give you that deal (with a lower interest rate) right now with the economy in flux.

They do get a tax break on student loan contributions.


Yes, though only on part of it. This is (one of the reasons) why loan payment incentives are often annual, rather than lump sum - the annual deduction limit is an absolute value, not a percentage. Similarly, many hospitals will offer residents a signing bonus, because a $30,000 bonus is taxed quite differently at resident salary vs attending salary. Depending on your field, it's quite possible to earn a six-digit (pretax) salary during the last year of your residency.

The loan payment bonuses, at least what I've seen, are generally relatively small, like 5-6% of the total compensation for the length of the initial contract. That's still a five-digit number/year, so it's worth negotiating for if not offered.


I just want to point out that there is little benefit to pursuing PSLF unless you are planning on doing a long fellowship/multiple fellowships, are planning on working for an academic institution that pays close to market value, or would choose an academic career over a community one regardless of salary.

A math problem you can do is multiply your current loans by, say, 1.6x (accounting for four years of interest + federal taxes + a relatively high state income tax) then divide it by 10 minus the number of years of residency you'll have.

E.g. you have 250K in loans. 250K * 1.6 = 400K. Hypothetically you're in a 4-year residency, so 400K/6 = ~67K.

Now ask yourself if the difference between community vs academic salaries in your field is greater than 67K. If so, you can pay your loans off more quickly with your post-tax excess salary than PSLF and still be in a higher-paid job.

If I am able to get such low payments (100/month) with a lower interest rate through refinancing with a private company, wouldn't that be the smarter thing to do then? Like I said, Im going into Rads, so will likely work private practice & not be eligible for PSLF anyways.

 

[whoknows2012]

If I am able to get such low payments (100/month) with a lower interest rate through refinancing with a private company, wouldn't that be the smarter thing to do then? Like I said, Im going into Rads, so will likely work private practice & not be eligible for PSLF anyways.

100/mo??? That’s not physically possible. You mentioned 250k, even at a conservative interest rate of 3%, (as rates continue to go up) for a 10 yr repayment you’re looking at $2000 + per month. You can always get a real quote to see what it’ll cost you…

 

[CyrusHabs7695]

100/mo??? That’s not physically possible. You mentioned 250k, even at a conservative interest rate of 3%, (as rates continue to go up) for a 10 yr repayment you’re looking at $2000 + per month. You can always get a real quote to see what it’ll cost you…

Sorry I should've included I will be starting intern year in a few months. A few of these companies I see (SoFi, Laurel Road) say that residents payments can be as low as 100, I figured it would be a little higher. Will my credit score be impacted if I get actual quotes from those 2 companies?

 

[sloop]

Sorry I should've included I will be starting intern year in a few months. A few of these companies I see (SoFi, Laurel Road) say that residents payments can be as low as 100, I figured it would be a little higher. Will my credit score be impacted if I get actual quotes from those 2 companies?

Depends on if they do a hard pull on your credit. If they do a hard pull, it will show up as an inquiry on your credit report and your score might drop by a couple of points, but nothing significant unless you’ve been churning credit cards or something and have a million inquiries already or have some other significant issue with your credit. It will also generally go back to normal in a few months. When I’ve had inquiries on my credit report in the past, my score has only gone down like 2-5 points for a few months.

 

[whoknows2012]

Sorry I should've included I will be starting intern year in a few months. A few of these companies I see (SoFi, Laurel Road) say that residents payments can be as low as 100, I figured it would be a little higher. Will my credit score be impacted if I get actual quotes from those 2 companies?

Ah ok didn’t realize that type of deal was offered

 

[SquidLab]

Hi everyone, incoming MS1 here. I'm thinking about doing PSLF since I'm dead-set on the path of 3 years residency, 3 years fellowship, and probably an additional year of subspecialty training. I have the option to max out COA every year, or to use existing savings for rent and only take out tuition + a little more. With PSLF, is there a benefit to taking out as little as possible, or is it better to just max out COA? I'm definitely going to meet with Financial Aid before doing anything, I just wanted to get others' opinions.

Thanks 🙂

 

[mvenus929]

Hi everyone, incoming MS1 here. I'm thinking about doing PSLF since I'm dead-set on the path of 3 years residency, 3 years fellowship, and probably an additional year of subspecialty training. I have the option to max out COA every year, or to use existing savings for rent and only take out tuition + a little more. With PSLF, is there a benefit to taking out as little as possible, or is it better to just max out COA? I'm definitely going to meet with Financial Aid before doing anything, I just wanted to get others' opinions.

Thanks 🙂

There's always a benefit to taking out as little as possible. None of us have a crystal ball to see what the climate will be like in 4 years when you finish school, let along the 10+ years til you finish training. Might you qualify for PSLF and actually do all the things to get it? Sure. But that doesn't mean that the years you do have to do payments will be pleasant, especially with a very large loan balance. Maybe they'll trash repayment plans currently available and you'll have to pay a larger chunk of your income until you do get forgiveness. Perhaps you could have used that money to get a down payment on a home. Or pay for a wedding.

 

[NITRAS]

They do get a tax break on student loan contributions.


Yes, though only on part of it. This is (one of the reasons) why loan payment incentives are often annual, rather than lump sum - the annual deduction limit is an absolute value, not a percentage. Similarly, many hospitals will offer residents a signing bonus, because a $30,000 bonus is taxed quite differently at resident salary vs attending salary. Depending on your field, it's quite possible to earn a six-digit (pretax) salary during the last year of your residency.

The loan payment bonuses, at least what I've seen, are generally relatively small, like 5-6% of the total compensation for the length of the initial contract. That's still a five-digit number/year, so it's worth negotiating for if not offered.


I just want to point out that there is little benefit to pursuing PSLF unless you are planning on doing a long fellowship/multiple fellowships, are planning on working for an academic institution that pays close to market value, or would choose an academic career over a community one regardless of salary.

A math problem you can do is multiply your current loans by, say, 1.6x (accounting for four years of interest + federal taxes + a relatively high state income tax) then divide it by 10 minus the number of years of residency you'll have.

E.g. you have 250K in loans. 250K * 1.6 = 400K. Hypothetically you're in a 4-year residency, so 400K/6 = ~67K.

Now ask yourself if the difference between community vs academic salaries in your field is greater than 67K. If so, you can pay your loans off more quickly with your post-tax excess salary than PSLF and still be in a higher-paid job.

Just to clarify. Signing bonuses are not taxed differently, they have different withholding rules and are usually at a higher withholding. Not taxed differently.

 

[NickNaylor]

Read some of the responses, but the reality is that decisions about student loans are highly individualized and depend on a lot of factors, including your overall career plans/goals, family situation, debt burden, etc. I talk with residents about personal finance when they rotate with me, and here are the very broad recommendations that I provide when it comes to student loans:

1) You want to do everything that you can to reduce interest from capitalizing. COVID has been advantageous on this front as there has been a very long period with no accrual of interest. As soon as that ends, I would advise that you start making some kind of payments on your loans to reduce or eliminate the amount of interest that is accruing. This will kill you over the long-term, especially if you're entering residency with a high debt burden to begin with. I tell all residents that they should be making payments on loans if at all feasible. Some people may not be able to financially make those payments, but most can.

2) The question of whether or not to try and obtain forgiveness via PSLF is a complicated and personal question. First, you have to have faith that this program will still exist. Second, you have to have faith that the program will be available for high-income earners. Third, you have to you put your financial future into the hands of a fickle third party (the government). In general, PSLF is only going to be advantageous if you have a very high debt burden. I had zero faith that I would be able to take advantage of PSLF and had a relatively low debt burden, so I opted to try and pay off my loans as quickly as possible. I'm about to finish my third year out of residency and will have my loans paid off in the next few months.

3) Refinancing loans again depends on your long-term plans. If you're putting all of your eggs into the PSLF basket, you won't want to refinance as you will lose eligibility for PSLF. If you have no intention of taking advantage of PSLF, you might want to consider refinancing as, historically, you could get significantly lower interest rates, though with fed rates rising as they are, this actually may not be the case. For example, I was able to refinance my loans to a ~4% interest rate vs. the 6.9% of federal loans. Once you know what you plan to do with respect to PSLF, you can make further decisions about refinancing from there. Once you've got attending income, refinancing the loans is trivially easy - it took me about 15 minutes to fill out the application and it was taken care of.+

Keep in mind that if you're planning to pursue PSLF, you're also limiting options in terms of your future employment as you will be subject to working for an employer that meets the criteria for PSLF. Depending on your specialty and desired practice setting, this may not be as straightforward as you might expect/hope.

 

[ACSurgeon]

Read some of the responses, but the reality is that decisions about student loans are highly individualized and depend on a lot of factors, including your overall career plans/goals, family situation, debt burden, etc. I talk with residents about personal finance when they rotate with me, and here are the very broad recommendations that I provide when it comes to student loans:

1) You want to do everything that you can to reduce interest from capitalizing. COVID has been advantageous on this front as there has been a very long period with no accrual of interest. As soon as that ends, I would advise that you start making some kind of payments on your loans to reduce or eliminate the amount of interest that is accruing. This will kill you over the long-term, especially if you're entering residency with a high debt burden to begin with. I tell all residents that they should be making payments on loans if at all feasible. Some people may not be able to financially make those payments, but most can.

2) The question of whether or not to try and obtain forgiveness via PSLF is a complicated and personal question. First, you have to have faith that this program will still exist. Second, you have to have faith that the program will be available for high-income earners. Third, you have to you put your financial future into the hands of a fickle third party (the government). In general, PSLF is only going to be advantageous if you have a very high debt burden. I had zero faith that I would be able to take advantage of PSLF and had a relatively low debt burden, so I opted to try and pay off my loans as quickly as possible. I'm about to finish my third year out of residency and will have my loans paid off in the next few months.

3) Refinancing loans again depends on your long-term plans. If you're putting all of your eggs into the PSLF basket, you won't want to refinance as you will lose eligibility for PSLF. If you have no intention of taking advantage of PSLF, you might want to consider refinancing as, historically, you could get significantly lower interest rates, though with fed rates rising as they are, this actually may not be the case. For example, I was able to refinance my loans to a ~4% interest rate vs. the 6.9% of federal loans. Once you know what you plan to do with respect to PSLF, you can make further decisions about refinancing from there. Once you've got attending income, refinancing the loans is trivially easy - it took me about 15 minutes to fill out the application and it was taken care of.+

Keep in mind that if you're planning to pursue PSLF, you're also limiting options in terms of your future employment as you will be subject to working for an employer that meets the criteria for PSLF. Depending on your specialty and desired practice setting, this may not be as straightforward as you might expect/hope.

As a fellow pay it yourself person, I think your approach is fairly biased against PSLF. I agree that one has to weigh their options, but man would it be nice to have the equivalent of my student loans applied to my net worth instead of just knowing that I didn’t have to be held under the mercy of a fickle third party. Esp with two years of no interest and no payments, some people came out really ahead. Sure if it somehow blows up I’ll be glad I paid my debt off. But if people get forgiven, I think we need to start recommending this as Plan A, with some back up plan ready just in case

 

[NickNaylor]

As a fellow pay it yourself person, I think your approach is fairly biased against PSLF. I agree that one has to weigh their options, but man would it be nice to have the equivalent of my student loans applied to my net worth instead of just knowing that I didn’t have to be held under the mercy of a fickle third party. Esp with two years of no interest and no payments, some people came out really ahead. Sure if it somehow blows up I’ll be glad I paid my debt off. But if people get forgiven, I think we need to start recommending this as Plan A, with some back up plan ready just in case

I acknowledge that I'm definitely biased against PSLF. I do think it can be worthwhile to pursue the program depending on your circumstances (e.g., long training pathway, significant amounts of debt, interested in working in non-profit/government setting, etc.), but I would recommend that anyone be cautious of placing their financial future in the hands of someone else based on a promise. Especially the government and especially in this political climate, which is not particularly sympathetic toward providing financial support to high-income folks.

 

[FlowRate]

Just an example of a different pathway and set of circumstances... I was in a very expensive city for residency. I had relatively low debt burden (~120-140k at start of residency IIRC). Half of my loans qualified for federal income based repayment plans so I believe I had those in REPAYE. But the other half were institutional loans that were a standard 10-year repayment plan. That expense would have made things really difficult, so I applied for residency forbearance (or deferment? whichever one accrues interest). That extra monthly income really helped me feel more overall financially secure and flexible at the cost of mildly increased debt. It's not blanket advice I'd give to everyone but it felt like the best option for my situation and I don't regret it at all.