Which repayment plan is best if I want to make minimum payments for 20-25 years?

[spiritofthebat]

I have 440K in public loans.
70K in private loans.
My wife has 20K in private loans.

My attending salary will be $300K before taxes. My wife makes $50K and we want her to stay home when we start having kids until they start school. And we eventually want to buy a house in the next few years.

Our game plan is to pay off all our private loans year 1 of being an attending, living only a slightly better lifestyle than when I was a resident. Just a slightly more expensive apartment, same car as we had. Nothing crazy. Get those high interest loans gone ASAP.

Then we want to buy a house and start having kids. We’ll be first time home buyers and can qualify for all that comes with that.

I cannot see a world where we can have a family and buy a house trying to pay my public debt off as quick as possible. It would be miserable and life is too short. We both don’t want to take the risk of being miserable for a decade when we can get ill or die in a car accident.

I think I rather make minimum payments for 20-25 years. I believe it ends up being less expensive.

I just don’t know if I should pick PAYE or REPAYE given my goals. And I’m not in a PSLF area. Advice on which is better?

My income will stay roughly the same. And we want to repay back as little as humanely possible until they are discharged.

Update: Also, how much is the “tax bomb” when the rest are forgiven and how to prepare for it.

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[RangerBob]

I would not bank on making minimum payments for 20-25 years unless loan forgiveness through the income-based plans is made tax free. It is temporarily now, but otherwise only PSLF is tax-free.

If you make minimum payments on $440k your loans will likely balloon to the extent that the tax bomb makes you pay more that you would have if you'd just paid the loans off. If you get, say, $800k in debt forgiven (maybe it'll be a lot higher, maybe lower--I'm just using that as an example), on top of a $300k salary, then you're going to be paying taxes for over a million in income. That's quite a bit of money you'll need stashed away.

On the plus side, 20-25 years is plenty of time to build up that side savings/investment account. On the downside, that's a long time for your original loan balance, presumably at ~7% or so, to balloon majorly.

As far as I know PAYE isn't an option for much longer. And REPAYE folks have been moved to SAVE.

Student Loan Planner, among other companies, can give you a personalized assessment of what your payment/forgiveness options are. At your level of debt/lower income/desire to have kids/buy home/etc, I would highly, highly recommend running things by a professional.

I'll be frank. I think you're in a tight spot unless your wife's income is going to be go up by a lot, as you say yours wont. If you're in a low COL area that will help. But you will really want to chip at those loans ASAP unless you can become eligible for PSLF. Your debt will hang over you and grow to astronomical sizes over 20-25 years, and unless something is in your master promissory note, it's not guaranteed. So while the 20-25-year forgiveness is, there's no promise that the current tax-free treatment of all income-based repayment forgiveness plans will be extended past whatever year it's set at right now (2025?).

I had a similar mindset to you. We didn't want to live extravagantly, but we didn't want to postpone life like crazy. So we didn't aggressively tackle our loans (maybe $450k between the two of us). We bought a reasonable average-cost home (for CA...). With all the Trump/Biden loan freezes, etc, we figured why rush to pay things faster? That was stupid. With that said, I am now eligible for PSLF (long story, but now private practice docs in TX/CA non-profit hospitals are eligible for PSLF since it's illegal for the hospitals to directly employ docs in those two states), so all but about $70k should get forgiven within the year. So it worked out well that we were lazy about repaying the loans--we got lucky. But the monthly payments really weigh over you. I'd much prefer to put that money into a 529 for my son's college fund, or into a brokerage account for retirement, etc.

What do you mean by you're not in a "PSLF-area?"

I'd personally advise you to go for a PSLF job. A PSLF-eligible job that pays you 200k will likely result in much more financial freedom/save you money than a non-PSLF eligible $300k job. Because after 10 years (less if you've made payments as a resident) all your federal loans are gone, tax-free. Guaranteed--as long as you follow all the rules (make sure you do!). Note guaranteed doesn't mean without hassle. VA jobs provide PSLF eligibility, plus a great work-life balance for those who want a family... And great benefits/retirement.

 

[spiritofthebat]

My wife needs IVF which is expensive. We already put off having kids for 6 years. I think kids and house and living comfortable has already been decided. I guess the only question is SAVE vs. Paye, and how/where to invest our money.

 

[spiritofthebat]

I think we’ll end up paying more in the long-run but get to enjoy our lives and reach our goals way faster. Just have to save for the tax bomb. Also, doesn’t SAVE erase the interest every year? So I think we’d be paying taxes on roughly 200K in 25 years.

 

[RangerBob]

I think we’ll end up paying more in the long-run but get to enjoy our lives and reach our goals way faster. Just have to save for the tax bomb. Also, doesn’t SAVE erase the interest every year? So I think we’d be paying taxes on roughly 200K in 25 years.

Oh, you're probably right about SAVE. I forgot about that provision. I'd recommend double checking but I think SAVE prevents your loan from ballooning above your original principle. I'm not sure if your monthly payments would pay down the principle at all--you could have to pay taxes on $440k of forgiveness. Still, paying 10%-ish of your income for 25 years is a real pain...

Keep in mind SAVE is also something that could get reversed depending on where the political winds are blowing.

Again I highly recommend running things over with a professional. In a situation like yours where you're really putting all your eggs in one basket, you'll want to be sure you've planned it exactly right. You'll want to make sure your minimizing your monthly payments in every legal way possible if you're aiming for 25yr forgiveness. Student Loan Planner gave me great advice a few years ago. I still get his email newsletters, which are quite insightful. There are other professionals out there (I think WhiteCoatInvestor works with a different student loan repayment advisor group--I would trust any recommendations from WhiteCoatInvestor), but it's hard to find folks who understand the combination of student loan forgiveness/minimizing monthly payments and how your tax filing status, etc, all work together.

As far as investing goes, I just do the three-fund portfolio. I'm a big proponent of keeping things as simple as possible.

You'll probably want to maximize 401k contributions, etc (in addition to putting aside funds for that tax-bomb investment account)., to lower your AGI so you have a lower monthly SAVE payment. Do pre-tax as it'll lower your tax burden as well. I would factor that in to what kind of home you can afford, as you're likely already going to feel very squeezed between the IVF, kids, mortgage, monthly loan payments. I'd advise you to live in that apartment as long as you can and defer buying the house--it's much easier to keep living a similar lifestyle to a resident (even with kids) than it is to cut back if you're gone "full attending."

 

[spiritofthebat]

Oh, you're probably right about SAVE. I forgot about that provision. I'd recommend double checking but I think SAVE prevents your loan from ballooning above your original principle. I'm not sure if your monthly payments would pay down the principle at all--you could have to pay taxes on $440k of forgiveness. Still, paying 10%-ish of your income for 25 years is a real pain...

Keep in mind SAVE is also something that could get reversed depending on where the political winds are blowing.

Again I highly recommend running things over with a professional. In a situation like yours where you're really putting all your eggs in one basket, you'll want to be sure you've planned it exactly right. You'll want to make sure your minimizing your monthly payments in every legal way possible if you're aiming for 25yr forgiveness. Student Loan Planner gave me great advice a few years ago. I still get his email newsletters, which are quite insightful. There are other professionals out there (I think WhiteCoatInvestor works with a different student loan repayment advisor group--I would trust any recommendations from WhiteCoatInvestor), but it's hard to find folks who understand the combination of student loan forgiveness/minimizing monthly payments and how your tax filing status, etc, all work together.

As far as investing goes, I just do the three-fund portfolio. I'm a big proponent of keeping things as simple as possible.

You'll probably want to maximize 401k contributions, etc (in addition to putting aside funds for that tax-bomb investment account)., to lower your AGI so you have a lower monthly SAVE payment. Do pre-tax as it'll lower your tax burden as well. I would factor that in to what kind of home you can afford, as you're likely already going to feel very squeezed between the IVF, kids, mortgage, monthly loan payments. I'd advise you to live in that apartment as long as you can and defer buying the house--it's much easier to keep living a similar lifestyle to a resident (even with kids) than it is to cut back if you're gone "full attending."

Oh no, the student loan planner people charge $600. I just put my first month’s rent out of residency on a credit card because I don’t get my first paycheck of attending life until August and got about 2 pennies to my name. I’ll definitely hit them up for some long-term planning in a few months when I got $600 to throw around but for now I guess I have to figure out which plan to start with….

 

[RangerBob]

Oh no, the student loan planner people charge $600. I just put my first month’s rent out of residency on a credit card because I don’t get my first paycheck of attending life until August and got about 2 pennies to my name. I’ll definitely hit them up for some long-term planning in a few months when I got $600 to throw around but for now I guess I have to figure out which plan to start with….

I remember those days.

Unfortunately I can't really comment on which payment plan is best for you, as I'm not really up to date on the nitty gritty details of each. I believe PAYE is going away, so if it's an option now for you this may be your only chance to get on it. But I don't think that prevents your loan balance from ballooning--I think SAVE is the only one that does that.

Different plans are better than others depending on how much debt your wife has/how much she makes/how you file your taxes. My wife had federal loans and wasn't working anymore, so we just went with IBR, then REPAYE when it came out and are now on SAVE. It helped to have her loans counted with mine as it meant our total monthly payment for both sets of loans put together was about 15% of our income.

Hopefully others can chime in a bit. I'd recommend reading through the StudentLoanPlanner and WhiteCoatInvestor blogs to educate yourself on the plans and nuaneces.