[Editor’s Note 1/15/2018: The long-awaited White Coat Investor Online Course is live and is available for purchase here. The course is entitled: Fire Your Financial Advisor. No more wading through dozens of books at the library, scrolling through hundreds of blog posts on dozens of blogs, or checking in daily with online forums trying to gain a financial education the way the hobbyists do. This course will take you from feeling anxious and having no plan to having a written financial plan you can follow the rest of your investing career as a professional and a retiree. This course is the material that should have been taught to you in college, medical school, or residency, but never was.]
Perhaps the worst part about being a high-income professional is beginning your career with a massive debt burden hanging over your head. Eliminating your educational debt at the beginning of your career will increase your happiness and speed your way to financial freedom, allowing you to take advantage of future opportunities, both professional and personal. En route to debt elimination, most professionals should take advantage of the ability to refinance your debt with a private company. It is usually a no-brainer, but there are a few things to know about it.
# 1 You Save a Ton of Interest
If you have $300,000 in student loans at an average rate of 7%, and refinance that to 2.5%, you will spend $13,500 less in interest in the first year alone. That is $13,500 that can go toward principle instead of interest. The same monthly payment that would pay off a 7% loan in 20 years pays off a 2.5% loan in less than 10 years. A 10 year loan becomes a 6 1/2 year loan. A 5 year loan goes away in less than 4.
# 2 You Get Cash Back Now
Do your student loans have you in a vice? Refinance them!
As if saving tens of thousands of dollars in interest isn’t enough, WCI has negotiated a special deal with each of the main refinancing companies for you as a little extra icing on the cake. When you refinance, you get some money back (and you help support this site.) If you’re smart, you’ll throw that at your loans too.
# 3 Refinancing Is Usually Quick and Easy
When these companies first showed up in 2013, there were lots of kinks to work out. Well, they’ve all been worked out. Now you can get a preliminary quote from most of them online in 5 minutes or less. If you have all your loan paperwork handy, you can usually upload it electronically in a few more minutes. Once you’ve gathered the paperwork to refinance with one, checking your rate on a couple of others is no big deal either (and I recommend you do so.) I don’t know how long it takes you to make $13,500, but I guarantee refinancing your loans will take less time, especially since it is all after-tax money.
# 4 You Get Better Service
No company is ever perfect, but compared to the service you were getting from your federal loan servicer, these guys might seem like it. You can get people on the phone, a functioning website, and can easily make extra payments to pay your loans off even faster.
# 5 Unless Qualifying for PSLF, Attendings Should Refinance Today
The only real caveat to refinancing for attendings is that you don’t want to refinance if you are going to try to qualify for Public Service Loan Forgiveness. If you made lots of tiny payments during your training, PSLF is going to work out a lot better for you than paying off your loans. Even if you’re worried the program will change and you won’t be grandfathered in, I still think you ought to stay in a government income driven repayment plan while saving up a side fund to throw at the loans, just in case. While in that unlikely scenario you would end up with a bunch of extra interest, I think the likelihood of you not being grandfathered in is a pretty low risk. Some docs worry they might need the income driven repayment program again in case something happens to their income. I think that’s silly. How many post-residency docs do you know who can’t get a job paying a lot more than they were paid as a resident? Yea, I don’t know any either. Others worry about what will happen if they die before the loans are paid off. However, these loans are still student loans, and still generally go away with your death (not even being assessed against your estate,) but read the fine print. Even if they didn’t, you can probably buy a $300K 5 year term life insurance policy for something like $137 a year, far less than you are saving in interest. But what about disability? Again, the companies generally offer some provision for this, but if not, you can buy a little extra disability insurance with all that interest you’re saving.
# 6 Residents Should Refinance Private Loans
Although residents can refinance their federal loans during residency (Laurel Road and LinkCapital are your main choices) they generally shouldn’t. The effective interest rate in the RePAYE program is usually lower than what you can expect as a resident. However, if you have some private loans that aren’t eligible for RePAYE, then refinance them now. These companies offer monthly payments of $0-100 as a resident and you can typically get a rate around 5.5%, which is often 1-3% lower than most private loans.
# 7 You Don’t Have To Refinance All Your Loans
Sometimes a doc has some of his loans at a really attractive interest rate. Maybe they are from a time when rates were lower, or they’re from the undergraduate years or whatever. You don’t have to include those when you refinance. Just leave out any loan with a rate less than what you’re being offered.
# 8 Consolidation and Refinancing Are Not the Same Thing
Financial terminology, like medical terminology, has a precise meaning. Sometimes docs get sloppy and say consolidate when they mean refinance. Consolidating is a process you go through with a federal lender where your loans are all bunched together into one easy payment. The issue, however, is that all of your loan interest rates are averaged (and rounded up to the nearest 1/8th percentage point) and that is the rate you pay. Refinance. Don’t consolidate.
# 9 You Have To Qualify
Unlike the federal government, which will loan you ghastly amounts of money just for having a pulse and getting into medical school, these are all for-profit companies that are making a bet that you will actually repay them. The worse of a bet that is, the less attractive terms they will offer you. In fact, there are some doctors who won’t be able to refinance at all. I’m talking about a pediatrician with terrible credit who owes $550,000. Obviously the orthopedist with a credit score of 810 who owes $150K is a much better bet.
# 10 Variable, Short Term Loans Are the Best Deal
If you want the lowest rate possible (sub 3%) that means you’re going to have to commit to a 5 year term and run the interest rate risk yourself. That means if interest rates go up dramatically soon, you may end up paying more in interest than if you had taken a fixed rate loan. However, I think that’s a risk worth running for anyone willing to commit to living like a resident for 2-5 years until the loans are gone. If rates only rise a little, or rise slowly, or don’t rise for a few years (or at all) you’re going to come out ahead. Once you run the numbers on just how much and how quickly rates have to rise for you to lose this bet, you will likely be much more comfortable with it. Also if you’re committed to living like a resident and getting out of debt quickly, you likely have A LOT of slack in your budget and can easily cover the worst case scenario. Plus, you now have a little more motivation to live efficiently and get out of debt. A variable rate loan not only gives you a mathematical tailwind to speed you to financial independence, but a behavioral one as well.
# 11 Refinancing Doesn’t Eliminate Your Debt
While I can understand if you shift your financial priorities a little after refinancing from 7% to 3% (perhaps maxing out retirement accounts before paying extra on the loans) don’t fall into the trap of thinking you’ve actually done something about your debt just because you refinanced. That is just the first step. The problem isn’t the $13,500 in interest you’re accumulating each year, it’s the darn $300,000 you’re going to have to pay off eventually. The way you kill your debt is by throwing $5,000, $10,000, even $15,000 a month at your loans.
# 12 You Can Refinance Multiple Times
Perhaps you didn’t get the best rate when you refinanced due to your credit score. Or perhaps interest rates have dropped. Or now you qualify for a 5 year term or I’ve talked you into changing to a variable rate loan. There is absolutely nothing stopping you from refinancing again. In fact, it’s probably a lot easier since you now only have one loan to enter the information for. And yes, you (and I) get the bonus money every time you do it. In fact, probably even the refinancing companies like it when you do this. They’ve already sold your previous loan off to investors. Doing it all again means more business for them.
Get off your duff and refinance your student loans already! Then get busy paying them off and get your net worth back to broke!
When is the last time rates dropped significantly? I refinanced to a variable 5 year plan about 1.5 years ago. Credit score is excellent. Current rate is around 2.7 or 2.8% now. Anyone hear of any better rates out there?
I get rate updates emailed to me periodically from these companies. The most recent one was from SoFi. Variable rates were 2.345-6.270% with autopay as of January 4. Fixed rates were 3.38-6.74% with autopay. Wide range I know, but the better your credit, the better your debt to income ratio, and the shorter the term, the better rate you’re going to get. But it’s almost always better than what you have.
I looked back at my statement and my rate is actually at 2.5% now. I just sent my first extra payment of $40,000 this week (been saving up from moonlighting) which will bring my total to just under $100,000 (started at $210k 2.5 years ago). Very exciting, and in large part due to the motivation I get from this website! With that in mind, I’m not going to worry about a small difference in interest rates now since I hope to have the rest of my loans paid off by the end of this year!
You’re doing great. Keep it up!
Hey Luis,
Who did you go through to get the 2.5% interest rate? One of the companies mentioned in this article or a private lender?
Thanks!
At 2.5% interest, you are doing yourself a disservice by paying your loan off. You can easily make more than 2.5% on your money with a variety of investment strategies. At 2.5% you are almost getting an interest-free loan when you calculate inflation in the mix. In other words, if I could borrow 150K at 2.5% interest, I would do it in a heartbeat.
Would you borrow $15M? How about $150M?
Ummm…yes please!
At a certain point, most people recognize the leverage risk is too high, even at very low rates, for what they’re trying to accomplish.
“Would you borrow $15M? How about $150M?”
It makes no difference what the amount is. It is the interest rate of borrowed money that matters. Personally, I would love to have a 150M loan facility at 2.5%. It wouldn’t take me long to find a number of places to park that money to generate a couple of million profit per annum at almost zero risk.
Well there is risk in everything – otherwise totally agree – give me a loan at that rate and I’m a very very rich person!
That’s exactly it. Almost zero. It’s not zero. And when you’re talking about large sums of money, the consequences of something going bad are not insignificant. So most of us are comfortable with a limited amount of leverage risk. That’s for a reason.
You guys can leverage up your life pretty easily at rates not dissimilar from that. Interactive Brokers will give margin loans at 3-3.5%. Variable rate mortgages can still be had for 2.75%. 15 year fixed can be had for 4%. Go knock yourselves out.
I have a loan question that I tried digging and could not get a good answer about despite hunting around online. I have about 110k in med school loans left and I work for a nonprofit hospital. My loans are are all Sallie Mae consolidation loans serviced through Navient at pretty low rates (2.125%). I’ve been paying them off for 10 years and have about 16 years left on them. (Yes I could pay them off quicker but I’m more liquid and making more money by investing). Am I eligible for the PSLF? If I go with a direct loan would I lose my interest rate?
Sounds like you may be eligible, but not enough info to be sure. You may have to go back and certify for each of the last 10 years to get it. You don’t mention what program you’re making payments on but IBR, PAYE, and REPAYE as well as the standard 10 year payment all count toward PSLF if they’re made while you’re working for a non-profit hospital. If you need some professional help, you can check with these guys:
https://www.whitecoatinvestor.com/student-loan-advice/
I would reach out to Jan Miller. If you go to his website, you can schedule a phone call with him. He will chat with you at no cost for 30 minutes. From there, if you feel you need his services, you can potentially hire him but he will be able to answer your question.
Jan and I have no financial relationship but clients have had good interactions with him.
Only Direct Loans are eligible for PSLF. Please verify loan type at http://www.nslds.ed.gov. If you consolidate via Direct Consolidation Loan you will reset the PSLF clock to zero. And the consolidated interest will be the weighted average of the loans being consolidated rounded up to the nearest 1/8 of 1%.
@Mohamed, based on the info you put in “I’ve been paying for 10 years and have about 16 left” as well as your rates it looks like you consolidated and are making payments on a 25 year loan. If that is the case you would not qualify for PSLF because you have to be on one of the Federal Income Driven Repayment plans. At 2.125% you probably should pay them off as slowly as you can because you can make more with limited risk by investing.
When you apply, do you get all of the rates for the different length and fixed vs variable? I.e. If I applied to DRB, will they send me the interest rates for 5, 10, and 20 year loans? I ask because I’m taking my excess income and putting roughly 50% towards loans and 50% towards a home down payment as my wife and I are moving. After a few months, I think we have enough for a decent down payment, but I’d still like to have some flexibility in payments. I’m doing IBR now and just throwing extra money at them but am in a rush to get that interest rate down. Is this a good reason to go with Earnest?
They may not qualify you for every loan length (or any loan at all), and the rates offered to you will be different from those offered to someone else.
Earnest and DRB have a few differences, but both have some positive unique features.
It might just because I’m old, but back when I was refinancing/consolidating people told me to stay away from the Private Lenders since if you died whiel in repayment the debt doesn’t die with you (like the Federal programs do).
Is this still the case? I know we’d prefer to pay these off in a few years, but its possible that doesn’t work out.
It varies so you have to read the fine print for any given lender. Worst case scenario the debt is assessed against your estate before your heirs get their piece.
Have you refinanced your loans? Not yet. I’ve been rejected by the three companies that refinance with residents. Very poor offers, about 0.5% less in interest but with five year repayment plans. I have 1.5 years left in my primary care residency.
205,000 in loan debt. 55,000 in ROTH retirement funds. ~4,500 in emergency fund checking account.
How many times? Several times.
How quickly did you (or do you plan to) pay off your student loans? I was going to pay off my loans in three years. They’d have grown to roughly 210,000 by the end of my residency, I’ll make about 145,000 net even while contributing about 40k a year to retirement funds. Since I live like a hobo it’ll be easy to pay off in three years. The only trouble is that they may not think that I can pay it off that quickly since most young doctors tend to spend a LOT more than me.
I really wish I had not put about 15,000 toward loans in medical school when I got some family money. Right now PSLF wouldn’t help me that much but it still would have been better to take that money and invest it. My plan was still to refinance quickly since I already have 15,000 of “chips” towards the “refinance” part of the playing table.
The biggest contribution you can make to your financial well-being in medical school and residency is to live frugally and minimize your debts. Repayments are best handled as an attending. Liquidity is important when money is hard to come by.
This went against my natural inclination of immediately putting extra money toward my loans. In residency $10,000 would have represented over a year of frugal living and savings. When I became an attending I would routinely make $10,000 payments without blinking an eye. The amount of interest I would have saved saved by an extra payment in residency were worth a couple of days of work as an attending.
Excellent comment. I have a post coming up soon reflecting similar ideas.
Let us know when it becomes available! I am in a similar position -5 months from the end of my residency, have a contract in hand for $330k/yr, $250k in debt but So-Fi would not accept it until I am an attending. I’m cringing with the 6.8% interest that I’m just sitting on in the meantime. A friend in nearly the exact same position as me got a 2.9% fixed rate from So-Fi..
Here it is: https://www.whitecoatinvestor.com/moderation-in-all-things/
Just curious how they were able to get a sub-3% fixed when all advertised rates are: “Fixed 3.375% and variable rates start as low as 2.565% APR (with AutoPay)”? (This is copied from SoFi). I am in similar situation and have not seen rates any better elsewhere either (looking at all big names WCI recs). Anyone else finding rates better than this? Thx!
Rates have crept up a bit in the last year or so.
I’ve brought up this topic with a lot of young dentists over the past few years during which time I have observed an unexpected, yet consistent, reaction when I suggest refinancing.
Rather than jumping up and hugging me for introducing them to this financially wise and debt reducing strategy, they often balk, look at me blankly and then say something like, “Won’t that raise my monthly payment…like…a lot?”
As the size of their loan burden increases (see the Dave Ramsey video WCI posted in the Maximum Student Loan Debt to Salary Ratio post) their initial reaction to refinancing actually causes them to turtle back into their denial shell because the monthly payment on a $400K loan at 3.5% is almost $7300. While that is undeniably awesome to anyone reading this blog, the average new dentist is horrified by that number.
THE POINT IS: I have found better success in encouraging them to refi at least a portion of their loans and/or refinancing different amounts over different terms. “If the thought of doing it all at 5 year variable is to overwhelming, let’s have you do $200K on a 5 year and the other $200K at a 10 year fixed. Then in 5 years you can refi again and demolish the remainder”.
I have found better success with that model, especially the last 12 months and have happily referred them here to read and learn more.
Thanks again WCI for all you do. This is another valuable (and I hope profitable) post. My work satisfaction has gone up significantly since paying off my dental school loans and I have the logic and persuasiveness of this blog to thank for the speed and prejudice I disposed of them with.
*Edit: The monthly payment on a $400K loan at 5 years and 3.5% = $7300…..I left out the 5 year part in the comment above.
Great idea!
Has anyone had luck refinancing to a shorter loan term–say a 10 year loan to a 5 year loan–with the same company with a lower interest rate? I have read anecdotes of Sofi doing it. It would simplify things, but my guses is that I won’t get another referral bonus like I would if I just went from, say, Sofi to Earnest.
My understanding is you will get another bonus. But if one company won’t offer it, just go to another. Plenty of options and easy to check how much you’ll save.
Are Variable loans more risky now that the Fed has increased interest rates and is planning on increasing them 2-3 more times this year? Also, since it seems like the economy has a brighter outlook since Trump was elected does that mean higher interest rates? I just refinanced at a 3.52 variable…
I have no idea what interest rates will do. But if you’re committed to paying off your loans in 5 years after training, I think you can afford to run the interest rate risk yourself. Remember for you to come out behind rates must rise substantially and early in the loan. You’re going to save something like 1% going variable. So if rates only rise 2% over the 5 years you have the loan, you’re probably going to come out ahead variable (since by the time the rate is more than 1% greater you’ll have a much smaller loan balance.) If it rises 2% this year, you’ll probably come out behind. There’s some risk there, so look at the worst case scenario.
Even if rates jump, I can still refinance again if needed right?
Yes, but it might be at a higher rate.
I had the same question. My friend who is a PT sent me this link which helped me answer the question about variable rate loans. http://fitbuxarticles.fitbux.com/debt/4-easy-steps-variable-rate-student-loan/
Not sure that article is applicable to most on this site. For instance, it suggests you shouldn’t use a variable rate loan if your balance is over $5K. While size of loan probably should affect that decision, the cut off ought to be in the hundreds of thousands, not the thousands.
The balance of the loan is the last risk factor. Before that is the loan term. The balance of the loan only applies if the other risk factors before it are moderate to high risk. Therefore if you plan on paying off the loan in 4 or 5 years or less the balance doesn’t matter. If you are going to spend ten years plus paying it off then it’s higher risk and you have to look at the balance of the loan to help hedge that risk.
Late last year, I married a 4th year med student with ~$96K in unsubsidized Stafford loans at ~6% and $5K remaining on a .9% car loan. Since she is still a few months from graduating, she hasn’t had to begin repayment on the student debt. My 2016 income was ~$180K and I saved about $54K into a taxable Vanguard account after my $18K into 401k, $5.5K into Backdoor Roth IRA, $3K into HSA, and $5.5K into spousal Roth IRA.
What do you recommend we do about the student loan debt? I think my options are:
A) Do nothing, since it is “her” debt.
B) Pay off the ~9 notes individually as quickly as we can with money that otherwise would have been allocated to the taxable investment account over the course of the next 2 years.
C) Sell taxable investments to pay off the student loan debt immediately. I do have ~$9K in TLH reserves to blunt the realized gains. I have approximately $160K invested primarily in US Total stock and Total International, which is about 80% basis.
D) Refinance with DRB or LinkCapital and then pay them off during residency. Would I need to cosign on the refinance to meaningfully reduce the interest rate or otherwise make it go through at all?
Thanks!
Sorry, forgot to add: Should Repaye be part of the option mix? We are planning on paying back the money rather than get it forgiven.
Thanks!
Doesn’t sound to me like REPAYE will help you guys at all. If you were going to try for PSLF you could do the PAYE and MFS thing.
I think I’d choose B in your situation. Reasonable people may have different opinions.
You are asking a very loaded question that tends to get heated when discussed. There are two schools of thought on the subject:
B) You are now a family and you should start paying down all debt together as a family. Max out retirement accounts first and then attack the debt your option B
A) You just got married, who knows if it will last, let her debt stay her debt at least until she graduates and can afford to pay it on her own. I have seen more often than I can count someone paying down their spouses debt only to get divorced shortly after and have nothing to show for it. Your option A
Personally I would choose option A because residency is tough on both partners and many divorces occur during residency.
Very nice article. I think refinancing is a very important option, but I would assume that there are some downsides associated with refinancing with a private company and this article doesn’t mention any (which I find hard to believe). Does anyone know if these companies discharge debt if one becomes disabled? Do they continue to hound family members for repayment if you suddenly pass away? Federal loans are usually forgiven if you develop significant disability or die. Not that I anticipate these things happening to me, but life certainly happens, and I would hate to saddle my family with a significant loan burden because I refinanced with a private company.
The downsides are:
1) You are no longer eligible for IBR, PAYE, REPAYE, PSLF etc. (which the article mentioned under # 5)
2) Death/disability provisions may be different (which the article mentioned under # 5)
If you’re really worried about your student loans being assessed against your estate in the event of your death, then buy a little extra life insurance. It will be dramatically cheaper than paying a higher interest rate.
Hi,
I’m a family medicine physician who completed residency June 2016 and I’m trying to make the big PSLF vs refinance decision. I work for a non-profit. My situation has one unique factor – state loan repayment. I have direct stafford loans totaling $229,071.58 at 6.55% interest and direct grad plus loans totaling $89,417.84 at 7.65% interest. Total student debt: $318,489.42. I am set to receive $100,000 of non-taxed loan repayment from the state of Montana over the next five years according to the following schedule: March 2017: $5000, Sept 2017: $5000, March 2018: $7500, Sept 2018: $7500, March 2019: $10,000, Sept 2019: $10,000, March 2020: $12,500, Sept 2020: $12,500, March 2021: 15,000, Sept 2021: $15,000.
I am also receiving taxable “bonuses” from my employer intended for loan repayment (though can be used however I choose) as follows:
Sept 2017: $10,000, Sept 2018 $5000. If my loans are not relayed by September 2022, I will also receive the following taxable loan repayment from my employer: Sept 2022: $15,000, Sept 2023: $15,000, Sept 2024: $15,000.
I am on salary of $220,000/year.
– I’m a little nervous about PSLF because I can’t imagine it being sustainable (think about how many physicians, lawyers, etc. will try to utilize this program. At some point it will cost too much).
– I already have 3 years of payments that would qualify for PSLF under my belt, so would need an additional 7 years.
– It would take 5 years to take full advantage of my state loan repayment.
– I would feel bad if the state wasted $100,000 toward my loans if I just end up getting them forgiven anyway. (But this doesn’t really enter the decision making process).
Thoughts??
Go for PSLF but set up a side fund. The bonuses go in the side fund obviously. Run the numbers though. I guess it’s possible that with the state paying so much there won’t be anything left to be forgiven if you are also making full payments.
Thanks. I’ve been loving the blog and appreciating the crash course in personal finance. As with most things, the more I learn, the more I realize how little I know! Regarding the side fund in case PSLF falls through, would you recommend just using a personal investment account with Vanguard? Real estate crowd-funding? Something else? A combo? I know they’re taxable, but if I needed this side fund, it would be in 7 years so I would need to have a relatively short term investment. Thanks!.
I’d stick with more liquid investments- not real estate. I think something like a balanced mix of stock and bond index funds would be reasonable.
Hi,
I currently have about $250,000 in debt with FedLoans. I decided on a job that isn’t eligible for PSLF so I’m refinancing. Currently the best rate I’ve been offered is from a credit union through Lend Key (2.21% on 5 yr variable) but the max is $170,000. Next best is 2.63% from College Ave thru Credible on $250,000. I’m waiting to hear from Earnest but their stated range is 2.34-3.76% so Lend Key would still win. Should I refinance $170,000 of the debt with Lend Key and then refinance the rest with another company? Common sense says “yes” but I’m wondering if that is allowed. Or if it might be more trouble than its worth down the line. This is all new to me so appreciate any insight!
Thanks,
Jennifer
0.42% of 170,000 is about $60 per month. Is that (the opportunity cost) worth the simplicity of having it all in one place for you? I’m assuming you can divide it up.
I think I’d try to do that. Why not try?
I am in my third year of residency. I have been on the PSLF program throughout residency, my hospital is a 501c3 program. Doing the rePAYE program on my federal student loans.
I just signed a contract in private practice, so obviously won’t be eligible for the PSLF. What should I do with the loans then? If I refinance them, does that forever disqualify me from PSLF if I were to work at a 501c3 later in life. From what I understand the payments are cumulative 120. However, I’m worried that my payments are going to shoot up to 5k/month and if I refinance them then I am SOL. Or, even though not working at 501c3, will I always be on some type of income based repayment plan?
Love the blog!
Refinance them and live like a resident for 2-5 years to pay them off.
Yes.
Yes, your required payments will “shoot up.” But they will shoot up whether or not you refinance. Focus on the interest savings. If you’re super worried about a higher payment put some of your loans on a 5 year refinance and some on a 10 year refinance.
I have 343k in consolidated direct loans @ 6.8% (324k in principal and the remainder in accrued interest), and private loans: 10,000 currently deferred (0% interest in training), and $2500 @ 4.5%. I have been on IBR throughout my residency/fellowship, however, I am going into PP and will not be working for non-profit. So PSLF is off the table.
A couple years ago my federal loans became serviced by Navient, which has been terrible. Navient’s incompetence has made me want to refinance even if it was at the same rate, just to get away from them.
Regardless, I did some calculations and found that for the remainder of my fellowship (ends in June), I would save money on interest by switching to RePAYE (vs staying in IBR, even accounting for the fact that interest will capitalize when the switch is made). So I have submitted the application to switch from IBR to RePAYE.
My plan is to stay in RePAYE until the end of my fellowship and then refinance as an attending. I have a signed contract with take home pay ~20k/month. I currently have 70k cash in the bank.
My goal is to pay off all loans and be completely debt free in 2 years after starting practice. When one refinances, would keeping that cash in the bank give me a better success rate for refinancing and possibly lower rate? Or would you recommend paying off as much of the loan as possible ASAP? How much cash would you keep for an emergency fund?
Would any of the banks consider refinancing me now, using my contract as proof of income? Ideally, I’d want to be getting into something like a 2.5% variable rate. Thanks!
I don’t know for sure, but I don’t think it’ll matter much. I’d probably just keep a small emergency fund in the bank and throw the rest at the loans. How small? Big enough that you don’t lie awake worrying about it and at least $1000 but no more than 3 months expenses.
Yes, some would refinance you, but the closer you get to actually earning money, the better the rate gets. But you could refinance now and then do it again.
As my financial literacy has progressed throughout the past few years, I realize how unintelligent it has been to defer my loans throughout residency (recommendation from older residents when I started, awesome). I am now in my last year of orthopaedic surgery residency (PGY5) and doing a fellowship next year (spine).
I initially intended to go into private practice, but for better or for worse now seem to be headed toward an academic career. My understanding is I would not qualify for either IBR/PAYE with an expected attending salary in the 400k range. Even if I did, does the math make sense for PSLF to be beneficial with 10 years of attending salary (which should have been 5 years if I would have paid all along during residency)?
I have roughly 250k in Stafford Loans at 6.8% and another 40k in an interest free loan from a family member. My plan was to refinance with DRB as soon as I have a signed contract, but wanted to confirm that was the best option.
No, if you haven’t been making IBR/PAYE/RePAYE payments during residency, there probably won’t be anything left to forgive after 10 years of attending-level payments. You still have the fellowship year and the rest of this year, but I think I’d just pay them off. I mean, you’re looking at a $400K salary in academia and probably twice that in private practice. You only have $290K in loans. I think I could pay off $290K in student loans on a $400K salary in 18-24 months. $100K to taxes, $50K to retirement, $50K to live on, $200K toward the loans. 2 years out of fellowship, you’re living the good life.
How about this scenario but with 5 years of attending payments? With thenr cent talk of putting PSLF on the chopping block, and government volatility, I am really worried about PSLF staying until 2023.
I can’t tell what you’re asking. But just refinancing your loans and paying them off is an option if you’re worried the government is going to pull the rug out from under you. But you can hedge your bets by staying in IDR/PSLF programs and saving up a side account to pay off the loans if PSLF goes away.
Thanks for the reply and apologies for being unclear. Typing coherently on a cell phone early in the morning is not my strength. You pretty much answered my question anyway!
I will say after looking into IDR plans and PSLF on studentaid.ed.gov (and based on a loan balance of 250k and annual salary of 400k in the scenario above) it would appear that the IDR payment would actually be higher than a standard 10 year monthly payment (~$2800). This means that such a salary would disqualify the borrower from an IDR plan and subsequently, making PSLF eligible payments. The rule of thumb to qualify seems to be an annual salary below the total loan amount.
I don’t think you get it. PSLF is all about the tiny payments made during training. If you didn’t make tiny payments as a resident/fellow, there won’t be anything left to forgive after 10 years of “attending-level” payments. Unless you’re making $150K and owe $500K or some terrible DTI Ratio like that.
Quick Question: As an OMS resident, I’m in both the resident and medical student categories. What that meant for me when looking at refinancing versus REPAYE program was that they wouldn’t allow me to do REPAYE because I’m still a student, but was eligible to refinance with DRB as a resident on dental school and medical school loans. I have 6 years of residency, but I’ll be paying medical tuition for 3 of those – should I just take the hit on interest for the first 3 years and then try for REPAYE or go ahead and refinance to a variable rate (lower than the fixed rate)?
OMFS is tough. Some of the largest loans I’ve seen. I don’t think taking a variable rate when you’re still in school is a very good idea. It’s one thing if you have an attending income and will be rid of them in 2-3 years. Totally different when you’re still in school and may have those loans for another decade.
Thanks for such a quick reply. The fixed refinance rate (5.65%) wasn’t a whole lot better than my current average rate of loans (6.09%) and 2 loans of mine are 5.31% and 5.41%, so I don’t think sticking those in the pot to refinance. Even changing to a fixed rate, I’m torn between refinancing now and then refinancing later versus letting everything go until I’m PGY-4 and no longer a student and comparing rates between refinancing and RePAYE. Thoughts?
I don’t think I’d leave the government programs for 0.44%.
WCI, thanks for all of your help.
So I don’t think I really understood IBR coming out of medical school. Upon graduation, I signed up for the 10 year graduated pay off plan for my federal loans. I started out with about 100k in federal loans. Early on I was able to pay off the interest before it capitalized and made a couple of larger payments. Since going into repayment, I have made regular monthly payments and I just completed a 4 year residency in June 2016. I am now working at a 501(c)3. I have about 67k left in federal loans at 6.55% through fedloan. I also have a private institutional loan of 10k at 7% and a perkins loan of 4k at 5%. I am planning to aggressively pay off my loans and have a goal to get rid of them in under 2 years. Because I am at a 501(c)3, am I still eligible to go into IBR for the fed loans? Would my previous 4 years of payment apply so that I would only have 6 years left? Or would it start over at 10 years? Or would I be better served just to refinance all my loans down to 3ish percent and just pay aggressively? Thanks
If you’re to pay your loans off and not go for PSLF (and I’m not sure you’re going to have anything left to forgive after 120 qualifying payments) then yes, refinance and get rid of them.
Hello. Thank you for this wonderful site. I am currently a resident on HPSP and all my loans are capped at 4.5%(from undergrad)… do you really believe that refinancing may still be worth it?
Thanks again!
As an HPSP student, you may wish to do Public Service Loan Forgiveness since you’ll be working for the federal government for at least 4 years after residency. You’d have to run the numbers to be sure, but don’t refinance loans that will be forgiven.
Thank you for the reply. Unfortunately(or fortunately?), I did the quick math and none of my loans at my current monthly payments x 120 months would still have any balance left by the end( I only have a total of about 26,000).
also, looking back, some of my loans are 5.75%, lowest is 3.5%… so may be worth it to refinance. Would you agree? I followed your link for Credible and I will be finishing it when I get home today.
Hi all,
Quick question about what to do during residency. I’m about to graduate medical school and am currently 239k in debt with fed loans at 5.72%.
I was planning on signing up for PSLF by default right after graduation with PAYE but still would like to contribute more towards my loans to avoid taking on 80-90k of accrued interest during residency. I would also like to max out a Roth IRA.
My plan was to at least pay down the accrued interest every year during residency and max out the Roth.
Assuming biweekly pay at $50,500 a year, after taxes, paying down the accrued interest, and maxing out the Roth, I would be left with about $830 in my bank account every two weeks.
1. Does this sound reasonable? Is it worth making these larger payments now instead of making smaller payments now and just knock the difference out as an attending with a few days of work, as mentioned above?
2. Also, just for sake of clarification, most residents should not refinance their student loans at the beginning of residency, correct?
Listen to what you’re saying. You’re saying you’re going to try to get your loans forgiven but you want to avoid the interest piling up. Does that make sense to you? It doesn’t make sense to me.
As a general rule, you pay your loans off as an attending, not a resident. When you figure out your first attending job, then you decide between refinancing and paying them off ASAP, or going for PSLF. But until you’re sure you’re not going for PSLF, I see little benefit in paying down your loans. Might as well pay the money into a side investing account. You can always take it and throw it at the loans when you decide to pay them off.
The general rule is REPAYE in residency, certify for PSLF each year, save what you can without feeling impoverished mostly in Roth accounts but be sure to get any match, and refinance upon leaving residency if you’re not going for PSLF.
Thank you!
When doing refi for my wife and it asks for income. Am i able to put our total income, since she does not have an income.
If you’re co-signing, yes. If not, then no. Careful with co-signing. If you co-sign and heaven forbid she die, you’re on the hook for loans that otherwise would have been forgiven.
When you apply, most banks and lenders will look at your credit score, annual income, savings, and college degree type (or certificate of enrollment if still in school). If you meet these requirements, you might be an excellent candidate for student loan refinancing and consolidation! If you don’t think you meet the requirements, don’t worry – as you can apply with a cosigner to increase your chances of getting approved for a better student loan.
Hello,
My situation is as follows through FedLoan:
Direct Sub Consolidation Loan $52,047 @ 6.25%
Direct UnSub Consolidation loan $67,405 @ 6.25%
Total $119,452
I’m a fellow who is graduating in June 2018. I’m enrolled in PSLF and have made 24 qualified payments. I was on IBR but just switched to REPAYE. I’m using my tax return to qualify for my REPAYE and I’ve been using the year prior.
2015 AGI was $70k (Resident)
2016 AGI was 122,507 (Fellow)
2017 AGI should be 150k (Attending)
2018 AGI should be 230k (Attending)
2019 etc over 250k
1) Can I switch back to IBR before I graduate and my income goes up? This would achieve my payments being capped, as REPAYE will not cap payments in regard to your income.
2) Is staying with PSLF even worth it? Should I just refinance and pay off my student loans by myself?
Thank you
1) Yes. Most people do it after graduation though as there is a bit of a lag in the increase in payments. IBR is only preferable if you don’t qualify for PAYE.
2) $119K? And only 24 months of payments during residency and fellowship. I’d give serious consideration to just refinancing them and paying them off within the first year out of fellowship. There’s not going to be a lot to forgive.
Why is PAYE preferable over IBR? Thank you!
Also, Wont I be kicked out of PAYE or IBR when my income is above a certain level and I’ll only have the option to use ICRP (which is a much higher payment since no cap)?
No. You’re never kicked out. Your payments just become equal to the 10 year standard plan payments.
With PAYE you pay 10% of discretionary income and get taxable forgiveness in 20 years. With IBR you pay 15% of discretionary income and get taxable forgiveness in 25 years.
What happens in the following scenario?
1) Accumulate $150k in federal student loan debt all before getting married
2) Get married
3) Refinance all loans with a private company like Sofi after getting married. Spouse is not a cosigner.
Is your spouse now responsible for these privately refinanced loans if you die since you refinanced after getting married?
No.
I have two loans with different lenders. Can I refinance two of my loans separately to get that $300 from Sofi? Or use two different companies each one with a different loan so i can get the $300 for using them?
Thank you
I suppose you could. Never really thought about that. But it kind of defeats the purpose for you of simplifying things. Plus one loan is probably going to be at a higher rate than the other and it wouldn’t take long for that higher rate to eat up the additional bonus. Besides, if everyone started doing that they’d have to cut the bonus (and my payment per loan refinanced).
I need some wisdom from people wiser than I am.
I graduated emergency medicine June 2016, and am now about to finish my first year of critical care fellowship. I have another 16-ish months to go (June 2018 I’ll be done). I occasionally moonlight for $150-220 an hour but don’t really have the opportunity because of work hour restrictions — and honestly, I’m getting burnt out because I work so much in the unit to begin with. I just paid some debt with my last paycheck.
My loan status is this:
$250,000 at 6.8% fed loan (forbearance)
$11,500 at 7.8% fed loan (forebearance)
$25,500 at 10.9% residency relocation loan (<–should never have done this) ($250/mo, barely makes a dent b/c of interest)
I just realized that I can refinance as a fellow and pay only $100 a month through DRB or LinkCapital, and I've got a prelim variable rate for 4.5% or fixed 5.5% from DRB.
I didn't do IBR or PAYE as a resident because I was trying to build up a rainy day fund (esp because I have a house) and for the same reason I don't want to do REPAYE, because I don't want to make the larger payments now since money is still tight (because surely they will take my attending moonlighting money into account). My plan is to dump $10-15k+/mo towards my loans when I finish.
I would like to refinance to a lower rate though to avoid continuing to accrue $1300/mo in interest, and if possible I would like to try an refinance that stupid sallie mae loan.
So two questions:
1) Variable or fixed interest rate when they're only 1% away from each other and I don't plan on holding onto my loans for very long? Lets say I get rid of them in 3 years? How much more did I pay? I'm worried about the variable rate because the fed is talking about raising interest rates already.
2) Any slick moves to get a good rate at a similar monthly payment for the sallie mae loan? Since its value is decreasing each month–even though by very little–I feel i might just want to throw my next wad of cash at this loan and just let it be in the meantime? I can't afford to lock myself into a higher payment if I'm not consistently moonlighting (which I'm not, and can't, because of work hours)
Okay. So sounds like PSLF is out the window. That makes this all pretty easy. I’d try to refinance it all with DRB. Hopefully they’ll refinance you. The rate will probably be in the 5.5% range. When you become an attending, refinance again. If you truly do throw $10-15K a month at it, you’ll be done in a couple of years.
I don’t know if they do variable for residents. But as an attending? Sure, go variable. If rates jump dramatically early in the loan you might have to pay an extra month or something. The risk is really low with your plan.
If you can’t refinance, that 10.9% loan is a very attractive guaranteed return “investment.” I’d be throwing everything I could at that, including my emergency fund.
By the way, do you have any significant home equity? You might be able to do a HELOC or refinance and roll some of that high interest student loan debt into a low interest mortgage loan.