[Editor's Note: The following guest post was submitted by fourth-year emergency medicine resident at the University of California, San Diego and regular reader, Dr. Ashely Alker. It's always great to get guest posts from regular readers and sometimes those of us who have been reading for years forget how life-changing getting the basics right at the beginning can be. We have no financial relationship.]
As a new physician, you will be faced with unique financial challenges. Understanding loan repayment options during your transition from medical student to resident to attending is very important. If you have no medical student debts, this article is not for you. But if you, like me, have substantial educational debts to pay, then start reading!
MS4 to PGY1
Pay Off Any Credit Card Debt
If you have credit card debt, pay it off and cut-up your credit card. Card debt is only slightly better than using loan sharks. If you have an issue living off your resident salary, be sure you are not overspending. The median household income in the United States is $56,516. Therefore, you should be able to live on a resident salary. If you have an emergency and need financing, take out a loan. Credit cards are for reward points, not loans. If you are not paying it off every month, you should not have it.
Taxes
During your MS4 year of medical school, file your taxes. I filed taxes during my MS4 with an income of $0. Technically you should not have to file taxes for an income of $0, and you may be able to accomplish the same benefits without filing. But I wanted to be certain, so I filed taxes with an income of $0.
If you made money during your fourth year of medical school or are married, you will need to consider how it will affect your income-based payments. If you are married, consider whether you should file taxes “married filing separately.”
Apply for an Income-Based Repayment Plan
In 2015, Revised Pay as You Earn (REPAYE) became available. This plan is beneficial because if your monthly payment does not cover your interest charge on your loans the government will pay 50% of your unpaid interest on each monthly payment. If you have an income-based payment higher than your monthly interest, due to being married or supplemental income, you may want to choose the Pay As You Earn plan (PAYE).
REPAYE and PAYE are payments that are based on your income from the previous tax year. During your first year of residency, if you had an income the previous year of $0, your payments will be $0 per month.
Apply For Certification
When you file for REPAYE or PAYE each fall also submit the certification of your residency program as a nonprofit. You accomplish this by filling out this form and having it certified by your institution, then mail it or upload it online if Fedloans is your loan server. I recommend keeping a copy of your PSLF forgiveness form and calling yearly to be sure they have received your form.
Recap
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- File taxes your MS4 year
- Apply for REPAYE online, PAYE if high family income
- Apply for PSLF certification via mail (U.S. Department of Education, FedLoan Servicing, P.O. Box 69184, Harrisburg, PA 17106-9184) or online. Keep a copy of your form.
Dr. Ashely Alker
PGY2 Year
Re-Apply for Income-Based Repayment Plan
You will need to re-apply for REPAYE/PAYE annually using your taxes from the previous year. There will not be any strong reminders from Fedloans to do this, so you will have to set a reminder yourself. The estimated payments based on an annual resident salary of $40-65k are approximately $200-$400 per month.
Re-Certify
When you recertify your income-based loan repayments, also send federal loans your annual PSLF certification, again endorsed by your residency program. You will have to send this paperwork every year for your best chance to ensure loan forgiveness through PSLF.
If you miss the renewal of your income-based payments, they will default to the standard repayment plan. My PAYE payment is $271 a month, while my standard repayment plan payment is $3,300 a month. If you cannot make a payment, you cannot default on your loan if your goal is to have your loans forgiven through PSLF. You will have to call Fedloans and place your loans into deferment, while you recertify your loans as PAYE for the next month.
When you call Fedloans to confirm they received your PSLF form also ask for the number of “qualifying payments” you have made. You need 120 payments to qualify for PSLF. You should keep track of this number annually. Write it on your PSLF form for that year and keep a file.
Re-Assess Your Tax Filing and Income Status/IBR Payment Amount
I was married during my PGY2 year, which created a financial conundrum for my husband and me. We both have substantial student loans, so income-based repayment based on filing taxes would be unaffordable for us. We spoke to our CPA and filed “married filing separately.” This kept our loan payment similar to our pre-marital level. Note that on the REPAYE plan your joint income is considered even if you file taxes separately, so this may force you into the PAYE payment plan.
Recap
- Reapply for REPAYE online, PAYE. remember to set yourself an annual reminder for this.
- Determine if your tax filing status and income will affect your income-based payment amount.
- Reapply for PSLF certification via mail (U.S. Department of Education, FedLoan Servicing, P.O. Box 69184, Harrisburg, PA 17106-9184) or online. Keep a copy of your form.
- Call Fedloans (1-800-699-2908) and confirm your number of qualifying payments made. Keep track of this annually.
PGY3 to PGYx (Intermediate Years of Residency)
Do It All Over Again
Remember that each Fall you will need to re-apply for PAYE and PSLF on the anniversary date of your first certifications. In a four-year program, loan management during your PGY3 year is identical to your PGY2 year.
Recap
Gold Level Scholarship Sponsor
- Reapply for REPAYE online, PAYE. Has your tax filing status and income greatly changed?
- Reapply for PSLF certification and keep a copy of your form.
- Call Fedloans (1-800-699-2908) and confirm your number of qualifying payments made.
Final Year of Residency
Non-Profit or For-Profit?
At graduation, you will determine if you are working for a non-profit. This includes VA and university hospitals or for-profit groups. For many physicians, you will be employed by a group contracted with a hospital and not by the hospital itself, therefore you will not be working for a for-profit.
If you are working for a for-profit group, you will not qualify for PSLF and you will want to consolidate your loans unless you qualify for another government repayment program. Once you consolidate your loans you can no longer take part in government benefits like deferments, 20-year payment loan forgiveness, federal governments or states forgiveness programs.
The benefit of consolidation is an interest rate that saves you tens of thousands of dollars. Rates vary based on your market, fixed vs variable, and other factors. Once you consolidate with a private lender, file your taxes as married filing together. This will save you money filing taxes and on your taxes themselves.
Gold Level Scholarship Sponsor
Recap
- Determine if you will be working for a non-profit or using state or federal government loan forgiveness programs. If yes, consider if you should continue PSLF, recertifying yearly and always tracking your number of payments to your goal of 120.
- If you are working for a for-profit consider consolidating. Here (link) is a current list of some good rates for consolidating. In 2019, there are some great rates available.
- If you are consolidating, consider filing taxes as married filing together.
Fellowship
If you are doing a fellowship you can continue on the PGY3- PGYx path of income-based loan payment and PSLF recertification annually.
Recap
- Reapply for REPAYE online, PAYE. Has your tax filing status and income greatly changed?
- Reapply for PSLF and keep a copy of your form.
- Call Fedloans (1-800-699-2908) and confirm your number of qualifying payments made.
The Last Six Months of Residency/Fellowship
If you are employed by a non-profit and you choose to commit to PSLF, your monthly income-based repayment will likely be equal to your standard repayment plan payment, once you make over 150K annually. Remember to continue to recertify your PSLF annually for ten years.
In 2018, 30,000 people applied for PSLF and 96 people had their loans forgiven. Many of these individuals were not making on-time payments or recertifying annually, but 0.032% loans forgiven does not instill confidence in the program. It is difficult to be sure how it will work in the future. There are other loan forgiveness programs including the National Health Service Corps (NHSC) and state programs which require you to have government loans, preventing you from consolidating with a private lender.
Get Life and Disability Insurance
Before you graduate residency and fellowship there are several things you MUST do. You must have both life and disability insurance. Check with your residency program for deals on policies. My institution has an agreement with insurance brokers, who represent all companies, for a no physical, gender-neutral policy at a very competitive rate. This is huge for anyone with current medical conditions and for women.
Get Financially Educated
At least six months before graduating residency, read the book “WCI Financial Bootcamp” and “The White Coat Investor.” WCI Financial Bootcamp will walk you through buying disability and life insurance policies. I also recommend financial planning. This means laying out your finances to understand your net worth and how long it will take you to pay off your loans and save enough to retire.
Live Like a Resident
Lastly, as White Coat Investor advises, live like a resident! No “doctor houses” or “doctor cars.” We are a different generation. We have significant loans with a health system that is no longer as lucrative and stable as it was in the past. Financial independence is the goal.
Recap
- Read the WCI Financial Boot Camp and The White Coat Investor Books
- Do financial planning. Understand your net worth and what it will take to reach your retirement goals. (Good link for this with saving and retirement refs)
- Get disability insurance
- Get life insurance
- LIVE LIKE A RESIDENT, for at least five years post-training.
What do you think? What would you add to a financial checklist for residents? Comment below!
Great article spelling some of the important stuff out for residents. I think she means *refinance* rather than *consolidate* once a resident is sure they aren’t going to qualify for a government forgiveness plan.
Good correction.
This is definitely a sign that your message is getting out Jim.
This type of information was unheard of when I was graduating medical school (97) and certainly would not have come from a fellow medical student. Gives hope that financial literacy is slowly percolating through the medical profession and finally hitting areas where it is most needed (ie. The resident and fellow).
Jim’s message is definitely getting out there. As a new attending who was financially illiterate just 4 years ago, I’ve come a long way thanks to the WCI.
The only advice I’d give residents new to this site is to stick with it. The first few times I read WCI articles so much of them went over my head that I was convinced I’d never get this stuff. Start with his beginner articles and don’t panic if it doesn’t all click immediately. If you keep coming back and picking up just a little at a time, you’ll be setup for success by the end of a 3 year residency.
I buy copies of the WCI book for my residents hoping to motivate a few of them, and a surprising number of them have become Dahleheads in a short period of time. The message is definitely spreading fast.
I am a PGY3 in a four year program, undecided about fellowship at this point. I recently inherited a relatively “small” amount of money after the passing of my grandfather. I am currently contemplating what to do with the money. It is not enough to be “life changing” and pay off all debt, or even really make a sizeable dent in my student loans. On the one hand I could use the money to at least pay down what I can of my loans at about 6%. On the other hand, I feel like my grandfather would have wanted me to invest the money in an aggressive portfolio. Do you have any suggestions?
https://www.whitecoatinvestor.com/what-to-do-with-a-windfall-friday-qa-series/
Sorry to get caught-up in semantics, but the umbrella term is Income Driven Repayment (IDR). IDR plans are Income Based Repayment (IBR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE).
Also, curious as to why they didn’t both pursue REPAYE after getting married if both have federal student loans. REPAYE payments would be based on 10% of discretionary household income applied proportionally to their respective balances.
Thanks for the correction.
Small detail regarding PGY-2 re-certification is that your payments will only be based on 1/2 of your annual resident salary, since you most likely only worked June – Dec of your PGY-1 year. For example, based on my 2018 tax filings of approx $28k, my RePAYE monthly payments are only $72. Next year (PGY-3 for me) will be based on my full year salary.
Same thing happens as you become an attending, leading to more forgiveness eligibility.
Great article, thank you! Very helpful.
A few comments…
No need to call Fedloan to see if they received your employer certification form for your months of service. Fedloan will issue a letter to you stating how many months of service they grant you after they receive your signed employer certification form. Even if they deny you the months applied for, they will issue a letter stating such. It’s important to save ALL correspondence from Fedloan. Also, try not to mail any forms to Fedloan, upload your signed forms on their website, it is very user friendly. Fedloan told me they get truckloads of mail each day. My resident children have had no issues when they uploaded forms and Fedloan has replied in less than three weeks. The less you have to call Fedloan the better.
Glad you mentioned filing tax return even if zero income as MS4 so you can link to it when you apply for a IDR plan. If your annual IDR recertification is before April 15th, consider filing your taxes on April 15 and not before since you will link to the last filed tax return with your lower income (assuming you get a pay increase each year of residency). This could save around $300/year.
When starting a fellowship, if your fellowship pays less than your last year of residency, apply to have your IDR recalculated based on your lower salary. As soon as you get a fellowship paycheck, use this paystub to upload with your request. Fedloan told me they will use a “net” number to recalculate your payment and payments would be more if you provided your gross fellowship salary.
Thanks again for the post!
Dr. Alker’s article is a great addition to the archives!
I like the writing style — direct, succinct, and easy to read.
With all the trouble that people have had actually getting their loans forgiven, her emphasis on carefully meeting the criteria for possible loan forgiveness is very apropos!
(Disclaimer: That’s the first time I’ve actually written the word apropos. Had to look up the spelling.)
My favorite line, and so true: “Card debt is only slightly better than using loan sharks.”
Thanks Dr. Alker for your article, and best of luck in your career!
— TDD
Under the “Apply for Certification” and just below in the “Recap” the link for the annual PSLF certification form sends you to the the PSLF Application for Forgiveness form which should be used to apply for forgiveness after making 120 qualifying payments. The correct form for annual certification prior to making the 120 qualifying payments is the PSLF Employment Certification Form, https://studentaid.ed.gov/sa/sites/default/files/public-service-employment-certification-form.pdf.
Thanks for the correction.
I’m a family medicine doc at an FQHC and always looking for relevant articles for my medical students and residents – this was fantastic! I have just pushed it out to all my former and current students and asked my current students to be prepared to talk about this at our weekly teaching breakfast this week! Thank you, thank you!
Weekly teaching breakfast! You’re awesome!