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Residency Loan Plan and Tax Filing Status

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  • Residency Loan Plan and Tax Filing Status

    Hello all,

    Longtime reader, first time poster here. Looking for some advice about how to manage my $220k unsubsidized loans (at 6.8%) as I start residency in July, particularly in light of my marriage status. My wife and I will be living in a vHCOL area for residency. She works and will be making somewhere between $70-110k. I anticipate working in private practice in a high-income potential specialty after residency/fellowship and we are both on board for living like a resident for 3-5 years when I'm an attending. Therefore thinking PSLF/forgiveness isn't something we are going for. Rather, prioritizing having a manageable payment during residency so we can potentially start a family, etc. Additionally, my wife may want to take a lower salary for a career developing position so we value not having high fixed costs during residency.

    As we are about to do our taxes I wanted to make sure I was thinking about this correctly... our household income should be ~$130k-170k, but could be variable over the course of training. My payments are likely not affordable on a standard 10 year repayment if our income is lower than $130k in our vHCOL city. Therefore considering rePAYE (WCI student loan flowchart suggests this although I think the interest subsidy would either be 0 or very little b/c of how high our income is) vs PAYE vs private refinancing.

    A few quick q's...
    1) is there any scenario here where we should file our taxes married filing separately? If I go for REPAYE it appears there's no difference so jointly for sure, right?
    2) Is it wise to privately refinance to one of those plans at like 5% and a $200 a month payment but then throw more money at it when we can (I would expect we could easily put $800 towards it each month)? If private and my wife loses/changes her job I could just pay the minimum per month. Our credit scores are both very good if that's relevant.

    Finally, my understanding is in my field loan repayment is often offered as a PP recruitment tool. This is another reason that I don't want to be too aggressive paying towards loans during residency, despite my natural inclination to want to put as much as possible towards them.

    Thank you all for your responses and help thinking through this!

  • #2
    Start by playing with the Payment Calculator on the website. The payment amount and subsidy is based on AGI - not gross income, so if you guys make 130-170k gross, it can be a fair amount less depending on a number of factors. Your payment can also effectively be a 'year behind' from an income standpoint since it can be based on last year's tax filing - in other words, if she earned 70k and you earned 0, then you may be surprised by the outcome relative to your '0 or very little' interest subsidy comment.

    1) Correct, REPAYE doesn't consider MFS vs. MFJ and you most certainly will be better off in REPAYE vs. PAYE for this scenario anyways.
    2) Seems like it would be worth it to see what the rates you're offered for a refinance, but my initial thoughts are that you are almost guaranteed a better rate in REPAYE at least the first year. and depending on how low you keep you AGI in years follow (loading up 401k etc), it's possible that it'll stay close to, if not lower than a refinanced rate.

    Might just be 'easiest' to go for the refinance options in this scenario, but if you're willing to learn the nitty gritty of the system, could save yourself a decent chunk in interest here or there by running the numbers.


    • #3
      Thanks for the input! I'll be sure to dig in a little more to the details of the system - seems like for now its go into REPAYE and file MFJ w/ a 2019 AGI of ~90k which will capture some real subsidy in 2020. Then reassess remaining in REPAYE vs refinancing after 2020


      • #4
        I’m confused as to why you are writing off PSLF completely. Unless you already have an agreement with a specific private practice, you never know what can happen and plans can always change. You can be on a qualifying plan for PSLF that has a very manageable monthly payment. My thinking is might as well keep it as an option throughout. If you end up taking a private job then you just refinance with a private company once you become an attending. If you keep in PSLF fed loans you’d have to file married separately or else her income would influence your payments. Or if you are 100% sure you’ll be in private practice then I would do your option #2. The advantages to that would be the benefit on your tax return of being able to file married jointly. That wouldn’t have any effect with a private refinance.