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Refinance vs IDR Plan - Medical school Couple beginning residency

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  • Refinance vs IDR Plan - Medical school Couple beginning residency

    Hello WCI Forum,
    My significant other and I are 4th year medical students going to be residents in Ortho and Urology in a LCOL area. I have been reading the WCI and Bogleheads forums, which inspired me to get ahead of the game and plan our financial future. I was hoping to post some info about us and get your input on whether it makes more sense to refinance or enter in an income driven repayment plan.

    Me (Ortho)
    - 4th year medical student with no undergraduate or medical school debt
    - Starting residency this summer.
    - Plan to finish 5 year ortho residency in 2023 with 1 year of fellowship, before attending practice.
    - Residency salary ~ 54,000
    - Take home monthly pay after taxes $3,435
    - Anticipated Attending salary 489,000 (Average annual per Medscape compensation report)
    - No current investments or retirement account savings


    Significant Other (Urology)
    - 4th year medical student with 218k in federal loans at 5.9%
    - Starting residency this summer. Plan to finish 5 year urology residency in 2023 with variable fellowship plans after.
    - She is also potentially interested in academics (501(c)3 work)
    - Residency salary ~ 54,600
    - Take home monthly pay after taxes $3,435
    - Anticipated Attending salary 400k (Average annual per Medscape compensation report)
    - No current investments or retirement account savings

    Location: LCOL in the Midwest, employed by 503c
    Combined take home pay after taxes: ~ 6,870
    Rent: Currently looking to rent at $1200. I (Ortho) would cover most of the cost of living to allow her to maximize loan payments. No real wishes to buy, and will not stay longer than 5 years.
    Current tax status (2017): Single, but anticipate marriage during residency.
    Children: None, do not plan on having any during residency.

    The big deliberation we are having is whether we want to enter in an income driven repayment plan (REPAYE?) or refinance her loans? Below are some of my personal thoughts on our situation.

    If we were to make the standard payments.
    We would pay be $2,334 per month. This technically could be doable but make it more difficult to save for retirement and leave less room for other expenses (Rent, Utilities, Food, Disability insurance etc.).

    If we were to do REPAYE,
    We would pay the 60 required payments during our training years. We would continue REPAYE or switch to PAYE during fellowship (if she does one).
    Then we would either refinance with a private lender or continue in the IDR plans depending on if she works for a 503c.
    1. We understand that the payments made during training and or fellowship would still allow PSLF to be in play, then she would only need 3-5 years of 503c work after residency for her loans to be forgiven.
    2. We understand that REPAYEs effective interest rate, may be the lowest we can get during training.
    Loan: 217,643 at 5.9%   -->  Annual interest accrued: $12,840.94
    REPAYE payment at $54,602: $299    --> Annual Interest paid $3,588
    Annual Interest unpaid: 9,252.937    --> Amount Forgiven: $4626.47
    Effective Interest Rate: 3.77%
    3. The lower monthly payments would allow both of us to live easier, both invest an employee matched retirement account, and max out our own Roth IRAs.
    4. However, at some point we plan on getting married and my income will be taken into account negating some of the previous interest subsidy.

    If we were to refinance her loans.
    The plan would be to try to get a rate lower than the effective repaye rate of 3.77%, and pay that over a 5-10 year term. Some questions I have with this is how probable is it to get a rate of < 3.77 (Effective REPAYE rate), in the setting of a good credit score and no loans other then student loans. Also is there benefit to doing REPAYE during residency then refinancing with a private lender in 5 years, are we leaving money on the table?

    Thanks for taking a look at our situation. I am about 1 week into learning about personal finance, and eager to learn more. I appreciate any help you can offer!

     

     

     

  • #2
    If you're going to do an IDR and go for PSLF, I suspect the right answer for you guys is REPAYE before marriage and then PAYE + filing taxes MFS after marriage, but you'd have to run the numbers to be sure.

    If you're not going to do an IDR/PSLF, just compare her rate under REPAYE against what she can refinance to and take the lower one, then refinance again when she finishes training.

    If you need help running the numbers, hire one of these guys:

    https://www.whitecoatinvestor.com/student-loan-advice/
    Helping those who wear the white coat get a fair shake on Wall Street since 2011

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    • #3
      Wow, Ortho with no med school debt and marrying a Urologist.  Plus you found WCI prior to residency.  This is a winning combo.  Congrats to you both!  You have a very bright financial future ahead of you

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      • #4
        Let's assume your SO immediately consolidates after MS graduation/before starting residency reporting $0 income and selects RePAYE.  This would produce a zero payment from ~July 2018 through June 2019.  Your effective RePAYE interest rate would be 2.95% because of the 50% RePAYE subsidy.  I do not expect that you could secure a refi fixed rate @ 2.95%.  Going forward assuming you marry in 2019:

        • SO recertifies in May 2019 reporting $26k AGI.  REPAYE ~ $62/month for the period July 2019 - June 2020.  REPAYE effective rate ~3.12%

        • Spouse recertifies in May 2020 reporting MFJ AGI = $106K.  REPAYE ~$670/month for the period July 2020 - June 2021.  REPAYE effective rate ~4.8%

        • Spouse recertifies in May 2021 reporting MFJ AGI = $110K.  REPAYE ~$695/month for the period July 2021 - June 2022.  REPAYE effective rate ~ 4.9%


        I won't continue for the remainder of your residency as the REPAYE effective interest rate probably will not exceed 5%.  I suggest REPAYE, then pay down aggressively as an attending.  Another option is to refi after marriage if you can secure competitive interest rate.

        Good luck!

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