Loan repayment at a non-profit

[MidSouthWest2thDoc]

Hi All,

First off, thanks for everyone that contributes. I read a ton of the posts on here. So I'm a dentist in a rural area on the west coast. I'm saddled with 215,000 in federal loans. Their interest range between 5.06-5.96%. I'm making a little over 100k in guaranteed salary (plus possible bonuses that I have yet to hit due to patient no shows). In the mean time, I'm moonlighting for an extra 20k after tax. I got accepted to my state's loan repayment and they gave me 91k in tax free money that will be disbursed quarterly for 3 years (it's around 7500 a quarter). I'm currently on IBR. I could sign up for PAYE or REPAYE but don't know what to do. I was also thinking about refinancing some of the loans (refinance the higher interest ones, get the bonus, pay them off). I'm currently maxing out a 403B (option to do roth 403b, but thought pre-tax would be better), and maxing out an IRA/Roth conversion. I'm in a high state income tax state if that effects the decision.  I'm currently making payments in the range of 1300 a month (I'm required to make 0 due to a low 2018 income) on the highest interest loans. I'd like to make the most mathematically correct decision possible. I don't want to do PSLF as I'd like to be debt free in 5-6 years. Unmarried now but will be married this year or next.

Any ideas on what I should do?

[Faithful Steward]

If you are not going for PSLF, then you need to look into refinancing. However, you also need to make sure that your state’s loan repayment plan will still cover the loans if you refinance, before you pull the trigger on refinancing.

[MidSouthWest2thDoc]

So after going through a couple of companies and doing soft pulls on my credit, the best rates I'm getting are:

fixed 5 year 4.29%, fixed 10 4.39%

variable 5 4.21%, variable 10 4.81%

Are any of those worth it at my income? The monthly rate on the 5 years are close 1300 or about 1/5th of my monthly income if I just refinance the highest rate loans. It seems like if I kept the federal repayment, I would have better cash flow but end up paying more in the long run.

The state program does accept refinanced loans but does limit the companies. I have to figure out which ones will qualify as I was recently accepted to the state loan repayment program.

[ChadCFP]

First, as Faithful Steward noted, you need to confirm that any changes will not affect your current state’s loan repayment. What state are you in, Cali? I am aware of the CDA Foundation’s Grant and the California State Loan Repayment Program, is it either of those? As you noted (assuming Cali), the private lender has to be on their approved list.

IF (emphasis on the IF), it makes sense to refinance to a private loan, based on the quotes you provided, there is not a huge difference in the 10-year vs. the 5-year. So in the scenario, we would opt for the 10-year loan which will provide flexibility, if needed, but pay the 5-year amount. So it would look like this:

10-year @ 4.39% on $215k = $2,217/m

5-year @ 4.29% on $215k = $3,988/m

To pay $215,000 of in 5-years at 4.39%= $3,998/m

Provides flexibility of $1,700/m for a total for $10/m.  When the rates that close, it is an easier call. If the 5-year was much lower or the 10-year was much higher, we would lean towards the 5-year. From a financial planning standpoint, we like the flexibility.

Plus, if you drop an additional $7,500/qtr, you will have those paid off much sooner. That is similar to adding $2,500/m to your current payments which would have you paid off in exactly 3 years (assuming the “pay-off in 5 years with 10-year rate” scenario). In a perfect world, the last $7,500 quarterly payment will be the one that pays off your loan balance in full. We would call that a walk-off home run!

On a side note, if you don’t refinance, you need to pay more than the IBR payments. Use my figures above. You federal rates are not bad, but you don’t want interest to keep accruing. When you refinance, that will capitalize. Based on $1,300 per month you are on track for a 25-year payoff (assumed a weighted rate of 5.5%).

[MidSouthWest2thDoc]

So I'm in Oregon and I've found out that I can't refinance any amount that I'm using the loan forgiveness. So I'm looking at refinancing about 60k to drop my federal loans to 150,000. The 91000 would still cover the 150,000 and if I made minimal payments to federal I would end up paying about 41k during the 3 year period. Do you think it's worth it to refinance the 60k from 5.9 to a 4.7 or 4.2 depending on ten vs 5 year?

[GMED]

5.9% isn't too high for your loans. What's the effective interest rate on REPAYE with the interest subsidy?

[MidSouthWest2thDoc]

I have been making monthly payments above and beyond what is required so I would get 0 subsidy from what I understand. Also if I switch I have to go standard repayment for 1 month, then switch to repay.

[ZZZ]

Any possibility of finding a better dental job. 100k/yr at your primary gig doesn't sound like much money for a dentist unless you're doing sweat equity and there is massive upside after a couple years.

[ChadCFP]

Okay, that is good to know. Thanks!

Over a 5-year period, all things equal, compare 5.9% to 4.2% over 5-years with $60,000:

5.9%= $1,157/m (5-yeat total = $69,420)

4.2%= $1,110/m (5-yeat total = $66,600)

Total savings over 5-years = $3,000. You can decide if it is worth it or not.

 

The IBR vs. REPAYE conversation should not have an effect because you are not going for PSLF, in addition, you are going for a 3-year payoff plus getting a $91,000 assist. You should not have any accruing interest on a month-to-month basis. So, the interest rate subsidy should not play a role in this decision. IBR is fine for your strategy/goals.

On a side note, I know you are not going for PSLF but when you overpay each month you are fast forwarding payments and they are not counting towards the 120. So there is no turning back since your current payments, while using IBR, are not PSLF qualifying.

Federal loans of $150,000, assumed a weighted rate of 5.5%, for 3-years, you would need to pay around $4,529/m (once you pull out the $2,528 assist/m, you would be at $2,001/m). It is not perfect math since you are paid quarterly and not monthly for the assist, and the interest used was not exact, but that should give a pretty close range.

Your $2,000/m payment should cover the monthly interest which would be around $700/m and slowly knock down the principal. The qtrly lump sum ($7,583) should come in and knock down the principal even greater each quarter. Also, you should make sure this is happening properly each qtr. As you know, loan servicers are not the best at this. Make sure it is being applied correctly.

Your total payments would look like this $2,000 to federal & ~$1,110/m to private (if you go that route), so all-in you are paying about $3,100/m in loans. Once the federal loan is paid off, take that $2k/m and apply to private loan to get that knocked out in about 4-years. All goes well, in 4 years your student loan free.