[Editor's Note: This is a guest post from Jesse Richards, a brand new intern. I didn't even have to twist his arm much to get him to submit this, but I think the information is very valuable and definitely first hand. He said this about the opportunity to do a guest post: “Once again thanks so much for the website! I found it as an MS1 and it started my personal finance education that led to this article. Just excited to have something I can contribute and give back.” We have no financial relationship.]
My spouse and I are both in our intern years: she's in OB/GYN and I'm in medicine. Together we owe in the vicinity of $500,000 in student loans (I owe more than she does.)
When I finally finished interviewing in January and was sitting around waiting for the match, I started thinking about life after medical school. All of a sudden I realized I was less than six months away from residency and that my student loans would be entering repayment. I found WCI as a first year and had a pretty good plan, but I felt differently when the bills came due.
Thanks to several discussions and using some quick excel calculations, PSLF seemed like the best option for us, so I researched the plan again. We filed our taxes in 4th year, ending up with an AGI of $0 with our IDR payments at $0 a month. However, after reading up on the PSLF plan, I found that there was a mandatory six-month waiting period from the time that school ends until you start repayment. A “grace period”. Suddenly the number of $0 qualifying payments we could make was cut by six. If there was some way to get around that, then we could get into PSLF sooner and finish quicker.
Enroll Early and Save Thousands in Interest
“Okay, but why does this really matter?” you might be asking. Good question. Let’s put a few numbers together:
Loan Principle: $500,000
Interest Rate: 6.25%
Annual Interest Accruing: $31,250
Any IDR payment based on our current year’s taxes: $0 per month
Standard Repayment on our loans at the end of PSLF (per the studentloans.gov calculator): $5,627 per month
So, if we finished out PSLF, and managed to get six more payments of $0 now, then we would save $33,762. Even a 3-month head start nets almost seventeen thousand dollars! Clearly, there are some benefits.
What About Paying Off Student Loans?
What if you aren’t going for PSLF; what if you are going to aggressively pay back your loans? Does this even apply to you? Yes, yes it does!
Thanks to REPAYE, the interest rate on your loans is subsidized (half of the interest after your payments is covered by the government.) With payments of $0, your interest rate is effectively cut in half. Our example is kind of extreme, but six months of half interest saves us $7,812.
How To Sign Up For REPAYE Early
The nuts and bolts of enrolling in PSLF and REPAYE by your first month as an intern is simple. Warning: Filling out paperwork is involved.
- File your taxes in your 4th year of medical school by the beginning of March.
- Get into a residency program. (hopefully matching at your top choice!)
- The week after you match, file a direct loan consolidation application form on studentloans.gov along with an Income-Driven Repayment Request. Make SURE that you state you want the consolidation to process immediately, not at the end of the grace period! In addition, be sure to state your intention to do PSLF.
- Wait one month for the consolidation to process. Depending on your servicers, this can take 4-6 weeks.
- At this point, you have a direct consolidation loan with everything you can consolidate before graduation. After a few more weeks, the direct consolidation loan will process your IDR request and be enrolled in REPAYE (or whichever repayment plan you want; I would consult WCI’s excellent flowchart)
Then, when you graduate, fill out the exit interview for your loans. Once you are “out of in school status” (check the national student loan database), file a loan addition form to add the remainder of your loans to the existing direct consolidation loan. Finally, in June when you are about to start residency, file the form verifying your work status for PSLF. Once that form is processed, you will have all of your federal loans in REPAYE and be making qualifying payments towards PSLF starting your first month.
If you really want to do the absolute minimum of paperwork and are okay getting set back a month, I would recommend simply waiting until June 1st to start the consolidation process. You will likely get your paperwork processed for a July payment; at the worst, probably August.
All of that said, I would highly encourage getting your paperwork started in March because you will have much more free time in the lead up to graduation than you will when you start residency. In addition, if something goes wrong, it will allow you plenty of time to sort it out before residency starts. Speaking of which…
My Painful Experience
The best-laid plans will, in fact, go to waste: I had loans lost, was told that information was missing, and called Fedloans and Navient probably 15 times during the process. I also have a large number of loans from undergrad, graduate school, and Perkins loans, all of which are originated and serviced by individual schools. My wife had 1 servicer and had her application processed and finished over a week ahead of mine with zero follow up on her part, despite submitting her application after me.
The process overall is relatively straightforward, but it took repeated phone calls to loan servicers, reading every website I could, and extended conversations with the bursar’s office a few times to get a whole picture of the what needed to be done, and when.
Overall, the core process of the application from start to finish will take less than 5 hours [let's see, $33K/5 hours = over $6K an hour-ed.]
This all might feel overwhelming, but with a little bit of work you can save yourself a lot of money and hassle and accomplish it all during your free time before residency starts. Loans may seem scary and confusing, but hopefully, this guide will help you understand how to get some peace of mind so you can focus on medicine.
[Editor's Note: Wasn't that awesome? I love getting guest posts like this. It reminds me of the one about the med stud who put all her expenses on credit cards for a 15 month 0% period before taking out her student loans to pay them off. Just a great trick that everyone ought to know about and do, but nobody knows and so nobody does.]
What do you think? Have you done this? Would you do this? Why or why not? Comment below!