[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.
Dr. Jesse Richards
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!
I’m an intern. I did this (the easier option starting June 1st). Made my first payment in August of $0 towards my $340k in loans. So PSLF here we come!
You were able to do it before the grace period end? I just got an email saying i can’t waive the grace period to start repayment now.
Did you do step 3 above? You can’t waive the grace period alone, but consolidating allows for jumping the grace period.
can i consolidate if i only have Unsubsidized Federal loan?
Likely – when you use the word ‘loan’ (singular), did you only take one disbursement of federal loans over all of your schooling? Most people get something like one a year. The purpose of the consolidation is to take all of those loans and combine them into one (one payment to one provider at one rate all with one set of terms).
i only have 1 type of loan(federal unsubsidized), so I have 4 of them. But i was assuming since they are all federal unsubsidized, it’s all under one provider.
This is exactly what my plan was for my husbands loans, although part of my motivation to get it done early was to avoid some of his undergrad loans that were going straight into repayment right after graduation due to a gap year before Med school. I consolidated what I could in May and then added the rest in July once his status updates. I still need to fill out the PSLF paperwork but should have it done soon.
Excellent column. I really wish I had figured this out in the spring instead of late summer after starting in my program. I am an intern now and will be making my first payment on my consolidation loan in September.
“Finally, in June when you are about to start residency, file the form verifying your work status for PSLF.”
This is a nitpicky comment, but my particular program would not fill out the PSLF Employment Certification Form (https://studentaid.ed.gov/sa/sites/default/files/public-service-employment-certification-form.pdf) until after the program start date and also did not certify me for the entire year, and so I will have to have them fill out the form again prior to leaving the program (I’m an IM-prelim and am only at this program for a year). The first one they filled out, however, was enough to have my loans moved to FedLoans, the PSLF Loan Servicer.
September is still pretty far ahead of the curve and you’ve saved yourself money and set it up to be easy going forward. Thanks for the kind words.
Amazing how the world of loans has changed so much in the last decade. I’m “only” 7 years into my attending job but all things “REPAYE” are Greek to me.
As my oldest of 4 started middle school today, I sadly thought to myself that there is no way I will encourage her to go into medicine, in fact I will strongly discourage it. I mean think about it. How many would sign up for a job with the prospect of 500k+ in debt with the future of medical reimbursement in total flux. Not to mention all those years of lost income and lost compounding retirement savings. It is a dangerous decision if one fully understands it at the time we are taking our pre-med classes. One has to really love it. And the kicker is that medicine is such a leap of faith. We never really know if we will love it until we are too far in to go back. There may come a day soon when not even the WCI “live like a resident” plan will be enough to catch up and justify the sacrifice.
I wonder how many of those freshly out will encourage their kids to become MDs?
I just thought this thread should be attached directly to this post. I feel like the forum thread may be a little more simplified and detailed for people who might not be as caught up with the lingo or who need the comparisons.
https://www.whitecoatinvestor.com/forums/topic/idea-to-enter-repaye-early/
Thanks for the excellent post!
I did it. I would add one helpful tidbit to this excellent post.
Sign up for auto debit pay from your bank account. It will sign you up to autowithdraw $0/mo from your bank account, and give you a 0.25% discount on your interest rate every month. That saves you 4.5k your intern year on $180,000 in loans (the average) and you barely have to lift a finger.
Excellent point. I realized that after writing this (I submitted this article several months ago) but had actually forgotten to do it, thanks for the reminder!
Thanks for the note, Intern – sad I didn’t think of it! Although, I think you overstate the benefit – my quick calculation shows only a $250/year benefit in the given scenario. Still well worth the minimal effort!
Is the discount .25% off the monthly interest rate or yearly interest rate?
sorry – meant $225/year benefit. can’t even copy and paste right out of excel.
Misplaced a decimal place on my calculation whoops. It will save you $450/year on the average loan of $180,000. Better than a kick in the pants.
But don’t forget the subsidy. That’s where my math pins it to $225 in this scenario.
PSLF is usually the right option for physicians planning on working for a non profit academic hospital that plan to stay in medicine, but you have to be careful with REPAYE. If you leave the program and want to switch back to the Standard plan or IBR when you get your attending job in year 5, 6 or 7 of the payback, all that deferred interest you avoided gets capitalized to your loan balance. I ran your numbers in the article into the student loan repayment excel spreadsheet that I built.
I found PSLF would cost you about $300,000-$350,000 over the 10 year period, assuming your residency lasts 4 years, you come out w a $300k salary and your wife makes $200k. Private refinancing would be about $530,000 if you got a 2.2% 5 yr variable.
That spreadsheet is located here if anyone is interested in playing around with it
https://millennialmoola.com/2016/08/29/student-loan-analysis-tool/
Thanks for sharing. The big assumption is that PSLF eligible jobs pay the same as non-PSLF eligible jobs. That may not be true now and I wouldn’t be surprised to see it rapidly changing in the next five years.
I think if you switch back to IBR before you are an attending, you can get out of that deferred interest.
Advice I can pass on: I am a new intern and tried to do this but have realized the hard way that the loan services offer very poor customer service. I found out long after the fact that my applications had not gone through and at this point it probably isn’t worth waiting for the consolidation to go through since the loans will enter repayment soon anyway. Call the servicer after you do anything and talk to a supervisor with your question. I also missed out on the $0 IBR payments since I had to re-do my application after I started intern year (and thus I now have an income). None of this advice will help this year’s class but may help some people next year.
I’m sorry it is so complicated to navigate this stuff.
Thank you for Sharing your experience! It’s difficult to find complete information about REPAYE since it’s new. We weren’t sure if we wanted to go with REPAYE until after we got the rate quote from DRB. Applied on August 1st and now it’s still in process. Though we won’t be able to utilize the few months after graduations, but it’s still an earlier start than most people :). Hopefully we enter repayment soon.
Oh man, i didn’t realize i have to consolidate my loans first even they are all Federal Unsubsidized. Thank godness for this post! Should I consolidate though? They are all different rates with different amounts. How would they calculate these rates into one single interest rate? The website said they will do the weighted average. I just want to make sure I don’t end up with a higher rate since I have a 6.8%, but most of the balance is with the 5%. Below is my loans
$11,800 @ 6.8%
$120,000 @5.4%
$48,000 @ 5.8%
The consolidated interest rate is the weighted average of the loans consolidated rounded up to the nearest 1/8 of 1 percent. With your amounts & rates, the weighted average = 5.81%, therefore the consolidated interest rate = 5.875%, not too bad.
You don’t need to consolidate Federal Direct Unsubsidized loans to select REPAYE. The purpose of consolidating immediately after graduation is to waive the 6-month grace period so as enter REPAYE ASAP and realize the REPAYE 50% interest subsidy.
Thank you for answering my question, Sigmafs. I am now wondering if it’s worth it to consolidate now since it’s kinda late and I will enter repayment in November and even if i consolidate now, I probably won’t enter repayment until Oct, that gives me only 1 month of subsidy. However, if i keep my loans separated, doesn’t that mean I can tackle the highest interest one first with one large saved payment while i get the subsidy for the lower interest loans?
I agree that there’s no need to consolidate at this point. As you described, this will allow more targeted repayment. Be sure to confirm on your service’s website that the targeted payment is applied properly.
Best of luck.
Hopefully this will be read by lots of medical students and residents. Another topic that that audience should make themselves familiar with is the retirement savings tax credit. For many students, and married residents with only a single income, who make some contributions towards a retirement account, you will qualify for that tax credit which you can think of as a savings match from the government towards your Roth account.
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit
Be careful with this – many students are not eligible (certainly the types of full time students that would read this site). It is also my understanding that this applies to intern year after graduating but having a low enough income to be eligible from only earning a half year.
I wish I had seen this in the spring. My taxes from MS4 show an AGI of $0, so when I apply for REPAYE in October I should theoretically qualify for $0 payments. However there is now the question asking if my income has significantly changed. If I say yes, what happens? I don’t want to lie and in 10 years get disqualified from PSLF or something because I gave fraudulent information this year. But I also want my 12 $0 payments! How does anyone do that? Does PAYE also ask if income has significantly changed?
Thanks for your excellent work on this blog. WCI has been so helpful as I get back to the world of making, repaying, and saving money.
That question is relatively new but you’re right that it will cost honest people some money.
When confronted with issues like that, I ask myself how much my integrity is worth. Chances are yours is worth more to you than whatever you’ll save over the next year with $0 payments.
Yes I had the same thing when I was applying (and I had already started residency). Not only would it be fraudulent at that point to claim $0 income, but I worry about losing my PSLF status if there were ever any kind of audit in the future.
I think it would be helpful to edit this article and make it very clear that this $0 trick only applies to those consolidating and entering repayment BEFORE they start working, so it is a good incentive to do so!
Well I found out today what happens when you’re honest about the change in income. My payment is about 25% higher than the estimates I got from student loans.gov — almost $600/month on top of my private undergrad loans. Yikes. Living in a HCOL area with a spouse with low income, gonna be tough but just means we can’t save for a down payment during residency after all. So it goes.
At least you’ll be able to look yourself in the mirror and know you were honest. There’s a lot of value in that. Thanks for letting us know.
It also now asks if you are employed and if you work for a non-profit or government organization. I am currently an M4. Should I say I am not currently employed?
Thank you!
Unless you have a job, that’s how I would answer.
I thought you couldn’t file for a consolidation until your loans were in grace period and not “in-school” status. How are you supposed to file for a consolidation after match day before graduating and have anything actually happen? I assume this only works if you have undergrad loans? Because the med school ones won’t be ready until graduation. How much time is that saving your versus just the doing the whole consolidation at graduation?
You can only consolidate after graduation regardless if they’re undergrad or grad loans. As it pertains to this article, the timeline is to consolidation immediately after graduation (before you start your residency). This is to enter REPAYE ASAP to benefit from the 50% interest subsidy and likely have $0 monthly payments for the 1st REPAYE year. Your REPAYE monthly payment will be based on your MS4 year AGI.
Would there be any benefit (or even possible) to consolidating the loans during the spring semester before graduation? Basically start making payments before graduation? The only down side I could see is that there would be a couple months of payments that would not be under the nonprofit organization-that alone might prove unwise.
I don’t think so. I think your goal is to start making PSLF qualifying payments as you start residency.
Can we actually do direct consolidation before graduation?
The post is written by someone who did just that, no? If you email me, I’ll put the two of you in touch.
It appears to me he may have direct consolidated his undergrad loans and then his medical school loans after graduation, there is no clear delineation, but he talks about consolidating again after graduation – not sure why he needed to do that.
Is Step 1 a must? I have not filed income taxes since starting med school due to $0 AGI and would certainly like to do that for one last time if it does not prevent me from enrolling in REPAYE early? Thank you for the excellent write-up and sharing this information.
I was told we could not direct consolidate before graduation. If so, how would we do Step 3? Did you mean to say Step 3 would only be undergraduate loans? It seems to be implied due to the way Step 6 says to ‘add loans’ to your direct consolidation loan.
Couple of questions:
This year IRS changed and you could not file electronically if you had $0 AGI… So I had to send in my paper work in early April by mail… No way to check if it’s “in” or whatnot. Should I call IRS?
The repaye/paye/ibr form online does not take the IRS link tool (They took it down to improve the security), so now I will have to wait even longer as I still don’t have my Federal return yet. Should I still consolidate my loans? I fear that without a tax return I cannot even apply for IDR… and then I’ll have to start making payments because of the skipped grace period.
Should I wait until I have my tax return and then consolidate and then pick an IDR (like REPAYE)?
As soon as you’re able to enroll, I would do so.
RE step 6, on attempting to file a loan addition form to add the remainder of my loans (my 4th year loan) to the direct consolidation loan, I was told that I had to wait until the 6 month grace period ended (the grace period attached to my 4th year loan). By consolidating at the end of the grace period, I would reset the 120 payments. Jesse, how were you able to add your 4th year loan prior to the grace period? WCI, is there any downside to keeping my 4th year loan separate from my direct consolidated loan if both are in RePAYE as I see this as my only option?
I think that’s okay, but I’m honestly not 100% sure.
Anyone else having trouble with their IDR? I filed taxes on last years income which was 0…but my student loan services is telling me that I need to state that there has been a change to my income since I filed taxes and that I will have to start monthly payments based on my new intern income…not on last years income.
That’s the law now. If you wish to follow it, you have to tell them when your income changes.
Obviously, the suggestions in this article assume every promised part of the PSLF program remains intact. I am fairly skeptical that will be the case, to be honest, and I think most people probably should be given the numbers that are being projected for future years. I had all direct loans with similar interest rates from my various years of medical school. I chose not to consolidate and follow this approach for this reason and also in case there are changes to PSLF such that for example, loans starting after certain years are not relieved or only a portion are, it would be less of an “all or nothing” relief. I’m not sure there’s really a right approach to be honest as so much depends on the outcome of PSLF. I suppose we’ll see as people start applying for relief this coming year.
Hi there, late to the game and I have a couple of questions:
1) I’m about to file taxes but I’m wondering: does anyone have experience in being filed as a dependent under someone else and also filing their own return (since my parents and I both are qualified to file our own returns)? Will being someone else’s dependent and filing my own return affect my chances for receiving the $0 monthly repayments for the 1st REPAYE year? My situation: I qualify as my parents’ dependent and they want some tax breaks from that. I also want to file my own return because I want to get 0$/month payments for the first REPAYE year.
2) Separate question: I’m going through the steps outlined in Jesse’s article so that I can file a tax return showing my 2017 income of 0$ for that year – this is so that REPAYE can base my first year’s monthly repayment amount off of my 0$ income and I can pay back 0$/month in my first REPAYE year. But If I start residency this summer, my monthly income will increase. If my loan provider says that I need to notify them of this change of income, will going through the process outlined in this article be for naught?
I am a 4th year med student graduating in May – I’m trying to figure out my next step. I have pre existing undergrad loans as well as some PLUS loans eligible for consolidation today in addition to my stafford graduate loans that are not eligible yet. My loan servicer insists that this posts strategy, namely step 3 (consolidate in March of 4th year and file additional loan paperwork to the existing consolidation for my remaining loans upon graduating) will not save me any time. They reccomend waiting until graduation to file all consolidation paperwork at once.
I want to take full advantage of REPAYE/PSLF and begin repayments ASAP! Can anyone speak to the time savings for consolidating now + filing additional loan paperwork VS. consolidating all my loans at once??? I don’t trust the loan servicer’s advice on anything anymore – – they give me a different answer every time I call.
Thank you!
Never done it myself, that’s why I published this guest post.
LilyPad
I would wait until the day you are officially considered graduated and can consolidate all of your loans. I could write an entire update article about the ways that Fedloans has messed with me and other people I know. Suffice it to say, I highly recommend doing everything at one time now, so I would do all of your paperwork and then turn it in in May as soon as all of your loans qualify.
I hope that helps, best of luck getting all the paperwork done and I hope this helps get you some peace of mind and early REPAYE interest subsidy.
Best,
Jesse
As a f/u for any interested medical students in the future. I ended up following the advice provided in this article and it worked out well. I have already had my loans consolidated and enrolled in REPAYE less than 1 month after graduating from med school. My math indicates that this strategy will save me a little over $3k in the long run and give me 6 additional (intern year) months towards PSLF.
I did not file taxes my M4 year. When I tried to e-file, it said I must have an income to file. When I apply for REPAYE/PSLF and my AGI is $0, am I doing something wrong? Thank you
If you had no income, your AGI was $0. Might be hard to document it though.
Great post- Very helpful!
I am a second year resident with 300,000 in debt. I think I will have 3 more years left. My husband is a second year medical student, so that lowered my monthly rate I have to pay with REPAYE. I am wondering if there are any strategies for our loans.
I plan to do PSLF. Do our loans become one or are they separate? If I do PSLF, does that mean my loans would be done after my 120 payments and then he would have to wait 4 years later for him to complete PSLF. He is helping me for lower payments now, but later my income will make his payments a lot more. Should we try to do PSLF for me and then just try to pay on his loans?
OR I am also wondering if we should really try to minimize how much he takes out in medical school. if we both do PSLF then would it matter if he takes a lot out since the rest will be forgiven anyways?
Thanks for your help!
Amanda
Separate.
Yes.
You could both consider going on to PAYE and filing taxes MFS to keep payments low.
You should probably get some formal student loan advice: https://www.whitecoatinvestor.com/student-loan-advice/