[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 am a little late in pursuing this, but I am trying to figure out whether or not I need to consolidate. My loans are comprised of Direct Grad Plus and Stafford loans. Being that both are direct already, do I need to consolidate?
I’m not hearing a reason to consolidate.
I talked with a representative of my loan servicer (Great Lakes) at length, and he recommended that I not consolidate my loans since Great Lakes is the only servicer of my loans. He indicated if you consolidate, then the weighted average of your interest would be rounded up to the next nearest one-eighth of a percent. For example, without consolidation and with the 0.0025% reduction after autopay was set up, my loans were 5.97%. If I decided to consolidate my loans, they would have been rounded up to 6%. Maybe 0.03% isn’t much for all of us, but for me I’m trying to keep costs as low as possible.
Yes, that is a downside of consolidation. Whether simplification is worth the extra cost or not is up to you. I think there are a few loans that consolidation turns from non-eligible for IDR and PSLF programs into eligible. In that case, it’s probably worth the extra cost.
This is a great post and this really helped me out since I just started my intern year.
One thing that has been mentioned already a few times, but really worth the re-emphasis. Be careful about the status of your loans if you plan to consolidate before graduation. I was concerned about the fact that some of my loans were still considered “in-school” status and so I waited until the day after graduation to consolidate. I guess even at that time however, my school still hadn’t updated my loan status for some of my medical school loans and by the time my consolidation application was finished processing in mid-June I discovered I only had half my loans consolidated, and the other loans that were still in-school status at the time I submitted were not included in the consolidation. So I had to re-submit an “add additional loans to consolidation” form in late June, which needed to be re-processed for another month, and ended up missing one month of repayment. This also occurred to some of my buddies who consolidated right after match day, so it really came down to when your school updates your loan status versus an earlier submission of your consolidation application.
So I’d recommend making sure your school updates your loans status so they are not considered in-school status, and then submit your loan consolidation then. This would probably occur around mid-late May and then your consolidation form would be ready to go by mid June and in July you would officially start repayment right on time.
This has been pretty much my experience as well. Now finally consolidated to both waive grace and also include 2 Perkins loans towards PSLF with first $0 payments starting in September!
How were you able to “add additional loans to consolidation” ? When I go to the consolidation form, it says I already sent in a request form.
I already filled out my exit counseling stating my actual estimated income during residency, does that effect how much I will have to pay through REPAYE based on my tax returns that show my income as $0? Basically, can I still take advantage of having to pay $0 every month for intern year if I already did my exit counseling which shows my estimated intern year income?
Dunno much about exit counseling. Who did you state your income to?
It was on the studentloan website in the exit counseling module that everyone’s required to do. From what I understand, I can get the $0 / month payment deal based on my tax return ($0 income) that I filed and given that I do the REPAYE plan, is that correct?
Ahhh…yea, you’re probably going to want to correct that.
My wife and I are currently enrolled in REPAYE ($300k for me, $300k for my wife) while in residency but plan to refinance once completing residency. I will not be going for PSLF. Does that mean I can still use REPAYE for the first year in private practice with payments based on my residency salary or will I have to show what I’m making and pay based on my private practice salary? I plan to make much higher payments than required but the ability to make smaller payments if needed and refinance after one year is tempting. I also could just refinance initially if its a good interest rate but our loan totals are high and a lower required monthly payment might be nice initially.
Do you want to pay them off or not? What makes you think your ability/desire to spend in a year will be less than it is now given you’ve been living on a resident salary? I assure you that your appetites will be larger later. I’d refinance and get started ASAP. The sooner you start throwing $10-20K a month at those loans, the sooner they go away.
But to answer your question, yes, your REPAYE payments are going to be based on your resident income until you tell them you have a higher income….and your debt will continue to balloon just like it has been during residency.
Reviving this due to financial changes due to COVID-19. I am an incoming resident who was fully planning on consolidating and entering REPAYE early to save using the interest subsidy as outlined above. However, it looks as though my federal student loans will be zero interest through September 30th due to this whole thing which I am grateful for. Because of this I was wondering if their was any advantage to NOT consolidating and instead waiting until the grace period ends to start making REPAYE payments (since the only reason to do this was to lower interest during first few months of residency in the first place). All I can think of is that if I didn’t consolidate, I could pay off my highest interest loan first (although the biggest difference between my highest and lowest interest rate is only about 2%)? Either way I could still make payments of any amount during the grace period to help lowering my debt right? Sorry if this is a little garbled I am still trying to learn all the details of student loan finances. Thanks for your help!
Might as well enroll ASAP. Your payments are still $0.
With the 0% interest now extended till October 2021, is it still worthwhile to enroll in REPAYE early? Will this affect the capitalization affect? Thank you!
Good question. I’m not sure. The 0% non-payments count as payments for people already in the program, but I still don’t think the counter starts until after the 6 month grace period unless you do something special like what is described in this post. Whether you can still do it or not, I’m not sure.
so – I followed these steps exactly –
but, only 25k of my loans were approved for “consolidation.” The other 200k they said they could not consolidate for me bc they said they were still “in school” status. I just called again (1 month into residency), and they told me that I cannot consolidate the 200k now at all because it is in a grace period.
I’m confused and frustrated because I did it all early and still am not able to figure it out.
Thanks for a great post though! Appreciate the help and guidance. At least I have 12 $0 payments for my 25k. Every little bit helps!!!
Maybe try the always useful technique of hang up, call back, and talk to someone else.