[Editor's Note: This is a guest blog post written by Ramsey Tate, MD. She is currently a fellow and shares tools on personal finance and productivity for women in medicine at Call Me Dr. We have no financial relationship.]
Residency and fellowship are a long slog through penury. The light at the end of the tunnel seems awfully far away when you look at the mismatch between your student loan debt and your resident paycheck. How’s a PGY-umpteen to help make ends meet? Moonlighting, of course! I know my eyes lit up like the Grinch stealing Christmas when I found out that a local urgent care would pay me $100 per hour to moonlight. One of my co-residents actually calculated that we got paid about $5/hour during residency. $100/hour sounded like dirty, sinful amounts of cash.
Generations of cash-strapped housestaff and junior faculty have traded their precious free time for the opportunity to supplement their income through moonlighting. And moonlighting serves more purposes than just padding housestaff wallets. Moonlighters help fill staffing gaps at rural and community hospitals and clinics, ensuring that patients have access to care in areas where recruiting physicians is difficult. Moonlighting also builds housestaff autonomy and experience with many residents moonlighting within their own institutions. But, mostly, we do it for the dollars.
IBR, PAYE, PSLF and Moonlighting?
First, let’s break down those acronyms:
- IBR is Income-based repayment, is a loan repayment program that calculates your monthly federal student loan payments based on your discretionary monthly income. What you think is your discretionary income and what federal loan servicers think is your discretionary income may be a little different. For income-based repayment plan purposes, your discretionary income is the difference between your adjusted gross income (AGI) and 150% of the federal poverty line based on your state and number of dependents.
- PAYE is Pay As You Earn, a newer, similar alternative to IBR for recent graduates that features lower income-based payments (10% of that discretionary income, instead of the 15% under IBR)
- PSLF is Public Service Loan Forgiveness, a mythical fairy that will forgive outstanding federal student loans beginning in 2017 for borrowers who have made 120 qualifying payments while employed full-time for a non-profit. Lots of details here. 120 payments total, but they don’t have to be 120 sequential payments. Qualifying payments are payments made through PAYE, IBR, ICR (income-contingent repayment), or standard repayment plans only. Full-time is an average of 30 hours per week. Not a problem for housestaff! The definition of a non-profit is more complicated but includes most tax-exempt hospitals and universities.
For some of us, PSLF and IBR/PAYE change the potential payoff of moonlighting. Moonlighting generates extra income for housestaff, but many loan repayment programs that qualify for Public Service Loan Forgiveness calculate monthly payments based on income. More income = higher monthly payments, shifting part of our moonlighting earnings to loan repayment. Our goal should be to pay the least amount possible towards our loans each month to maximize the amount forgiven if we qualify for PSLF. All of a sudden, the math in favor of moonlighting gets complicated.
Is PSLF Worth It?
Let’s walk through an example to illustrate. Take for example a shiny new resident graduating from Fancy Pants University with $200,000 in federal student loan debt. (Lest you think this deep dark fiction, these numbers are in the ballpark of my own.) Her average interest rate is 6%. She does a 3-year residency program and then goes on to complete a 3-year fellowship, all at a public university. Starting 6 months into residency (when the grace period on her loans expires), our resident starts monthly payments through PAYE. Her housestaff stipend is $50,000 for PGY-1 and goes up $1,000/year every year. As long as she stays in PAYE, her unpaid interest will continue to accrue but won’t be added to her loan principal. She’s a single gal and her monthly PAYE payment will start at $271 per month. That monthly payment doesn’t cover the interest that’s accruing so by the end of PGY-1 she’ll still owe the $2000,000 principal and will have accrued $4,374 of interest for the year. Her income goes up a little each year as does her IBR payment but the payment never covers the accrued interest.
At the end of fellowship and 5 ½ years of payments, she’ll have paid her loan servicer $19,362. What does she have to show for it? A loan balance of $246,638 ($200,000 principal + $46,638 in accrued interest). She’ll also have 66 payments towards Public Service Loan Forgiveness.
Our accomplished young doctor gets a faculty position at Big Shot University and her AGI goes up to $200,000, with an annual increase of $15,000 per year. Now that she’s making the big bucks, she doesn’t qualify for income-based repayment plans anymore and changes her payment plan to the 10-year standard repayment plan (the plan with the lowest monthly payments that still qualifies for PSLF). The interest gets added to her principal now as she goes along. 54 payments to go to PSLF! Is it worth it? 4 ½ years later, our faculty star has completed 120 qualifying payments. She’s paid another $129,816 to her loan servicer, bringing the total paid towards her loans to $149,178. Her outstanding loan balance is $175,283, forgiven tax-free through the magical PSLF fairy. [AKA Joe Taxpayer-ed] Of course, PSLF won’t kick in for the first borrowers until 2017. This is how it’s anticipated to play out but nothing’s guaranteed until someone sees the money.
How Much Do You Really Make Moonlighting?
Now let’s look at the impact of moonlighting. Our resident starts moonlighting her 3rd year of residency and continues through fellowship. She’s pretty busy, so she only moonlights two shifts at eight hours each per month but that’s an extra $1,600 per month or $19,200 per year. Not too shabby! Of course, since her income is higher her PAYE payments go up as well. At the end of fellowship, she’s earned $76,800 in extra gross income from moonlighting and she’s paid $27,042 towards her loans. If we look at the impact on her moonlighting income, that’s $7,680 of moonlighting income that went straight to her loans. At the end of 120 payments, she’s paid a total of $152,820 towards her loans. Her outstanding loan balance at the time of forgiveness is $169,820, or $5,463 less than without moonlighting. Moonlighting brought in $76,800 of additional gross income. After taxes, that’s an additional $57,600 in net income. $7,680 went straight to higher PAYE payments and $5,463 went to the reduced loan forgiveness balance. That leaves $44,457 in net income. That $44,457 cost our favorite doctor 768 hours of her personal time.
That’s moonlighting income of $58/hour.
Of course, this super-simplified example hasn’t accounted for things like Social Security deductions, local taxes, commuting time and expense, and required professional fees that also lower that hourly figure. [It also doesn't account for the time value of money saved due to lower payments-ed.] Hmm, that’s still pretty good money but not as awesome as she thought when she first started moonlighting.
As for me, I picked up moonlighting shifts for about a year during fellowship before realizing that I value my time more than what I was earning by moonlighting. Instead of moonlighting, I use that time working on research projects and career development, investments in my career that will yield more in future earnings. The math is different for everyone and you might make out gangbusters by moonlighting with different circumstances.
Has IBR, PAYE, and/or PSLF Affected Your Decision to Moonlight?
Bottom line: Know what you’re earning! The decision to moonlight has very different implications in a world with high student loan balances and the promise of Public Service Loan Forgiveness.
| Moonlighting by the Numbers | |||
| Without moonlighting | Moonlighting | Difference | |
| Student loan capital | $200,000 | $200,000 | |
| Net income during training | $276,336 | $333,936 | $57,600 |
| Repaid during training | $19,362 | $27,042 | $7,680 |
| Total net income during repayment | $1,143,493 | $1,201,093 | $57,600 |
| Total repaid during repayment | $149,178 | $152,820 | $3,642 |
| PSLF payoff | $175,283 | $169,820 | $5,463 |
If you’re interested, I’d be happy to share a worksheet with you to help you calculate the impact of moonlighting on your personal circumstances. You can find the worksheet on my website.
What do you think? Will you or did you moonlight less due to the effect it would have on your payments or forgiveness amounts? Why or why not? Comment below!
Great post, thanks for sharing! PSLF by these numbers sound like a huge win. What are you thoughts on the practicality of PSLF? There exists a huge level of skepticism regarding this program and if it will ever come to fruition. It disincentivizes loan repayments so one would hate to commit to it, only to have it not pan out and ultimately leave you with a much higher total loan burden. Sorry if this is a elementary question, but you lost me at “As long as she stays in PAYE, her unpaid interest will continue to accrue but won’t be added to her loan principal”. Is this true? Where can I read more about this?
Good post. I can affirm that your scenario is all too familiar with many of my clients. I have residents with over $250k, all the way to over $400k in student loan debt.
Even for the MD who doesn’t plan to do PSLF, the payments the first 2 years of PAYE or IBR are very low and qualify for an interest subsidy for their subsidized loans. This is a great benefit because many residents have 35-50k in subsidized loans at over 6%. These loans actually will not grow over the first 3 years of repayment because of the subsidy. For all the skeptics, the 3 year subsidy is something you get today.
I also have my own spreadsheet that details these numbers. If I was a resident I would certainly do IBR/PAYE as soon as I get out of medical school, after the 6 month wait of course. There is no reason not to, your payments are between $0 and $50 per month for 2 years.
Why wait 6 months? It’s not mandatory to wait, is it? The sooner you start making payments, the more that you get forgiven.
WCI, I believe it is. Here is an excerpt from a course I took on IBR/PAYE/ PSLF:
May I waive the six-month repayment grace period on my Direct Subsidized Loans and Direct Unsubsidized Loans and begin making qualifying PSLF payments early?
A18
No. Under the law that governs the Direct Loan Program, you may not waive the six-month grace period on a Direct Subsidized Loans or Direct Unsubsidized Loan that begins after you are no longer enrolled in school at least half-time. Direct Subsidized Loans and Direct Unsubsidized Loans only enter repayment at the end of the six-month grace period. Any payments made on a loan during the grace period, when you have no legal requirement to make payments, will be applied to reduce outstanding interest or loan principal and will not count as PSLF-qualifying payments.
WCI,
Here is the link to what I just posted, the question is #18 on the top of page 5:
https://studentaid.ed.gov/sites/default/files/public-service-loan-forgiveness-common-questions.pdf
Thanks for the info. I was never sure about that. Too bad, really.
I don’t think that applies after you consolidate your loans, which is typically the first step before applying for IBR/PAYE towards PSLF. The year I finished med school, there was only a 2-3 month gap between graduation and loan consolidation after which my IBR payments started. My IBR anniversary in late July/early August also implies that my 6 month grace period was waved.
*waived
At my institution residents and fellows have access to a mandatory 7.5% defined contribution plan, as well as a 403B and 457 account. It seems as though maximizing all of these accounts on a pretax basis could allow IBR payments to remain low while putting as much money as possible from moodlighting with lots of time to accumulate towards retirement. Of course that does assume that one can still live as a resident while moonlighting.
Any resident who can contribute 7.5% of pay to a mandatory plan and max out a 457 ($17.5K) and a 403(b) ($17.5K) is pretty awesome, even if he is moonlighting. The low IBR payments are a definite bonus.
The one downside to all those tax-deferred plans is that you might withdraw the money at a higher rate later! Perhaps the 403(b) at least could be converted to a Roth IRA in the calendar year of residency graduation.
We have a few moonlighting options that pay in the low $200s per hour, so the same 1-2 shifts per month used in this post’s example could allow for an easy $36k combined contribution plus the 7.5% off the residency salary from the defined contribution plan (social security equivalent), plus an extra 5-10k added to the residency salary for a total of about 75k pre tax (I’m in a high COL area with a higher residency salary as a result). All that while not really impacting the underlying IBR loan repayment while getting an early boost on retirement. Seems reasonable, with lots of room for personal decisions like whether one really wants to work that much in the first place.
My local residency program also has the 7.5% mandatory contribution. The biggest problem is that all of the residents are defaulted into a 1% Guaranteed Fund. I am trying to get all of them who will listen to change their allocations. These poor residents have no idea what is going on.
Remember that you can start your own Solo 401k for your moonlighting income. You can make both an employee and employer contribution to the plan. Every $1000 put into the plan reduces your IBR payment $150 and PAYE $100 and also saves you 15 to 25% in taxes. For those dedicated to PSLF this is something to consider.
Being truly dedicated to PLSF seems like extremely poor planning to me. Something WCI mentioned in the past was being part of the program, but saving as if you weren’t making psuedo-loan payments into an account. So if these programs don’t come to fruition like many people think, they’re fine and if they do, then you have a nice chunk of change. Wholly buying in without any consideration of the probability of them failing seems really foolish to me so I think it’s a good plan.
It just doesn’t pass the sniff test that they will work as said. This article’s scenario features the person paying 50k less than the principal of their loans( and much of this 50k has significantly less value than 50k of principal). I could see it working out if people were saving money on interest, but still paying over the full principal amount because even then they’d be getting a benefit in value, but it would be relatively small. If someone doesn’t even pay back the amount of principal, the value savings is huge.
Here are my numbers: The guest post didn’t acknowledge that most brand spanking new residents had $0 AGI at the end of Med School. The next tax return usually only has 1/2 a years pay. The full payment lags a couple of years. As you can see there are many residents who would only pay about $800 total their first 2 years! If this resident had 30k of subsidized loans at 6% that would equal $1800 first year subsidy (i.e. no growth of loan balance), almost $1800 second year, and $1300 subsidy the 3rd year). This maybe the last time a resident can get free money from the government. Free is me.
PAYE 10% Annual
1 0 -17505 0 0
2 25500 -18030 $7,469.85 $746.99
3 52000 -18571 $33,428.95 $3,342.89
4 53000 -19128 $33,871.81 $3,387.18
5 54000 -19702 $34,297.97 $3,429.80
6 55000 -20293 $34,706.91 $3,470.69
7 56000 -20902 $35,098.11 $3,509.81
$17,887.36
Calculation should be adjusted for amount of time (I assume less than 4-6 months) it would take to process your request to have loans paid off once you reach 120payments.
For example after I submitted my PSLF eligibility form it took about 5months to receive the statement with my current # of illegible payments.
Eligible or illegible?
Every resident should go right into IBR as soon as they are eligible. You get a 3year subsidy on subsidized loans, payments are low, you can take advantage of PSLF if you choose. But this information is not presented usually at those “exit interviews” for our student loans. You just have to be savvy enough (i.e. read boggle heads, whitecoatinverstor, student doctor network) to figure these things out.
Subsidized loans are gone for new medical students. Last ones were in 2012.
People still graduate with subsidized loans from undergraduate studies. It’s not much but still a maximum of $23k I believe. Either way, the interest on these loans still receives the subsidy during the first three years in Ibr/Paye. I have seen as much as $45,000 in subsidized loans.
It should be pretty easy on resident wages to not have to owe anything at the end of the year, even if you’re single. Also as someone alluded to you’re self employed when moonlighting and have the ability to fund heavily an i401k (better with lower income).
Why wouldnt pay more than just the interest if you had a little more from moonlighting? It really adds up over time to get the principal down, especially early. Also, and this is coming from someone who did a surgical residency and quit moonlighting almost immediately after starting (rather be riding my bicycle)….even I made more than this at in house crap pay position moon lighting. Everyone I knew doing ER moonlighting outside our hospital was making a lot more, definitely worth it.
If I had done a more friendly residency I would have moonlighted for sure. Enterprising individuals I know made 6 figures pretty easy in residency. I also am not convinced of this magical forgiveness and its tax free part being true. I have so many private non allowed loans it really doesnt matter for me anyway.
Paying on the loans is a good idea, if you don’t anticipate any forgiveness and aren’t missing out on something good like Roth contributions to do so.
From reading the post, it similar to the welfare recipient purposely not getting a job in order to receive their food stamps. This reminds me of the medical student in my class that had all the latest gadgets, ate out all the time, and spent freely due to his extensive financial aid, while many of us were living like paupers without receiving any aid and ended up paying 100% of our loans without any government forgiveness. I hope none of you ever complain about Medicaid reimbursements or your tax rates.
I had many classmates who delivered babies on Medicaid in med school, while I was paying health insurance, so I know how you feel. But it’s hard to blame someone for taking advantage of a government program designed for them that they clearly qualify for. It’s a bit like taxes. As Chief Learned Hand said, nobody is under any obligation to pay any extra taxes than what is due, and in fact may live his life in such a way to minimize the bill. That’s paraphrased of course.
Tom,
At this point not one person has had any loans forgiven. Also, if someone is receiving lots of financial aid it is probably because they were much more poorer than you. If you were able to lock in loan rates at under 2 and 3% for all of your student loan debt then you also took advantage of a government program on some level. Most residents/fellows have well over $200k in loans with a weighted average of between 6-7% interest rate. Most will not end up qualifying for PSLF because those jobs will be in high demand. Finally, I think that those who work for $6-8 per hour for 6-7 years, and then go and accept positions with government agencies for less than the private market should have something extra thrown their way.
Be at least partially self-employed (not necessarily in Medicine). Keep your AGI under control with multiple business deductions, HSA’s, SE Health insurance deductions, 401k contributions etc.
I graduated from a state med school in 2008 with about $140k in loans, iirc. Although I wasn’t good about making IBR payments throughout my 6 years of post graduate training, I’m still going to ultimately benefit from nearly $50k in PSLF down the road, as all my training and now my attending position were and are at eligible state institutions.
I did similar math to the original post in reverse, seeing whether I should bolus my 457 with essentially all of December’s paycheck to reduce my AGI as much as possible in this last IBR-eligible year (due to half a fellow’s and half an attending’s salary). Much as the above numbers show, reducing my AGI by X would lower my cumulative payments for the year by roughly X/10. Although that X/10 would ultimately be forgiven, I ended up deciding that $X would be more useful to me as down payment money in the upcoming year.
I am a PGY-3 resident (5-year residency) and until now my IBR payments have been $0/month for the 1st 2 years of residency. My current loan payments are due to be $408/month. I can switch into the PAYE plan and have reduced required monthly payments ($272/month), but wild doing this capitalize the interest that has accumulated on my loans? I see that switching from IBR to standard 10-year repayment will capitalize interest, but I cannot seem to find any information on a switch from IBR to PAYE. I currently have ~$35K in interest (unfortunate principal of ~$300K).
I’m not sure if I will stay at a non-profit after residency and fellowship (1 year) to continue with PSLF. If not, I do plan on paying off student loans in ~5 years post-fellowship and stay in IBR to avoid having the interest capitalize. I would rather have the ($408-272) *12 = $1632/year currently on a residents salary and pay off that extra bit on an attending salary.
Any information, thoughts, or advice would be appreciated. Thanks.
There may be an exit fee to get out of IBR into a different repayment plan.
This was brought up on SDN where someone had about $2000 exit fee.
http://forums.studentdoctor.net/threads/ending-ibr.1093973/
I don’t get those med-students/residents who are reluctant to participate in programs that help them (i.e. medicaid, gas/electricity subsidy for low income, PSLF). For reasons still unclear to me, and due to lack of any good social net, taking money from the government is viewed as a weakness by many Americans. What about the unchecked rising tuition at your schools? Are you going to just say “oh well I will just work harder but be sure that I don’t take a dime from the government”. Todays debt levels are so high (200s, 300s, now even 400s). Are you still going to “pay it all off on my own”?
I still have a hard time figuring which loans capitalize interest when. I don’t know if it is purposely confusing on this point, or simply just complex.
I am pretty sure that I am right on most of the following:
All federal loans accrue interest while in deferment of forbearance. While in deferment, the interest on subsidized federal loans is paid by the government. The interest is no longer paid by the government once deferment ends (i.e. finishing medical school and starting forbearance during residency/fellowship).
All federal loans capitalize when repayment begins, however, if one is in PAYE or IBR and stays in that payment plan then subsidized loans do not capitalize. When leaving residency/fellowship most debtors probably shouldn’t leave the IBR or PAYE.
While both IBR and PAYE are mostly based on income, a maximum payment cap is established when one enters IBR/PAYE. That payment cap is the standard 10 repayment. So if a resident has $200k of loans at start of residency and the 10yr standard payment is $2500 per month, that will be their maximum payment under PAYE/IBR when they leave residency, even if they make $400k per year. One can ALWAYS pay more though.
By staying in PAYE/IBR the resident/fellow avoids interest capitalization.
Standard repayment is $1200/month not $2500/month.
SHP,
Income based repayment plans are based on loan type, status, and year taken out. To do PAYE, you must not have had a federal student loan before Oct 1, 2008 and you must have taken out a loan after Oct 2011. If you are currently paying IBR then you probably can’t do PAYE. If you qualify for PAYE, there simply is no reason to make the higher IBR payment other than wanting to pay more interest down.
Just in case some readers are not aware of another loan repayment program, the National Health Service Corps offers tuition and loan repayment assistance for certain health care workers (doctors, LCSW’s, etc.) in a health professional shortage area, if you work at a site that is NHSC approved. You don’t have to work at a gov’t agency to get the check, and unlike PSLF, I KNOW they really do pay. A couple years ago, my friend received a $60,000 check for working 2 years full-time at a private clinic. Not too shabby a bonus for work she was going to be doing anyway.
Go here to learn more: http://nhsc.hrsa.gov/loanrepayment/
NHSC is an option but has too many important limitations. Primarily breach-of-contract rules ( see bellow, buried deep in the contract) and the geographic locations of these places. This was also discussed on SDN by people who went through the program.
–I’m curious what the salary of your friend was in this clinic?
SDN thread on physician who went through this program:
http://forums.studentdoctor.net/threads/warning-about-joining-the-nhsc.952879/
[3] Breach of contract rules are VERY harsh
page 28: http://nhsc.hrsa.gov/downloads/lrpapplicationguidance.pdf
Many physicians change their jobs within first 2 years. Now if you sign up for this program you are basically stuck there because getting out will make you much worse off.
If the repayment bellow doesn’t scare you I don’t know what will.
———————————–
A participant who breaches a commitment to serve in a full-time clinical practice will become liable to the United States for an amount equal to the SUM of the following:
(1) The amount of the loan repayments paid to the participant representing any period of obligated service not completed;
(2) $7,500 multiplied by the number of months of obligated service not completed; AND
(3) Interest on the above amounts at the maximum legal prevailing rate, as determined by the
Treasurer of the United States, from the date of breach.
————————————
[1] Loss of autonomy of where to live and work
-Location of work sites are crappy. Loss of autonomy is probably the biggest drawback. It will make your girlfriend/boyfriend/wife/husband/kids hate you.
[2] Amount repaid is not great
You get $60k over 2 years if in super underserved area (>14points) and $40k over 2 years if <13points.
That is not that great of repayment. Private jobs will offer that along with a high salary.
[4] Qualifying for repayment is a headache
-Need to maintain records of patients you see, which adds too much paperwork.
[5] Salary is artificially lowered.
-Yes, you will get loan repayment but you will be getting paid probably ~$110k.
So yes, there is money repaid, but its almost a zero-sum game and you loose your autonomy and are stuck in some awful place.
So if you want to work in rural area fine; there are plenty of offers that will give you loan repayment and ~$200k salary.
Not to mention using PSLF.
That # 5 is how the military “scholarship” program works. Sure, med school was free, but we’re only going to pay you half what you’re worth for four years.
I consolidated my federal loans in 2007 through the AAMC/Sallie Mae Medloans program that was being offered at that time due to better interest rates (3.25%). This was a FFEL consolidation loan. In doing this have I, the AAMC, and Sallie Mae effectively eliminated my eligibility for the PSLF program?
I don’t know the Medloans program, but if it isn’t a Federal ICR/IBR/PAYE program those payments don’t count toward the 120 required payments.
But there is no doubt 3.25% is a pretty good rate. Is that why you still have the loans?
Yes, I consolidated those loans when the FFEL Federal Consolidation Loan program still existed. I’m looking into it more, it appears I can “convert” the FFEL Federal Consolidation Loans into a Direct Consolidation Loan without adding another unconsolidated Direct Loan ONLY if I intend to apply to the PSLF program. I’ll let you know what I find out, but if this is true, it would be fantastic for me and others in my situation.
Here’s an excerpt from the application form:
“Existing consolidation loans. […] You may also consolidate a single
Federal Consolidation Loan into a new Direct Consolidation Loan to use the
Public Service Loan Forgiveness program described in Item 17 of this Borrower’s
Rights and Responsibilities Statement […]”
That’s pretty good news.
But keep in mind that your “PSLF clock” will reset to the time you you consolidate these loans. Not sure what benefit you will achieve if you already have the loans out since 2007. I would just pay them off now rather than doing another 10 years of PSLF.
How does one resident marrying another resident both with loans on IBR change things for each in regards to IBR? I imagine it depends on whether they file taxes jointly versus “married but filing separately?” Not sure what the advantages/disadvantages to that would be? Any insight?
The goal is to keep your income down, so Married Filing Separately is usually the best way if your goal is to minimize payments in residency/maximize amount possibly forgiven.
What if you are a resident at an institution that is for profit? From all of my readings on IBR/PAYE/PSLF you do not qualify for PSLF. The next best thing I have heard about is after 30 years of payments the rest will be forgiven. That does not seem logical to me. Any advice would be appreciated!
You’re right. Although most residencies are at 501(c)3s, not all are. PAYE forgiveness is available after 20 years of payments, but it is taxable. Probably best to refinance and just pay it off, but run the numbers to be sure.
This may be a bit off topic but thought reasonable to pose to this board.
I’m fresh out of residency in a partnership track so don’t make much money (relative to 2 years from now assuming I get partner). Deducting the interest payments don’t do much now and once my pay is too high to use that deduction I’m looking for tax easement options.
If I pay down my student loans aggressively ($6-$10k/month) from my PLC bank account, can I deduct the full amount I pay that from my taxes as business expense? Getting rid of that debt is part of the cost of doing business, no?
You can probably do this, but it isn’t going to help you. The reason why is that you have to report the payments as taxable income. It’s a deduction to the corporation, but not to the employee.
http://yourbusiness.azcentral.com/can-corporation-pay-student-loans-count-business-expense-14279.html
Question from a ‘not that savy’ of a financial guy about PSLF.
My scenario:
Me – finishing fellowship (x5y total training) next June. Total loans currently 360,000 (minimal undergrad; mostly 6.3% Fed & 8% GradPlus loans). I will have will have made max # of payments on IBR at non-profit hosp for 4.5y = 54 payments on 253,000; I consolidated 107,000 to Great Lakes (for a slightly lower interest rate) who services my other 253,000 about 18 months after residency so I have = 36 payments on 107,000). I’m going to be (hopefully) starting a job at 350,000 this year; maybe a different one 450,000 next year — both non-profit hosps.
My wife – finishing fellowship ( June 2017. Total loans currently 200,000 (all grad Fed loans 6.3%). She will have made the max 72 payments at a non-profit hosp for her 6y. She’ll make roughly 250,000-300,000 at same non-profit hosp.
What I’m trying to figure out is ‘how should I pay off the loans to minimize the $$$$ spent’? With standard repayment max at $2500/month (I think that was what was quoted above–someone else mentioned $1200) — I’m ‘guessing’ we will both reach 120 payments with some amount of benefit even with good salaries but I’d like to get a rough idea that I’m making the best financial decision (again, I’m not financially savy; spent hours reading/watching critical care stuff–not much on finances, yet).
Me-
120-54 = 66 months x $2500 (10y repayment) = 165,000 (loan is currently 253,000 avg somewhere btw 6.3% and 8%)
253,000 – 165,000 = 88,000 (forgiven – but taxed)
120-36 = 84 months x $2500 (10y ***) = 210,000 (loan is currently 107,000 avg somewhere btw 6.3% and 8%)
107,000 – 210,000 = -103,000 (not forgiven in this case — need to prob plan to pay these off quick or re-consolidate, again, to a lower interest rate if possible)
My better half-
120-66 = 54 months x $2500 (10y ***) = 135,000 (loan currently 200,000 mostly near 6.3%)
200,000 – 135,000 = 65,000 (forgiven but taxed)
I think my math is correct here but want to be sure I’m not missing anything that is completely obvious?
Any help would be greatly appreciated! I’m planning to start reading/preparing myself for the ‘real world’ but at this point I’m ‘initially’ planning to pay someone to take care of the entire process (including other financial stuff) for me/the better half so if you have any recommendations of people, companies, etc to use for this type of service, I would greatly appreciate that as well.
Thanks
Matt
I didn’t follow the math there, but I’m not sure why you think PSLF is ever taxed. It is tax-free forgiveness. I’ve got a couple advisors who really specialize in the loan stuff. A couple of hours of their time is probably money well spent for the two of you.
I think your goal is to minimize the payments in order to maximize the forgiveness. If part of that involves MFS, you need to take into account any possible additional taxes.
This is one resource I have seen. http://www.finaid.org/loans/forgivenesstaxability.phtml. I was told the forgiven debt is counted as generated income and taxed as such?
IBR and PAYE (and REPAYE) forgiveness is taxable. PSLF forgiveness is not. From your link:
The “certain circumstances” are working for a 501(c)3.
Got it! Thanks for clarifying.
For those still interested in moonlighting after this article, we have created a simple, flexible platform to find moonlighting opportunities near you:
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Lots of people think that moonlighting is only for residents, but staff doctors participate as well.
Check out the platform for staff doctors here as well: http://www.oncallogy.com
Disclaimer: I am a founder at http://www.oncallogy.com
Sorry to post so late to this thread, but I just stumbled on it and it is very helpful. I’ve heard from a fellow trainee suggesting that he only report his trainee wage and not moonlighting income on his IBR recertification, noting that “moonlighting income is not a stable source of income.” However, if he continues to moonlight will this be problematic?
Thanks!
I don’t think they ask for “stable income.” Sounds like your fellow trainee is engaging in fraud to me.
Thanks for the comment. It sounded too good to be true. Seems like the best way to approach this would be to re-certify your income (total including moonlighting) when it goes down, and then certify again if it goes back up.
I’m not a medical doctor, but so much of what JT and WCI are commenting about pertain to my situation, so I hope posting here is welcomed.
Here’s my situation (trying to include all details that matter). I’m 38 y.o., just finished a PhD with with just shy of 200k in loans. I work at a non-profit full time as Director of Research with salary 110k and have been maxing out the $19.5k retirement but the employer contributes nothing. I do not contribute to an FSA but I could look into it. I work 2 other unrelated jobs, some that pay W2 (I don’t know why as it’s a TV Production gig a couple nights a month) & most that pay 1099 (lecturer, instructor, etc.).
I file taxes separately even though my husband makes similar salary because of better options for business write-offs for both of us, including IVF itemized deductions, all which help lower my AGI at this time. He also does not have any student loans. I do not qualify for PAYE or REPAYE based on some kind of loan that was included in my 2013 consolidation, so I am on the IBR plan, though haven’t had to pay over recent months. I’m hoping to submit paperwork to get additional credit for payments I made between 2007-2016 with previous employers given the new voucher legislation, but we’ll see.
Finally, to my actual Question: I was recently offered a position (moonlighting) and given the option to choose Part-Time or Contractor. I would not get any employee-sponsored benefits as Part-Time, and the rate was nearly identical — just one has taxes already taken out. After some consideration (I won’t bore you with details here unless you ask), I chose to be paid as a contractor. I hope that was a worthy decision! My rationale included: being able to write off training, etc., but more than that, being able to get a solo 401k as a moonlighter. Can I contribute ALL of my moonlighting money to a solo 401k, essentially making those earnings look like nothing to the IRS & Fedloans? I estimate I will make around $25,000 from this one gig alone. Should I stop contributing to my full-time employer’s 503b? Or can I continue to max that out and then allocate the money from my weekend moonlighting job to my solo 401k as my employer contribution? Unless I’m mistaken, the solo 401k is not limited to the percentage of profit as the SEP is… Do I have to pay quarterly taxes, even if I plan for no actual profit?
Finally, what does it mean to be “controlled”? I reached out to a friend who is a financial investment advisor, and he replied, “I have some digging to do, but I need to find out if you are considered a ‘controlled’ person per your 9-5, which would make you ineligible for the solo 401k.” Overall, is there anything else I should also be considering? TIA.
You generally can’t contribute EVERYTHING you make as an independent contractor to a Solo 401(k), but if you make less than $20,500 I guess you can. It’s generally the first $20,500 as an employee contribution and then 20% of profits up to the $61K total limit.