Podcast #176 Show Notes: A Public Service Loan Forgiveness Success Story

I have been asked for several years if any doctors have received public service loan forgiveness. Public Service Loan Forgiveness first became available in 2007. Since it is a ten year program, the first eligible recipients would be in 2017 but for various reasons a lot of people aren't going to be eligible for it until 2021-2023. Mostly because the program was not very well known when it first came out, as the doctor will mention in this episode. But I am excited to bring two special guests on the podcast today. I have been waiting to have guests like this on for three years. Mariko sent me an email saying,

“I want to write you a piece of good news during these crazy times. After 10 long years, multiple phone calls, fixing many mistakes that ED Financial had made, we finally got the notice at 10:30 PM last night that our loan was forgiven in full.”

In this episode, I interview Mariko and Dan about their experience working through the PSLF program for ten years and their recent success of receiving forgiveness. We talk about their experience the last ten years and the phone calls, documentation, and time they put into fixing all the mistakes made by their student loan servicers. They share tips for those following in their footsteps. If you are thinking about going for PSLF or are currently working towards it, this is a must-listen-to episode.

For the rest of you, we answer a couple of listener questions at the end about preferred stocks and Roth vs Traditional 401(k) contributions.

 

A lot of physicians have questions about locum tenens, and locumstory.com is the place for them to get real, unbiased answers to those questions, from basic questions like, “What is locum tenens?” to more complex questions about pay ranges, taxes, various specialties, and how locum tenens works for PAs and NPs. And then there’s the big question: Is it right for you? Go to locumstory.com and get the answers.

Quote of the Day

Our quote of the day comes from Charlie Ellis. He said,

“The hardest work is not figuring out the optimal investment policy. It’s sustaining a long-term focus, particularly at market highs or market low, and staying committed to your optimal investment policy.”

Isn't that the truth? I've said a lot of times that beginning investors have a hard time staying the course at market lows and intermediate investors have trouble staying the course at market highs. They feel like they have to get out because it has to go down because you're at market highs. They forget the market highs are what the market is at most of the time.

Special Deal

We are doing a special promotion over the next 10 days for the Medical Degree to Financially Free course. This is Jimmy at The Physician Philosopher‘s new course to help you with a step by step financial guide that makes money simple, eliminating financial stress and helping you get on the same financial page with your partner or spouse. It particularly focuses on your cash flow, allowing you to pay off your student loan debt sooner than you can imagine and finding the financial freedom to practice medicine because you want to, not because you have to. In a lot of ways, he describes it as the introduction course to our Fire Your Financial Advisor course.

We are running a promotion on it from now through the 28th of September at midnight mountain time. If you buy the course between now and then and don't return it — because, like most of the courses we promote, it comes with a 14-day money-back guarantee — we will give you our WCICON18 course FREE. It is 13 hours of awesome stuff from people like William Bernstein, Jonathan Clements, and Mike Piper. We will throw that in for free if you buy the Medical Degree to Financially Free course.

In addition to that, we're going to give you a discount, if you want to go on after this course and do our Fire Your Financial Advisor course. This is our eight-hour course that helps you draft up a financial plan. We will give you a coupon for $100 off that course. So, $400 in additional bonus stuff if you buy the Medical Degree to Financially Free course between now and the 28th of September.

Recommended Reading From the Blog:

Ultimate Guide to Student Loan Debt Management for Doctors

Don't Give Up on Public Service Loan Forgiveness

Should You Make Roth vs Traditional 401k Contributions?

A Public Service Loan Forgiveness Success Story

Like many of you, Dan paid for medical school mostly with loans. When he was done with school he owed $167,000, a mix of subsidized and unsubsidized federal loans and some private loans. He graduated in 2008 but didn't hear about the PSLF program until 2009 when he called his school financial aid officer with a couple of questions. She told him the program was new as of 2007 but she never talked to his class about it because doctors weren't included in the program until 2009. So he had already paid a year worth of loan payments.

The financial aid officer said it was still kind of a work in progress and there was always a risk that it would get canceled, but Dan was on board with PSLF as soon as he heard about it, hoping that it would continue on for the full 10 years. By the time his loans were forgiven, the balance was around $180,000. He paid $120,000 in interest.

Those numbers are pretty typical. Most going for PSLF will end up getting forgiven about what they owed originally. Then in those ten years, you cover all the interest. I think most people that go for public service loan forgiveness will find the numbers to be similar if they have typical doctor incomes and typical doctor debts. Dan switched specialties from family practice to radiology, so that did affect the situation. When he went back to residency, that dropped his monthly payment by 75%.

Loan Servicers

Over the ten years, they had at least three different loan servicers. They discuss all the obstacles that presented. There was paperwork each year that could be confusing. Dan said,

“When I first started, about three years in, when I was renewing my income-based repayment for the year, the boxes that you had to check online were kind of confusing. One of them was to put me in the category that was more financially advantageous. And the other one was just to renew my public service loan. I clicked on the one to choose the one that was most advantageous. So, then they kind of re-reapplied from new. They looked at my income and said I no longer qualified. So, I got a letter saying you no longer qualify. I was taken out of income-based repayment. I tried to call and talk. They said, “No, you no longer qualify. You basically are out of luck”.

He contacted the financial aid representative from his medical school who told him to contact the Ombudsman, an official appointed to investigate individuals' complaints.  He contacted that person and they opened an investigation. A couple of days later he received an email that he could stay in the program.

Another issue was every time they switch federal loan servicing they put you in forbearance while it is transferring but would continue to automatically take your payment out. Each time that happened, it took a couple months to process and he made payments during that time, but they said they didn't count. It was administrator forbearance, which he didn't know about and which he didn't do, but they automatically did it when they were switching lenders. He had to get the ombudsman involved again to get those payments to all count, going back in and retroactively take him out of forbearance since he wasn't technically choosing to be in it.

Another issue was when someone at the hospital filled out the paperwork.

“The handwriting of the person who filled it out at my hospital, it was 7/1/2014 or something like that, and they said it looked like a nine, not a seven. So, they didn't count July 1st and August 1st because they said my start date was September 1st. They said I needed to fill out another one. I filled out another one. I checked back with them three months later, they'd say, “Oh, it's still September 1st because once you put it right away, is what counts. It doesn't matter what you say. So, then they said, well, have someone who is a certified person from your hospital fax a formal thing, saying your start date was really July 1st and not September 1st. So, she did that, and I called, and they said, “No, we don't have that” or “That didn't count.” So, I went round and round with them and, eventually, I don't even remember how it worked, I eventually got them to allow those, but it probably was, I would literally have to talk to them on the phone, probably three to four times a year for probably a couple hours at a time.”

Sounds pretty frustrating, right? Dan estimated that he put in 6-10 hours a year trying to get these things straightened out. He spent a good 70 to 100 hours on the phone with them over 10 years, trying to get things cleared up. It is depressing that the system is that bad. I only hope that it gets better as they work out the kinks and get more people through it. But the stories I hear, it doesn't seem to be getting much better. Most people have this sort of an experience, having to send lots of emails and have phone calls to get things corrected. The loan servicing companies can't seem to count to 120 correctly. I think Dan and Mariko's experience is pretty typical, unfortunately. Dan's advice,

“You just have to be persistent and you also have to keep good records. I had an Excel Spreadsheet of which months they weren't counting. They just said they don't have any record that we paid it. And I'm like, ‘What do you mean there's no record? It was getting taken out automatically.' They're like, ‘Well, we just don't have the record that it was paid. We see that you were employed at that time, but we have no record that you paid that month.' So, I had to dig up in my bank account and fax them my bank statements saying that I paid them on this day before they would count it. I don't know how that fell through the cracks, but there were always things like this where it was just not running very efficiently. And unless you had proof or persistence or someone to give you the contact information for the ombudsman, I think I would have gotten derailed or eventually would have given up.”

Thankfully, Dan and Mariko had people who could step in and troubleshoot for them to help get them back on track. Unless someone is an advocate for you or you are with the ombudsman, Dan said they were really stern saying, “There's no way you can get back in.” Once he had contact with the ombudsman,  they were able to troubleshoot a lot for him. Dan believes the ombudsman is someone that works for the loan servicing company who helps settle any disputes.

Are the loaning servicing companies incompetent or intentionally trying to mess you up?

“I just think it's like any federal government. It's just kind of incompetency. I don't think they were intentionally trying to screw me over. It's like, ‘Oh, you didn't dot your i's. So, in the book it says we can't qualify it. So, I'm sorry, that's just part of the deal.' It's like they follow a cookbook thing. They don't really use a lot of common sense.”

Dan and Mariko had to fill out the final application for forgiveness three times. That is not uncommon. In 2017, a few articles ran saying 99% of the first cohort that applied for this were denied, and a big percentage of them filled out the application wrong. What is it about the application that makes it so hard to fill it out right?

“I was arguing with them that two or three of my payments that I had documentation that were paid, that they previously denied. I knew I was at 120 payments, but according to them, I was at 117 payments. But they said, if I filled it out and submitted it, then they would review the ones that previously didn't have documentation. And when they reviewed it, they would adjust it, but they didn't. So, then they said I had to submit it again. So, I had to get back on the phone, talk to them, show them that the payments were proven. So basically, I overpaid by like three months and then they said, ‘Well, those three are still in dispute. So, you have to make three more payments so that you're for sure because we know you have 117 that count, but there are three that are pending. The three that are pending could take a year to be resolved. So, in the meantime, you have to make three more payments.' So, then I was at 123 payments, and then they said, when you got to that, then they would have to resolve all the ones that were pending. So then at that point in time, when I applied, they went and reviewed them and saw that there was documentation. So, then they actually reimbursed me my last three payments.”

Advice for Doctors Trying for PSLF

Dan definitely thought the whole hassle was worth it. But to really get the most bang for your buck you need to apply during your fourth year of medical school and start right away, because in medical school, your income is a lot less, so you're paying a lot less. Then you get those first few years under your belt at very little cost. Mariko's advice was to keep every piece of paper they send. Keep meticulous notes; make sure you have everything documented.

I've been telling people, at least the last few years since I started hearing stories of people running into these problems, you have to keep a record of every annual certification form from the employer, a record of every payment you make, just because I keep hearing these stories of people having to go back and prove 3 payments or 5 payments or 18 payments or whatever that they say didn't take place. Dan's advice,

“The big thing is it's got to be a 501(c)(3) organization. So, I think some people don't really know that. And you have to consolidate all your loans, I think, into the federal borrower before you do it. So, you have to do that, which takes a while. If you're making payments while it's being consolidated, they're not going to count. Another thing that different financial aid people swore up and down was that the interest wasn't going to be forgiven. I know a lot of the people that I went to residency with said the interest wasn't forgiven, and that they would never be able to afford paying the taxes on the interest the last year that it was forgiven because some people are $500,000 or $600,000 in debt. They're like, “I can't pay the interest on that” or “I can't pay taxes on the income forgiven”.

But it's tax-free forgiveness. I didn't have to pay taxes on the $180,000. And I think there's a lot of misconception with regards to that. Because some people say, “Well, if I get $500,000 forgiven, I'm going to have to pay taxes on that. I'll never even be able to afford that and that's why I'm not doing it”.

He said if you are lazy or disorganized, it isn't worth trying for PSLF. It will take some effort on your part. He mentions forgiveness programs that have taxable forgiveness. If you make the 20 to 25 years of payments with IBR or with PAYE or REPAYE, that forgiveness is taxable, but, under Public Service Loan Forgiveness, it's tax-free forgiveness.

Income-Driven Repayment Plan

Dan and Mariko were on the income-based repayment plan because he had loans from before 2007. That was his only option. Now the Pay As You Earn (PAYE) would have been lower monthly payments, but that wasn't around for him. Now there is even a newer one out, Revised Pay As You Earn (REPAYE), where they even subsidize your interest somewhat. So, the programs keep getting better.

Reader and Listener Q&A

Preferred Stocks

“I wanted to ask your thoughts on preferred stocks. You recently had Rick Ferri on your show. He mentioned during the podcast that he had around 20% of his portfolio in preferred stock funds as a means of fixed income. I realize that preferred stocks hold similar risks as common stocks so I was surprised that he was holding a fairly significant percentage as what he considered “fixed income”. With bond yields offering little return, what are your thoughts on holding these funds as an alternative source of yield?”

Rick Ferri was on a few podcast episodes ago. We did two episodes with him and Paul Merriman.

#169 Rick Ferri vs Paul Merriman on Factor Investing and #170 Rick Ferri vs Paul Merriman Part 2

Rick mentioned that 20% of his fixed income, not his entire portfolio, is in preferred stocks. He used to work with those a lot when he was in the industry. So, he feels really comfortable with them and he invests in them.

I don't invest in preferred stocks. Rick also invests in junk bonds. I don't invest in junk bonds. All of these involve some equity risk. In fact, just a corporate bond involves some equity risk. That's partly why it pays more than a treasury bond. And a junk bond pays a little bit more and preferred stocks and convertible bonds pay a little bit more, but, basically, you're just taking a little bit more equity risk in your fixed income. So, when you take more risk, you expect higher returns.

Now, in this time of low interest rates when bonds are paying pathetically low rates, you can see why people are tempted to reach for yield, to go for anything that offers a little bit higher yield than what you're getting out of a bond. And so, I can understand why people would be interested in that sort of stuff.

If you feel like the risk you're taking on you're being adequately compensated for, then I think that's a reasonable thing to do in a diversified portfolio like we're talking about here.

What are the downsides? Well, some people say it's the worst of both worlds. You have more risk of total loss, like when you're a stock investor, and you've still got a cap on your earnings, like when you're a bond investor. So, a lot of people think preferred stocks or convertible bonds are kind of the worst of both worlds.

There are a few mutual funds or ETFs out there that invest in these things that can help you diversify them. They're not the most tax-efficient things in the world. Keep that in mind. It may be something that, if you're going to invest in it, you want to keep it in a retirement account.

But I don't invest in them. I kind of like the Larry Swedroe approach to bonds. He basically advocates that you should take your risk mostly on the equity side. So, my bond holdings include the federal TSP G Fund, which is basically a money market fund on steroids, a TIPS fund or ETF that invests in treasuries, treasury inflation, protected securities, and a high-quality municipal bond fund for those bonds that I hold in my taxable account. That's in the Vanguard intermediate, a muni bond fund. Those are my fixed income holdings.

I figure if I'm going to take risk on the fixed income side, I might as well go big. So, the only thing that's close to that is in my real estate section of my portfolio. I invest in real estate debt. These are first lien loans. These are private funds that are invested in first lien loans to developers. So, a developer comes in, takes a loan, a private loan, a hard money loan, whatever you want to call it, from the fund and probably pays something like 10% – 12% plus a couple of points for a 6- to 15-month loan. And of course, the fund gets their cut and pays their expenses and I get what's left. And so, these funds tend to have returns of 6% to 12%.

I figure if you're going to really reach for yield, you might as well reach for a little bit more than you're going to get out of a preferred stock fund. I prefer these real estate debt funds for that section of my portfolio. But remember those are not risk-free. They're not treasuries by any means. And in a real estate downturn, a real estate debt fund becomes a real estate equity fund as they foreclose on these properties and have to finish up the development of them themselves.

You better make sure if you're going to invest in one of these funds, that it knows how to do that, as well, because in a really bad situation, which you'll eventually hit, it's going to become a real estate equity fund, not just a debt fund.

Roth vs Traditional 401(k)

“I'm four years from making residency money and maybe six after that from making attending money. I currently have about $5,000 saved in a Roth IRA and my fiancé has no retirement savings, but we're getting married next year. Anyway, she's starting a job next week, and they have an offer or they have an option for a Roth and a traditional 401(k) with a match up to 3% either way. So, I was thinking if it might be better for us to take advantage of the Roth 401(k) over the next 4 to 10 years while we won't be making nearly as much. Her expected income is $45,000 to $60,000. So I'm thinking it might be better to use the Roth and then roll it into a Roth IRA later on and make adjustments there. We think we'll be able to get out of med school with about $20,000 to $60,000 in loans. So, I was just wondering what you thought of this option?”

The first thing I'd say is it's her money. So, let her do whatever she wants. It's not your decision. Until you're married, I keep money separate. Once you're married, I combine everything. But I’m assuming you're getting married, I mean, she is your fiancé.

A Roth at this time period is going to be best. The reason why is you're almost surely going to be in a higher tax bracket for the rest of your life and in retirement. She's only making $45,000 to $60,000 a year. The chance of you ever being below that again is pretty low. So, Roth makes a lot of sense.

Keep in mind also that, once you're married, not only can she do that 401(k), she can also do a Roth IRA contribution for you and a Roth IRA contribution for her. So, you have all kinds of space to do Roth contributions. Unfortunately, you don't have much money. She's only making $45,000 to $60,000 a year and you probably have that much just in tuition expenses every year.

So, what is the best thing you should do with the money that you have? Well, once you're married and you've combined finances, a really great investment you have available to you is just borrowing less money for medical school. Certainly, that is a reasonable thing to do rather than doing personal and spousal Roth IRAs and doing her 401(k).

There is no real right answer there, but if you're borrowing money at 5% – 6% – 7%, that's a pretty attractive guaranteed return in my book. So unless you have some overarching plan to go for public service loan forgiveness, as we talked about earlier, I would probably lean more toward using your money to keep the costs of your education down rather than investing for retirement during medical school. You will have plenty of time to do that later.

Ending

This PSLF situation will become more and more common as there are a lot of doctors who are planning on public service loan forgiveness in the next couple years. There is a Facebook group out there just for doctors going for public service loan forgiveness. If you're doing this, you probably ought to join it.

This is one of those things I view, like every other government benefit and tax deduction, as you don't write the rules. If the government is going to give you a benefit, if you qualify for it, I say you should get it. Whether it's good legislation or not I'll leave in the hands of Congress.

But the truth is this is a pretty big government benefit for doctors. If you're willing to work in an academic center or some other 501(c)(3), you qualify for it, so you might as well take advantage of it.

Full Transcription

Intro:
This is the White Coat Investor podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high-income professionals stop doing dumb things with their money since 2011. Here's your host, Dr. Jim Dahle.
Dr. Jim Dahle:

This is White Coat Investor podcast number 176 – A success story with public service loan forgiveness. We're recording this, let's see, it's August 25th. We're going to run this on September 17th. So, if anything in it sounds a little bit dated, that's why. Sometimes when I go on trips, I got to record episodes a little bit early, and that's just what happens.
Dr. Jim Dahle:
We've been having a great time this summer with the family. It's interesting with this coronavirus pandemic, it doesn't really keep me from doing a lot of the stuff I want to do. You can still go backpacking and rafting and rock climbing and canyoneering and boating because all of those are safe activities.
Dr. Jim Dahle:
Unfortunately, it keeps us from doing a lot of things my wife wants to do, which is like going out to restaurants, going to see plays, traveling internationally, et cetera. And so, it's been a little bit more of a rough summer on her than it has been on me. I hope all of you are weathering this okay. Especially with kids getting back into school the last few weeks.
Dr. Jim Dahle:
Have you ever considered a different way of practicing medicine? Whether you're burned out and need a change of pace or looking to supplement your income, locum tenens might be the solution for you.
Dr. Jim Dahle:
If you're not sure where to start, locumstory.com is a place where you can get real unbiased answers to your questions. To answer basic questions, like what is locum tenens to more complex questions about pay ranges, taxes, various specialties, and how locum tenens works for PAs and NPs go to whitecoatinvestor.com/locumstory and get the answers.

Dr. Jim Dahle:
Let's do our quote of the day too. This one comes from Charlie Ellis. He said, “The hardest work is not figuring out the optimal investment policy. It’s sustaining a long-term focus, particularly at market highs or market lows and staying committed to your optimal investment policy”.

Dr. Jim Dahle:
Boy, isn't that the truth? I've said a lot of times that beginning investors have a hard time staying the course at market lows and intermediate investors have trouble staying the course at market highs because they feel like they got to get out because it has to go down because you're at market highs. They forget the market highs are what the market is at most of the time.
Dr. Jim Dahle:
Thanks for what you do. Your career is not easy. That's why you get paid so much. With this podcast, we hope to help you to optimize that income and use it in the ways that are going to make you most happy. But the truth is the underlying economic engine for your income is something that is very good and very helpful to the world. So, if you haven't heard “thank you” from a patient or a client lately, let me be the first to say thank you very much.
Dr. Jim Dahle:
All right, we're doing a promotion over the next week or 10 days here for the Medical Degree to Financial Freedom course. This is the one put on by my friend, Jimmy Turner at the Physician Philosopher. He's an anesthesiologist in North Carolina and has put together this course to help you get a step by step financial guide that makes money simple, eliminating financial stress and helping you get on the same financial page with your partner or spouse.
Dr. Jim Dahle:
It particularly focuses on your cash flow, allowing you to pay off your student loan debt sooner than you can imagine and finding the financial freedom to practice medicine, because you want to, not because you have to. In a lot of ways, he describes it as kind of the introduction course to our Fire Your Financial Advisor course.
Dr. Jim Dahle:
We're running a promotion on it from now through the 28th of September at midnight mountain time. If you buy the course between now and then and don't return it because like most of the courses we promote, it comes with a 14-day money-back guarantee.

Dr. Jim Dahle:
But if you buy this course, we are going to give you a whole lot more value than what you're going to get just from the course. We're going to give you, in addition to that course, our WCI con 2018 course. This is the park city course. It's 13 hours of awesome stuff from people like William Bernstein, Jonathan Clemens, Mike Piper. And we're going to throw that in for free if you buy Medical Degree to Financial Freedom.
Dr. Jim Dahle:
In addition to that, we're going to give you a discount if you want to go on after this course and do our Fire Your Financial Advisor course. This is our eight-hour course that helps you draft up a financial plan. We'll give you a coupon for $100 off that course. So, $400 an additional bonus stuff if you buy a Medical Degree to Financial Freedom in the next 10 days between now and the 28th of September.
Dr. Jim Dahle:
Like I said, the course comes with a 14-day guarantee. So, there's literally no risk to you. Try it out. If you don't like it, just ask for your money back and you get your money back. No big deal.
Dr. Jim Dahle:
Aside from that content that Jimmy's produced with these whiteboard style lectures, he also allows you to have it in other formats if you prefer including audio or even plain text. And he's included some bonus content from Ryan Inman, Sarah Katherine Gutierrez, Justin Harvey, and Larry Keller. A couple of those people we've had on the podcast and they've also spoken at WCI icons in the past. It also includes some worksheets and calculators to help people individualize the plan to you.
Dr. Jim Dahle:
He also throws in office hours. He's got an hour office hours every Friday that allows you to come in and ask whatever questions you want. So, you get that access to them as well. You can check that out at whitecoatinvestor.com/mdff, Medical Degree to Financial Freedom.
Dr. Jim Dahle:
And if you wanted to learn more about it, there's a cool webinar as well. It's been prerecorded at whitecoatinvestor.com/mdffwebinar. And that's totally free. You can check it out and if you like Jimmy’s style, you can buy the course. But we're going to throw in those incentives to really have a good promotion of this from now until the 28th.
Dr. Jim Dahle:
All right, we got something awesome today. I've been totally looking forward to this interview. Let's get these people on the line and talk to you about public service loan forgiveness, and what it is really like to go for it and to receive it.

Dr. Jim Dahle:
All right. So, we have two special guests on the White Coat Investor podcast. Today we have Dan Doll and Marico Nakasone and I am thrilled to have them on the podcast. I have been waiting to do this podcast now for at least three years. Try and find somebody to come on to do this podcast. And the reason why is an email that Marico sent me back in June.
Dr. Jim Dahle:
It said, “I wonder, if I write you a piece of good news during these crazy times after 10 long years, multiple phone calls, fixing many mistakes that ED financial had made, we finally got the notice at 10:30 PM last night that our loan was forgiven in full. Thank you for everything you do for the medical community”.
Dr. Jim Dahle:
So, we're talking here about public service loan forgiveness, right? I've been getting this question for like three or four years. Have any doctors gotten public service loan forgiveness? Is there a doctor out there that's gotten public service loan forgiveness?
Dr. Jim Dahle:
And for various reasons, there are a bunch of people that aren't going to be eligible for it until 2021, 2022, 2023. Just because the program was not very well known when it first came out in 2007 and it's a long training pipeline for doctors. And so, I'm excited to bring you somebody today who has actually received public service loan forgiveness. So, Dan, Marico welcome to the White Coat Investor podcast.

Marico:
Thanks for having us welcome.
Dan:
You are welcome.
Dr. Jim Dahle:
Okay. So, first question. How did you pay for medical school?
Dan:
Medical school was mostly student loans. I was fortunate enough to be one of only four grandkids for my grandma. And she had 529 plans for us for college funds when we were kids. So, she would donate $10,000 a year to each one of us and it was for undergrad, but I had gone to a public university for undergrad and it wasn't as expensive as some of the other private universities. So, I had some money left over after paying for college, which paid maybe my first year of medical school or most of my first-year of medical school. But then after that, I just took out loans.
Dr. Jim Dahle:
So about how much did you owe when you came out?
Dan:
I think it was around $167,000.
Dr. Jim Dahle:
Okay. And how much of that was federal loans? Was it all federal or was some of it private?
Dan:
Well, I was trying to think back…
Dr. Jim Dahle:
It’s been a long time. Unfortunately, that's the nature of the program.
Dan:
Well, I graduated medical school in 2008. I think my older brother graduated medical school in 2004. I believe when he graduated medical school, student loans were like 1% or 2%. His student loans are like 1% or 2%.
Dan:
By the end of my second year of medical school they recommended everybody consolidating loans because loans were going up. So, I consolidate all my loans at like 4.7% – 5% at the end of my second year.
Dan:
And then I think by the end of my fourth year, my loans were 6% – 6.5%. I think I did like the 8,500 of subsidized federal loans and then whatever the unsubsidized loans were. But then I think whatever beyond that was private loans.
Dr. Jim Dahle:
So, you had some private loans anyway. And when was the first time you learned about public service loan forgiveness? Can you remember?
Dan:
Yes, because I graduated medical school in 2008. I had called my financial aid officer at my medical school a year later because I had a question or two for her, and she had mentioned it to me. She said it was new, so she never talked to our class about it. So, I know it started in 2007. I'm not sure if it started in 2007 for physicians or if it started more in 2008 or 2009, but she mentioned it to me then.
Dan:
So, I had already been paying a year worth of loans. I know you could write off up to $2,500 with the taxes. So, she had suggested that when I graduated in 2008 and I think I was paying maybe $500 a month. So, I had put in $6,000 worth of loans before I even applied. But then when she called me in 2009 and when I talked to her in 2009, I first heard about it.
Dan:
So, I switched to the income-based repayment, but I had to first consolidate all my loans into the federal loans. I had to consolidate them all into federal loan. So, I then did that about 15 months into my first residency.

Dr. Jim Dahle:
So, you learned about this relatively early. I mean, it came out in 2007 really. And you knew about it by 2009. I mean the White Coat Investor wasn't even born until 2011. And so, you learned pretty early on about this program. When did you really decide to go for it? When did you decide this is the way I'm going to pay from off my medical school loans? Right then in that conversation? Or was it later?

Dan:
No, I mean, it was right then. I then applied for it. She had said it was still kind of a work in progress and there's always a risk that it would get canceled. But she had suggested doing it. So, then I went ahead and did it at that time, starting it with my fingers crossed, hoping that it would continue on for the full 10 years with a lot of people telling me that it was never going to make it that long and you're going to end up getting stuck with the loans in the end.

Dr. Jim Dahle:
So, how much did you actually have forgiven?
Dan:
So, by the time my loans were forgiven I hadn't even covered my interest. I think my loans were worth $180,000 at the time. They were forgiven this spring.

Dr. Jim Dahle:
And over the years, how much do you think you paid toward them?

Dan:
I think I paid over $120,000 of interest, basically.
Dr. Jim Dahle:
Yeah. So, you paid over $120,000 yet you had an $180,000 forgiven. You started with $167,000. So that's pretty typical. Yet you end up getting the amount forgiven about what you owed originally and you cover the interest. I think most people that go for public service loan forgiveness will find the numbers to be similar if they have typical doctor incomes and typical doctor debts.
Dr. Jim Dahle:
Now you switched at some point, I don't know whether it was in residency or later from family practice to radiology. How did that affect things? When did you make that switch and did it affect your situation at all?

Dan:
It did affect my situation. I think based on the income-based repayment, the highest you can pay as a standard 10-year payment. So, I think based on when I first applied, the maximum amount I could pay per month was $2,000. So, I graduated in 2008, finished family medicine residency in 2011 and I practiced family medicine till 2014.
Dan:
So, a couple of years in there when I was doing family medicine, I was paying $2,000 a month. When I switched to radiology, I went back to a resident salary and my loan payment went from like $2000 to $500 a month. So, it dropped probably about 75%.
Dan:
And it may have been less than that, but where I went, they provided housing and the housing was included in taxable income. So that was about an extra $2,500 a month that looked like I had an income. So, it was about another $25,000 with a taxable income that was put towards that.
Dan:
Then during my residency, I also did moonlighting and things like that. So, during residency and fellowship, my payments gradually increased from probably $500 a month to about $1,000 a month.

Dr. Jim Dahle:
Understood. And what'd you think about this plan, Marico? When he starts talking about “Let's get the federal government to pay off these loans”.

Marico:
Well, actually we felt pretty good about it because when we had heard from her, I felt pretty good about it, but I'm more of a risk taker perhaps. We had heard people say that if the government starts something, usually they will grandfather people in.
Marico:
So, we were banking on that. And then our other plan was we lived like residency even now. So we knew that if we end up being stuck with the loan in the end, that we'd be able to pay it off pretty quickly without being too scared because our plan was to live really simply so that if we got stuck with the loan, we wouldn't be completely out of luck.
Dan:
The one risk is we probably would have paid it off sooner because it's just with at 6.3% interest rate for loans. It kind of accumulated the interest. So, the one risk was just paying it off later, as opposed to cleaning it up earlier and having to pay more interest.
Marico:
I think it was a good gamble to let the government finally pay me back.

Dr. Jim Dahle:
Yeah, it clearly paid off. Who was your federal loan servicer?

Dan:
So that was a good question because it's been jumping through so many hoops. Originally there was EdFinancial and then eventually it was switched to Direct Loans. And then eventually I think it had to be switched to like fed loan servicing I believe when I was going into public service loan forgiveness. So that became part of the obstacles we encountered during the process.

Dr. Jim Dahle:
Let's talk about those obstacles. Tell us about the problems you ran into getting public service loan forgiveness. You've been out of med school now for 12 years, right? It's supposed to be 10 years of payments and then you get it, but it was really 12 years before you got it. Tell us what happened and what kind of problems you ran into and all the emails and phone calls you made, et cetera.

Dan:
Yes. When I first started, about three years in, when I was renewing my income-based repayment for the year, the boxes that you had to check online were kind of confusing. One of them was to put me in the category that was more financially advantageous. And the other one was just to renew my public service loan.
Dan:
And I clicked on the one to choose one that was most advantageous. So, then they kind of re-reapplied from new. And then they looked at my income and said, I no longer qualified. So, I got a letter saying you no longer qualified. I was taken out of income-based repayment. And I tried to call and talk. They said, “No, you no longer qualify. You basically are out of luck”.
Dan:
So, then I contacted my financial aid representative from medical school and she said, you got to contact this Ombudsman because they're the ones who deal with this, if there are disputes. So, I contacted them, they opened an investigation. And then a couple of days later, I got an email saying, I guess you can stay in the program.

Dr. Jim Dahle:
Yeah. That's a huge thing. They throw you out IBR, all of a sudden, your payments don't count anymore.
Dan:
Right, exactly. So, I was kind of a few days of heated frustration for me. Other things that came up is like I said, when I went from EdFinancial to the Direct Loans to fed loan servicing, every time they did that, they put you in a forbearance while it was transferring over, but they would continue to automatically dry your payments out. Because it was an automatic withdrawal.
Dan:
So, each time that happened, or one of the times that happened, it was like a couple of months process. So, I made two payments, but they said they didn't count because technically it was an administrator forbearance, which I didn't know about and which I didn't do. They automatically did it when they were switching lenders.

Dr. Jim Dahle:
And you didn't ask to be switched. They just switched you out automatically.

Dan:
Right, exactly, when they were switching from one lender to the next. So, then I thought that you're in forbearance, you can't be in forbearance. You have to be in repayment. So, I had to get the ombudsman involved again.

Dan:
And then eventually they gave in and said, since you didn't do it. Talking to them on the line I talked to the ombudsman, they eventually said, “Well, look, we'll go back in and retroactively take you out of forbearance since you weren't technically choosing to be”.
Dan:
So, they went in there and this was like after talking to them for probably about three years where those three months, they didn't count. Finally, I got ahold of the ombudsman and she said, “Oh, I can go back in here and retroactively take you off forbearance. And then when the community reviews it, they won't see that. So, they should allow those three months”. And they did, thankfully.
Dan:
The other issue, one time, the handwriting of the person filled it out at my hospital. It was 7/1/2014 or something like that. And they said, it looked like a nine, not a seven. So, they didn't count July 1st and August 1st because they said my start date was September 1st.
Dan:
So, I talked to them online. They said, I need to fill out another one. I fill out another one. I checked back with them three months later, they'd say, “Oh, it's still September 1st because once you put it right away, is what counts. It doesn't matter what you say”.
Dan:
So, then they said, well, have someone who is a certified person from your hospital send fax a formal thing, saying your start date was really July 1st and not September 1st. So, she did that and I call and they said, no, we don't have that or that didn't count.
Dan:
So, I went round and round with them and eventually I don't even remember how it worked. I eventually got them to allow those, but it probably was, I would literally have to talk to them on the phone, probably three to four times a year for probably a couple hours of time.
Dan:
So, I was probably putting in 6 to 10 hours a year, trying to get those things straightened out. So, I've probably spent a good 70 to 100 hours on the phone with them over 10 years, trying to get things cleared up.

Dr. Jim Dahle:
Wow. That's so depressing that the system is that bad. I only hope that it gets better as they work out the kinks and get more people through it. But the stories I hear, it doesn't seem to be getting much better. Most people have this sort of an experience having to send lots of emails and have phone calls and get things corrected. And the loan servicing companies can't seem to count 120 correctly and so on and so forth. It sounds like yours is the typical experience to me.

Dan:
Right. You just have to be persistent and you also have to keep good records. I had a kind of an Excel Spreadsheet of which months they weren't counting. And one month actually counted or they say it didn't count. And they just said they don't have any record that we paid it. And I'm like, what do you mean there's no record? It was getting taken out automatically.
Dan:
They're like, ‘Well, we just don't have the record that it was paid. We see that you were employed at that time, but we have no record that you paid that month”. So, I had to dig up in my bank account and fax them my bank statements saying that I paid them on this day before they count it.
Dan:
I don't know how that fell through the cracks, but there were always things like this where it was just not running very efficiently. And unless you had proof or persistence or someone to give you the contact information for the ombudsman, I think I would have gotten side derailed or eventually would have given up.
Dan:
But thankfully there were people who gave me contact information where people were able to step in and troubleshoot for me to help get on back on track. Because unless someone is an advocate for you or with the ombudsman, they were really stern saying, there's no way you can get back in. There's no way we're going to count this. But then all of a sudden you contact the ombudsman and they were able to troubleshoot a lot for me.

Dr. Jim Dahle:
Tell me what you mean by the ombudsman. Is this somebody from your medical school? Is this somebody at the loan servicing companies? Is this somebody in the federal government?

Dan:
This is someone at the loan servicing company.

Dr. Jim Dahle:
You can't call them up and say, “Connect me to the ombudsman”.
Dan:
You maybe can. I don't know. I didn't even know what an ombudsman was or anything until the financial aid lady from my medical school told me. She said there's an ombudsman who kind of litigates or if there's any disagreements between things, they settled the dispute. So, you have to open up a case.
Dan:
If you're contacting public service loan forgiveness, I don't remember what organization it was because public service loan forgiveness is different than federal loan service thing. I believe that… Some of them are different. I don't know exactly. So, it was one of those. I think it was public service loan forgiveness who had an ombudsman or FedLoan servicing, I don't know. But you could probably ask them for the ombudsman and they would give it to you. But I got the number from my medical school.
Dr. Jim Dahle:
Still in there, there's a 12-year time period, right? Did you have a year or two where you weren't working at a 501(c)(3) or did it take them two years to actually approve the application? Or was there a time period you didn't make payments or what happened? What happened with those two extra years?

Dan:
Well, as I said, when I first started my medical financial aid lady said it didn't start for medical doctors until 2009 is what I was told. My graduate medicals class, they never told us anything about it. I just happened to call her a year later into 2009 and she said it was new for doctors. It had been around for a couple years, but it was new for doctors. So, I paid probably $6,000 back my first year.
Dr. Jim Dahle:
But it wasn't an income driven repayment program.
Dan:
Right. It wasn't till about 15 months into my residency, even though I've been making payments. You had to consolidate them into federal loans. So that first 15 months didn't count. There were a couple times, I think, when I was switching, when I was applying for public service loan and it switched lenders. It went into forbearance and they stopped the payments.

Dan:
So those ones where there's like a two- or three-month gap, when it was switching lenders, those ones didn’t count. There were one or two situations where they continued to drop payments. And at that time, those counted.
Dan:
Also, when you reapply for how much you owe, basically you have to give how much you made that year to renew your public service loan. And sometimes you renew it and while they're sorting out how much you owe for the next year, they take a month or two while they're trying to sort it out. So those months don't count.
Dan:
And I think those months I didn't necessarily pay. If I did pay, I fought it and some of those I won. But it was things like that were eventually… So, the first year, 15 months I didn't pay. The next couple of times, it was in the process of renewing the income driven repayment or I was in the process of switching lenders.

Dr. Jim Dahle:
Did it feel like they were incompetent or did it feel like they were intentionally trying to screw you out of what you deserved?

Dan:
I just think it's like any federal government. It's just kind of incompetency. I don't think they were intentionally trying to screw you over. It's like, “Oh, you didn't dot your eyes. So, in the book it says we can't qualify it. So, I'm sorry, that's just part of the deal”. It's like they follow a cookbook thing. They don't really use a lot of common sense.

Dr. Jim Dahle:
When did you fill out the final application for forgiveness? How long did it take between then and when you received the letter that you received it?

Dan:
The first time I fill it out or the final time I finally got approved? They got to fill it out like three times.

Dr. Jim Dahle:
That is not uncommon. In 2017 they ran a few articles saying 99% of the first cohort that applied for this were denied and a big percentage of them filled out the application wrong. What is it about the application that makes it so hard to fill it outright?

Dan:
Well, I was arguing with them that two or three of my payments that I had documentation that were paid, that they previously denied. I knew I was at 120 payments, but according to them, I was at 117 payments.
Dan:
But they said, if I filled it out and submit it, then they would review the ones that previously didn't have documentation. And when they reviewed it, they would adjust it, but they didn't. So, then they said I had to submit it again. So, I had to get back on the phone, talk to them, show them that they were proven.
Dan:
So basically, I overpaid by like three months and then they said, well, those three are still in dispute. So, you have to make three more payments so that you're for sure because we know you have 117 that count there's three that are pending. The three that are pending could take a year to be resolved. So, in the meantime, you have to make the three more payments. So, then I was at 123 payments, and then they said, when you got to that, then they would have to resolve all the ones that were pending.
Dan:
So then at that point in time, when I applied, they went and reviewed them and saw that there was documentation. So, then they actually reimbursed me my last three payments.
Dr. Jim Dahle:
You got their money back eventually.
Dan:
Yeah, that actually went pretty smoothly. I was surprised. I thought if I would get repaid, you have to jump through all these hoops to get repaid, but eventually, I just got an email saying you were qualified, your balance is now zero. And then like within a month, the last three payments I paid, just showed up back in my bank account that they were taken out automatically. So that was actually the smoothest part of the whole thing
Marico:
It was the only easy part.

Dr. Jim Dahle:
The easy part. So, did you ever consider bagging the whole thing refinancing and just paying off your loans?

Dan:
Only during those few days when they said I was no longer eligible.

Dr. Jim Dahle:
So, for the most part, you kept faith in it and stuck with it.
Dan:
Well, yeah, I mean, especially since I went back to residency, it was worth the gamble because my payments went down. For over five years they went down to $500 to $1,000 as opposed to $2,000. So, it was worth the gamble.

Dr. Jim Dahle:
Do you recommend public service loan forgiveness to others in similar situations? You're one of the few doctors out there who's actually been through the whole process. Is this a good thing or should people just forget about it?

Dan:
I mean, I would definitely do it. It's most advantageous to do it when you're first out of medical school, because I think the first year you basically have no payments because you have no income from the previous years. So, if I would have applied right away that first year basically would have been zero. You won’t need to pay any money basically.
Dan:
And then the next year would have been the least amount of money you made anyways. So, it might've only been a couple hundred dollars. Once you're finally out and making a lot of money or making more money, it's basically a standard 10-year repayment.
Dan:
So, if I would have applied for it, when I was out and already having to pay the $2,000 a month, maybe, I'd have to do the math. It maybe would still be beneficial, but it's definitely the biggest bang for your buck if you apply during your fourth-year as a medical student and started off right from the get go. Because in medical school, your income is a lot less, so you're paying a lot less. And then you get those first few years under your belt at very little cost.
Dr. Jim Dahle:
What do you think Marico? Do you recommend it?

Marico:
I would recommend it. If it were back in the same position I would do it again. I would just tell myself, if I knew everything, I would say, keep every piece of paper they send. Keep meticulous notes, make sure you have everything documented. Because it definitely saved our butts quite a few times.
Dr. Jim Dahle:
Yeah. I've been telling people at least the last few years, since I started hearing stories of people running into these problems, you got to keep a record of every annual certification form from the employer, a record of every payment you made, just because I keep hearing these stories of people got to go back and prove 3 payments or 5 payments or 18 payments or whatever that didn't take place.
Dr. Jim Dahle:
Any other tips to help it go more smoothly for others?

Dan:
The big thing is it's got to be a 501(c)(3) organization. So, I think some people don't really know that and you have to consolidate all your loans, I think, into the federal borrower before you do it. So, you have to do that, which takes a while. If you're making payments while it's being consolidated, they're not going to count. You also want to make sure you're working for a 501(c)(3) organization.
Dan:
And another thing that different financial aid people swore up and down was that the interest wasn't going to be forgiven. I know a lot of the people that I went to residency with said the interest wasn't forgiven it and that they would never be able to afford paying the taxes on the interest the last year that it was forgiven because some people are $500,000 or $600,000 in debt. They're like, “I can't pay the interest on that” or “I can't pay taxes on the income forgiven”.
Dan:
But it's tax-free forgiveness. I didn't have to pay taxes on the $180,000. And I think there's a lot of misconception with regards to that. Because some people say, “Well, if I get $500,000 forgiven, I'm not going to have to pay taxes on that. I'll never even be able to afford that and that's why I'm not doing it”.
Dan:
I don't know. If you're lazy, it's not worth it. Or if you're not organized, it's not worth it because there's a lot of hoops to jump through. It's like medical school, the hardest thing is filling out the application to get in.

Dr. Jim Dahle:
Yeah, there's a lot of truth to that. It's interesting you mentioned that because there are forgiveness programs that have taxable forgiveness. If you make the 20 to 25 years of payments with a IBR or with pay as you earn or revised pay as you earn, that forgiveness is taxable, but under public service loan forgiveness, as you note, it's tax free, it's tax free forgiveness.

Dan:
And I think you had mentioned earlier in one of your questions, what kind of income driven repayment did we do. We did the income-based repayment. When I went back to residency, I had heard that the pay as you earn would have been less monthly payments, but that wasn't around right. I initially applied and I didn't qualify for it. But I'm not exactly sure how they decide whether you qualify for pay as you earn versus income based.

Dr. Jim Dahle:
I think IBR was your only option because you had loans from before 2007.
Dan:
Right, probably.
Dr. Jim Dahle:
You were in the right program for you, but you're right, that later people could have even lower payments than you had and thus have more money forgiven.

Dan:
Right. From what I've heard pay as you earn is probably the best one if you qualify for it, if you're newer.

Dr. Jim Dahle:
They've got an even newer one out revised pay as you earn that they'll even subsidize your interest somewhat. So, they keep getting better. You're definitely not in the best one, but you're in the only one you qualified for, unfortunately.

Dan:
And it worked out. I think it was pretty fair. In the long run, I didn't pay all of it, I didn't pay all my principal. But if I were to stay in family medicine, I probably would have paid about what my original loans were and then not the interest basically. I would have paid basically what the original loans were when I first got out.
Dr. Jim Dahle:
Awesome. Well, Dan and Marico thank you for coming on the podcast. People that are in this program will be thrilled to hear your story. They will not be thrilled to hear about the obstacles you had getting it, but they will be thrilled to hear that somebody actually found the light at the end of the tunnel. So, thank you for coming on and sharing your story and congratulations on all of your success.

Marico:
Thanks Dr. Dahle.
Dan:
Thank you. Thanks for having us.

Dr. Jim Dahle:
All right, that was great having Dan and Marico on here. I am so excited to see a doctor get public service loan forgiveness. I've heard of one other, but they're the first ones I was able to get to come on the podcast and share their story with you.
Dr. Jim Dahle:
So, this is going to become more common throughout this year, next year, the year after that year, after that, especially 2022, 2023. There are a lot of doctors who are planning on public service loan forgiveness.
Dr. Jim Dahle:
There's a Facebook group out there just for doctors going for public service loan forgiveness. If you're doing this, you probably ought to join it. But when they pull themselves, you see that the numbers of those who are going to be eligible starting in 2022, 2023 is going to be much, much higher than it is now.
Dr. Jim Dahle:
So, it's exciting I think for a lot of people who have been holding on for a long time, trying to keep faith in the program and watching in many, many times their debt go up and up and up as they're going for the program.
Dr. Jim Dahle:
This is one of those things I view like every other government benefit and tax deduction. You don't write the rules and if the government's going to give you a benefit if you qualify for it, I say you should get it. Whether it's good legislation or not, I'll leave in the hands of Congress.

Dr. Jim Dahle:
But the truth is this is a pretty big government benefit for doctors. And if you're willing to work in an academic center or some other 501(c)(3), you qualify for it so, you might as well take advantage of it. So that's the public service loan forgiveness program for you.
Dr. Jim Dahle:
I'm going to finish this podcast. I've taken a couple of questions off the Speak Pipe. Remember if you'd like to leave questions to be answered in the White Coat Investor podcast just go to whitecoatinvestor.com/speakpipe. The first one comes from Tim.

Tim:
Hello, dr. Dahle. Thank you for hosting this great podcast. I wanted to ask your thoughts on preferred stocks. You recently had Rick Ferri on your show. He mentioned during the podcast that he had around 20% of his portfolio in preferred stock funds as a means of fixed income.
Tim:
I realized that preferred stocks hold similar risks as to common stocks so I was surprised that he was holding a fairly significant percentage as what he considered “fixed income”. With bond yields offering little return, what are your thoughts on holding these funds as an alternative source of yield?
Tim:
I'm currently 10 to 15 years from my projected retirement and have been gradually increasing the bond holdings in my portfolio to hedge risk, but I'm concerned that they will not generate enough income to get the returns I need. Thanks for your time and expertise.

Dr. Jim Dahle:
All right. So, Tim is asking about preferred stocks. Rick Ferri was on a few podcast episodes ago. He mentioned that 20% of his fixed income, not his entire portfolio is in preferred stocks. He used to work with those a lot when he was in the industry. So, he feels really comfortable with them and he invests in them.
Dr. Jim Dahle:
I don't invest in preferred stocks. Rick also invests in junk bonds. I don't invest in junk bonds. All of these involve some equity risk. In fact, just a corporate bond involves some equity risk. That's partly why it pays more than a treasury bond. And a junk bond pays a little bit more and preferred stocks and convertible bonds pay a little bit more, but basically, you're just taking a little bit more equity risk in your fixed income. So, when you take more risk, you expect higher returns.
Dr. Jim Dahle:
Now in this time of low interest rates, when bonds are paying pathetically low rates, you can see why people are tempted to reach for yield, to go for anything that offers a little bit higher yield than what you're getting out of a bond. And so, I can understand why people would be interested in that sort of stuff.
Dr. Jim Dahle:
If you feel like the risk you're taking on you're being adequately compensated for, then I think that's a reasonable thing to do in a diversified portfolio like we're talking about here.
Dr. Jim Dahle:
What are the downsides? Well, some people say it's the worst of both worlds, right? You've got more risk of total loss, like when you're a stock investor and you've still got a cap on your earnings, like when you're a bond investor. So, a lot of people think preferred stocks or convertible bonds are kind of the worst of both worlds.

Dr. Jim Dahle:
There are few mutual funds or ETFs out there that invest in these things that can help you diversify them. They're not the most tax efficient things in the world. And so, keep that in mind. It may be something if you're going to invest in it, you want to keep it in a retirement account.
Dr. Jim Dahle:
But I don't invest in them. I kind of like the Larry Swedroe approach to bonds. He basically advocates that you should take your risk mostly on the equity side. So, my bond holdings include the federal TSPG fund, which is basically a money market fund on steroids, a TIPS fund or ETF that invests in treasuries, treasury inflation, protected securities, and a high-quality municipal bond fund for those bonds that I hold in my taxable account, that's in the Vanguard intermediate, a muni bond fund. And those are my fixed income holdings.

Dr. Jim Dahle:
I figure if I'm going to take risk on the fixed income side, I might as well go big. So, the only thing that's close to that is in my real estate section of my portfolio. I have 5% of my real estate portfolio of 5% of my total portfolio, which is 25% of my real estate portfolio that is invested in basically real estate debt.
Dr. Jim Dahle:
So, these are first lien loans. These are private funds that are invest in first lien loans to developers. So, a developer comes in, takes a loan, a private loan, a hard money loan, whatever you want to call it from the fund and probably pays something like 10% – 12% plus a couple of points for a 6- to 15-month loan. And of course, the fund gets their cut and pays their expenses and I get what's left. And so, these funds tend to have returns of 6% to 12%.

Dr. Jim Dahle:
And so, I figure if you're going to really reach for yield, you might as well reach for a little bit more than you're going to get out of a preferred stock fund. I prefer these real estate debt funds for that section of my portfolio. But remember those are not risk-free. They're not treasuries by any means. And in a real estate downturn, a real estate debt fund becomes a real estate equity fund as they foreclose on these properties and have to finish up the development of them themselves.
Dr. Jim Dahle:
And so, you better make sure if you're going to invest in one of these funds, that it knows how to do that as well, because in a really bad situation, which you'll eventually hit, it's going to become a real estate equity fund, not just a debt fund.
Dr. Jim Dahle:
All right, let's take our next question about the SpeakPipe from Jordan.

Jordan:
Hey, dr. Dahle. My name is Jordan. I'm a first-year medical student from Texas, a huge fan of the podcast and really everything you do. I think I've listened to every episode up until a month ago when medical school started and I have no time now.
Jordan:
I'm four years from making residency money and maybe six after that from making attending money. I currently have about $5,000 saved in a Roth IRA and my fiancé has no retirement savings, but we're getting married next year. Anyway, she's starting a job next week and they have an offer or they have an option for a Roth and a traditional 401(k) with a match up to 3% either way.
Jordan:
So, I was thinking if it might be better for us to take advantage of the Roth 401(k) over the next 4 to 10 years while we won't be making nearly as much. Her expected income is $45,000 to $60,000. And so now, I'm thinking it might be better to use the Roth and then roll it into a Roth IRA later on and make adjustments there.
Jordan:
We think we'll be able to get out of med school with about $20,000 to $60,000 in loans. So, I was just wondering what you thought of this option, this plan. And also, I've gotten some feedback in the Facebook group that maybe it'd be better to not say anything and just make sure we can get little or no loans. Others were saying, take out more loans and save as much as we can in the Roth now. So, I was sort of just looking for your thoughts. Thanks so much.

Dr. Jim Dahle:
All right. So, Jordan's in a pretty good situation here, MS1, and already has some money invested for retirement. That's great. He wants to know if his fiancé should do Roth or traditional.
Dr. Jim Dahle:
Well, the first thing I'd say is it's her money. So, let her do whatever she wants. It's not your decision. So, until you're married, I keep money separate. Once you're married, I combine everything. But I’m assuming you're getting married, I mean, she is your fiancé.
Dr. Jim Dahle:
A Roth at this time period is going to be best. And the reason why is you're almost surely going to be in a higher tax bracket for the rest of your life and in retirement. She's only making $45,000 to $60,000 a year. The chances of you ever being below that again is pretty low. So, Roth makes a lot of sense.
Dr. Jim Dahle:
Keep in mind also that once you're married, not only can she do that 401(k), she can also do a Roth IRA contribution for you and a Roth IRA contribution for her. So, you have all kinds of space to do Roth contributions. Unfortunately, you don't have much money, right? She's only making $45,000 to $60,000 a year and you probably got that much just in tuition expenses every year.
Dr. Jim Dahle:
So, what is the best thing you should do with money that you have? Well, once you're married and you've combined finances, a really great investment you have available to you is just borrowing less money for medical school. And certainly, that is a reasonable thing to do rather than doing personal espousal of Roth IRAs and doing her 401(k).
Dr. Jim Dahle:
There's no real right answer there, but if you're borrowing money at 5% – 6% – 7%, that's a pretty attractive guaranteed return in my book. So unless you have some overarching plan to go for public service loan forgiveness, as we talked about earlier, I would probably lean more toward using your money to keep the costs of your education down rather than investing for retirement during medical school. You will have plenty of time to do that later.

Dr. Jim Dahle:
All right, we mentioned at the beginning of the hour, this course from the Physician Philosopher. I remember we got a special deal going on that through the 28th. The deal is that you get WCI con park city totally free if you buy this course. And we're also going to give you a coupon for $100 off Fire Your Financial Advisor, if you want to continue on with that. So, check that out.
Dr. Jim Dahle:
You can watch the webinar for that at whitecoatinvestor.com/mdffwebinar. If you're ready to buy it, whitecoatinvestor.com/mdff. So, be sure to check that out.
Dr. Jim Dahle:
Thanks for those of you who are leaving us five-star reviews. We had a review from Pedro V about the “You need a budget” episode we had a few episodes back. He said, “Episode 167 is the best yet. Great place to start in the WCI world. Get hooked, get free. Five stars”. Thank you for that. and those of you who are leaving us five-star reviews, we really appreciate it.
Dr. Jim Dahle:
Have you ever considered a different way of practicing medicine? Whether you're burned out, need to change the pace or looking to supplement your income locum tenens might be the solution for you.
Dr. Jim Dahle:
Not sure where to start? Locumstory.com is a place where you can get real unbiased answers to your questions. They answer basic questions like what does locum tenens to more complex questions about pay ranges, taxes, various specialties and how locum tenens works for PAs and NPs. Go to whitecoatinvestor.com/locumstory and get the answers.
Dr. Jim Dahle:
Keep your head up and your shoulders back. You've got this and we can help. Stay safe out there and we'll see you next time on the White Coat Investor podcast.

Disclaimer:
My dad, your host, Dr. Dahle, is a practicing emergency physician, blogger, author, and podcaster. He’s not a licensed accountant, attorney or financial advisor. So, this podcast is for your entertainment and information only and should not be considered official personalized financial advice.