By Dr. James M. Dahle, WCI Founder
If you are wondering if public service loan forgiveness is worth it, we’re here to help. The PSLF program allows any remaining direct federal loans to be forgiven once 120 qualifying on-time monthly payments have been made while directly employed by a qualifying employer. Direct federal loans include Stafford Loans, PLUS loans, and Direct Consolidation Loans. FFEL, Parent Plus, and Perkins loans do not qualify until they have been consolidated into a direct consolidation loan (though in October 2021 the federal government allowed for FFEL and Perkins loan payments to count toward those 120 PSFL payments IF you consolidate by Halloween 2022).
Qualifying payments must be made under one of five programs:
- Income Contingent Repayment (ICR)
- Income-Based Repayment (IBR)
- Pay As You Earn (PAYE)
- Revised Pay As You Earn (REPAYE)
- Standard 10-Year Repayment Plan
Let's take a physician with an income of $250K, who owed $300K in student loans at 7% upon medical school graduation. She just finished a three-year residency at a 501(c)(3) institution during which she made 36 payments in PAYE (an IDR) (IDR includes ICR, IBR, PAYE, and REPAYE) of $300 apiece. She started her first job at a 501(c)(3) institution, and if she makes her next 84 IDR payments, the remainder of her debt will be forgiven. She also has the option to refinance her student loans at 3% and she thinks that by living like a resident, she could pay them off in 3 years while still maxing out her retirement plan contributions. Should she go for the PSLF or refinance and pay off?
The Public Service Loan Forgiveness (PSLF) Program Option
Now, she only had to pay $300 a month ($3,600 per year) as a resident, and since this loan accrued $21K in interest per year, she now owes approximately $352K. Her IDR payments in PAYE are based on her income up to a payment cap which is not to exceed the standard 10 yr payment on her loan $3,483 (=PMT(7%/12,120,300000,0,0)). Her payments now as an attending have jumped to $2,119. If she makes 84 of those payments on this 7% $352K loan, after 84 months she will have paid a total of $178,038, but only $31,038 of that will have gone toward the principal, so she will still owe ~$321K, which will be forgiven if the program is still in place and remains non-means-tested.
Refinance Medical School Loans and Pay Off Option
The other alternative is to refinance the loans upon residency graduation at 3%. Since she will only have the loan for three years, and she has a high income, the risk of a variable rate loan is one she can take. In order to have a 3%, $352K loan paid off in 36 months, she will need to make payments of $10,237 per month. After 36 months, she will have paid a total of $369K.
PSLF vs Refinance: Which Is Better?
She will pay less money, especially when you consider the time value of money (money paid toward a loan 6 years from now is less valuable than money paid toward a loan this year), by going for the Public Service Loan Forgiveness program. Essentially, she'll save around $180K despite paying at double the interest rate for over twice as long. In the end, MORE than the value of her original loan will be forgiven.
She will have to run the risk that the PSLF program goes away, or that it is modified significantly such that it becomes means-tested, in which case she might not be eligible for forgiveness or might receive much less than planned. She will also be locked into a 501(c)(3) job for at least 7 years, potentially giving up income, freedom, and opportunity. If she leaves that job, or the program is significantly modified, she will come out way behind.
The cash-flow issue is also not insignificant. Payments of both $2,119 for 7 years and $10,237 for 3 years are not insignificant. It would be tough to max out retirement plans, live a reasonable life, AND pay $123K per year toward student loans for 3 years on a $250K income. It is doable, but you would have to live like a resident for 3 years. The other option isn't great either. Although your cash flow would be much better for the first 3 years, it would be much worse for post-residency years 4-7, when most docs really find it difficult to continue living like a resident. I'm not sure which is worse from a cash flow issue.
In the end, someone who is eligible for PSLF is almost surely better off paying the minimum IDR payments and getting the PSLF. Longer training periods and larger debt burdens make this option even more advantageous.
Will PSLF Be Grandfathered?
There is significant legislative risk to relying on this program, but it would be very unusual for a program change to occur that did not grandfather in those already enrolled in the program.
In addition, PSLF is mentioned in the promissory notes—legal contracts between the borrower and the lender. Even if Congress or the Department of Education changes the program and does not make provisions to grandfather in current participants, those borrowers should have an excellent legal case that should at a minimum result in a significant settlement.
What If PSLF Goes Away or If You Don't Receive Forgiveness?
I think the best way to deal with that risk if you are going for PSLF is to save up a side fund with the money you could have used to pay off the loans in 2-5 years after residency. If the program goes away, use the side fund to pay off the loans. If it doesn't and your loans are forgiven, add the side fund money to your retirement nest egg.
Public Service Loan Forgiveness has had some ugly PR with 99% of applicants being denied but success stories of doctors receiving forgiveness are emerging. These success stories come from those who meticulously follow program rules and from those that spend many frustrating hours every year following up with loan servicing companies that can't count to 120 correctly.
On a positive note, on May 5, 2021, over 50 senators sent a letter to the Department of Education urging Secretary Cordona to reform PSLF making it easier for public servants to obtain forgiveness—not harder. We'll continue to keep a pulse on any legislative proposals behind the program, but it seems to be improving each year. That 99% statistic above is also incredibly misleading—the denominator is completely wrong as they are counting EVERYONE in the program, most of whom have not made the required 120 monthly payments yet. So of course they're not going to get forgiveness…yet.
Should You Refinance Medical School Loans as a Resident?
This is an important, but complicated, question, and there are no easy answers. But here are some things to think about as you make your decision.
Principle #1 – You Can Always Refinance Private Loans
Private loans are not eligible for the protections of the Income-Driven Repayments programs, forgiveness through the IDR and PSLF programs, or the REPAYE subsidy. Plus, four lenders are offering $100 a month payments during your training. So there is no reason to avoid refinancing your private loans early and often every time you can get a lower interest rate. If you refinance through the links on this site, you will even get some cash back each time you refinance with a new company. The remainder of these principles apply ONLY to federal loans.
Principle #2 – If You're Sure You WILL Work at a 501(c)(3), DON'T Refinance
It would be a relatively rare situation for someone who is going to go work at a 501(c)(3) to be better off refinancing instead of getting PSLF. If you're going to work at a 501(c)(3) throughout residency, fellowship, and early attendinghood, enroll in an IDR program and get your PSLF. Remember, once you refinance, no more forgiveness. The rare exceptions to this rule would be someone whose residency IBR/PAYE/REPAYE payments are equal to their full payments (small loans or highly paid spouse) or someone who forgot to enroll in IBR/PAYE/REPAYE as a resident (don't do that). Another exception would be if the difference between your current rate and the refinanced rate were small (or even negative). No sense in giving up options unless you're adequately compensated for it with less accrual of interest.
Principle #3 – If You're Sure You WON'T Work at a 501(c)(3), Calculate Your Debt to Income Ratio
Add up your student loans and project your expected gross income as an attending physician in your specialty. Divide the student loans by the income to get your Debt to Income (DTI) ratio. If your DTI < 1.5, then you know you are going to refinance eventually. The only question is whether it is worth doing during residency. That is simply a question of effective interest rate. Adjust your interest rate for any REPAYE subsidy you may be receiving and for any student loan interest rate deduction you may be receiving and compare that to what the student loan refinancing companies are offering (again also adjusting for any student loan interest rate deduction you may qualify for). If you can get a better effective rate by refinancing, then do so. If not, stay in the IDR program. Once you're an attending, you are likely not getting any REPAYE subsidy, you are likely not getting any student loan interest rate deduction, and you can qualify for an even better rate, so go ahead and refinance.
If your DTI > 2.5, (for example student loans of $500K and an income of $200K) you will want to give serious consideration to IDR forgiveness. While this is dramatically worse than PSLF (takes 20-25 years of payments and the forgiveness is taxable in the year received), at that DTI ratio you are still likely to come out ahead. So don't refinance or you will lose that option.
If your ratio is between 1.5 and 2.5, you're in no man's land and should pony up a few hundred dollars and get high-quality advice to help you make a decision about what to do. We recommend StudentLoanAdvice.com. Again, if you are a resident or fellow and you're not sure, don't refinance. There's no going back to the IDR programs and PSLF.
Principle #4 – If You Are Not Sure If You Will Work at a 501(c)(3), Then Calculate the Cost of Your Option
The best way to calculate the cost of your option is to apply with one of our student loan refinancing partners that lend to residents. If your average loan rate is 7%, you have $300K in unsubsidized loans, and a lender offers you 4% fixed, then the cost of the option is (7%-4%)*$300K= $9K per year. That's $27K over a 3-year residency and twice that if you add on a 3-year fellowship. Now you have to weigh some other difficult to measure factors such as the likelihood of being able to get a job at a 501(c)(3), the attractiveness of available 501(c)(3) jobs and their location to you, and the difference in pay in your specialty between 501(c)(3) jobs and non-501(c)(3) jobs (if any). If the option is worth paying for you, then pay it, but if you get to the point in a year or two where you're sure you're not going to work at a 501(c)(3), then refinance. Sure, it cost you a little extra interest to keep that option open, but that's just business.
Principle #5 – Weigh the Risk of Not Getting PSLF
It is worthwhile running the numbers in your particular situation, just so you understand what you are looking at. First, let's consider a doc with $300K in 7% unsubsidized loans. Let's assume he just makes 10 years of equal payments (maybe his spouse has a real job while he's a resident or something). What do the payments look like?
Well, he pays $3,559 a month, or $42,713 per year for ten years and then the loans are gone.
Well, what if he decides to enroll in the PAYE program and go for PSLF? Let's assume that the spouse isn't working and he has two kids. Let's also assume a $50K income (AGI) as a resident and a $250K income (AGI) as an attending.
Now his payments as a resident are $113 per month, or $4,068 over the course of his residency. Upon finishing residency, he will owe $363,150. His payments at that point will be $1,780 per month, or $21,360 per year. After 7 years of paying $21,360 he still owes $398,295, which is then eligible for PSLF. He owes MORE than he took out in medical school and even more than he owed at the end of residency. How is this possible? Well, remember that 7% of $363K is $25,410 a year. Even his attending payments aren't covering the interest on this debt!
That brings us back to the risk issue. If you lose your 501(c)(3) job and can't get another, or the government limits the program, you will still owe a ton of student loans, more than you took out despite paying on them for 10 years. If you're not comfortable taking that risk, then either refinance your loans early in residency and plan to pay them off, even if you do end up in a 501(c)3, or save the difference between your PAYE payments and the payments that would actually make the loan go away in 10 years from med school graduation up in a side account. Then, if something happens, liquidate the side account and pay off the debt. If nothing happens, and forgiveness materializes, then you've got a pretty decent boost to your nest egg.
In Summary
- Refinance private loans early and often
- If you plan to work at a 501(c)(3) as an attending → Don't refinance federal loans
- If you have a DTI (or expected DTI) ratio > 2.5 → Don't refinance federal loans
- If you have a DTI (or expected DTI) ratio between 1.5 and 2.5 → Get advice from StudentLoanAdvice.com
- If you are an attending not working for a 501(c)(3) and have a DTI ratio < 1.5 → Refinance federal loans
- If you are a resident/fellow and do not expect to work for a 501(c)(3) and have an expected attending DTI ratio < 1.5, calculate your effective interest rate and compare to what you can refinance to. If you need help, contact StudentLoanAdvice.com.
If you do choose to refinance, please go through the links on this site. Here are the best deals on student loan refinancing I've managed to negotiate with the top student loan refinancing lenders if you are going to refinance.
† Bonus includes cash rebates and value of free course. Borrowers who refinance more than $60,000 in student loans using the WCI links will be enrolled in The White Coat Investor’s flagship course, Fire Your Financial Advisor: ATTENDING for free ($799 value). Borrowers will still receive the amazing cash rebates that WCI has negotiated with each lender. Offer valid for loan applications submitted from May 1, 2021 through October 31, 2025. Free course must be claimed within 90 days of loan disbursement. To claim free course enrollment, visit https://www.whitecoatinvestor.com/RefiBonus.
Student Loan Refinancing Disclosures
What do you think? Are you PSLF eligible? Will you be going for that, or paying off your loans as soon as possible? Comment below!
I am an avid follower of your blog, but I am not eligible for refinancing since I have CDN loans and completed my medical school outside U.S.
Luckily, my current rate is 2.7% on a 150K CDN line of credit and monthly payment is $1000 (500 is interest and 500 is loan). This loan is through a private bank (Royal Bank of Canada).
The second loan is in the amount of 30K CDN through CDN Fed Government (National student loan center) and surprisingly, the rate is much higher – its about 5.5%. The monthly payment on this loan is $570
*All figures in CDN $
All my efforts have been to find a solution to atleast rid this National student loan center loan and then aggressively pay off the principal for the RBC loan.
In essence, I needed $25K USD to convert to $30K CDN, but no one would give me that since I am not eligible for any of these options and also, the rate I am offered is no better than what I have.
So the solutions?
1) Private loan? Nope – too high of an interest loan
2) Balance transfer from a credit card during a promotion. This is the solution I am working on, since through out residency, I was able to raise my credit limit to $20K, and I am working to increase it to $ 25K (I have bank of America Cash rewards). I also qualify for 0% APR on balance transfers towards a loan til Sep 2016. I should be able to pay that off by Sept 2016, if I put 3-4K/ month towards the CC. There is a transaction cost of 3%, but its a saving of 10-12K over tme given the current strong dollar. Also, its a pain to convert to CDN dollars.
3) Home equity LOC – this was an offer made to me with an interest rate of 2.7% against home equity. Too bad, I am not a home owner yet – a decision I contemplate every day (I just finished my pain medicine fellowship and paid $ 1200-$1500 per month for 5 years throughout residency and fellowship to these CDN insititutions, so I couldnt save much). So, my father and I have an appointment with PNC bank this Saturday to see if we can refinance the loan using home equity line of credit option since the interest rate may be better and equivalent to what I have. Luckily I can do that as my father was my co-signer for these loans back in the day.
The CDN dollar has had a 45-55% swing since 2011 and I remember paying a lot of money on a resident salary when the economy was down. I want to take advantage of the strong dollar and pay it off all at once, atleast the high interest loan. To me, a combination of things may be needed and again, it depends on how quickly one wants to pay off these loans. I think being in debt is a matter of self-respect and I want to pay it off ASAP. I have not changed my life style since being a resident. If anything, I have downgraded further (except I have maximized my pre-tax contributions / IRA, HSA, etc).
I encourage all doctors to follow Dr.. Dahle’s advice very seriously and find solutions to pay off debt ASAP and move on with your life.
Sounds like a great option for Canadians. Hopefully the refinancing companies will go after this business as well.
I’m in a different boat…. I’ve refinanced already and because of that, i am making higher payments to have my loan paid off in a 10yr term. The way it sits right now, it will be paid off in 10/2020.
I’d sure like to cut those payments down and put that money toward a house, so can I refinance into a lower payment to take advantage of the PSLF?
I have about 90k left for my loan repayment
Have been in practice since 2005
Just wondering if I should hold out for PSLF that may occur in 2 years for me or try to refinance the rest
If you will definitely get most of that forgiven in just 2 years, I wouldn’t refinance it.
Hey, just wanted to say this is a great website and being a 4th year med student, I really appreciate all your work. My question regarding the PSLF program is that if a change does happen in the future, do you think people will be grandfathered into the old system since they are in the middle of making payments? I have close to 280k in loans and planning on doing a 6 year residency so this program seems like a god-send, but I am worried about it changing while I am making payments.
Yes, I think they will.
Darn it. I just spent 30 minutes crunching the numbers via excel and I don’t think I can beat the PSLF program with refinancing loans.
Assumptions: 200,000 AGI as primary care physician (yes it’s high but I’m willing to work in the boonies. An even lower AGI would support PSLF even more)
Situation: 185,000 in loans accruing @ 5.88% cumulative.
PGY 1.
The current refinancing offers are 4.75% for residents and then 3.3% as an attending for the 3 year payment plan. I calculated a savings of roughly 100,000 doing the PSLF program versus refinancing all my loans…and that doesn’t take into account time value of money of making such substantial payments early on as an attending.
The only confusion I have is whether most primary care jobs are eligible for PSLF as an attending and whether they are as well-paid as those that are not eligible. If the difference is like 20,000 gross annually then I’d just do the refinancing option for less headache and more certainty.
Do you (much) more experienced attendings or residents know whether the non-eligible positions are substantially better paid and if most primary care jobs are eligible for PSLF? Thanks a lot!
P.S. The loans accruing via PSLF don’t bother me *that* much since the 20,000 accrual in my residency would raise my loans to only 206,000 and the extra money I have could be dedicated to even more of my 401K fund. I’m putting 11,000 towards retirement funds each year during residency as it is *with* current loan payments of 11,000 a year…
It appears that those of us that have had Direct loans before July 1, 2014 are subject to the 15% and not 10% discretionary payment rules of IBR…correct? That’s my understanding.
“*For the IBR Plan, you’re considered a NEW BORROWER on or after July 1, 2014, if you had NO outstanding balance on a William D. Ford Federal Direct Loan (Direct Loan) Program loan or Federal Family Education Loan (FFEL) Program loan when you received a Direct Loan on or after July 1, 2014. (Because no new FFEL Program loans have been made since June 30, 2010, only Direct Loan borrowers can qualify as new borrowers on or after July 1, 2014.)”
https://studentaid.ed.gov/sa/repay-loans/understand/plans/income-driven
I have read that many ‘refi’ companies aren’t allowing for extra payments to ‘pay against principal’? Not sure if this is true or not… but if so it makes PLSF (for those that can do it) more attractive.
Not true. If you are in residency, you just need to pay any interest due before you can pay down principal. The programs for residents have payments so low they don’t actually cover the accrued interest. But if you pay enough, then you can cover the interest and pay down some principal in residency.
I assume it is the same after finishing residency or do the rules change?
After residency your payments will be large enough to cover interest and principal. Interest accrued during residency capitalizes and starts generating its own interest. It’s like any loan really. You can’t pay down principal until you’ve paid accumulated interest and fees. Why would it be any other way?
I thought what I read on your refinance post in the comments section that there is now some penalty for paying off the loan quicker than scheduled (ie refi for 10y but want to pay off in 6y meaning not paying interest for yrs 7-10–company is losing future interest)? I was confused by this bc it doesn’t make sense to me…
I agree it doesn’t make sense. If you read that whole thread you’ll see that there was a loophole where some people were able to pay money directly to principal rather than uncapitalized interest with DRB for a few months. DRB closed the loophole and some people cried “foul” but that’s the way the loan documents are written (and really when you think about it, the only way that makes sense.)
Hi, I have 320k in medical school debt and am starting peds residency this summer. Plan on doing a fellowship. I have a condo left to me that I could sell for about 300k, so minus taxes and fees, say I net 240k. What do you think about me selling and putting that entire amount to my medical school debt? I would love to hold onto the property (it is bringing me rental income now), but it would be a huge relief to only owe 80k as opposed to 320k and just save to one day buy a home and rental property? Appreciate your site and book!
What a wonderful gift! If you know you won’t be working for a 501(c)3 after residency, go ahead and do that. If you’re not sure, I’d wait until you are.
Howdy! This article couldn’t be written any better!
Going through this post reminds me of my previous roommate!
He always kept preaching about this. I will send this article to him.
Pretty sure he will have a great read. Thank you for sharing!
I realize this is a very old post, so I apologize.
WCI, wanted to ask a question about your analysis here. You’re assuming an income of $250k at a non-profit institution and calculate out PSLF vs Refi/pay-down based on the same income in both scenarios. But isn’t the biggest factor here the fact that you could make a lot more money if you are not working in a 501c3? Based on your calculations, this doctor would save $76k by doing PSLF rather than paying own in 3 years, however if he made at least ~$25k ($76k/3 years) MORE at a private sector job, wouldn’t it be worth it to just pay down every time? Unless youre working in a specialty that primarily exists in academic centers (ie, lung transplant surgery), there’s a decent chance you could make up this $25k/year (in this scenario) difference in a private practice and therefore always make the argument in favor of refi/pay-down.
It depends. Many 501(c)3 jobs pay just as much as a job at a for-profit institution. Obviously if you’re making twice as much you’re going to be better off at the private job in most scenarios. But you’ve got to run the numbers.
So what do you guys recommend for someone like myself, who could not afford to make IBR/PAYE payments during residency and was in deferment? I am graduating anesthesiology residency in June and will be doing a fellowship next year. After 5 years of training, I will have only made 12 qualified IBR payments during intern year. I plan to work for a non-profit academic center and will qualify as an attending. I currently owe ~$300k @ 6.8% interest. I am favoring refi, living like a resident and paying off ASAP to rid this animal, but am curious to know what everyone else thinks. I believe the calculations suggest the difference to not be as great compared to one who makes payments during training.
Obviously in retrospect going into deferment was the wrong move. But what to do now? All you’re really going to get forgiven is the difference between your intern payments and full payments compounded out for a few years. That makes PSLF much less attractive. You’d have to run the numbers to know for sure, but I think I’d refinance and pay off.
I am interested in hearing recommendations for someone who recently matched into anesthesia. I will graduate medical school with roughly 400k in debt (with average 6.2 interest rate on Direct Loans). I am single and no kids. I am interested in pursuing a fellowship, so I will be at a resident/fellow salary for 5 years. I would like to enter residency with a solid financial strategy but stuck on paying off the loan myself ASAP or reaching for the PSLF. The PSLF seems like a big gamble, but I have the fear of missing out on not paying a big chunk of my debt. I think the general gloomy outlook on the PSLF surviving for another 10 years makes me lean more towards paying it off myself ASAP considering anesthesia has remained a high paying field. WCI, what do you think?
Why not go for PSLF (assuming you want to be an academic or otherwise work in a 501(c)3) and just save up a side fund in case something happens to PSLF? If something happens, you pay off the debt with the side fund. If nothing happens, you add that side fund to your nest egg when you get PSLF.
I guess my biggest concerns about the program I haven’t found a physician who has successfully completed the program. Although President Trump gave a one $350 million boost towards the PSLF this Friday, it is still very unclear if it will remain or people will get grandfathered in. And, I am not sure where and what to build a side fund in to overcome the building interest on the loan? (Again, all of my finance knowledge has been through this website and wonderful book that you wrote. So, I feel like I have fallen behind by not reading/learning it before medical school.) Lastly, I think I could get financial freedom quicker (7-8 years vs 10-year forgiveness) by trying to pay myself as an anesthesiologist. Then the following 2-3 years of being debt free, I could build a financially secure future in private practice. Then transition to academics with some independent experience under my belt and an investment portfolio that would make up the salary difference between private practice and academic anesthesia. If this seems like a horrible idea, please let me know. Again, this is the first time I have put significant consideration into managing this debt. I greatly appreciate your help!
I would invest my side fund just as aggressively as my retirement funds. But if you’re not comfortable, then refinance and start paying the loans back.
Would you recommend pursuing REPAYE for the initial 3 years considering there is a half subsidy on interest? My lender stated the interest gets capitalized quarterly, which makes me think a private refinance is better.
Compare the effective rate under REPAYE with what you get refinancing (assuming you’re not going for PSLF, in which case you should stay in a government program.)
After further research, I believe I will proceed with your original suggestion of pursuing REPAYE and building a side-fund so I can keep all my options available by the time I am more ready to decide if I want to pursue PSLF or not. From my understanding, the best way to utilize the REPAYE interest subsidy is to make as little payment as possible, so the government can pay most of the interest. My goal for my intern year is to build an emergency fund. I believe you would also recommend pursuing the ROTH IRA as a resident. After completing these 2 goals, what side fund investment could I make to protect myself from the accrued interest if I do not pursue academics after residency?
If it were me, I’d probably just buy some index funds like Vanguard Total Stock Market and Vanguard Total International Stock Market in a taxable account. If I were a resident that might be a little different in that I might just spend everything after a Roth IRA(s) and minimal loan payments or contribute to a Roth 401(k)/403(b) if available, but as an attending I’d be maxing all that out and the “side fund money” would then have to be in taxable.
Thank you so much for your help!
I’m still in training and I’ve been parking my PSLF backup money in a taxable index fund and just putting whatever I can in there. I max out my Roth IRA but make no 403(b) contributions (no match, and I’m worried about PSLF).
It was growing, but this quarter was a rough one. The problem is that index funds do have quite high volatility and really this is a fairly short term investment (6 more years for me).
at what point do you think you would nix the PSLF route?
I’ve been going back and forth, but only starting my intern year this year. I figured the best route would be to keep the PSLF route available just in case I fall in love with academics during my anesthesia years. So, I was going to make these investments in order to potentially offset the interest I accrue and decide at the end of the 3rd year of my REPAYE when the interest subsidy goes away if I want to go refinance or PSLF. If I do refinance, I would take the money out of the taxable investments and throw it at my interest then refinance for a lower interest rate.
When would I nix it? When I was told I wouldn’t qualify for it or when I took a non-501(c)3 job.
Like with any investment goal/asset allocation, it is critical that you don’t exceed your risk tolerance. With this particular goal, there is a very good chance this money is NOT to pay off the loans within the next few years, but for retirement decades for now, so I personally would take plenty of risk with it. If you’re not comfortable with that, use a balanced fund or a bond fund.
I’ve searched WCI for this answer but haven’t been able to find an answer yet. I’ve got ~$200k in direct loans that are eligible for PSLF and ~$60k in Stafford loans that are NOT eligible for PSLF. All these loans are with FedLoan. Do the loan refinancers/FedLoan allow for only the non-direct loans to be refinanced? It seems that this would be the best path forward, but I’m curious what factors I may be over-looking.
Yes, but I’m not sure why your Staffords aren’t eligible? Can’t you consolidate them and make them direct?
I consolidated the larger portion 6 years ago, and for some reason thought these couldn’t be converted to direct loans, but couldn’t remember the reason. Anyways, now I’ve been making IBR payments for 6 years of residency/fellowship. If I consolidate those Stafford’s now, would that portion start out at zero of 120 payments? That was my assumption which is why I was planning to refinance that portion to get a lower rate when I have to start making full payments.
I suspect it would restart the clock, but would check with the Feds to know for sure.
I’m in a relatively unique situation, but some principles of it may apply to many new graduates…My PGY-1 year qualified for 501(c)3/PSLF payments, however when we transition to PGY-2/3 in the office (Fam Med) we also transition our primary employer, and I won’t be eligible PSLF during these years. I am considering a 1 year fellowship, which depending on where I end up may or may not end up being 501(c)3….
Ultimately the issue here (which may apply to other residents) is which path to choose for repayment with 300k, and an unknown future employment path ( wise to choose a 501(c)3 for 7+ years? Will my career path even make that realistic if I go into sports med?)
For now, I’m doing RePaye/enrolled in PSLF. My concern is I’ll reach graduation and if I’m lucky enough fellowship, realize I have less than a years worth of PSLF payments which will lead me to refinance my loans anyway, but with 50k+ interest accrued on a 6% federal loan rate. My hesistance to refinance now is that if PSLF is still a viable option for me down the road, I will have passed up 100k in loan forgiveness…
The fewer in-training payments you make, the less valuable PSLF becomes. But you’ve got a tough choice there.
Here’s my situation that I would love some advice on…I am finishing a EM/IM/CC 6 year residency program and have been making IBR payments the entire time (my loans qualify and are held by fedloan ), my loan amount is now astronomical thanks to a high interest rate when I took out loans and a long residency. I am sitting at 500k now. I am currently debating between three paths:
1) Work as a hospitalist or intensivist (salary likely 220k-280k in my area) and moonlight in the ED a few shifts a month to make sure my income is 300k or higher and I qualify for PSLF.
2) Work pure ED (rates are 200/hr) as an independent contractor and take odd jobs at higher rates that may require some travel and aggressively pay off the loans. I would anticipate making 400k+ this route. This would hose me as I would not be able to buy a starter house since I will need 1-2 years of income as an independent contractor.
3) Find a 7 on/7 off intensivist position employed directly by a hospital (in another state if necessary), and fly back and forth several times a month and moonlight a couple shifts a month in the ED. Salary 400k+ and will qualify for PSLF, but I am married and have kids and this would get old fast.
I am leaning toward option 1, but may have to commute a bit to find a hospitalist position. Any thoughts/advice?
1. Why does your income need to be $300K to qualify for PSLF? If you have a full time position as a 501(c)3 employee, you should qualify for PSLF in 4 years. That’s like a $150K/year raise when you consider the forgiveness is tax free. You seem like a great PSLF candidate to me.
2. You could probably still buy a home with a doctor loan. Not that you necessarily should, but you could.
3. Not a big fan of family separation. Divorce is very expensive and life isn’t all about money anyway.
I kind of like option 1 too. I assume there are no non-profit employee EM jobs where you want to live. Have you considered staying on as faculty for four years?
Wow thanks for the quick response.
1) Sorry didn’t mean had to be 300k to qualify, just wanted a bit extra income as a buffer just in case PSLF gets gutted. Id take the extra cash and invest it someplace where it is liquid so I can access it if and when PSLF is eliminated in order to pay down my debt ASAP.
Sadly, no EM jobs at a non-profit in the area I will be living. Seems TeamHealth and other groups own everything in the area.
I am currently in New York, and absolutely hate it here, so staying is not an option.
Hello, looking for some advice. I am a pgy-2 with 5 more years of training including fellowship. I have 225k of federal loans. I would finish my training with 7 years of payments towards PSLF. My husband is also a resident. He has about 50k of private loans. He will start having an attending income in 3 years. Two years after that I will also have an attending salary. I expect our combined salary to be at least 600k. I am not sure that I will make it to ten years to take advantage of PSLF; if that is the case I’d rather refinance and pay down my loans aggressively. Any idea how to calculate this out?
These folks can help you:
https://www.whitecoatinvestor.com/student-loan-advice/
But a few things can be said:
# 1 Your husband should refinance his private loans now and pay them off ASAP. He can refinance them again when he hits attendinghood if they’re still around. SoFi and Laurel Road will refinance residents.
https://www.whitecoatinvestor.com/student-loan-refinancing/
# 2 You’re probably a great candidate for PSLF given a 7 year training period and assuming you want to do academics for at least 3 years afterward. That means you should probably be filing MFS and in the PAYE program and not refinance.
# 3 $275K in loans is nothing with a $600K income. I could VERY easily pay that off in a year, maybe 9 months, coming out of training by living like a resident. So if you decide you just don’t want to hassle with PSLF, then sure, refinance and start paying them off. But I bet if you run the numbers it makes sense to go for PSLF.
Youd have to do the math, but if you file taxes separately your first year as an attending your payments are based upon your previous years salary. So your 8th year will be a low payment since it will be based on your last year of fellowship, your 9th year will have only 1/2 a year of attending salary, and your 10th year will be based on a full attending salary. So may be worthwhile filing separately and have your husband just pay off his loans and you go the PSLF route and save money on the side in case PSLF goes to crap.
Other people likely know more than I so feel free to correct the above if Im thinking about it the wrong way.
Hi WCI! Thanks so much for this website – your expertise is certainly helping to demystify the whole loan repayment process for me.
I’m an Emergency Medicine PGY2 with about $237k in college/med school loans – ~$189k in direct unsubsidized Stafford loans, ~$32k in direct student PLUS loans, and ~$16k in Perkins loans. (That’s not including interest, of course.) The interest rates range between 5.06%-6.59%. I live simply/save aggressively, and it wouldn’t be an issue to continue these habits for as long as necessary post-graduation. I’m on PAYE and pay ~$300/month now, but in addition to that, have already paid off a few loans in full. My strategy has been to attack the higher-interest rate loans first. (Maybe that was a foolish move; at the time, I wasn’t sure about whether I’d pursue PSLF, and gave in to the allure of paying down my total principal.)
My residency is 3 years long and I’m currently thinking about a 1-year fellowship. Whether or not I choose fellowship, I will likely work at an academic hospital post-graduation. Considering my relatively short training period and attending earning potential, I’ve spent much time debating whether consolidation/PSLF would be worthwhile, or whether I should just refinance post-graduation for a lower interest rate. My credit score is decent but I haven’t (yet) approached a refinancing company to get estimates on possible interest rates.
1. What are your thoughts in general – given the factors above, am I better off pursuing PSLF or aggressively paying my debt down post-graduation? At this juncture, how likely do you think it is that PSLF will still be around in 10 years?
2. If I can continue to completely pay off some of my loans with smaller principals (i.e. the ones that are $7-8k) during residency, is that worthwhile?
3. Is my loan repayment strategy (attack the highest interest rates first) wise? Or should I start with the loans with the highest principals?
4. At this stage in my training, is it worthwhile to discuss possible interest rates with refinancing companies, or is that a waste of time?
Thanks so much in advance for your thoughts.
1. As a general rule, an academic doc should go for PSLF. It’s very difficult to run the numbers and come to any other conclusion, assuming they enrolled in an IDR as an intern. How likely? I’d say 95% for someone like you already enrolled, but I have zero data for that.
2. Not if they’re eligible for PSLF.
3. Neither if going for PSLF. You should be putting that money in a PSLF side fund.
4. If you decide not to go for PSLF, sure, why not?
Any thoughts on the NHSC primary care loan forgiveness program? I’ve been banking on that to overcome my out of state tuition and loans I took to help put my son through college, but I fear it’s also under the gun. Thanks for compiling and making sense of all this info.
Sure, if you qualify, go for it.
I am also looking for advice similar to many others. I have $540k in med school debt. Getting ready to start practice as an orthopedic surgeon as a hospital employee at a 501(c)3 hospital. Base salary $485k. Married with 3 kids. I did one year of IBR in residency that qualifies for PSLF. Trying to decide if I should continue to pursue PSLF or go ahead and refinance over a 10-15 year period. We aren’t planning on buying our dream home or living excessively, but also not wanting to “live like residents” anymore with our 3 kids. We are somewhere in between the two. I also have opportunity to invest in ancillary services /ASC which I would like to pursue early. Any advice would be greatly appreciated.
Only one year in residency? $485K? $540K? It might pencil out, but not by much. I think I’d try to pay about $150K at the loans and be done in 4 years with them.
Thank you so much for providing those of us going into this field as well as those already in it such comprehensive information and advice!
I am a medical student soon-to-graduate into a family medicine residency, but with a loan burden of close to $500k by the time I finish my 3 year residency. I’m on the fence between PSLF for various reasons – I see that I have a lot to benefit if I were to have my loans forgiven, considering my loan burden. At the same time, however, my residency training is fairly short (even if I decide to do a fellowship, which I feel at this time is unlikely, it would likely only be 1 additional year), and although the program I will be working at will be at a PLFS approved hospital, that still means 7 years of determining where I will work after, and that is assuming everything goes well and I actually do get my loans forgiven. On the flip side, should I choose to refinance my loans and go that route, I am mentally prepared to “live like a resident” for some years after residency and essentially put most if not all of my savings/non-living income into paying off my loans as quickly as I can. Currently I am single with no partner or family, and will be a resident in the mid-west with very low living cost (especially compared to where I grew up, in California) – if anything I thought this would help me to start paying off more of my loans during residency (and hopefully lessen some of that interest burden). Additionally, my eventual end goal as of now is to end up in private practice, hence some of my hesitance in wanting to commit for another 7 years out of residency.
In short, I’m wondering if there’s anything else that I should take into account while deciding between refinancing and paying off vs. PSLF, and especially if there is any glaring flaws to my thinking.
$500K? Family medicine? Already planning to work for an eligible employer? Seems like a no-brainer to go for PSLF. Save up a PSLF Side Fund of course.
https://www.whitecoatinvestor.com/pslf-side-fund/
Either way you have to live like a resident for quite a while, probably close to 5 years.
I’ve been learning a lot from this website! Thank you!
I just recently graduated from medical school this month and will be going into a family medicine (3 year residency) and not quite sure if my residency program is PSLF approved and my direct loans from med school is about $177k.
I am also on the fence about whether to 1) refinance my loans, 2) do REPAYE/PAYE during residency and then decide to refinance after residency if I don’t get a non profit position, 3) commit to PSLF
But with my loans only being $177k (compared to others with $300k) and only doing 3 years of residency, is it worth doing PSLF? Or would it be better to refinance now and pay off my loans as soon as possible?
I am also married and my husband is working (he is currently a PhD student(debt free) but will find a job with a higher income than me or similar most likely in the next year or so). I understand this also comes into play with how much I have to pay off monthly. (Although my husband will not be helping to pay off my loans)
First find out if the program is a non-profit. It probably is.
Assuming it is, then why not just do # 2?
My 3 year (Emergency Medicine) residency program is unfortunately NOT a non-profit / 501c3 program. Does this mean that I won’t be eligible for PSLF? Or does it mean I’ll just have to wait until I finish residency to apply for PSLF and begin making the 120 payments?
Would payments made during residency count towards the 120 requirement, even if it isn’t a non-profit / 501c3 program?
Appreciate any help!
Your payments in residency won’t count. Bummer. Might still be the right path for you, but you’d need to run the numbers. At a relatively low debt to income ratio, it probably isn’t right without those low residency payments.
Only payments made while working for a non profit or government agency count, although there is a slight exception in Texas and California if you work for a company that contracts with a non profit.