I have had a number of questions recently about student loan management. None are long enough for their own blog post, but all are worth discussing here.
How Much Is Too Much Debt?
A bunch of pre-dental and pre-medical students over at the Student Doctor Network wrangled me into a discussion on when medical or dental school no longer makes sense as an investment. I’ve talked about this before, but that was long ago and at a time when student loan refinancing wasn’t available. Basically, the question is does it make sense to go half a million bucks into debt in order to get a job that pays $120K or even $200K?
Surely there is a ratio where it no longer makes sense. It is one thing if you have a bunch of scholarships or your parents are paying a bunch of money for your education. I guess I don’t have a problem with a dentist expecting an average income of $120K a year paying $400K for an education, as long as he doesn’t have $400K in debt upon graduation. I think a good general rule is that your student loans should never be more than 2X your expected average career salary, and preferably much closer to 1X. However, this isn’t a cut and dry question that can be dealt with via a simple rule of thumb. Just because some dentists settle for a $120K income doesn’t mean you have to. On the medical side, while it may not make sense to take out $450K in loans to be a pediatrician, that doesn’t mean you couldn’t handle that as an orthopedist.
Basic Approach to Student Loans
I am referring more and more people every week to get student loan specific financial advice. I am also often asked for a good book or reference on the subject, but don’t really have one that is up to date enough to recommend. However, a lot of people just need a basic overview of the key principles. Here they are:
The basic approach is this:
- Minimize how much debt you take out. Use other resources, get scholarships, work, and choose the least expensive schools that can help you reach your goals.
- Try to take out the most favorable debt possible. That might mean taking out a little more as an undergrad so you can take out less as a grad student, spreading parental assets out over all 4 years to avoid private loans, or having more mortgage debt and less student loan debt. It also means not taking out the loans until you absolutely need them, and maybe even then delaying them a year with a 0% credit card.
- If someone has to borrow for school, it should usually be the student even if the parent can borrow on better terms. Otherwise, disability/life insurance on the student should be taken out to at least partially protect the parent.
- Upon entering residency, decide between REPAYE and student loan refinancing. This is complicated given recent changes and the most likely time you will benefit from professional advice. As a general rule, lean toward REPAYE.
- Upon completing training, decide either to go for PSLF or refinance the loans (if you have not already.)
- Live like a resident until the debt is gone.
Credible
I brought on a new refinancing company recently as a blog sponsor. They’re called Credible. The coolest part about Credible is that they allow you to apply with multiple companies with a single application. There are downsides, however, in that most of the best/most active refinancing companies aren’t on their list of companies. Plus, of the ones that are (such as CommonBond,) you get a better deal by going directly to their site via my links, where you get a $300 cash bonus that Credible isn’t currently offering (yes, I’m working on it.) At any rate, more options are a good thing so take a look if you’re in the market for a refinance. Credible is also partnering with WCI to provide private medical/dental/graduate school loans. Same principle- one application, multiple lenders. Obviously you probably want to max out your federal loans first. [Update: You can know get a $350 cash bonus by refinancing with Credible. They do have some bigger lenders now (Citizens Bank, Purefy, CollegeAve). -ed]
Lend Key
Lend Key is also a newer refinancing company to the site. They are somewhat similar to Credible in that they work with multiple credit unions to find one that will refinance your loans. I’m a big fan of credit unions as their structure often makes for attractive rates and fees on loans and other financial products. I’d love to hear about your experience with Lend Key in the comments. As a WCI reader, if you use the links on this page, you get an extra $300 in your pocket when you refinance with them. I suggest you put it toward the principle on the loan.
How Much More Do I Pay To Refinance As A Resident
Four years ago, you couldn’t refinance student loans at all. Even as recently as a year ago, you couldn’t refinance student loans as a resident without a contract in hand. This year, Laurel Road and Link Capital started refinancing loans right as you walk out of medical school. However, a few readers called “foul” as they felt they were getting a bait and switch with the rates. They saw that these companies offer rates as low as 1.9% variable (awesome ATTENDING financials, 5 year term), but weren’t getting anywhere near that. So I asked the companies what the deal was. Here’s what they said.
Laurel Road doesn’t disclose their exact pricing matrix to the public because it is proprietary and fluid but their pricing is based on the applicant’s credit and risk profile, and that applies to residents as well. A signed contract gets you attending rates and you can even still get the $100 payments until you start working. But if you just started residency, your rates would be at the higher end of the published range. They can be lowered if there is a high-income co-signer. So if the 5 year rates are 1.9%-4.08% variable or 3.50-5.25% fixed, then you should expect your offered rate to be close to 4% variable or 5% fixed if refinancing as a resident. If you’re looking at a 10 or 15 year term, rates would be higher.
Link Capital does not offer residents a variable interest rate. The fixed interest rates start at 4.75%.
Both companies allow you to refinance again upon residency completion. Refinancing with them in residency allows you to have lower in-residency payments ($100 with DRB and $75 with Link Capital) than you may have with IBR, PAYE, or REPAYE. Plus assuming the rates are lower than the loans you’re refinancing, you’re likely to save a lot of interest in the long run. Two caveats to be aware of prior to refinancing loans as a resident-
# 1 DON’T REFINANCE IF SOMEONE ELSE IS GOING TO PAY OFF OR FORGIVE YOUR LOANS. You don’t want to refinance if you’re going for PSLF.
# 2 Be aware that your effective interest rate during residency under REPAYE may be lower than the rates offered by a refinancing company due to the fact that REPAYE subsidizes half of the interest due. More details here. Resident refinancing isn’t quite the no-brainer it is for an attending not working for a 501(c)3.
The Laurel Road Snafu
I had a few readers call “Foul!” last month on Laurel Road. Apparently, there was a computer snafu that was allowing residents who had refinanced to pay money directly to the principal on their loans, without even paying the accumulating interest. Obviously, that doesn’t make any sense. Laurel Road eventually fixed the software issue that was allowing that. So if you got a few payments in during that time period, count your blessings, you weren’t supposed to be able to do that under the terms of your loan. The way they were reporting the anticipated future (not actual) interest also confused a few people, so they’ll likely make some website changes there to make it more clear.
Switching From REPAYE to IBR
Some astute readers have wondered if it is going to be possible in the future to switch back from REPAYE to IBR at residency graduation. That would allow the resident planning on PSLF to take advantage of lower payments in residency, but still be able to get maximal PSLF forgiveness. I’m still looking for clarification on this issue; if you have a good source, I’d love to hear about it. [Update: 1/13/16 – Jan Miller assures me that under current law you can switch between repayment programs once per year, but he worries, as you should, that law could change in the future-i.e. that once you’re in REPAYE you’re stuck in REPAYE.)
France isn’t all fun and games
Just Do It!
Now, the more significant issue is there are still tens of thousands of attendings out there paying 6.8% or more on their student loans. You are not working at 501(c)3s. You’ll have the loans paid off before you get any IBR forgiveness at 25 years, which is taxable anyway. REFINANCE YOUR DARN LOANS ALREADY! If you have $200K at 7% fixed, and change to 2% variable, that’s $10K a year in after-tax money that goes into your pocket. I know from experience that pays for a very nice 14 days in France for two. Every year. Of course, YOU shouldn’t spend it on that. You should be living like a resident and put that $10K toward your loans. Residents don’t vacation in France.
Here are the links you need. All of them are affiliate links, which pay me if you use them. But for most of them, you get $200-550 cash back (put that toward your loans too) you wouldn’t get if you went directly to their site.
What do you think? How much is too much debt? What do you think is the best way to manage student loans? Have you refinanced your loans? Why or why not? Who did you use? Did you use Credible? How was the experience? Which lender did they end up pairing you with? Comment below!
Im a freshman in college right now and although my parents are trying to pay the 60k a year for my education i know inevitably i will have to take some student loans out. With college so expensive these days I can see my self being in a lump sum of debt! I appreciate the advice given in this article!
$60K a year for undergrad?! Wow! Generous parents.
Yea its those private universities that always cost the most! Sometimes i wonder if it would of been better to go to a state school for half the price and get the same education out of it.
I don’t wonder. I know it was better. 🙂
You CAN switch to different school…
Funny thing, the first thing we did last summer after paying off the student loans (despite being in PSLF)…take a two week vacation to France.
This comment is just a thank you note about student loans. Before I started reading WCI, I had some crappy financial advisor who had me paying the minimum on my 180k student loans, and investing 2000 a month in loaded mutual funds. When I finally smarted up, I fired him, sold my funds and paid off all my loans within 3 years of finishing residency. There wasn’t any magic to it, just kept living like a resident with only a few upgrades. Being student debt free makes everything else easier.
Well, guess I’m going to ask DRB to re-finance again after I finish residency this year, because I’m one of those that didn’t get anywhere near the lowest 1.9% variable rate they advertise.
Maybe I’ll give SoFi a shot this time…it’d be nice to pocket another $300.
It seems pretty easy to reapply once you’ve gathered the paperwork one time.
The only thing I’m not sure about is if there’s a good timing for this? Right out of residency? After 1 year of high attending salary?
I don’t see any reason to wait a year. Maybe a month or two. But I’d probably do it as soon as I had the attending contract in hand. You can always refinance a year later if they’ll give you a better rate. Especially at this time with expected rises in interest rates. Most of these companies have raised rates 0.25% in the last month along with the Fed, at least on their variable loans.
I wanted to ask if anybody had difficulty trying to refinance through DRB. I signed loan documents in October and DRB still has not followed through with the refinance. On questioning, their response was that they had several people attempt to refinance at that time, and they do not have the funds available. I was reassured all the paperwork is completed, and they will pay off the federal loans as soon as the money is available. My only issue is, the longer i wait, the longer my loans are compounded at 7% instead of 2%. Anybody have a similar problem? Should I move on? DRB did offer the best rate. If it helps, I’m trying to refinance a loan well below the national average in medical student debt, so the asking amount isn’t outrageous. Any thoughts WCI? I’ve been a long time reader and supporter. My financial knowledge and planning is drastically improved thanks to your work. BIG THANK YOU for all your help
That’s a new one on me. I know Link Capital was short on cash a few weeks ago, but I think that was resolved. I hadn’t heard the same for DRB. Let’s have my contact at DRB look into it. I’ll CC you on the email.
They both had that funding issue. It took 2-3 months for me to get a response back at which point I had already refinanced with LinkCapital.
I’ve got a new company coming on board now that also refinances loans in residency. Initial indication is that rates may be a little higher than DRB/Link Capital, but if the customer service/ability to fund the loan gets too bad, it may be a good option. REPAYE, of course, is also now a highly competitive option for residents.
I waited a month and they still couldn’t give me an answer on when the application would be processed. So, I went with SoFi, which only took 2 weeks.
Err– I waited a month with DRB.
I was approved by DRB in early September 2015 (still a resident). The payment to my previous (then current) servicer just came through last week. It literally took 4 months. DRB did take several days to a week to reply to each of my emails, but eventually responded to each one. In the end, they did actually make a $500 monthly payment to my previous servicer due to the delay. So far I have not been impressed with their customer service, though I have to admit the $500 payment went most of the way toward placating me. They have also agreed to pay the interest that has accumulated during the delay. Be persistent, and don’t be afraid to ask for compensation. If they’re unresponsive, I would hesitate to go somewhere else – I was very close myself.
not* hesitate
Glad they were able to help you out. Sorry for the hassle.
I had the same situation as you. My official close date was October 15th. They delayed it four times until they finally came through on December 15th. They just kept telling me they were short on funding to keep up with the massive demand to refinance. I called them nearly every week to see if there were any updates. This may have been a case of the squeaky wheel getting the oil, but who knows. After a few weeks they were very apologetic and sent me email updates on my status every few weeks. Good luck.
Glad it worked out for you eventually. Your comment makes a good point- the money to refinance your loans has to come from somewhere. It might be taxes/printing money from the government, or it is an investor’s money eventually routed to you through the financial system. It’s not the magic money box. When it’s empty, it’s empty, and keeping it from getting empty has been a challenge for all of these companies over the years.
They gave me credit for the difference in interest rate.
I had about $50000 in med school loans with average interest rates of about 5.4% that I refinanced this past spring with DRB at 3.5% with a 5 year pay-off period based on ads I saw on facebook and on your blog. I got the $300 credit by doing the refinance through the link on the WCI blog! I didn’t have any issues with the loans getting funded, but maybe that wasn’t an issue with DRB last spring. The monthly payment with DRB is much higher than the monthly amount I was previously paying, but since the rate was so much lower and I’m an attending now, the higher monthly payment isn’t a big deal. I have about $100000 in other student loans with an average rate of about 3.25% so I didn’t refinance those loans and I’m currently just paying them at the lowest payment so they won’t be paid off any time soon. In 5 years when the DRB loan is paid off, I should have about $81000 in other student loans remaining and I figure I can just take the ~$920/month I’m paying to DRB and use it to pay off my remaining loans faster if I don’t make more money in the mean time that I can use for that same goal.
My other debt is a mortgage and while I’m not on track to achieve your level of financial success so quickly after finishing training, your blog and book have helped my wife and me come up with a much better financial plan than we previously had. I just wish I had come across your advice a few years sooner. Would likely have made some different choices… Anyway at this point rather than rapidly paying down the other $100000 in student loan debt, we’re just continuing to avoid other debt, trying to get up to 20% savings (about 13% last year, should be much easier this year without a move sucking up all kinds of money), and maxing out tax deferred savings opportunities. Thanks for all the great suggestions you have provided!
I think if you’re still working on getting retirement savings up to 20%, then you’re probably going about this the right way (i.e. not paying off loans faster.) You might consider a tighter budget, of course, although it is hard to cut back on lifestyle.
My situation is a bit unique. I have about 80K at 6.5% in federal loans from medical school. I worked my way through college, so debt free undergrad. I got married in May and my wife has 80K at 7.8% in private loans from undergrad so I am working on getting our debt at a minimum rate. Her loans are not eligible for any graduated repayment so I am working on getting the lowest rate and lowest monthly payment while in training (Internal Medicine 2nd year, bound for Heme/Onc). My strategy has several iterations. I have consolidated her loans into my name so they will be eligible for MD specific refinancing programs and my credit score. Hopefully the consolidated loans will only exist for a few weeks during the refi process.
Plan A: Step 1 consolidated loans from 7.8% fixed -> 6.5% variable. Step 2 attempt to refinance all 160K with DRB or Link Capital (100/mo and 0/mo repayment plans in training) Step 3 pay down as much as possible during training, but have flexibility depending how much she can work after our 1st baby is born in March Step 4 after graduation, refinance to a 5 year and pay them off in 3-4 years.
Plan B (if DRB/Link fall through): Step 1 consolidated loans from 7.8% -> 6.5% variable Step 2 refinance 80K at 6.5% variable to the lowest monthly payment option and keep my Federal loans in PAYE to minimize our obligate monthly student loan payments. Step 3 after graduation, refinance everything to a 5 year and pay them off in 3-4 years.
*important insight* if you refi with DRB or LinkCapital, they repayment term starts at graduation meaning you can get a 5 year term loan for a much lower interest rate than a 10, 12, or 20 year and can make payments throughout residency while you are in “deferral”
Experience so far:
Plan A: Link Capital has not been accepting new applications for at least the last month. They keep claiming it is due to website issues. I’m wondering if it’s more of an issue with funding. Re-fi application pending with DRB.
Plan B: SoFi application was super quick and they offered a great fixed 20 year loan at 5.375% saving tons of money compared to initial 7.8%. CordiaGrad (via Credible) offered a much higher interest rate (5.7%) and a max repayment term of 12 years. Citizens Bank good rates based on Credible’s quote, but won’t refinance until at least 3 months of repayment demonstrated (since I just consolidated her loans into my name they have 0 months of history).
Overall, in the best case scenario above I will be ahead at least 30K by the time the loans are paid off. Couldn’t have done any of this without learning a ton from WCI. Thanks so much for the site!
You’re very welcome.
That’s the first time I’ve heard of the strategy of pulling a spouse’s loans into yours. That works great if you die and she doesn’t, but obviously doesn’t if the opposite happens. Better make sure that marriage is stable too! I think I’d probably generally recommend against that sort of thing and didn’t even realize it was allowed.
I think part of the difficulty in figuring out what is too much debt is it’s probably very different at different income levels. Someone with a higher income will always have more potential disposable income which can go to debt repayment. Someone making 20K per year and paying back a 40K loan is in a much worse position than someone making 200K and paying back a 400K loan–now that’s assuming the 200k person didn’t make all the stupid doctor mistakes of buying a McMansion/car/etc. If you live like a resident, you can pay that back relatively quickly; while the 20K person doesn’t really have much he can cut back on. I imagine there are other factors like cost of living, getting married, having kids–but even then, you can have a pretty good lifestyle and still payback the loans.
This is just me thinking abstractly; someone much smarter than me could probably make a chart that shows income level vs manageable debt–like 20K is 10% of income, 50k is 50% of income, 100K is 150% of income, 200k is 200% of income (I just pulled those numbers completely out of the air). Different charts for married/single/kids/high vs low cost of living area. Of course, you can’t really predict what you will eventually earn before you even start med school given the differences in specialties.
I don’t know if these charts would serve any actual purpose, I was just a little bored today, so thought I’d post something.
Excellent points.
I think another important point to think about is the potential peace that comes along with refinancing. I do not have a terrible loan burden (~138K), and after doing various calculations figured I could save between 10K and 30K doing PSLF. However, if I don’t find a 501c3 job at the end of residency, the difference between refinancing now vs at the end of residency was going to cost around 30K. I decided partially for the peace of mind factor (we have a set plan that is not dependent on government actions or future jobs) and partially bc the job market for 501c3 positions around me in my specialty isn’t great, that refinancing now was the best decision for my family. It may end up costing us some money, but 30K over 8 years is a small price to pay for that peace and freedom with being able to look for any job I want. I have a nice situation with a lower than average student loan burden and a spouse that is an NP which also helped make the decision easier to make for me.
BTW, I refinanced with DRB in October and have a fixed 4.1% rate as a resident and didn’t have problems with the disbursement. I stayed on top of them though and was in frequent communication.
That’s a great resident rate.
I have significant medical school debt and have been waiting over 2 months to get a response for DRB and have found their customer service not ideal. I am glad I read this because I will look into Link Capital. I would think these places would have better customer service when you are providing business.
If you would like me to forward your issue to someone at DRB, send me an email. Many readers have had their issues with DRB or other companies resolved very quickly that way. Obviously their plan isn’t to make you wait 2 months for a response. They wouldn’t have any business at all if that was their usual manner of doing business.
I am having problems getting my loan from DRB.
I had put in my paper work at the end of november 2015, and it still has not disbursed. I am concerned because I already took out a 1 month deferment on my loan thru younomics (loan from undergrad) and the deferment will end this week. younomics seems like a pain to defer again, as they specifically said one month and wanted an approval letter.
If you’d like me to forward something to my contact at DRB, please shoot me an email. We may be able to speed things up for you.
I had trouble with a number of the links that don’t provide loans to South Dakota residents. The other question I have is if it’s worth refinancing ($189,948 at 6.8%) when we’re planning on paying off all the loans within 2 years (Dave Ramsey plan). Any input?
Sure, just use a 5 year variable. You may save something like $8K, and that’s like paying off your loans a month sooner and going to Paris with the next month’s “payment.”
I thought would throw this old post from WCI in. https://www.whitecoatinvestor.com/debt-ratios-from-your-money-ratios/
The post is also an excellent review of this book called Your Money Ratios by Charles Farrell. This is more of a proactive understanding about student loans that may not apply to many readers of this blog at this time. However there is a other discussion in your post about other loans that my be helpful.
I’m in a position where I don’t believe I have any real reason to refinance my student loans–at least not yet. I finished residency with 139k in student loans at 5.25%, which has been reduced to 84k thanks to payments that I have made and 50k tax free from the NHSC. My monthly payments are thus currently ~$900 per month, and my employer conveniently provides me with $1,000 per month in student loan repayments guaranteed until my student loans are paid off. The way that my contract is written (base pay + productivity over base pay), this really is additional money and not just something I could easily tack onto my base pay. So I have every reason to drag my feet and keep my payments under $1,000 per month that my employer provides unless I ever change jobs. I’m up for renewal of my NHSC contract in 18-months for $20k per year, and at that point, I might consider refinancing, as I could go with a 5-year payment plan that would save me interest and keep my payments under $1 per month.
Seems reasonable.
We have been hearing about issues with DRB through our clients. I am not sure what the deal is… Was curious if others had experiences similar. Basically the issue is that DRB is dropping the ball on closing the loans out. Maybe their loan demand has become higher than supply? Anybody had issues with this?
I hear of occasional issues, but it’s a tiny minority of the folks I’m sending there. If I can help with something/someone specifically let me know.
I am fortunate that I will receive some help with the cost of medical school and my parents have also thought of loaning me a portion of the cost, to avoid the interest accrued during medical school on a typical loan. My question is, after medical school would I be able to refinance my parent’s loan with a traditional lender? If so where and what should I be looking at? What would be things we should consider before proceeding with this type of arrangement?
Probably going to have a hard time refinancing that loan since it isn’t an official student loan and I don’t know of a way to make it one. You could prioritize paying it off I suppose. If getting that money back in just four years is a big deal for your parents, I wouldn’t take the loan. My general opinion is that if someone needs to borrow for med school, it should be the student. If you do go down this route, make sure someone has bought some life and disability insurance on you, just in case.
Your remarks about DRB’s bait and switch are correct. When I applied for a loan from them in the Summer of 2015, the rate I got (with outstanding credit >790) was higher than many of my federal loan rates (5.5 was the fixed 10 year rate they offered, I believe). I asked Aaron Pisacane to clarify the situation, and he told me, as you stated in your post, that the best rates were for residents with signed contracts and attendings.
I was disappointed, as I told Aaron, that this was not disclosed on the website (not even in the fine print!). He was a good listener on the phone, and seemed genuinely interested in addressing the accidental misrepresentation. Unfortunately, months later, the website still does not specify that most residents would not qualify for the best rates even if they have perfect credit.
Based on this, I would not re-apply with DRB. They knowingly misrepresent the rate available to residents, and have not taken the chance to correct this mistake. I also hope that EmergDoc holds his advertisers accountable for clear and accurate advertising, especially when he does sponsored posts that extoll the benefits of residents financing with DRB, benefits that are not available to most residents.
There are no sponsored posts on this website. I sell ads. I have affiliate marketing relationships. DRB has advertised using both of those methods. But no sponsored posts. I resent you accusing me of that because I turn sponsored posts down several times a week and have routinely done so for the last 5-6 years. My relationships with any financial firm mentioned on the site are very clearly disclosed.
If you are being given a rate within the range of their reported rates for that product, it isn’t false advertising or “bait and switch.” You simply assumed that your rate was 100% dependent on your credit score, which is inaccurate. Many people have made that assumption, so I don’t fault you and that is the reason I wrote this particular post-so more people would not make that inaccurate assumption. As noted in the post, if you are a PGY1, expect a rate in the high end of the range for the product you’re interested in. If companies thought they could make money by lending you money at a lower rate, they would do so. Nobody is stopping any other company from coming in and refinancing you at 3%. The fact that they aren’t doing it tells me they don’t think it would be a profitable idea.
You seem upset that DRB doesn’t reveal how it decides who to loan money to and at what rates. Put yourself in their shoes- are you going to show your competition all of your proprietary business practices? Do you know any lenders who do that? I can’t think of any and I wouldn’t do it. Therefore, I think it is probably not appropriate to expect that.
If your federal loan rates are better than what DRB is offering, then stay in the Federal program. Now with the arrival of REPAYE, that will be the case for many residents. But don’t complain that no one will give you a better rate. From ~2007 to ~ 2013 even attendings couldn’t refinance their loans. And until 8 months ago, no resident could refinance at all. All you’re out for going through the application process is your time and hassle.
Hi! Thanks for the quick reply.
Looks like my tone was a little off on my comment. I was wrong about the sponsored post; please accept my apology. And, truthfully, I would have had no problem if it was a sponsored post (I didn’t mean it as an insult or accusation, I promise!), as you are really good about disclosing any conflicts. I’m a loyal reader because I believe you have integrity. I’ve bought your book, and sent colleagues to your blog…so, I’m sorry if I came across as a jerk.
My issue is that the majority of people applying for the resident refinancing are not eligible for the lowest advertised rates (regardless of credit score), as they don’t have a signed contract. I’m guessing that the majority of applying residents do not have contracts in hand.
To your statement, “You seem upset that DRB doesn’t reveal how it decides who to loan money to and at what rates. ” I’m not upset about this, and was not very concerned about how they decide who to loan money to and at what rates. I’m disappointed that they give a range of interest rates offered to residents, when, truly, that range only applies to a small subset of soon to be graduating residents with contracts in hand. Had I known the range for residents without contracts, I would not have applied for the loan. I’m guessing that there are a few other folks like me.
My heartfelt apologies for any offense I caused. This is honestly the first time I have posted in an online forum in recent memory; I avoid them like the plague because I see these types of misunderstandings crop up in comment sections around the internet. Lesson learned today…don’t post a hasty comment on the internet again 🙂
Is there actually a place on their site where they list “resident rates?” Or is it just the standard rate chart?
I mean, I agree if it says:
“These are the rates available to residents 2.5-5%” and the only residents getting 2.5% are really attendings, then that’s bad on them. But as I recall, the site says, “these are the rates: 2.5-5%.” Which doesn’t seem unfair to me. Sure, it would be nice to know you shouldn’t have wasted your time, and most of these companies give you a rate estimate within a couple of minutes, but I’m not sure DRB does that.
Standard rate chart. No, they don’t provide a rate estimate, at least not when I applied.
I can’t argue with your logic. You are right, if someone could qualify for the lowest rate, it is not untrue to post it. Lets say that their model only allows anesthesiologists who have practiced for at least one year and have an income over $500k to qualify for the lowest rate, the standard chart would not be untrue.
I guess we’ll have to agree to disagree on what is unfair, because I think it is not fair to post rates that most residents would not qualify for.
If it is one rate chart for everyone, it’s one rate chart for everyone. The FP with an income of $150K, a credit score of 650, and $450K in student loans is not going to get the same rate as your anesthesiologist. Which one of those two is a resident more similar to? Do you think it is unfair to post rates that an FP with a terrible debt to income ratio won’t qualify for? I mean, obviously everyone wants the best possible rate, but there’s a range there for a reason.
Many WCI readers have gotten the very lowest rate they offer. I agree it was unclear for a few months whether residents could get that rate and that it is good that has since been clarified. If I would have thought to ask that question earlier so I could tell readers, I would have done so. It’s not like there is any profit to me to have you waste your time only to find out your federal loans are better than what DRB can do for you. If they can’t hook you up, I don’t make squat on an affiliate deal.
Question – if you pay early with SOFI do you get the benefit of paying early or do you still have to pay the interest based on your 5 yr or 10 yr plan?
Thanks
No, you get the benefit. Paying down a 3% loan early is like buying an investment with a guaranteed 3% return.
Hi,
I tried applying for a refi with Link Capital but they’re not accepting applications at this time. Per the thread, DRB is having issues. Anyone else experiencing the same?
Thanks
DRB is responding well to me, but I haven’t heard back from my contact at Link Capital from an email I sent a few days ago. Not sure what’s going on there. If you’re a resident, those are your only two choices currently. If you are an attending or a resident with contract in hand, shoot, check out the other options. Plenty of competition in this field.
We are also having issues with DRB’s response time. We applied for my husband’s loans on January 8th (so it has been just under a month). I have called a few times, and their standard response is that they are unable to provide a time estimate for the loan being at underwriting. So far we have received a few “auto-batch” incomplete emails, which they have told us to disregard. Has anyone had success in closing with DRB in the past month?
I am a resident in my final year of training, who just accepted a private practice job back home. I have been trying for 4 months now to get a decision from DRB on refinancing my loans. I have not had a good experience with their customer service and have gotten very frustrated with the extensive wait period with no indication of when I will have an answer. I also looked into Link Capital and while their customer service has been much improved, they are backed up on loan applications and currently you cant even submit an application for loan refinance.
If you have a contract in hand, you are not limited to DRB and Link Capital. Why not take a look at Sofi, Earnest, Common Bond etc?
Funds are limited for all of these companies, but I hear it least often for SoFi.
I am blessed that I will get some assistance with the expense of restorative school and my guardians have likewise considered advancing me a bit of the expense, to evade the interest collected amid medicinal school on a common advance. My inquiry is, after medicinal school would I have the capacity to renegotiate my guardian’s credit with a conventional moneylender? On the off chance that so where and what would it be a good idea for me to be taking a gander at? What might be things we ought to consider before continuing with this sort of course of action.
Probably not. That would be a personal loan and not a student loan. While you could get a personal loan and pay them off, the rate is probably going to be higher than what they’ll loan you money at. Remember the interest you pay is taxable to them and if they charge you less than market rate, the difference is taxable to you at least above the gift tax limit.
Good article.
Refinanced resident with spouse co-signer, 15 year variable rate, currently at ~3.60% with DRB. It’s adjusted up a couple of times but 3.6% is still a long way’s off from 6.8%. I love seeing that principal balance fall as opposed to making no progress on the federal loans.
We’ll be vacationing for two weeks to Italy and France in a couple of months 😉 Can’t do everything right, of course.
I love both France and Italy. Enjoy your trip. Then get back to work on your loans when you get home!
Hi, and completely agree about the importance of the growing debt issue, out of state tuition for some students is getting to be incredibly high. The emphasis on living like a resident until the debt is gone is spot on, if we can just resist the lifestyle inflation temptation for even 2 to 3 three years post residency, that can make all the difference.
At the current rate of tuition increase and salary decrease, it won’t be long before living like a resident for 2-5 years after training is the ONLY way to make paying for med school with debt work out okay in the long run.
Thanks for the great article. I am new to trying to understand my finances and student loans. Recently I met with a local financial advisor to get organized who told me he didn’t know anything about medical school loans but that I should probably consolidate. Here is my situation, I’m in my last year of residency with a 1 year fellowship to start in June. I have 320K in medical school loans, all federal, most at 6.8%, currently in forbearance. There are 20-30 different loans. I will most likely be heading to private practice after I finish, with starting salary ~300K. Should I be looking to hire a student loan expert to help me figure out when/how to consolidate? Or is this a straightforward situation that I can handle myself with a little education. I am worried because the amount is so high and there are so many loans. Thank you!
Definitely refinance. Different than consolidating. Refinancing actually gets you a much lower rate. If you are aggressive about paying down the debt, then go for a 5 year variable or fixed term. You could probably look at a fixed rate of 3-4.5% which could save you at $9K per year in accrued interest. Sofi is the quickest to respond in my experience and also have good rates. DRB is taking forever to get back to me. I still haven’t heard from them in over 6 weeks. It will be onerous to get all of the documents together for your 30 loans but that’s worth $9K to me, although I am just a humble internal medicine resident 🙂
What good is meeting with a financial advisor who knows nothing about your most significant financial issue?
You can certainly hire a student loan expert. You can find one here: https://www.whitecoatinvestor.com/other-resources/ and most of the general financial advisors on the site are quite good with student loans. You can find that list here: https://www.whitecoatinvestor.com/financial-advisors/
Personally, I think it’s pretty straightforward in your case. You’re not going for PSLF because you’re going into private practice and besides you failed to enroll in IBR/PAYE/RePAYE etc. So eventually, you’re going to want to REFINANCE (not consolidate) the loans with a private lender. The only possible issue you might have is what to do with the loans until you finish fellowship. Refinancing is an option (although you’ll probably want to do it again upon completion of training.) Going into RePAYE is likely a better option. Or you can just let them sit there in forebearance but it’ll cost you a few thousand extra in interest compared to refinancing or RePAYE. Forebearance or refinancing during residency will get you the lowest payments for now, but RePAYE will most likely decrease the amount of interest tacked on to the loan compared to the other options.
Thank you very much for this response! I was actually in IRB for all of residency until several months ago when for unexpected circumstances I needed the extra money so switched to forbearance. As for said financial planner- I haven’t been back to him. Not impressed.
Thanks for the summary article. I am a little confused on the details of the refinancing, though. I feel I have a relatively regular debt burden compared to my peers. I will be finishing training soon and my anticipated income is 200k. I want to just pay it all off instead of doing PSLF. I have about 40k in subsidized (no interest!) and 200k in unsub at 6.55% with a total accumulated interest of about 25k. Would there be any benefit from me paying off the interests on these loans first, and then refinancing all my loans with someone like SoFi? Or should I refinance ASAP? I ask because I think that Sofi would add all my current accumulated interest into my principal, or don’t they? And would there be any benefit to refinancing just my unsubsidized loans with someone like SoFi, and paying standard payments on my subsidized loans since they are not accruing interest?
Just refinance as soon as you have a contract in hand for your first attending job. This is pretty straightforward if you are an attending and know you’re not going for PSLF. Presumably your subsidized loans won’t be subsidized much longer. It’s fine to just refinance the unsubsidized ones for now, but figure out how long until the subsidy is gone.
Thank you so much for your reply. I called and found out that the subsidy will be gone very soon (I have been doing IBR). I didn’t know that the interest for the subsidized loans would be subsidized only for 3 years under IBR – darn. So, now I will be looking at private lenders to decrease my overall interest rate after residency – which is what you’ve been saying all along so it all makes more sense now. Now, life would be a little better if I could just get a 4% fixed rate and pay via credit card so I can get airline miles.
I am furthermore obtaining problems with DRB’s answer occasion. We applied for the husband’s lending products about Present cards 9th (so it has been under a month). We’ve named once or twice, along with the normal answer is actually actually unable to give a occasion estimation for that loan being at underwriting. Thus far we have now gotten a number of “auto-batch” unfinished messages, they will possess instructed us to help disregard. Offers any individual had achievements to summarize together with DRB during the past 30 days?
I have no idea what your first language is, but you might try typing it into Google and having Google translate it before posting here. I cannot for the life of me figure out what you’re asking.
After reviewing the new REPAYE program parameters (http://www.aamc.org/first/graduating-edm pg 26-36 especially pg 29), I have a hard time seeing how private lenders will be able to offer better loan repayment terms to residents than the federal government.
I am the average graduating medical student in 2016. I will graduate with $180,000 in debt (the median), having only taking out Stafford loans at an average interest rate of 6%. My REPAYE payments in residency will be $300/mo (calculation seen on pg 27 of the PDF linked above). The interest accruing on my loans is $900/mo. After my REPAYE payment each month, $600 interest remains to account for, of which the federal government pays half by the terms of the REPAYE program. That’s $300/mo in loan relief. That lowers my effective interest rate from 6.0% to 4.0%. This is 4.0% FIXED.
There is no way I get that type of deal from a private company as a resident. In the article above you state residents are getting offers of 4.0% VARIABLE and 5.0% FIXED, and that is presumably with excellent credit. There is not much room right now for variable rates to go down further, so I think its a risky bet to take out a variable loan for a quarter or half of a percentage point improvement — the lifetime rate of a variable loan is likely to trend higher. The federal loans also come with forgiveness in death & disability, and the ability to switch repayment plans at anytime. Once you go the private route you can’t come back! You can alway refinance as an attending to get the truly excellent interest rates (2%-3%).
To the WCI, you have a very influential blog and I think you have a fiduciary duty to rethink your position on private lenders doing resident refinancing in light of the new REPAYE program.
# 1 I don’t have a fiduciary duty. An ethical one perhaps, but not a fiduciary duty. Not only am I not your financial advisor, but I’m not a financial advisor at all.
# 2 I’m not sure how much more blatant I can be at recommending RePAYE over refinancing as a resident. Everything I’ve written since before RePAYE came out in December has recommended RePAYE for most residents. The possible reasons someone might want to refinance is to get a lower payments ($100 DRB, $0 Link Capital) to lock in a lower rate if they don’t plan to go for PSLF and are worried refinancing rates will climb dramatically before they finish training, or if they somehow have really high loan rates and the refinance rate beats the effective interest rate from RePAYE. Let me say it one more time:
IF YOU ARE A RESIDENT, YOUR EFFECTIVE INTEREST RATE UNDER REPAYE IS PROBABLY LOWER THAN WHAT YOU CAN GET REFINANCING AS A RESIDENT.
I’ll also quote from the post itself:
And here’s the article I posted BEFORE RePAYE even came out: https://www.whitecoatinvestor.com/repaye-vs-refinancing-student-loans-as-a-resident/
Bear in mind that last quote was made BEFORE I was aware of the rates residents refinancing are actually getting, which I discussed on the blog for the first time in this post.
#1 Sure
#2 I read those two articles before I made my post. Even after reading them it wasn’t clear to me whether refinancing or RePAYE would be the best option. I commented to share my calculations which are convenient since I have the median loan burden of my fellow medical students. I was surprised to find how clearly RePAYE was the favorite, and I believe that will be the case for anyone without OUTLANDISH interest rates (think 7.9% Grad Plus loans). I also think an unstated risk of private refinancing is missing out on the chance the federal government provides additional loan relief programs, as student loans are currently a hot political topic there could be much change coming. The people who refinanced in the last year are certainly missing out on the new RePAYE program.
Thanks for your time. I enjoy the blog.
Yea, I agree that Congress kind of hosed those who refinanced last summer. How can you plan for that though? Also, bear in mind this has been a bit of an evolving topic. It took most of us a while to wrap our heads around all the new RePAYE rules and come up with strategies. I was asking questions to people who give professional advice about student loans and they didn’t yet know the answers. But now that everyone has had some time to digest things, everyone is pretty much in agreement that RePAYE is the way to go during residency for almost everyone thanks to the interest rate subsidy, the reduced payments, and the fact that the payments qualify for PSLF.
DRB has had my application “in underwriting” for 5 weeks now. It is a bit frustrating, although at least they pick up the phone to tell you they don’t know how long it will take. I am sure funds are probably in short supply.
I have a signed contract, but LinkCapital isn’t accepting new applications, so I think I’m stuck waiting until I start my job to refinance since I can’t afford the higher repayments now.
Most companies will refinance you with a signed contract. You might look around while waiting on DRB.
When I searched on Credible, they soft quoted me 4.4% fixed on my loans via Cordia Grad. When I went straight to CordiaGrad website, they soft quoted me 3.95. I am wondering what would be the downside to going straight through one of the lenders Credible has on their website and getting a lower interest rate?
No downside to you that I can think of. Credible (and me) would, of course, be cut out of the loop and not get paid. Annoying to see the rates different but I’ve done that before with Orbitz just to make it easier to deal with in case a flight got cancelled even for the same rate.
The rates that CordiaGrad offers are exactly the same as the ones offered on the Credible site. The difference is that on CordiaGrad’s website, it requests that you self-report your estimated credit score. On Credible’s website, there is a soft inquiry pulled to determine your actual credit score. If there is any discrepancy between the two, that could lead to two different rates being quoted. CordiaGrad tries to be as transparent as possible, and wants to show your estimated rate without jumping through the hoops of completing an application and having credit pulled beforehand.
Hi WCI,
Thank you so much for all the time and sweat you put into this site. I am currently a 4th year dental student graduating in May of this year (2016). I will be graduating with ~$300,000 of debt at an average of 7% interest. I will be doing a one year residency and then become an associate. From my research, it seems the REPAYE program would be my best option. How difficult/much of a pain is this to do myself? Do you recommend that I apply and maintain the program (or whatever is involved) myself, or that I pay a 3rd party, such as Sofi, to help me with this? (Sofi quoted a 1 time, non-recurring, fee of $690 and stated that they would re apply and handle it every year for the lifetime of the loan).
Thanks!
Interesting. I didn’t know SoFi offered that service. Cool!
But yes, I think that’s a pretty easy $690 after-tax you can earn yourself. I’ve never done it myself, but I think it’s only one paper a year to fill out.
You might want to get some advice though, which I don’t know if SoFi offers or can do competently given their massive conflict of interest to refinance you. You’re not in the same situation as most physicians. With an income ~$120K and $300K in debt and a short residency, RePAYE may or may not be the best option. It wouldn’t surprise me if you ran the numbers if PAYE was better for you in the long run, or perhaps RePAYE for a year then PAYE after that. If you need advice and someone to help you run the numbers, take a look here: https://www.whitecoatinvestor.com/other-resources/
SoFi tells me they don’t offer this service. You must have them confused with someone else.
Ok I appreciate all the advice, I will run through the numbers for each. I must have mixed that with another group I spoke to, so it seems so you are correct! Thank you very much
Is IBR status necessary for The 120 payments of PSLF to apply. For instance my job is reimbursing my monthly payment and I would try to maximize amount paid each month.
I have heard no matter the income IBR maxes your payment at 2000/mo is this true?
No, I don’t think it maxes out at $2K a month. Yes, you need to be in ICR, IBR, PAYE, or RePAYE for your 120 payments to count toward PSLF.
On the federal website it says that ” “most” of the 120 payments must be specifically IBR based and on same website says to qualify for IBR must have financial hardship. I assume I will only qualify for ICR on that case with a higher income and wonder if this precludes me from the PSLF all together in that case?
54 payments into it with IBR probably can qualify another 6 payments before they make me reapply.
Standard 10 year payments also count and the way IBR is set up, your IBR payments should never be more than your standard payments. If you don’t have “financial hardship” they may not be lower than standard payments. Since you’ve made 54 IBR payments already you should only have to make another 66 payments. You should still be eligible for PSLF if you are working for a 501(c)3 while making those 120 payments.
I find there is some confusion about what to do in the student loan arena quite often.
I am a CFP, and work with physicians during residency and beyond. Hopefully the below comments help with issues my clients have run into.
Some general advice for residents who have the following criteria:
1. have federal loans
2. currently qualify for PSLF
3. need to keep payments low during residency
4. are considering refinancing vs. not (or are undecided whether they will be pursuing a 501c3 vs. a private practice job.
Think twice before refinancing to DRB, or any other program. This may not be the best option even if you plan on going into private practice or are on the “edge”. (more on that later)
If you are definitely planning on staying on the PSLF and seeing it out for the 10 years, here are some general rule of thumb.
-1. DO NOT use last year’s tax return for your first year of residency (or if your income has changed as an attending) to get 0/mo payments or keep payments lower. Legislation was changed last year that you have to report your CURRENT income. I see a lot of clients make this mistake, and the government will audit your loans at the end of this 10 years, and potentially disqualify any payments that were not reported based upon CURRENT INCOME. This is the biggest mistake i see commonly in this environment.
a. If you have done this (as 100’s of others have), simply log into http://www.studentloans.gov and re certify saying your circumstances have changed.
b. be ready to send in the PDF that generates at the end of the process, and send in a cover letter stating your name, SSN or account #, 2 paystubs (to be safe) and write on each one how often you are paid. “bi weekly” for example
2. If your income changed mid year, follow this process closely! This means sometimes re certifying twice per year.
Let’s say you certified your income base repayment request on Jan 1st, but then jumped from 50k of income to 200k (in July upon graduating residency). after you get 2 pay stubs you need to recertify immediately (even at the cost of your IBR going from 400/mo to 2,000/mo if you want these payments to count (July – end of year). Again this is a result of the recent legislation change.
what counts as how big of an income change? NOT PUBLISHED. I advise my clients 10% or more, to recertify no matter how painful it is, rather be safe then sorry.
3. Develop a “loan back up account”. Let’s face it there are plenty of worries in this world, and one of them should not be whether the government is going to really forgive your loans. Its out of your control so don’t waste more then a second even pondering this. Instead:
ask yourself the question “if this program did not exist, how much would i be paying into my loans”? 1k/mo during residency? 3k/mo after? etc.
ok, then do this if you answered 1k/mo (just as an example), pay 400/mo into the IBR or PAYE, then take the 600/mo and put it into a conservative mutual fund that will try to match the interest on your loans (7%) is this guaranteed? no, and again don’t waste your time worrying about the market. The market is like a casino. it goes up 84% of the time, and goes down 16% of the time. It will match the interest over time, and you never have to sell this at a low point. own the casino, dont play in it. What i mean is buy and hold! staying in a long term investment strategy will always win (just like the house, if you play at the casino meaning get out and then get back in you will lose the majority of your return)…also, allocate, and diversify. 3 simple rules to live by and you will be fine.
if this strategy is followed, then no matter what the outcome, results will all be similar…even if loans do get forgiven you will not be sorry for having all this money as a backup.
If your loans are not forgiven or if you switch into private practice, then you can use this account (during a good year in the market) which will be 84% of the time). to wipe out the loans as if you were paying into them at your desired amount the whole time.
Ok, now why would i think twice if i know i am NOT doing PSLF? Why would i not refi right away to a private vendor? NEGOTIATION power.
Example: I just had a client move out of fellowship. He was 5 years into the PSLF, and got an offer making 250k at a 501c3, loan balance of about 325k, and IBR payments would have been 3,000 for 5 more years assuming salary stayed flat, and then after 5 years loans would have vanished with no taxes owed (fingers crossed by government).
He also got an offer for 275k at a private practice, but wait a second? this is 25k higher salary but would come with no PSLF eligibility. I calculated the payment difference to still get the loans paid off (by himself in this example) in the same 5 years and he would need to pay 6,400/mo or (3,400/mo) higher then his PSLF
This means that he would need to make an extra 65k/yr gross salary (after taxes are taken out) to net the loan payment difference of 3,400/mo.
We showed this analysis to the private practice, and they offered to increase salary up to 300k (not the full difference) but certainly better then the original 275k? Would this have happened if he did not stay on the PSLF the whole time to have this leverage? maybe a different way, but i would think not as easily. Practices know that loans are a big stress so use this to your advantage.
If it is very clear that you are going into PP from day 1 then by all means, DRB, link capital, etc. refinance right away to get loan interest down, and to free up cash flow, but it you are undecided then hang in there as it may pay off in unexpected ways.
I will right another post on the REPAYE later as there seems to be some confusion on this as well or if anyone has specific questions about other issues i will try to reply.
Good tips. I’m pretty skeptical that someone is going to get burned for using last year’s tax return though. I think I’ll worry about that when I hear it happen to a single person. I mean, I know you have to be conservative in the advice you give to clients, but some risks seem worth running to me. If the government isn’t going to define “current income” any reasonable definition is, well, reasonable. Last year’s tax return is a pretty good description of current income in the view of many. I certainly wouldn’t recertify for a tiny income change like 10%.
Taking extra precaution will only help, and not hurt. Huge upside, no downside in playing conservative.
In regards to my above comments, this is not extra precaution, however. These are simple facts due to legislative changes.
You now have to report current income. It is a question on http://www.studentloans.gov website during the re certification process. “has your income significantly changed since you filed your taxes”? I would advise not to lie to the government about this. You can and may get away with it but not worth it in my advice for a couple hundred bucks a month in your first year of residency. (for example).
Last year’s tax return for a med school student who is now a resident certifying last year’s income and showing 0 income made absolutely has to report that they now make 50k (for example) by sending in 2 pay stubs.
10% income change is a suggestion, and cannot be proven. I do err on conservative side as i have a fiduciary responsibility to give advice in this manner.
Also, these comments were not meant to start a debate.
It was meant to be helpful information for those in need of it, and i suggest the focus be maintained.
That is pretty overkill…in many regards.
This is making me jittery in general about the 10 year PSLF. I thought I got jipped when I only used my pay stubs during intern year and had to pay $400 a month, then went down the next year to $99 because I used my last year’s tax return. I guess we will find out who gets paid in 2018. Who knows how long it will take to process the pay-out amount. And while they take their sweet time deciding that (that is, after you’ve already made 120 payments and applied for forgiveness) you still have to continue to make payments until they deem your loans forgivable.
There is a good chance you will be fine. This is new legislation so if you did this before 2015 then you are fine. These comments will effect everyone (that moves to attending job this year) to immediately re certify when income jumps, and for 1st year residents to immediately report their income with 2 pay stubs.
Even with the legislation change, some people will go through unnoticed.
A couple of other tips for those in PSLF:
Student loan forgiveness providers: Navient, Nelnet, Great Lakes, My Fed Loans.
If you don’t have or are not with My Fed Loans then you should act on this immediately.
My Fed Loans is the loan provider that does the actual forgiveness. If you are not with them now, then i would switch to them immediately (and it is VERY important that you do this in a correct fashion so you do not lose payments you have already made. (more on that later).
If you do the IBR or PAYE through Navient for example, and assuming that your making payments, at a 501c3, and everything is good, then 10 years from now when you file for forgiveness, you will have to make a mad dash to certify all 10 years of payments. To do this you will have to go back to every employer and fill out an “employment certification form” for the dates that you worked there for every employer and hope that the HR rep at your hospital is competent enough to fill the form out correctly. Then the loans will get transferred to My Fed Loans, they will audit your payments, and hope that everything was done correctly (which it may or may not have been). I have had several clients that have been under the impression they were 3 years in (after transferring to My Fed Loans), they made 3 years of payments during residency but only came back with 2 years that actually counted for various reasons of (Great lakes or Navient putting them on random admin or general forbearance without their authorization, etc.) A lot of this happened to those working with GL advisors.
Unfortunately this loan stuff takes a lot of proactive steps if you don’t want anything to slip through the cracks.
OK so here is how you should do it to ensure accuracy, and on a year to year basis can operate with as little stress as possible. You can solidify each year (proactively) counting each year’s payments if you follow these steps.
Part 1:
Step 1: create a login on http://www.studentloans.gov
Step 2: go into the consolidation application found on the bottom left of the page
Step 3: put your mouse cursor over every loan and look for the word “direct”
a. for any loan that are direct already, then immediately unclick it (if your loans are all already direct or with My Fed Loans, then you can skip to (PART 2) Just make sure you see “direct” on each one of them regardless of which loan provider they are with.
b. leave all the ones that are NOT DIRECT, leave them checked, and complete the consolidation application, say yes, you are applying for PSLF, and these loans will automatically go to My Fed Loans within 2-3 months.
***unfortunately if you are years into this, any loans you have that are NOT DIRECT you are starting from day 1 on these no matter what . Loans need to be direct to qualify. All federal loans that have the chance of qualifying in the program will show up in the http://www.studentloans.gov portal.
d. any loans that are direct already then all your payments will count (regardless of your current provider) In fact you SHOULD NOT consolidate any “direct loans” (instead you should transfer them in kind to My Fed Loans if they are not already with My Fed Loans) You can do this by filling out an employment cert. form. If you were to consolidate these direct loans, this would reset your clock back to day 1 on these. SO AGAIN DO NOT CONSOLIDATE LOANS THAT ARE ALREADY DIRECT, INSTEAD TRANSFER THEM IN KIND UTILIZING THE EMPLOYMENT CERT. FORM which i refer to in Part 2. And again ANY LOANS THAT ARE NOT ALREADY DIRECT NEED TO BE CONSOLIDATED SEPARATELY TO ENSURE THEY ARE PART OF THE PROGRAM.
PART 2 (do this on a year to year basis)
Step 1: Each year certify your income
a. Reasons to do this on a more proactive basis then once per year
b. if you or your spouse is pregnant, as soon as you are pregnant you can claim this child to increase family size and therefore decrease the amount you are paying. The child does not have to be born yet.
c. if your income has jumped you should report this right away if you are taking this program seriously
Step 2: Fill out an employment cert. form each year.
This is what officially enrolls you in the program. Each year this gets processed, My Fed Loans will count all the payments you made up until the date at which you certify. I do this on a year to year basis with all my clients to go in and make sure the last 12 months were recorded. This is allowing them to audit you each year and “VEST” in your payments. Avoid the cluster at the end, and move to My fed loans now, and certify each year. This will be tremendous help in your positive thinking and no matter how the program turns out you can track it concisely and clearly each year.
Here is the link to the employment cert. form:
https://myfedloan.org/manage-account/loan-forgiveness-discharge-programs/loan-forgiveness.shtml
Step 3:
Work with a CFP and CPA each year as a team to ensure that you are maximizing your opportunity:
a. should you file taxes Married Separate or Married together? A lot of factors can effect this including your income, spouse income, spouse loans (SPOUSAL LOANS can decrease your payment if you file together but most loan employees are not trained to calculate this. You have to know the formula to do this).
b. what is tax loss of filing separately compared to what you save in loans? Tax loss is not recoverable (if you do file separately) but most of time filing separately is necessary and in your best interest on this program. This is a case by case basis though!
c. How does REPAYE affect you? Great now if you are single, but if you get married in the future, then your spouses income has to be included in the income calc. no matter how you file. (that is only real catch other then that REPAYE is great and you can jump on it or off it. To do this, you will go on 1 month forbearance and pay $5 unless you want to make 1 month standard repayment which most do not.
d. Max out 403b which (you should do anyways, its protected asset in most states), and it lowers your adjusted gross income which is what they go off for your IBR or PAYE calculation. If you make 200k, you can have your loan based off of 182k of adjusted gross if you simply max out your 403b.
e. you can lower this even further if you are offered a 457b, but if you are in a hospital system that is on the rocks this is not advisable as this is simply deffered comp and could be lost if your current employer goes bankrupt.
403b is your money no matter what.
Quick question. I will be going into private private in about a year after I finish my fellowship starting this July. I have about 400k student loan debt @ 6.8%. I am planning on paying this off as fast as possible once I am an attending. I am currently looking into refinancing my loans. Should I pick a very short term repayment plan like 5 years?? Once I start making payments on this plan, what if the monthly payment is too hefty for my monthly income? Can I change my term repayment plan to something more affordable or am I locked in to the original 5 years that I originally refinanced at? Thanks.
You can always refinance if you qualify, but it will probably be at a higher rate. I think 5 years is ideal since I think most physicians ought to have their student loans paid off within 5 years of completion of training and you get the lowest rate for a 5 year plan. That said, you’ve got twice the average of loans, so depending on your income, it’s possible 5 years might not really work for you. Can you put $80-100K per year toward loans?
Im hoping to land a job that pays 400-500K and to live like a resident for 2-3 years. No kids, no mortgage and no other debt. I think 5 years is doable and worth it in the long run compared to a 10 plan and a lower monthly payment…
I’m still indecisive about what to do with my loan program. I have about $180,000 in student loans (5.5-6.8%). I have a spouse that makes $110,000 per year. My REPAYE calculator estimates have my payments at about $1000 per month. IBR would put my payments (filing separately) $0-450. The decision is tough because with REPAYE i get the interest rate break, but have to make the 1k payments, which is somewhat doable.
Based off of my salaray 52k. I take home about ~35k after taxes.
35k-17.5k (403b)- 5k (roth IRA) – 12k (Loan payments) = 500
Which doesn’t leave much for disability or life insurance. Granted this only takes into account my salary. I still need to run numbers on budgeting and her investment portfolio. Any advice on REPAYE vs. IBR vs. consolidating?
A few comments-
#1 Good job on putting so much into Roth as a resident
#2 Look at all the household money together. Separate finances causes lots of issues.
#3 Get disability and life insurance. It’s important.
#4 You don’t mention your plans re PSLF. Minimizing payments (IBR/PAYE with MSF) matters a lot more if you’re expecting forgiveness. Otherwise, I generally lean toward minimizing interest (RePAYE).
#5 Why IBR and not PAYE? Shouldn’t your decision be PAYE vs RePAYE? Do you not qualify for PAYE for some reason?
Thanks for the reply. I’m still a student, but will start residency in June.
#2 We plan on combining finances right now. Just kept things separate during school for ease of keeping track of loans.
#3 I plan on getting disability and life insurance. I haven’t gotten quotes yet, but from what I hear, disability gets pricey.
#4/5 I don’t plan on PSLF. I’m going to 3yr residency and will likely be IC/community EM. My biggest roadblock to REPAYE is the 1000 payment during residency due to spousal income.
Since you’re going to pay off the loans anyway, I’d take RePAYE, suck it up and make the $1000 payments using your spouse’s income, and refinance anything private, and then refinance everything upon residency graduation.
Thanks for the insight! Just to add, would you recommend consolidating my perkins loan into my direct loans? I’m trying to navigate this consolidation process and the institution has not helped much with this. Would I be consolidating my several stafford loans +perkins into one bundle or my perkins into one of my stafford loans?
I don’t know the answer. Hopefully someone else following this does.
For a husband and wife both with medical school loans, does refinancing one of our loans affect the other in anyway? More details: I can do PSLF, but my wife will be starting in private practice. If she refinances, does it affect my ability to apply for PAYE or the amount of the payment?
Thanks!
Dr. Matt, Your ability to apply for PAYE will not be affected by your wife’s refinance. However, if she refinances her loans, it may impact the amount of your payment. It deserves analysis to know the scope of the impact.
For the details, check out the federal program at this link (Question #32): https://studentaid.ed.gov/sa/sites/default/files/income-driven-repayment-q-and-a.pdf
“PAYE Plan and IBR Plan
If you and your spouse file a joint federal income tax return, your servicer will use your combined eligible
student loan debt when determining your eligibility for the PAYE Plan or the IBR Plan, and will
automatically adjust your payment amount proportionally, based on each spouse’s share of the total loan
debt. If you file separate federal income tax returns, only your eligible student loan debt will be used when
determining your eligibility for the plan, and there will be no adjustment to your payment amount if your
spouse also has eligible loans.”
All the best,
–Joy
I have 300k in student loans from medical school. I am about to start a 3 year residency. Through some family support, I am able to put 1k-1.5k per month towards my loans throughout residency. After residency, I plan to make large contributions and pay my loans within 5 years after residency. Would it still be best to do PAYE or REPAYE during residency or refinance right off the bat given I can make larger payments throughout residency? Thank you!
Also, it is very unlikely to qualify for PSLF after residency.
What is your effective interest rate under RePAYE? What rate are you being offered to refinance? Which one is lower? Take that one since you can afford somewhat larger payments than usual.
Are there any online resources that would help compare the cost “effective interest rate on REPAYE” and a refinance rate? I’m waiting on my refi rate, but even with the number I get, I want to be able to compare the total debt I have at the end of residency.
Wouldn’t that be nice? It requires you to know quite a bit of information. But there are RePAYE payment calculators that will tell you your payment. Then calculate out what the interest would be. Subtract the payment from the total interest and half of what’s left is subsidized. You can then use that to calculate your effective interest rate. The refinance rate is what the lender says it is, if you can get a lender to actually loan you the money. The amount of total debt you have at the end depends not only on the interest rate, but also on the size of the payments you make.
Thanks for the info! I know it may be simple math, but which formula would I use to calculate the effective interest rate? (I know it’s probably simple, this stuff just doesn’t stick well with me).
Let’s say you owe $200K at 6%. So that’s $12K a year in interest, or $1000 a month. If your RePAYE payment is $333, then you will owe another $667 in interest. Half will be subsidized. So in reality, instead of your interest being $1000 a month, it is $666 a month. So instead of 6%, it’s really 4%.
Does that help?
I guess the formula is (interest paid + interest accrued)/total owed
Thanks! My REPAYE calculator has me at 10,745 in interest per year (175k loan with 5%-6.7%), 895 in interest per month. My RePAYE payment is estimated at $1000 dollars a month, so theoretically if my RePAYE is larger than the interest accrued, there would be nothing to subsidy.
Correct. Do you have a working spouse or something? Or are you an attending? If you’re a resident with a working spouse, consider PAYE with married filing separately.
Yes I have a spouse that works in healthcare. Our general plan is to max out my retirement accounts during residency and pay for disability with my residency salary and live off of her 100k income. The 1000 dollars a month might be doable, it would just be stretching things pretty thin
If i can get a redo rate in the low 5s and qualify for reduced payments that would surely save interest than doing PAYE filing separately granted I forgo pslf. (3 year residency in EM)
Hi, I have 209k in school loans. I turn 33 this year and work as an anesthesiologist in private practice making base salary of 350k. I am currently planning to refinance the 209k of my loans that have rates between 6.55-6.8%. I hoping for a fixed rate around 5% with a 15-20 year term (currently working with SOFI, but am waiting on results from Credible application as well)
My question is: When my only debts remaining are my 2 mortgages (one is rental home) and this ~5% fixed refi loan, should I not be saving any extra remaining money (IE maxing out 401k, reverse roths, cash balance plans, taxable accounts) before paying down the refi loan since the rate will be fairly low and fixed?
My tentative plan is not to get into a huge hurry and to pay off this refi loan in about 8-10 years. This will allow me the flexibility to save more in 401k/roth/Cash Balance plans on the front end, therefore maximizing/compounding interest early in my career.
Thoughts?
Yes, I have some fairly strong thoughts on this matter. I think it’s ridiculous for you to carry student loan debt that long. You make $350K. You only have $209K in student loans. Why not pay it of in 2 years instead of 20? I think a guaranteed 5% rate on an investment is quite good these days. If it was 1%, okay, fine, drag it out. But 5%? I think you’ll be glad to be rid of that. But what I tell people is that they should be able to max out their 401(k), backdoor Roth IRA, and cash balance plan AND STILL pay off their student loans in 2-5 years by living like a resident. That’s how you really build wealth. I mean, you make $350K. Let’s assume you pay $100K in taxes. That leaves $250K. If you live on $50K, that leaves you $200K to build wealth. If you put $53K toward the loans, $30K toward the cash balance plan, and $6K toward the Roth, that leaves you $111K to put toward the loans. Voila- they’re gone in two years and you can then TRIPLE your lifestyle (or invest in taxable, or pay off your mortgages etc.)
Plus, if you’re going to pay that thing off in 2 years, then you can use a variable rate loan, AND you can get a 5 year term, both of which will dramatically lower the interest rate and the total interest paid. Instead of a 5% loan, you now have a 2% loan.
That’s what I would do, but do what you want.
You points are certainly well taken. I will try to get them paid off faster than 8-10 years, but 2 years is not possible due to some other debts. Thank you for your prompt response.
Maybe this isnt the appropriate forum for this question/topic, but I am currently in transition to a new job. This job also pays 350k base annually with possible bonuses based on how much the group makes. I am working with the benefits department and they state the max contributions to the 401k are ~18000 annually. The group also contributes 4% of my salary base to the 401k (its not a match? they just do contribute it?). After reading through this website, I feel like many people are able to contribute around 52-55k annually to their 401ks??? What am i missing here? Why are they only allowing 18k?
Thanks.
Because your 401(k) sucks/your prospective employer hates you and wants you to pay more in taxes. While the IRS allows the employee + employer contributions to total $53K, if your plan doesn’t allow that or your employer won’t make a $35K contribution, that’s their right and you can’t make up the difference.
Soon to be MD with 300k in loans and a 5 year residency coming up. I am lucky to have a spouse that makes 80k/year but also is finishing up paying the last 10k of their loans. I am trying to figure out the best repayment plan as most of my income in residency will be available for loan repayment (thanks spouse!). I am not looking into PSLF. While I could possibly swing the standard repayment, I am thinking it would be wiser to go with some form of IBR and then make additional elective payments to my comfort level. Can you make additional payments as you please when doing IBR/PAYE/REPAYE etc? Taking this one step further, would it make sense to just apply for deferment/forbearance as much as possible during residency and then make elective payments as you please?
Yes. If the RePAYE rate isn’t lower than you can get refinancing, might as well refinance if you’re decided on PSLF. If you’re not decided, PAYE with MFS may be your best bet for the lowest payments.
Is it possible to refinance only some of your federal loans? For example, could I elect to get all of my grad plus loans (with 7.9% interest rate) refinanced but leave the lower interest rate loans as is?
Yes. You choose which loans to refinance. Definitely, refinance the loans with rates higher than the rates offered by the new lender.
A comment related to your original post: Your standard payment on $300k at 6.55% would be about $3500/month. The interest will accrue very fast, so it’s in your interest (haha!) to pay as much as you can. –Joy
Do any of these companies charge early repayment penalties? I was offered a 5.4% fixed interest for a 12-year term on my $268k student loans through Credible with Purefy. My goal would be to pay off the loans within 3-5 years.
Not that I know of.
Just wanted to start off by saying, great website, I’ve truly learned a lot in regards to my finances, just wished I had known earlier. My question is if my current thinking about how to best manage my MASSIVE loans sounds okay.
Current career outlooks- Married, I’ll be starting Hospitalist with salary 230’s in July, my wife still has 2 years of Developmental Pediatrics to finish makes around 50-60k as fellow…I’m not sure what average salary is after, but 160’s or higher probably sounds about right.
Current Debt burden- Huge…I’m talking 977K when combined for both of us (includes undergrad/grad/med), no credit cards/house/car debt
Retirement- Was smart enough to read the website a couple years ago and got both of us maxed in Roth IRA, otherwise nothing yet.
So after reading through many of your post/comments/book I’ve come to the following plan of action.
At a beginning of residency I had both of our sets of loans consolidated and have been doing IBR w/ PSLF (3 yrs now), and while this has allowed interest to skyrocket I believe it may be too late to turn back and refinance. So the plan is to continue on with PSLF as the goal and have fingers crossed it actually pans out, but was curious if there were any measures I could take to protect myself if it doesn’t. I’ve heard you mention setting aside money as if you were paying the loans monthly anyways and was curious what percentage you would recommend? With that money would it make more sense to place in a high yield savings, or money market account? This amount of debt is pretty overwhelming so any insight on how I could protect/help myself in the future would be greatly appreciated!
Well, I agree. That amount of debt is overwhelming. In fact, it is now my record for a two doc couple. I don’t know of any other couple who owes as much in student loans as you two do. You are also both in relatively low paying specialties. That makes you particularly dependent on PSLF. In fact, you two should be the world’s experts on PSLF, since you also stand to have the most forgiven of anyone I know.
That said, it sounds like you’re doing everything right. If anyone should be grandfathered in, it should be you two. Be sure to run the numbers to see if MFS makes sense for the next couple of years until she is done.
If you wanted your “side account” to stay really safe, then high yield saving or money market would be fine. I’d choose high yield savings for now since it pays more, but that could change. It didn’t use to be that way. Given you’re investing this money for the next 7 years or something though, I’d probably take more risk with it.
I guess my goal in your situation would be to be out of debt in 7 years, whether PSLF comes through or not, while still saving adequately for retirement. So that means 20% for retirement ($290K*20%=$58K), and then enough toward the side fund to have it equal the debt in 7 years. Let’s just call that a million bucks. If you assume 8% returns on the side fund, that’s $112K a year. So it’s going to be tight for a while to pull this off, at least for the next 2 years. Your budget may look like this:
Gross: $290K
Taxes: $75K
Retirement:$58K
Student loans:$112K
Left to live on: $43K
It would be a little better when she gets done:
Gross: $350K
Taxes: $90K
Retirement: $70K
Student loans: $112K
Left to live on: $98K
Yes, it will seem like there was no huge reward for becoming attendings. That said, if PSLF doesn’t materialize, you’re debt free and have $588K toward retirement in 7 years. If it does materialize, you’re debt-free and have $1.6M seven years (five years for her) out of residency.
You can also keep your finger in the air regarding PSLF. If you’re getting close and nothing has happened to it, maybe you can scale back on the side fund savings a little 2 or 3 years earlier.
You absolutely both MUST keep working for a 501(c)3 though.
That’s what I’d do. Good luck. Hope it all works out for you.
Great question and response. I regularly advise physicians on student loan options, have seen a number of married physicians with similar situations, and offer these additional comments.
1. REPAYE offers benefits over IBR–smaller payment amounts, less interest accruing. Downside: interest capitalizes when you exit IBR. Have you run the numbers to see which is better for you?
2. I’m assuming you told your lender that both spouses have student loans. Yes? Doing so in your situation should reduce by 1/2 the amount you pay jointly.
3. Does the WCI proposed budget include the required IBR/REPAYE payment? Amount is significant. My calculations:
3a. This year’s payment amount, assuming both spouses in residency/fellowship at $60k in 2015, the payment would be $1200/800. Multiplied by 12 months: $14k/$9.6k.
3b. Next year’s payment amount: $25k/$17k.
3c. In year 7: $54k/$36k
4. You’ve likely submitted PSLF Employment Certification Forms to both employers. If not, do it soon. It’s an important step that identifies you as a participant working toward PSLF in the event of program changes.
5. Strongly agree with the side account strategy!
All the best, –Joy Sorensen Navarre, Navigate
Thank so much for the input. We are ready to take this seriously and really appreciate your insight so hopefully will all workout.
When you mentioned, “Given you’re investing this money for the next 7 years or something though, I’d probably take more risk with it.” Would there be something specifically I should look into investing/researching in order to find an 8 percent return?
Also when you say “That said, if PSLF doesn’t materialize, you’re debt free and have $588K toward retirement in 7 years.” Was just curious about the math for obtaining financial freedom, if you didn’t mind explaining a bit. Would the 112k a year include payments required by IBR and savings? Would I need to set aside even more then for loans I guess? I think the biggest killer in the event it doesn’t pan out is that massive amounts of interest that accrue over that 7 year period :/ .
Future Value function:
https://www.whitecoatinvestor.com/compound-interest-the-excel-future-value-fv-function/
You’ll have to take significant risk to have an expected return of 8%. Like 100% equities. Whether you can stomach that or not depends on you.
Just to see if I’m the only one in this boat…
I accepted my loan terms from DRB wayyyy back in January, and have still not been able to get them to fund my loan. That’s ridiculous. I called a month ago to see if there was anything they could do, and they told me hopefully it’d be in May sometime. Well, here we are in the last 1/3rd of May and I haven’t heard a thing. I have a mortgage loan closing on June 1. If they haven’t funded by then, I’m going another route. Rates really weren’t all that great either for a dual physician household with contracts in hand totaling $496K annually. I am in orthopedic fellowship, and she’s in her final year of pediatrics. Pretty disappointing…
You’re not the only one in that boat. DRB has had a lot of funding delays, especially for residents, in the last few months. If you’re an attending/have contracts, might as well check with the other companies to see if you get better/equivalent terms.
I just recently went through this process and looked at the majority of the companies on that list, I’m also going to be running some numbers with a private credit union to see if they can match or beat the terms. First of all thank you for all the advice here, it is an immensely helpful resource.
My current situation is about 275K debt at 6.8% fixed. I started out PSLF initially in residency, then my loan servicer was changed twice and when I tried to ask that bureaucracy how many payments I have made towards it, they couldn’t give me a number. That’s when I lost faith in PSLF, good luck to the people that are counting on that.
With the majority of these companies, I’m seeing 3-5% variable rate and 4.5-5.5% fixed. The popular company amongst our residency is SoFi but their rates are actually on the higher end, 3.9% variable. DRB also has high rates and apparently a lot of complaints on the comments here. Lend key has a cap of 175K, so doubt very many of us have loans under that amount, just FYI.
So far getting the best rates right now with commonbond and earnest.
Thanks for sharing your very valuable experience.