How to Manage Student Loans During the COVID-19 Crisis

April 10, 2020 MST

On March 13th, as President Trump declared a federal state of emergency in response to the COVID-19 crisis, he declared that student loan interest would be waived. The CARES Act further clarified that no federal student loan payments would be due between passage of the bill and September 30th and that interest would not accumulate on federal loans. This “black swan” event is obviously going to have massive effects on borrowers themselves, student loan refinancing companies, and companies like The White Coat Investor, LLC that refer people to those companies to refinance their loans.

In today's post, I'm going to go over the nuts and bolts of all this and help you make decisions about what to do with your loans between now and then.

You Still Need to Refinance Your Private Loans (Again)

The first point to make about all this is that it ONLY applies to federal loans. If you have already refinanced your loans, you no longer have federal loans. You have private loans. And the Fed just cut interest rates. So this might be a great opportunity for you to refinance again.

In the words of Wolverine, “If you haven't been to the Barnum Museum lately, you haven't been to the Barnum Museum.” If you can get a lower interest rate on your private loans than what you currently have, refinance. Not only will you benefit from paying less interest (allowing you to put more toward principal), but if you go to a company on my list that you haven't yet used, you'll get another cash bonus.

Likewise, if you are still carrying around 8-10% private student loans from medical school and just haven't gotten around to refinancing, there is no time like the present. Refinance them!

How Does the Federal 0% Interest Thing Work?

The federal 0% student loan interest rate is supposed to happen automatically. In fact, the 0% started on March 13th by executive order, so it's actually just over 6 1/2 months of 0% interest.

Note that federal loan servicing companies are notorious for providing poor service. Consider this email I received recently:

My husband and I were just about to refinance about $250K of student loans when the recent Coronavirus legislation passed….My understanding from reading the legislation is that the suspension of payments is for all eligible federally held loans and should be applied by the student loan servicers automatically and that there is no need for the borrowers to do anything to get this suspension/forbearance to apply.

However, my student loan servicer (Nelnet) will not be automatically applying a 6 month forbearance unless the borrower is past due. If you aren't past due (which I would assume most readers/listeners are not) you have to actually apply to get the forbearance placed on your account, otherwise, they will continue auto-debiting your required monthly payment. This did not seem correct to me, but I spoke with a manager at Nelnet and she informed me that they aren't required by the Dept of Ed to
automatically suspend automatic payments on accounts that are current. (It would seem to me that this is an unfair/biased interpretation of the law…they are a business, after all, and will benefit from continuing to collect payments from borrowers who aren't paying close attention to their accounts and who may be assuming the payment suspension automatically applied to them.)

I then called the Dept of Ed, and the exasperated advisor I spoke with there had absolutely NO idea what the right answer was…he said some servicers were doing it automatically and others you have to call and ask for it. Hence why I am writing to you! If you are planning on writing any blog posts about the impact of this legislation on strategies for student loan management (not only for those who are holding off on refinancing for now, but also those going for PSLF) it might be wise to recommend that borrowers with federally held student loans check with their individual loan servicer to see if they need to actually APPLY to get the suspension of required payments. Some loan servicers, like Navient, are automatically doing it for their borrowers, while others, like Nelnet and Fed Loan, require you to ask for a 6 month suspension of payments. I would also assume that most readers/listeners are enrolled in auto-pay to get the additional .25% interest rate reduction, and would probably be very disappointed to sit back and do nothing assuming their payments were suspended only to see the required payments continue to auto-debit from their accounts for the next 6 months.

I do not know if this Nelnet manager was simply misinformed nor whether this situation has now been corrected or not, but consider yourself warned about the experience at least one of my readers had.

How Does the Tax-Free Employer Paid Student Loans Work?

Another provision of the CARES Act allows your employer to pay up to $5,250 of your student loans, take a tax deduction for it, and then provide it to you as a tax-free benefit. You should definitely ask your employer about this option. If YOU are your own employer, I believe you may also qualify for this benefit, but I'm still searching for details about this possibility for independent contractors, partners, those running sole proprietorships, and others in similar situations. If you have some definitive information, please provide it in the comments.

Companies Aren't Going to Match the Feds

The most painful part of this new 0% federal student loan policy is that those who were responsible, paying attention, managing their loans well, minimizing their interest, and planning to pay off their loans are being punished for doing so. I know it doesn't feel fair that the government is waiving interest/payments for those with federal student loans but doing absolutely nothing for those with private loans. I'm sorry. As I tell my kids all the time, life isn't fair. There is a lot of stimulus going on right now, and when this is all said and done, there are going to be a lot of people correctly pointing out that the process wasn't very fair.

I have been in this space longer than all of the student loan refinancing companies and have met a fair number of the CEOs personally over the years. Knowing both of our businesses were not going to do well with this new development, the first thing I asked them to do is to come out with a product that would match the federal loan program. That is to say, a refinanced loan that offered 0% interest until September 30th. This would allow them to keep refinancing student loans as normal. No dice. It isn't that they don't want to (they would just have to charge a little higher interest after September 30th to make up for the 0% period), it's that it just isn't practical given the way most of these loans are packaged up and sold off to investors. I haven't completely given up hope (I was once told something similar about putting a program in place for residents with low monthly payments similar to the federal IDR programs), but I wouldn't hold your breath if I were you.

Companies Do Have Hardship Programs

Pretty much all of these companies do have economic hardship programs that allow you to not make payments for 2-12 months. If you are out of work and short on cash, be sure to talk to your lender about this option. Interest will still accrue, but at least it'll be accruing at a relatively low rate! Hopefully you'll be back to work in a few months and able to resume your payments.

Here's what Earnest says:

During this time of national emergency, Earnest is offering up to three months of postponed payments, through a disaster forbearance, to qualified clients who request it. Interest accrues during forbearance, but will not be capitalized (added to the unpaid principal) at the end of the forbearance period.

SoFi says this:

We may be able to offer forbearance for active Student Loan members who are financially impacted by COVID-19. As you consider forbearance, it's important to weigh the benefits of short-term relief vs. your long-term financial plan. While forbearance will allow you to skip two payments, it will cause your loan to accrue more interest over the life of the loan.
The conditions of forbearance are as follows:

No payment required for 60 days, however interest will continue to accrue

Loan term will be extended for 60 days to cover the missed payments

Following the forbearance period, there may be a slight increase in your monthly payment as your loan is amortized to its new maturity date

Laurel Road (now owned by KeyBank) says this:

Laurel Road allows for forbearance for up to 12 months over the life of the loan.

CommonBond has a standard forbearance period of up to 24 months in addition to natural disaster forbearance (which lasts the length of the natural disaster). Here's CommonBond's statement on natural disaster forbearance:

As COVID-19 has been classified as a national disaster, it qualifies for national disaster forbearance. This functions in much the same way as standard forbearance, but due to the sudden and unexpected impact of COVID-19, you can take advantage of this program through the end of the national emergency declaration. Any time that you are in national disaster forbearance does not count towards your standard forbearance. As with any form of forbearance, be aware that interest will still accrue, but there are no fees involved with forbearance.

Splash says:

We have taken a couple steps to support people during this time. For one, anyone who has lost their job or is unable to pay on their loan should reach out to us, and we can work with them and our credit union and bank partners to help pause payments, waive fees, etc. However, for WCI readers, I see this as a less likely scenario than people just being upset related to the government providing relief to people who have federal loans without helping people who have private loans or have refinanced already (aka the people who were being financially responsible)….Deferments or forbearance may be offered depending on the lender. The lender’s policy will be stated on the credit agreement for the loan.

ELFI says:

Borrowers demonstrating financial hardship may qualify for up to 3 months of forbearance.

As you can see, the policies are all over the map. Check with your lender if you have a need for this.

No Real Change in the PSLF vs Refinance Question

A lot of people are wondering if this change makes going for PSLF a better option. It really doesn't move the needle there. If going for PSLF was right for you before, it is still right. If it wasn't, then it still isn't. These non-payments do count as payments toward the 120 required PSLF payments, and so there will be a little more money left to forgive after 10 years (more for attendings than residents since the payments they should have made are so much larger) but it isn't going to change the main decision for any significant number of people. If you are one of the very few going for IBR/PAYE/REPAYE forgiveness programs, these payments count toward those, too, but again, shouldn't move the needle on the decision itself.

Which Companies to Refinance With

Perhaps the most interesting development in this space is that rates went up with some companies while they went down with others. Steve Muszynski, CEO of Splash Financial, told me this:

While SoFi, Earnest and Commonbond have recently increased rates (by 1.50%!) due to a lock-up of funding in the securitization market, we will be reducing our rates beginning April 1^st for medical professionals to truly historic levels (as low as 2.88% Fixed rate & most qualified applicants will receive a rate below 4% fixed for 5 – 15 year loan terms). Resident and fellow rates unfortunately won’t be reduced but everyone else can benefit & our resident and fellow rates are still very low right now….

Many doctors will be able to qualify for our lowest rates available of 2.88% fixed or 1.58% variable. Our thoughts are that while we can’t mimic the government’s 0% interest until September 30^th, what we can hopefully offer is sizable savings over the life of the loan. These rates we are offering are likely temporary during the COVID-19 national disaster and are meant to help those who felt left behind by the government’s actions – specifically people who have refinanced previously.

Lendkey says this:

Prior to the announcement of federal loan interest freezes, the Federal Reserve cut the federal funds rate to 0 – 0.25%. While federal rates were recently cut, refinancing rates from private lenders have been the lowest that we have seen in nearly 10 years. Private lenders are doing their part to offer relief as well, like student loan refinancing platform, LendKey, by offering emergency benefits as its network of lenders have responded with rate drops alongside the Fed. As of March 26, 2020, fixed rates are as low as 3.39% APR and variable rates as low as 1.90% APR.

Laurel Road is offering a special lower rate for physicians and others on the front lines of this health care crisis.

So while it was always the right thing to do to apply with several companies (if not all of them) to get the lowest possible rate, it seems even more important than usual. Be sure to include Splash, LendKey, and Laurel Road in your search as many of you will find the lowest possible rates there right now.

Remember that rates change daily so don't be surprised if you are reading this months from now and rates are different.

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Student Loan Refinancing Disclosures

Five Reasons to Still Refinance

There are five reasons you may still want to refinance your student loans, even during the next six months:

# 1 Get a Lower Rate

Interest rates are low. If you already have private student loans and can refinance to a lower rate, then do it.

# 2 Get Some Cash

When you refinance through the links on this website, you get cash back. That's right. The deal is BETTER than you will get going directly to the lender. And while the main benefit of refinancing is paying less in interest, the cash back sure beats a kick in the teeth. Spend it on groceries and hand sanitizer, invest it to buy stocks on sale, or put it toward your loans.

# 3 Get Better Terms

If you already have private student loans and recently saw your income decrease (or go away altogether) you might be able to find some budgetary relief by refinancing into a longer-term product–for example, going from a 5-year loan to a 20-year loan. While this will probably increase your interest rate and the total amount of interest you pay on the loan, it will provide some short term relief. You can refinance back into a 5-year loan when you go back to work. You may also want to go to a lender with a better forbearance policy for additional help. Note that your loss of income may keep you from being able to refinance at all, of course. If that is the case, look into hardship forbearance with your lender as noted above.

# 4 Take Advantage of All Time Low-Interest Rates

Some people may fear that they will miss out on the lowest possible rates available right now if they wait until the end of September. My crystal ball is cloudy. It's entirely possible that the rate you can get now while business has dried up for lenders is significantly better than what you will get in 6 months. Service may be worse then, too, in the crush of people rushing to refinance after the temporary 0% federal loan interest rate expires. Perhaps it is worth paying a little extra interest over the next few months to get better service and possibly a better long term rate.

# 5 Be Ready to Refinance on September 30th

Finally, you may wish to gather your paperwork and even submit it during the next 6 months just so it is all ready to go on September 30th. You may even be able to “lock in” a lower interest rate for some period of time in there, allowing you to have your cake and eat it, too.

What do you think? Will you be waiting until September to refinance? If still refinancing, what companies are you looking at? If you already refinanced, do you feel cheated by this policy? Comment below!

113 comments

1 John | April 10, 2020 at 2:22 am MST

Any clarification on whether interest capitalizes on federal loans at the end of this 6 month administrative forbearance?

It seems like that could be detrimental to residents who have significant outstanding interest that are on REPAYE who are unsure about PSLF or plan to refinance post residency (shouldn’t impact those definitely going for PSLF). Like you said, the benefits may not be fair but I would hope this period doesn’t trigger a capitalization event.

The White Coat Investor | April 10, 2020 at 9:31 am MST

There is no interest to capitalize from this 6 month period and I wouldn’t expect interest from prior to that period to capitalize. But capitalization of interest isn’t as big of a thing as most people seem to think:

https://www.whitecoatinvestor.com/quit-worrying-about-capitalizing-interest/

2 Alexander Voldman | April 10, 2020 at 4:43 am MST

Curious if anyone knows if the $5250 tax free employer payment applies to private loans as well?

The White Coat Investor | April 10, 2020 at 9:32 am MST

I believe that does.

Jorey Heit | April 13, 2020 at 6:32 am MST

Any recommendations on how to get exact clarity on this for those of us who have already refinanced? My employer would love to contribute during these times, but of everyone I have consulted with, no one seems to know for sure whether the tax break portion applies to private loans.

The White Coat Investor | April 13, 2020 at 7:59 am MST

If your employer wants to give you money, I suggest you take it whether it is deductible to them (or you) or not. If they’ll only give it if it is deductible, then I guess clarity matters much more.

But I haven’t seen a single thing that says it must be a federal loan. So I think all loans that are designated student loans (federal or private) count.

I looked through the CARES Act itself for a few minutes but couldn’t find that paragraph, but I’d spend some time here if you want maximal clarity.

Sheila S | May 3, 2020 at 1:57 pm MST

I’m curious about the advertised rates for lenders. I’ve seen the <3% tossed around by Splash but never seem to come close to beating my current rate (3.375) when I go to prequalify. Of course I think I’m a stellar candidate to lend to 😉

The White Coat Investor | May 3, 2020 at 7:52 pm MST

The lowest advertised rates are always for the best of the best, which can be a pretty small percentage. Think $50K in loans, $500K in income, and a credit score of 820 on a 5 year variable loan.

3 Leslie Sims | April 10, 2020 at 5:05 am MST

Nelnet automatically changed my next autopay to October. I did not have to call. Thanks for this blog post. I did not know about the employer tax benefit. I’ll inquire about that.

Jared Miller | April 10, 2020 at 8:12 am MST

Thank you for the post. Very informative!
I also got the automatic notification from Nelnet 🙂

Nelnet update:
“Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act:

For Nelnet accounts that begin with the letter E:
We are working to apply a 0% interest rate and a six-month coronavirus forbearance on federal student loans held by the U.S. Department of Education from March 13, 2020, through September 30, 2020. No payments will be due until October. You do NOT need to apply for a deferment or forbearance while the coronavirus forbearance is in effect.

If you are enrolled in Auto Debit, no payments will be withdrawn at this time. Your next payment will not be debited until October 2020…”

Ryan | April 10, 2020 at 3:05 pm MST

The above is correct – the rest of it is also interesting.

My account begins with D – not eligible.

“If your Nelnet account begins with a D or J, your loans are NOT held by the Department of Education. You can request a 90-day coronavirus forbearance at Nelnet.com/nelnetforms/emailus to temporarily suspend your payments. You may also want to review other options such as an Economic Hardship or an Unemployment Deferment as you may qualify for an interest subsidy with a deferment, but not a forbearance. Log in to your Nelnet.com account and select Payments, then Repayment Options to get started.”

EyeDoc | April 12, 2020 at 11:54 am MST

My Nelnet loan apparently wasn’t eligible either. So I have the 90 day forebeafance. Interesting detail. When I accepted that forbearance I lost my 0.25% auto debit so the interest rate over 90 days will be slightly higher. They say it will be back on when the payments start again.

4 Josh Liberman | April 10, 2020 at 5:53 am MST

For the first time ever, I am truly disappointed in a blog post. This is very clearly self-serving for the White Coat Investor’s business model and NOT sound financial advice. I though your mission statement was to help US get a fair shake, not the mega-corporations paying you. Saying that we should still re-finance now because it may be worth it to “avoid the crush of people re-financing later” makes no financial sense. Unless you’re getting paid to say it.

The White Coat Investor | April 10, 2020 at 9:42 am MST

What are you talking about? Let’s pull the direct quote you seem to be criticizing from the post, with an emphasis on what I actually said:

Some people may fear that they will miss out on the lowest possible rates available right now if they wait until the end of September. My crystal ball is cloudy. It’s entirely possible that the rate you can get now while business has dried up for lenders is significantly better than what you will get in 6 months. Service may be worse then, too, in the crush of people rushing to refinance after the temporary 0% federal loan interest rate expires. Perhaps it is worth paying a little extra interest over the next few months to get better service and possibly a better long term rate.

You say that I said “that we should still refinance now”. That’s clearly false. If you read the paragraph again you’ll see words like:

Some
May
Possible
May
Perhaps
Possibly

Does that sound like some type of recommendation to all to refinance? I simply gave people some things to consider in their decision of when to refinance. I fully expect that the vast majority will do what I say in the next paragraph:

Finally, you may wish to gather your paperwork and even submit it during the next 6 months just so it is all ready to go on September 30th. You may even be able to “lock in” a lower interest rate for some period of time in there, allowing you to have your cake and eat it, too.

I absolutely do expect a mad rush on refinancing come the first week of October. I expect to see several thousand doctors refinance their loans that week. If the companies are swamped, it might take until November or later to get your paperwork finalized. Is it worth giving up a couple of weeks of 0% interest to have a lower rate in October rather than December? Probably. That’s all I’m warning about.

If it bothers you that the White Coat Investor is a for-profit business, it should have bothered you a long time ago because it always has been. I think my conflicts of interest are very clearly disclosed. I’m not going to do this for free and my staff says they’re not going to work for free either so this is the way it is going to be. If that bothers you, don’t let the door hit you on the way out.

Jiggaman | April 10, 2020 at 10:12 am MST

Sorry but this IS self serving. And you bring up for profit argument all the time just to brush up valid arguments under the rug: commissioned salesman after all.

Even if you get cheaper interest, that still doesn’t beat 0% so go for that and when time comes refi with private lender. At worst you go back to original 7-8% interest , well then overall this year you would have payed 3-4% interest if you do the math. It’s a wash.

And great job crafting a “some people may” thing, way to play on people’s fears. The right advice absolutely is to fully avail 0% interest and if possibleake principal payments to lower debt. Not to refi to private.

Oh and there is higher chance the program extends beyond September than a “mad rush” of refi in October.

2012 WCI would scoff at this article. But hey anything for $

Rikki Racela | April 10, 2020 at 11:07 am MST

Dude I think that’s a bit harsh Jim did a pretty good job Presenting all sides of the argument and does say he’s for profit. When I got duped into buying whole life insurance my Northwestern Mutual high school buddy failed to mention back door Roth‘s and paying down debt to build wealth, etc and also gets a huge commission to fund a house bigger than mine. Jim is providing full information as well as disclosure.

Well done Jim love u man.

Btw I refer to hugh jackman as wolverine all the time- I always forget his real name!

Tyson | April 15, 2020 at 8:47 am MST

…for those of us that don’t have a govt loan, refinancing was a good move. I’m in at 0.81%, compared to my prior 2.875%. I think the advice is appropriate, and I got a $550 credit for using commonbond

Brian | April 15, 2020 at 8:52 am MST

Wow! You got 0.81% variable I am assuming? At common bond??

Brian | April 15, 2020 at 10:40 am MST

Tyson.. just curious but when did you apply at CommonBond to get this rate? I was quoted much higher today and when I called they told me they have never had a rate that low..?? Is this something I need to specifically ask for or was that just your offer and when? Jealous 🙂

5 Kevin | April 10, 2020 at 5:56 am MST

Any more information re: “Laurel Road is offering a special lower rate for physicians and others on the front lines of this health care crisis.”? Your link just takes us to the referral site and I don’t see anything about it listed on the Laurel Road website.

The White Coat Investor | April 10, 2020 at 9:43 am MST

You’ll have to ask them why they didn’t want to put it on their site. But they do assure me they are offering a significantly lower rate. They even told me how much lower it is, but forbid me to tell you. Sorry. You’ll have to ask them. Then I suppose YOU can post it here, but I can’t.

Kevin | April 10, 2020 at 11:42 am MST

Just called and they added a 0.5% discount on top for being a front line health care worker.

The White Coat Investor | April 10, 2020 at 6:31 pm MST

How about that? 🙂

Russell | April 11, 2020 at 1:57 pm MST

R u already with them? no credit check? just called and asked?

Adam | April 14, 2020 at 7:54 am MST

When I called they told me that the 0.5% was already factored into the rate they already offered me several weeks ago. Why would it be automatically factored in for some people and others get an additional reduction when they mention it?

Adam | April 16, 2020 at 1:29 pm MST

FYI from Laurel Road:

“Laurel Road only allows 1 partner discount per application. The ADA discount is already reflected on your application thus we can not add the Whitecoat $300.

However, Laurel Road is further reducing our already low rates for physicians, doctors and nurses. Applications received prior to March 25, 2020 are given a 0.30% discount for healthcare professional , physicians, doctors and nurses. This is also reflected on your application.”

The White Coat Investor | April 16, 2020 at 7:50 pm MST

That’s typical, but they’re generally good enough to offer you the best discount for you if you come through my links. If that’s cash back, that’s what you get. If it is a lower rate, that’s what you get. I get paid either way, I’m not just allowed to advertise the rate discounts. But if you go through ADA links, the ADA gets paid.

As far as the healthcare professional discount I’m surprised they cut it off on March 25th. I thought they were starting it about that time going forward. Odd. It’s brand new for the pandemic, maybe they’re still sorting it out.

6 SM | April 10, 2020 at 7:15 am MST

Hey Jim,

Thanks for the post. I’m assuming that the employer paid student loan benefit is a non starter for most residents/fellows, since we work for non profit organizations. I’m wondering if it’s even worth asking my program whether this is a possibility.

The White Coat Investor | April 10, 2020 at 9:44 am MST

You can ask, but I wouldn’t hold my breath.

Patrick | April 10, 2020 at 9:58 am MST

Interested in knowing this as well (incoming PGY-1 here).

Asd | April 15, 2020 at 7:44 am MST

Do you know who you would go to to even ask this question at one’s program??

The White Coat Investor | April 15, 2020 at 9:05 am MST

Just ask your director or program coordinator. But since it’s brand new, I can just tell you that you don’t already have it in place. But you can ask them to pass it up the chain that you’d like to see it in place.

7 Andrew | April 10, 2020 at 8:40 am MST

I can’t say I feel the email you quoted in the article is correct. Most federal loan servicers seem to be implementing both the 0% interest and automatic forbearance as per the comments above for Nelnet and the following for FedLoan:

“We are working closely with the Department of Education to enact the relief efforts that have been announced through the CARES Act. No action is required on your part at this time. Your account should currently reflect the updated 0% interest rate. Additionally, you will receive a notification once the forbearance benefit has been applied to your account no later than April 10.”

-and-

“0% Interest for Student Loans
The interest rate on all federally held student loans serviced by FedLoan Servicing will temporarily be reduced to 0% until September 30, 2020.
FedLoan Servicing will automatically adjust accounts so that interest doesn’t accrue (i.e., accumulate). The account adjustment will be effective March 13, 2020.
This 0% interest rate change will be applied to all federally held loans in any status (in school, in grace, in repayment, in deferment/forbearance, etc.).
Temporary Suspension of Payments
All borrowers will automatically be placed on an administrative forbearance which will temporarily suspend monthly payments.
The administrative forbearance will last from March 13, 2020, through Sept. 30, 2020.
A borrower can request that this administrative forbearance be removed at any time. If the forbearance is removed, required payments will resume.”

Great Lakes is also doing this from what I have read on their webpage. This directly contradicts what was stated above, and is hopefully correct considering it is coming directly from company websites and not secondary sources.

The White Coat Investor | April 10, 2020 at 9:45 am MST

It’s been a very rapidly changing situation at the federal student loan servicing companies in between today and the day that email was sent to me.

8 Rikki Racela | April 10, 2020 at 10:06 am MST

Hi guys also for old fogeys like me it seems that when I graduated Med school in 2007 My federal loans do not qualify under CARES act because they were not serviced through the Department of education. I read this through one of PoF Sunday roundup links as well as heard Sarah Catherine guittierrez day the same thing on Carrie Reynolds podcast. Is this true? I called Navient who of course was not sure of the answer.

9 Ben | April 10, 2020 at 11:31 am MST

Bummed that I miss out on the 0% interest, but my refinanced 5 year variable with SOFI is down to 0.68%, a number that I just love looking at. Sorry Jim, I didn’t do it through your website since my society membership gave me a 0.5% discount. Thanks for all your work!

The White Coat Investor | April 10, 2020 at 6:32 pm MST

Glad you got a great rate. Often these companies will offer you the best deal possible for you even if you go through my links. They just don’t let me advertise that particular deal.

10 Malum Prohibitum | April 10, 2020 at 2:23 pm MST

Navient is doing the deferral and 0% interest automatically (just checked).

I am sole owner of my corporation and looking eagerly for a future article from you to help me decide whether I can have my corporation pay $5250 of my student loan before December 31 and deduct it from my corporation as a business expense (just like wages) but not have it be taxable income to me as the sole employee. I was planning to pay off the student loan soon, and this $5250 is almost 40% of the remaining balance, so it would be nice to at least receive a tax benefit from paying the loan down. I was going to pay it off anyway, but this is icing on the cake!

What concerns me is this language from section 127(b)(3) of the Internal Revenue Code, which makes me fear my cake will have no icing after all:

“(3) Principal shareholders or owners

Not more than 5 percent of the amounts paid or incurred by the employer for educational assistance during the year may be provided for the class of individuals who are shareholders or owners (or their spouses or dependents), each of whom (on any day of the year) owns more than 5 percent of the stock or of the capital or profits interest in the employer.”

Obviously, I own 100% of the stock, capital, and profits, but this seems aimed at nondiscrimination rather than forbidding the self employed who have incorporated from taking advantage of this deduction.

A sole proprietor can do it. It seems like the sole owner of a corporation who is also its sole employee should be able to do the same thing, but 127(b)(3) appears to bar it. How can I make my payments to Navient be 5% of the amount paid for educational assistance when there is nobody else for whom I can pay the other 95%? LOL!

Ryan | April 10, 2020 at 3:14 pm MST

Great research, Malum – thanks for sharing. But I also hope you’re wrong!

Agree Jim – would like to see a breakdown on this if you can get any experts to help us on whether this would be viable. Would be great to know if my “side hustle” could make some payments for me.

Also, just refi-ed my wife’s loan through CommonBond. Great to work with, 5 year variable with top tier credit, currently 0.8%. Gotta love that.

The White Coat Investor | April 10, 2020 at 6:24 pm MST

0.8%? That might be the best I’ve yet seen, at least since 2003. Impressive.

Ryan | April 11, 2020 at 8:55 am MST

Yeah, I was pretty happy with that (though someone in the comments above was even a little bit lower!)

That’s including the 0.25% rebate for auto debit but still ….

Brian | April 15, 2020 at 9:41 am MST

Did you have to ask for it or tell them you are a healthcare professional? Their quoted rates online at much higher. Was going to go with a different company but this rate would easily make me go with Commonbond if I can

The White Coat Investor | April 15, 2020 at 11:34 am MST

Just apply broadly and take the best rate.

The White Coat Investor | April 10, 2020 at 6:27 pm MST

Looks like you can’t do it to me from your quote. That seems to also exclude sole proprietors too.

11 Adam | April 10, 2020 at 6:22 pm MST

I’m employed by the VA part-time. Any chance they can contribute the $5,250 towards my loans, or at least a portion of that amount?

The White Coat Investor | April 10, 2020 at 6:23 pm MST

They can, but good luck talking them into doing it. The VA has some other nice student loan programs though. You know about those, right? (Plus PSLF).

Adam | April 10, 2020 at 6:31 pm MST

I asked about student loan programs during my on-boarding process but was told they were not currently offering any type of assistance at the time (about 4 months ago). At this point, my debt load isn’t high enough for PSLF to make sense -I’m hoping to pay them off in 5 years or less. What other VA programs should I be asking about?

The White Coat Investor | April 10, 2020 at 9:15 pm MST

Yea, they have a program that pays off your loans over like 5 years as I recall.

https://www.vacareers.va.gov/Benefits/EducationSupport/

https://www.nynj.va.gov/docs/slrpsummary.pdf

Oh, it’s limited to $10K/year with up to $60K. Still beats a kick in the teeth.

12 Kevin | April 12, 2020 at 2:02 pm MST

Does anyone know if you get a refi quote today from any of the above companies Is it good for a certain period of time. ie 24h 10, 30, 60 days?

The White Coat Investor | April 12, 2020 at 3:07 pm MST

That’s a good question. Certainly ought to be good for a few weeks though.

13 Alex | April 13, 2020 at 10:53 am MST

It’s true that interest rates could go up in the next 6 months, meaning you could miss out on a lower interest rate by waiting until October to refinance. However it is extremely unlikely that rates will increase by a large enough amount to make refinancing now worthwhile. In other words, even if rates do increase slightly, your average interest rate over a 5 year period (6 months of zero percent followed by 4.5 years of a theoretically marginally higher rate than you could get now) will still be lower if you wait. Plus, interest rates could decrease over the next 6 months. There is also a very real possibility that this zero percent interest period could get extended. We have no idea how things are going to be 6 months from now. It is entirely possible that things are still so bad economically that they decided to extend it. In my opinion it makes no sense to refinance now.

The White Coat Investor | April 13, 2020 at 11:03 am MST

All possibilities, although if rates drop further you could always refinance again. Private loans exempted from your analysis of course. I expect almost everyone will wait until at least September with their federal loans.

14 Adrian | April 13, 2020 at 11:25 am MST

I am an employee in private practice, hoping to take advantage of the $5250 from my employer tax free to my student debt. The above clause does not seem to apply since I am not a shareholder yet.

Has anyone looked into the logistics of this or made progress towards it? I am awaiting word back from my payroll/HR people.

Cheers.

Asd | April 15, 2020 at 7:46 am MST

I am interested as well!

Adrian | April 18, 2020 at 2:04 pm MST

It looks like this is going to be doable. I am going to accept the money instead of regular income. It is a bit of a hassle for payroll/accounting because they are apparently required to create a written plan, and it needs to be equitably accessible by all employees. This is probably most practical in a small practice where it would not get overly complicated, but to still have several employees to take advantage of the tax break and make it worth everyone’s time.

15 Nikki | April 13, 2020 at 12:06 pm MST

Thank you for the up to date information! As a 4th year med student, I was wondering if it would be worth it to refinance towards the end of the 6 months. Are there lenders that will allow me to pay less during my 4-5 years of residency? Or would refinancing cause my payments to be too high per month? I was originally planning on doing REPAYE/ PSLF and refinancing after my training.

The White Coat Investor | April 13, 2020 at 12:57 pm MST

Private loans can and should be refinanced every time you can get a lower rate. As a general rule, most residents don’t refinance their federal loans until they finish their training because their effective rate under REPAYE is better than the rate they can refinance to. If that’s not the case for you and you aren’t going for PSLF, then you should certainly look into refinancing as Oct 1 approaches.

Brian | April 15, 2020 at 7:48 am MST

All med students and doctors should be aware… I was able to get a lower rate with Splash but their services do not allow for forbearance or death discharge. This is crucial in my opinion and should be more clearly stated by them. A big reason why their rates are lower in my opinion. Even if you die they still get paid

The White Coat Investor | April 15, 2020 at 9:09 am MST

Agreed that this varies by the lender. But certainly some people value a lower interest rate over those benefits, especially since you can relatively cheaply cover the death issue with term life insurance, probably at a lower price than paying additional interest. As far as forbearance, in reality every student loan offers forbearance. Just stop paying. What are they going to do, foreclose on your brain? The only practical difference between forbearance and just not paying for a while is that your credit score takes a hit. The interest that accumulates is exactly the same.

asd | April 15, 2020 at 7:52 am MST

Incoming PGY1:
For Federal Loans (not interested in PSLF), I was unsure if I should consolidate my loans and do REPAYE as I approach Sept 30 (as I would have normally done after graduation had COVID not happened to get a headstart on payments/forgo grace period). With COVID, do I need to even consolidate at all? Would it be best to enroll in REPAYE ASAP? Or wait till closer to the date??

Thanks WCI!!!

The White Coat Investor | April 15, 2020 at 9:11 am MST

If you’re not going for PSLF, there isn’t the same rush to enroll but the subsidized interest benefit of REPAYE could still be there. Consolidation by itself doesn’t lower the interest you pay but you might be able to get into REPAYE a little earlier by doing so.

16 Travis | April 13, 2020 at 4:12 pm MST

Thank you!! Good article. Big win with Laurel Road today on a refi rate. Just be persistent and escalate to someone with means to truly help.

Adam | April 13, 2020 at 4:39 pm MST

Hey Travis,

Can you please elaborate more about how you went about your process to get Laurel Road to reduce your rate? Thanks!

The White Coat Investor | April 13, 2020 at 10:38 pm MST

Just tell them you’re a health care worker and ask for the lower rate.

Adam | April 14, 2020 at 8:00 am MST

Just called in to try that and they were 100% not helpful or willing to budge from the previous rate they quoted me several weeks ago.

The White Coat Investor | April 15, 2020 at 8:26 am MST

Interesting. The more generous interpretation of your experience is that they saw you were a doc and gave you the good rate already. The less generous interpretation is that it is all marketing. I’m not sure how you or I could determine which it is.

Travis | April 15, 2020 at 9:04 am MST

Hey Adam, just kept escalating with different supervisors

17 Drew | April 14, 2020 at 5:25 am MST

Hi Doctor, Could you please explain how a resident planning for PSLF should choose between contributing to a Roth account given the resident salary versus a traditional account to reduce AGI? What formulas should I be using? Thank you!

The White Coat Investor | April 15, 2020 at 8:17 am MST

Why are you using a different name and email address every time you post a comment on the site? Your question(s) seem valid and reasonable, it’s just odd. But you’ve posted basically the same question in two places.

The bottom line is that Roth is the right move for most residents, at least in the long run (decades). In a shorter time period, if you’re going for PSLF, contributing to a traditional IRA will lower payments (improving cash flow) and increase the amount forgiven. But I bet if you run the numbers out, the fact that the money is still in traditional will probably outweigh it eventually. It certainly isn’t a basic formula and a lot of assumptions would have to go into it. It would probably make for an interesting post actually.

Alex | April 15, 2020 at 12:23 pm MST

Really? The way I’ve always looked at it is being in PAYE essentially raises your marginal tax rate by 10% since you pay 10% of discretionary income toward student loan payments the following year. So if you are a resident and your taxable income is $40k, your marginal federal tax rate is 22% plus you have to pay another 10% in loan payments the following year for a total of 32%. That’s pretty close to what most people’s federal marginal tax rate will be as attendings. And if it’s around what your marginal tax rate will be as an attending, it will certainly be higher than your effective tax rate in retirement. I think for the vast majority of us in IDR plans doing traditional over Roth is pretty straightforward. What am I missing?

The White Coat Investor | April 15, 2020 at 2:31 pm MST

You’re missing the fact that at least part of that student loan payment is going to principal and will reduce your future expenses. It’s a much bigger deal if you’re going for PSLF of course because lowering payments increases the amount forgiven.

Alex | April 15, 2020 at 3:40 pm MST

The question was about a resident planning for PSLF.

The White Coat Investor | April 15, 2020 at 3:49 pm MST

Okay, just finished doing all the calculations and writing them up as a post that’ll run in a couple of months. The bottom line is that if you’re going for PSLF you should use a tax-deferred account even in residency. If you’re not going for PSLF, it doesn’t matter much but I’d still lean toward using a Roth.

Jeremy L | April 17, 2020 at 11:19 am MST

This is great! A couple friends and I had this same exact question. Any chance it comes out before the next residency cycle starts up again? Also, thanks for taking the time to write it – I’m sure all the assumptions you talked about in your previous post such as resident income vs attending income vs average growth vs state income tax took you a lot of time, so I (and many colleagues) thank you Dr. Dahle!!

The White Coat Investor | April 17, 2020 at 11:26 am MST

I don’t know when it will run (in the next few months at some point) but I’ve emailed it to you.

18 Kristn Fishr | April 14, 2020 at 7:42 am MST