[Editor’s Note 1/15/2018: The long-awaited White Coat Investor Online Course is live and is available for purchase here. The course is entitled: Fire Your Financial Advisor. No more wading through dozens of books at the library, scrolling through hundreds of blog posts on dozens of blogs, or checking in daily with online forums trying to gain a financial education the way the hobbyists do. This course will take you from feeling anxious and having no plan to having a written financial plan you can follow the rest of your investing career as a professional and a retiree. This course is the material that should have been taught to you in college, medical school, or residency, but never was.]
Q.
I know you hear lots of people’s financial woes. I almost never read articles that include situations similar to ours, and am beginning to feel that we are way out of the norm.
My partner and I both went to one of the most expensive medical schools in California. With tuition and living expenses, our combined debts currently stand at 840K (about 420K each), with interest accruing at about 6.5% for half the amount, and 7.6% for the other half. We are both in residency, Psych and IM.
We’ve been trying to live as frugally as possible in California and our families are both here. We’ve started saving for retirement in Roth IRAs and have a $10K emergency fund and are also starting to save for a house. We are about to apply for disability insurance which looks like it will cost us about $500/month for both of us. I am worried about refinancing our loans into private loans because of the loss of the ability to
defer/forbearance in case of hardship and the damage it might have to our credit. At this point, our plan is to aggressively pay our loans after graduation. If I pay 5K/month on my loan, then it should be paid off in 10 years.
Right now, I want to make sure that we put the best plan into place for both saving and paying down the loans simultaneously. Now the cherry on top, is that my widowed mother is likely to need financial help from us pretty soon (1 year), thinking we may need to purchase a large enough house for her to live with us, and take care of her regular expenses.
What is your general advice for those of us who have exorbitant sums of loans? I doubt PSLF will help us if it is even still there 7 years from now, so ignoring the PSLF possibility, what is the least worst way to go about this?
A.
Unfortunately, this situation is not only not rare, but it is becoming increasingly common, particularly among dentists as you can hear in this call to the Dave Ramsey show I shared a while back.
$840K is a lot of student loan debt, but it still isn’t my record ($950K for two docs, $635K for one, send me an email if you can beat it.)
[Update 4/17: Record has continually increased since writing this- $800K, $940K, and now $1.2M for one doc. OMFS and orthodontists seem to lead the pack.]
But there’s no doubt these two docs are in some serious financial hot water. Consider these four factors:
1) Huge debt
2) Relatively high interest rate debt
3) Low paying specialties
4) Living in a very high cost of living area
Why is this so bad? Well, the interest alone on that debt is about $60K a year. So it will cost them $5K in after-tax dollars a month just to stand still. That may be half of one of their after-tax monthly incomes!
The good news is that they realize that this is a problem. They realize they need to save and have already begun to do so. They’re developing a financial plan. They’re having a little trouble prioritizing their savings, but that’s a relatively minor issue. The major issue is the $840K elephant in the room. I’m not quite convinced they understood just how bad that was. Dealing with that mess requires a radical solution, and I didn’t hear a radical solution in the email. But they’re probably only at a peak income to student loan debt ratio of 2X. As I wrote about recently, that’s at least still doable. 3X, or even 4X (like the dentist in the Dave Ramsey call with a $480K debt and a $120K income) probably isn’t.
Here’s what this couple (and all of you out there like them) need to consider.
# 1 Mindset Change
It’s time to change your mindset. You’re not only broke, you’re far worse than broke. You’re over $800K away from broke. You’re in a worse financial position than 99.99% of other Americans. The dude living under the bridge is in better financial shape than you are. You’re in no position to buy a house. You’re in no position to help anyone else financially. You’re in no position to live in a high cost of living area, no matter how many family members you have there. You’re in some deep crap. Your debt to income ratio is radical, and a radical solution is required.
# 2 Public Service Loan Forgiveness
This type of situation is ideal for a method of paying for school that doesn’t involve paying the loans back yourself. If you saw this coming before med school (expensive school and a low paying specialty) the military HPSP scholarship is a great option for someone with a desire to serve. That’s obviously not an option now. But Public Service Loan Forgiveness (PSLF) is. PSLF, assuming they are grandfathered in, eliminates this problem in just a few more years. The internist will already have 3 years of payments by residency graduation, and might even consider a fellowship. The psychiatrist has 4 years of payments already. 4-7 more years and they both could qualify for tax-free forgiveness, probably of an amount approaching a million dollars (after-tax mind you), but certainly at least half a million. That’s like an extra 3-5 years of gross income! It’s a huge benefit. What do they have to do to get it? Not much. Stick around as faculty at their programs. Go over to the VA and work (easy to get a job there as an internist and a psychiatrist I would think.) Maybe they can even find a non-profit, non-academic employer in California. But to just write this option off when you owe upwards of $800K seems foolish to me.
The kids wondered why we didn’t get a llama to carry their stuff
# 3 California Is Part of the Problem
Here’s another consideration- living in California is probably a significant part of the problem. A doctor leaving California for a less balmy climate typically gets heavily rewarded for suffering through it. Lower state taxes, a lower cost of living, and probably even higher salaries. After-tax, it wouldn’t be unusual to make 50% more and spend half as much. That 2X ratio could easily be knocked down to 1.5X.
# 4 Boosting Income
Too many financial blogs focus on reusing paper towels to save money. That isn’t going to go very far against a debt that accumulates $5K in interest a month. Physicians have a high ability to earn, and when you get out of residency it’s time to take advantage of that fact to improve your financial fortune. Extra shifts, a better paying job, a side gig, you name it. Plus, when you’re working you’re not spending. “Live like a resident” can refer not only to your spending habits, but also your working habits.
# 5 Don’t Fear Refinancing
Refinancing your student loans with a private lender does come at a price, but this couple seem to be afraid of the wrong price. They’re worried about not being able to make the payments. They should be worried about not being able to go for PSLF. At any rate, cutting that interest rate in half if possible would go a long way to paying these loans off quickly. Upon residency graduation if they’re sure they’re going to pay them off and not try to get them forgiven, it’s time to refinance. What are they really worried about? If something terrible happens to their income and they can’t make their payments SoFi or CommonBond isn’t going to come over and repossess their brains. Remember what a student loan is- an unsecured debt. If you stop paying, all they can do is report you to a credit bureau and call you every now and then. All the Credit Bureau folks do is lower your credit score. Well, if your income has dropped so much you can’t make your student loan payments, you don’t need credit anyway. It doesn’t take that long to repair credit. By the time you’re in a position to buy a house (hopefully the only thing you need credit for in the future), your credit will be ready too. Paying an extra $25K a year in interest so you can go back to IBR payments “just in case” seems pretty foolish to me. IBR/PAYE/REPAYE forgiveness, which is taxable, isn’t an attractive option either for this couple. That means they’ll be dragging their debt out for 20-25 years. No, thank you.
# 6 Get Intense!
Even dragging loans out for 10 years would be depressing to me. I’m about ten years out of residency as I write this. Not only have my “student loans” been gone for years, I’m basically done saving for college, done saving for retirement, have the mortgage paid off, and am “living the good life.” Correct me if I’m wrong, but isn’t THIS what you want a decade out of residency? Or would you prefer to still be screwing around with student loan payments? Do yourself a favor and get rid of those loans in 5 years or less. Will it mean hard work? Absolutely. Will it require serious lifestyle sacrifice compared to your income and peers? For sure. Will it be worth it? I think so. Here’s what it looks like:
Income: $400K
Taxes: $100K
Debt repayment: $200K
Living expenses: $100K
$100K goes pretty far in California, and it goes a long way outside of California. You can probably even save a little for retirement out of that. But the key is figuring out a way to be throwing $200K a year at the loans. That means that you’re not making $5K a month payments. It means you’re making $15-20K a month payments. You can do it! Think of how nice it will be to have an extra $200K in income! It’s like marrying a doctor! That can be yours in less than 5 years, but you’ve got to choose now.
What do you think? What advice do you have for a doctor with “extreme debt?” What is the best choice now for their limited disposable dollars? Comment below!
As Dave Ramsey would say: “rice and beans, beans and rice”. Fortunately, with a double physician income, this type of extreme frugality is not necessary, even with this type of debt burden. Since they are still residents, I would think that it might be beneficial for the IM resident to do fellowship to boost their future income potential, especially if they are planning PSLF.
Are you sure that a 400K income in California would only pay 100K in taxes? According to https://www.nerdwallet.com/blog/taxes/federal-income-tax-brackets/, they would pay over 100K in federal income taxes alone, and this is before California state, Social Security, and Medicare taxes. I would estimate that they would pay approximately 150K in taxes. The plan still works, but they might need an extra few years to pay down the debt, or tighten the spending belt an extra notch or two.
I don’t have all the details of their tax situation. If you prefer to use a different number in your writing, feel free. It’s quite possible their effective tax rate will be higher than the number I pulled out of thin air.
But most people who complain I’m using too low of a number aren’t accounting for the typical deductions I would expect in a situation like this. Same reason people are appalled that my effective tax rate is so low. “But mine isn’t that low,” they say. I reply, “Did you put nearly $200K into tax-deferred accounts and give $50K to charity?” “Oh, I see,” they reply.
How about that disability insurance? Is 500/month for one of you or both of you? Even if it is 250/month/person that seems exorbitant to me, especially for IM and Psych. This is just a drop in your bucket but you need to shop around more.
700$ per month here for ‘own occ.’ It sucks until you are disabled I guess.
That doesn’t seem that exorbitant to me. I pay $400 a month just for me and I have pretty inexpensive policies. It just depends on how much benefit they’ve purchased.
May I ask, why still hold disability? Are you not self insured at this point?
Do you also still hold life insurance?
Yes you may ask.
No, I’m not financially independent (we spend too much relative to our assets dedicated to retirement.)
Yes. My portfolio + my life insurance does get us over our “number.”
Now, should I drop LI/DI because I have another income besides my physician income? I suppose it could be argued, but thus far I have decided that no, I shouldn’t. DI is about $400 a month and LI is about $100 a month. It would be nice not to have that expense, but it wouldn’t be lifechanging. Becoming disabled or dying without that insurance in place would be life changing.
But you (WCI) are insuring (i’m assuming) your full or a large portion of your income, which is >4x what a resident would make. This does seem pretty high for a resident salary since they are probably capped at 5k/month each. I got offered that coverage from Guardian (one of the more expensive providers) for $105/month graded policy or $165/month flat rate for 5k/month coverage, with a 10k rider. My health is excellent, but that was only about 3 years ago. One option to explore would be a graded policy (rates slowly increase over time). The maximum savings on this type of policy is usually 10 years (i.e. you’ll save the maximum amount of money with this type of policy for the first 10 years, and which time you’ll begin to give back some of those savings over the next few years, and only pay more if you hold it more than 15). But in their situation, it makes more sense to use the initial lower costs to pay down aggressively on their student loans. My personal savings over 10 years was going to be 6k over the first 10 years, with more of that coming at on the front end. Like PoF, I expect financial independence by that time, and plan to cancel the policy after maximal savings (but even if I haven’t reached my goals, there is a period of several more years before the decision will actually cost me more money). In their situation the interest savings and faster debt repayment from this type of plan make more sense, even though they will likely not be in a situation to be financially independent by the time it starts costing them more money. However, they could still consider getting rid of the policy at that time considering that they can insure each other (they will be making similar amounts, so would both have to become disabled, the odds of which are low), and be aware that their jobs will often offer some disability insurance coverage (although usually not as good, e.g. with more limited own occupation coverage).
IMHO, you are going to have to take some calculated risks in order to get ahead of a debt burden of that magnitude.
I’m not sure if we’re talking about me, you, the person in the post, or a hypothetical doc with a big debt as your comment is bouncing around so much.
No, I don’t have anywhere near my entire income protected with DI. About 20% of last year’s income actually. I buy disability insurance based on expenses, not income and recommend you do the same.
I agree that graded premiums make sense for someone who expects early financial independence.
Sorry for the lack of clarity. I think a graded policy makes sense for this couple as well, as it will allow them to reduce expenses initially and use that money to pay down debt that is at a high interest rate (of course refinancing that debt would slightly change how beneficial this approach would be, but the benefit is still there). The main point is that besides the thousands in premiums they would save over the first 10 years, they are also going to save thousands in interest because they can apply that money to high interest student loans.
Summary: Getting a graded policy will save >10k for monster debt couple over the first 10 years, and will likely save a similar amount in interest saved if you apply that to student loans (>7%, rule of 72). This will likely generate >20k in student loan savings over the first 10 years. Savings of this magnitude are important for a couple starting this far behind.
I agree.
This level of debt is just shocking. Society cannot afford this. Higher education and professional schools simply have to tighten their belts. How many young people read stuff like this and decide to do something else? The problem with this couple is that they did not seek advice prior to incurring the $840k debt and maybe even residency choices.
Who did seek advice? Did you? Did I? Heck no. We just had a dream to be a doctor, signed up for school, and figured “doctors make lots of money so the money should take care of itself.”
No I did not seek advice prior to starting med school. My total debt was only $29k however. The tuition inflation is astounding. I am just saying I don’t think these young people understand how the debt accumulates and the effect on the rest of their life. I don’t know the answer but I think the costs are out of control. The general public will have little sympathy for the rich doctor to be so we as doctors have to solve this problem some how.
Last I checked the deans of every medical school in the country are all physicians. It’s doctors raising the price. In state tuition is up 350% at my med school in 13 years. They have fancy new classrooms and fancy new dorms and fancy places to eat but at the end of the day, it’s the same drill. They charge more because people will pay it and people can pay it because the government will loan them the money to do so. The truth is it still works out just fine for 75% of them. But the percentage of docs in financial trouble is growing. Perhaps from 5% 20 years ago to 25% today. That’s a lot of docs. The data shows that the average indebted student last year left school with a little over $200K in debt. But there are three factors there that are not being considered.
# 1 – That’s an average. Someone who goes to an expensive school in a high cost of living area and borrows the whole thing (especially with a family) is going to be way above average.
# 2 – The debt grows in residency. $200K at graduation is $300K after a 5 year residency.
# 3 – The lag time is significant. A pre-med looks at the stats and says “it’s only $200K, I can do that.” But that was for those who started in 2011 and finished in 2015. He’s going to start in 2017 and finish in 2021. That’s 6 years different. His “$200K” is going to be $300K, and that’s before residency.
Excellent points. Especially lag time, and how residency, inflation, and rates can all really change your projected doable number to a monster. I had a poor rate regime and a 7 year training period, (and no finance sense, heavy denial), and my totally fine 300ishK turned into 490k.
This selling of yesterdays costs has to be intentional by the industry.
Another thing that you don’t think about when you go to medical school is taking a year off for research or for time between college and medical school with college debt compounding.
I had huge undergraduate debt from a private college that I somehow did not realize was compounding during the 2 years prior to going to an expensive Ivy medical my parents did not help with. THEN, I took a year off for research between 3rd and 4th year. Then I deferred the debt through 4 years of residency. Not smart.
I actually did crunch the salary numbers, debt, and opportunity cost before applying to medical school. And my lowest acceptable income was 200,000 gross a year. Of course I’m a type A robot doctor. Beep, beep! 🙂
We did look at it…I actually chose my degree/career because I knew it would give me the earning power to support my husband/then fiance through medical school right off the bat. That and the Texas medical school system served us very well. Tuition was about $18k a year. The only reason we have the debt we do is because we bought a house and had children during medical school. I actually know a couple that paid off his tuition as he was in school–they lived frugally and she had a good job. I wasn’t willing to do what they did, but I am impressed.
Unfortunately, not everyone has a spouse to support them through medical school. And not everyone has access to Texas medical schools.
Its about time applicants need to know their debt burden and the payment schedule prior to acceptance to professional schools. The govt needs to step up to the plate and rectify the costs of education. Private dental schools cost 500k/4yrs and continues to rise. What is the breaking point? 840k in loans is beyond serious. Loans as such affect quality of care as well as we see in dentistry(gross over treatment and worse)
“The gov’t needs to step up to the plate and rectify the costs of education.”
I’d love to hear what you think that might mean. You realize this is a problem due in no small part to ‘borrow all the student loans you want’ enacted by the government. And, the government doesn’t exactly have a great track record at reigning in ludicrous spending or running things in a fiscally prudent manner.
No! The government made the cost of education what it is by taking over the student loan market. Can you imagine going to a bank and asking for a $500,000 unsecured loan at 8.9% so you can become a PCP making $165,000/year? The bank would at least be self-interested enough to deny you the noose for your own hanging, forcing the medical school to keep costs in a range that could be covered by a reasonable loan. But, the government will gladly give someone a $300,000 noose so he can become a social worker making $30,000/year, ensuring both his own misery and that of his taxpaying neighbor.
Actually for doctors the bank probably would be happy with those terms. For other educational debt, probably not so much.
Exactly. The government should get out of the business of giving educational loans and the problem will be fixed. Going to college these days is like a country club and many students don’t reach that QOL again for decades. What happened to going there to learn?
The government won’t rectify what it caused on purpose. By creating a generation of overly indebted physicians, this generation may have to accept even worse future changes to how we practice than we have already endured. The debt also keeps the physician working longer to repay it, giving the government taxes for longer. Evil genius, really.
Very good points. You have to work even if you hate your job because of the debt. No more FIRE.
During a particularly rough week in residency, when I was quite literally up to my elbows in feces, I considered quitting. The debt kept me going more than any pep talk could, and, for that, I am thankful. Now I just need to finish paying it off! Fortunately, I graduated in an era of very low interest.
That’s interesting that you’re actually grateful for the debt because it kept your nose to the grindstone. I wonder if we as a society should be thankful doctors have huge debts so there are actually doctors practicing when we need them.
This is probably true for the majority of physicians and soon to be physicians, but on the flip side, there may be a few who see this as painting themselves into a corner with no way out. And then they possibly do something drastic, like taking their own life. Physician suicide is up right now. I wonder if the increasing cost of medical education and insurmountable debt is a factor? Has anyone looked at this? What do you think?
I don’t know, but I’ve got a similar post on the subject running in an hour!
The level of debt here is almost unfathomable for someone like me. That being said at this point id be looking to be extremely frugal. Sublease a room together in someone elses rental, drive my car to the wheels fall off, ect frugal. Your right that saving paper towels won’t cut it so go after the top expenses Home, car, food and live like a unemployed college student until you get things turn around.
While my student loan to income ratio was only about 1.1X when I finished residency, I’m still a big advocate for #4. I started with a 40 hour/week job with benefits right off the bat. Within a few months I added a side job for several hours per week which paid an extra 3-5k per month. About a year later I added a monthly weekend coverage at a local hospital that pays 2k per month. Then nearly a year ago I added another gig for 5+ hours per week that pays 5k or so per month. All in I’m making an extra 10-12k per month from my side jobs for an average of 10 hours per week and one light weekend of work per month. People think I’m crazy when I tell them technically I have 4 jobs, but it feels nice to be sending in thousands of dollars per month extra to pay off my student loans hopefully by the end of this year.
Do you mind sharing what these extra side jobs are? My dream is to do a similar thing after graduating residency in a few months. Thanks!
Drug and alcohol rehab facilities, plus covering weekends for a hospitalist.
I have seen those jobs as well as internists working in walk-in clinics like CVS or city MD. There are also lots of private practices that want a doctor to cover Saturday mornings. I just had to call a BabyDoc (peds) that comes to your apartment and does housecalls 24/7. I worked at a Botox clinic on Saturdays that really added up.
Consider adding in telemedicine when board certified.
Do you have any links for those jobs. Just curious.
Look at which of the big three are active in the states you practice: Teladoc, AmWell, and MDLive.
I am in NY. Thank you for the recommendations!
Go to their websites. Read about which style you like best. Contact info is there. Nothing stops you from doing more than one if you have the time. Good luck!
The other thing to consider is when to have children. If you ask your mentors about having children, the politically correct thing to say is, “Have children, you will make it work”. Rarely will someone tell you to “delay children” to your face in an academic setting, so I can say it on the internet. Everyone thinks they can “have it all”. Well to “have it all” you need to pay for childcare, which can be very expensive especially in California. In addition to all of WCI recs, if it is possible to delay having children even a few years then you should do it. Definitely try to avoid it during residency with that debt load. If you are thinking about caring for an ailing mother as well, all the more reason to delay children (or more children if you have them) if possible.
Remember that with PSLF you have to be working full time. So any time on maternity leave does not count towards your payments. I am not sure how strict they are with the auditing so it may not be an issue but it is something to consider. If you go to 0.6 or 0.8 time to be around your child more then it may not count towards PSLF, again it depends on how your contract is worded for how many hours per week.
That’s a tough one though bc of the limited biologic clock. If I delayed until I was completely educational debt free (I served active duty to pay a good chunk) I would have been 38.
I definitely understand the biological clock, that’s why I said, “If you can delay, then do so”. If you are 30 and can wait even two years, that is alot of debt you can knock out. Even just delaying until out of residency is going to help alot. I cannot imagine trying to pay for childcare as a resident. I know people do it, but I would not want to have to figure out childcare for a resident schedule (60+hours) only making combined $100,000.
Well a lot of people do it on less
The only way to do it on less and not lead to child neglect would be to have family around. We are two working physicians who require full time child care in HCOL area. Our childcare costs MORE than out mortgage (we both take call). I think it is ABSOLUTELY something to at least consider. All kinds of people do all kinds of things on less but either it’s not ideal situations or they have plenty of family helping. This is coming from a gyn by the way.
Actually they don’t. The only people that do it on less have family. The others have to take out those insane physician scam loans. It just can’t be done as the cost of child care is exorbitant. Daycares don’t cover the hours and flexibility of a doctor. They are open 8-6 and what residency is 9-5 with no call. A babysitter is 12/hour at the very least and that is time and 1/2 over 40 hours. Then you are supposed to pay employer taxes and W2 them or you can get sued for unpaid overtime/disability/unemployment. Even a live in au pair legally can only work 40 hours so you need a second babysitter. Daycares cost several thousand a month and only give partial coverage.
Living in California is not the problem.
Yes, the rate at their income ( 400k) is around $31,177 without extra deductions. That’s at a marginal rate of 9.3%. Most states have a rate of about half of that, so state tax is costing them an extra $15,000 or less.
The most expensive part of California is the Bay area, where a decent home will cost at least 1.5 to 2 million. Something in a better neighborhood will cost 3 million or more ( NOTE: not the most expensive neighborhoods. Those are 5- 10 million). But if you live 1.5 to 2 hours away, you can buy a nice house for 500k, maybe less. And they will probably earn at least as much, if not more, in those less desirable communities.
So they can stay in California and drive a little to visit their families. It will be too far for grandma to babysit, but they can hire a nanny with the money they save. Of course, they shouldn’t be considering buying a house until the debt is paid off and they have maxed out their retirement accounts, and then saved a down payment.
Since their family is in California, they can live with their parents to save money.
I do primary care and live with my parents. Housing’s really expensive in California! But my “rent” is only $200/month. Living with parents makes a HUGE difference.
Yes, but how sad is it that a 30 year old two physician family HAS to live with parents to make ends meet and get out of debt in a reasonable time period.
Agreed….
Wait wait wait.
Attitude shift.
You say “HAS to” to an easy solution that will bring long-term benefits.
They could be out of debt in 2-3 years that way.
Why “HAS to”?
Why not, “Too bad more people don’t have this option”?
I disagree with only paying $200 rent, though.
I suppose I’m just reflecting my own culture and relationship with my parents. In my case, it would definitely be “has to.” It would have been a terrible lifestyle downgrade for my pregnant wife, my 2 year old, and myself to move back in with my parents upon residency completion.
I wonder what kind of people think their parents are a burden, or living with them is a “downgrade” in lifestyle.
My parents gave me life, love me with all their heart, they are my best friends and the people that will love me the most and unconditionally until their last breath. Not even a wife/husband will do it. It can only be matched for your kids (if any) yet for many wealthy people that’s a burden. They love their parents…but far from them.
No wonder they all end up in homes. Living your last years of life in a home, no matter how luxurious is, no matter how often your relatives visit you, is a disgrace, is a fail as a parent and a fail as a son/daughter.
I would LOVE to live with my parents their last years, and being there for them.
The current state of society values are shaped by individualism which is an ANTI-VALUE only benefits the housing market, the consumption vicious cycle, etc. and the fact that people do not see this, and even justify it, is even worse than having an 850 K in debt.
I think you need to meet some demented, medically complex, belligerent, incontinent, broke, previously abusive seniors before passing judgment on those who use nursing homes. I think it is a very individual decision.
I’m also moving in with my parents after residency. Also helping with utilities to the tune of $200 a month or so. Do we have to? No, not at all. 2 physician couple, salary about 450k combined to start, likely 600k in a few years. We could easily afford a 600-900k house or even substantially more but I actually enjoy the idea of spending more time with the family and love the area where I grew up. Built in childcare saves 30-40k a year, good public schools another 30-50k a year. We can build out the house with an addition etc as needed for far less than the purchase price of a new home, and have the ability to retire in 5 years or so vs have huge savings not long after that. Plus I think it will be good for the kids to have so much family support. All while being in California. To each their own though. Multi generation households are the norm around the world, just not as common in the USA.
I actually think our nation would be much better off if we lived more like the Walton’s. It really makes smart financial sense and that kind of family communal living is good for the soul and the psyche! My kids moved home, paid off their student loans, paid their own bills and saved a pile of cash for a home of their own….and I loved every minute they were here and would have not objected if they had stayed on! More power to you and yours!
So true.
People pay strangers to take care of their children when for grandparents is a joy to have them. Is good for the family bond, is good for the children, is good for the grandparents, is a win-win.
Your response to this question could have been answered with only this: “You’re in some deep crap. Your debt to income ratio is radical, and a radical solution is required.”
The rest of the blog points out the radical options, but the mindset change is easily the most important thing. Going to have to bust balls to pay down that kind of a mess even with a 2 doctor income. (All of this assumes the wife doesn’t want to have a kid or 3 and stop working…get a nanny, daycare etc!)
Sometimes the husband quits. My husband was the one to quit and leave me to pay the debt. The assumption that the man is the earner in the family is a frequent one on this blog, unfortunately, and one of its few faults. You are perpetuating a stereotype that does many women a dissservice.
Absolutely there are many stay at home husbands. One of my partners has a stay at home husband. However, I don’t think that is yet anywhere near as common as a stay at home wife. My own family enjoys having a stay at home parent who happens to be female, so I’m sure I often reference that when I talk about my own situation. I feel like I’m far more often to use the word spouse than any gender specific word in most of my writing, but even so, I don’t think using the more common situation in an assumption is a terrible sin nor doing anyone a disservice and certainly should not be interpreted by a reader as some sort of put-down of their gender or life choices.
There is a difference between saying someone has a stay at home husband or wife, and saying that, in a two-physician family, the wife might decide to stay home. Perhaps you aren’t aware of how often women are told they are just taking a place in a medical school class that should go to a man, because women just quit to stay home with the kids. That is the disservice to women in medicine that is being done here. I love my job and enjoy working, yet I was the one who was seen at risk for quitting when I wanted kids. No one asks men about this in job interviews. No one suggests that a man who is about to have a child will be less committed to his job. I think it is worth pointing out when someone makes this sort of assumption, as the commenter above did.
I’m not quite sure which comment you’re referring to. Maybe a name or number would help me figure it out.
I agree with you that it is inappropriate to not give a med school spot or a job to a woman out of concern she is more likely to go part-time or take parental leave due to societal expectations and biological facts. That said, I think it is true that she (the generic “she,”) is, statistically, more likely to do so (even if you and many other women are not necessarily more likely to do so.) And thus I think a lot of people do what is inappropriate either subconsciously, consciously, or even out loud. And I agree that isn’t fair.
Their solution will rely heavily on what they value most, which is why personal finance is so personal. My best advice is that they must both work until all loans are paid off, which is what my husband and I did. I wouldn’t delay kids if that is a top priority. We did start a family in residency, both worked, and kept our lifestyle in check until the loans were paid off. I hope they will consider keeping us updated with their plan and progress.
I think the WCI gives a fair plan. I might add probably looking for a place that gets federal loan repayment as well (NHSC) so you can pair that with the PSLF. Someone advised delaying kids, but I think this would be where your choice to stay in Cali should work for you in terms of being near family. I would advocate ask family for all the childcare help you can get…perhaps the mother who needs financial help can help in that regard. I just know it’s hard to delay kids so throwing that idea out there.
Reading this gave me palpitations. I feel like I need to go meditate or something. I would be curious to know if they had other options for medical school that would have been better from a financial standpoint. I’m lucky that I had options and chose a low cost school that resulted in very low relative debt load compared to my peers. I’ve known others that only got accepted into very expensive schools in HCOL areas. Some of the medical school tuitions these days are nothing short of shocking. Educational debt is starting to have the same feel the housing bubble did. What cannot be paid back will be defaulted on eventually.
I wouldn’t count on getting more information from the couple. I wrote this a long time ago and changed enough details that they may or may not even recognize themselves in the post but not so much that the post didn’t address the important issues.
I know (2) two-physician couples with total student loan debt into 7-figures. There is an approximately zero percent chance either are reading WCI, so I don’t think they will get to set your new record.
In fairness, both couples will have combined annual earnings >$1mil when training is completed, so they’ll be ok.
1. Get out of California, stay out of HCOL areas, my BIGGEST financial regret is moving to New Jersey for residency (for ex-husband’s residency program choice) and staying thereafter (bc of an additional long-term training program for him). Aside from being in a HCOL area, consider doctor saturation–NJ is teeming with PCPs, there is a lot of downward pressure on salaries b/c of this (and plenty of NPs and PAs who are happy to work for half of what you get paid!). I am 46 years old, have been out of residency for 16 years and I just hit 200K salary a few years ago. The assumption that PCPs “start at 200” is just wrong. I know plenty who languish in the 100s for years. I also know of a surgeon/dermatologist couple who took a hospital package just out of residency for 750K yearly–the downside…it’s in North Dakota! But think of how fast you could pay off that debt with a little geographic arbitrage. And HCOL does not just mean taxes and housing prices, it effects everything, your grocery bill, car and homeowner’s insurance, your electric bill, any services you may use from dry cleaning to home maintenance (bc the dry cleaners and electricians and plumbers live in the same HCOL area and they have to pay their mortgages too!). My brother, a high school teacher, lives in western North Carolina and it astounds me how much cheaper it is to live where he is. As soon as my 12 year old graduates high school, I am fleeing from NJ. Put some time into researching where you can move to that will pay you the best, that is the bottom line and should be the most important part of your post-residency decision. One option if you absolutely must stay in California is Corrections, Board-cert prison docs start at 268K, you will not find a higher salary for a PCP anywhere I am sure. They always need Psych docs too. Don’t be fussy, your first job will likely not be your last and paying down the debt will give you the freedom to find the ideal job later on.
2. You cannot afford to buy a house right now. Period. You have what Mr Money Mustache calls “a huge, flaming debt emergency.” Not so sure you can afford to take in mom, either. Even if you have to, you do not need to buy a large house to do this. My Italian immigrant great-grandparents raised 13 kids in Brooklyn in the early 1900s and I am pretty sure they didn’t have a large house to do it in. In fact, family lore is that dinner was often eggs (from the chickens they kept) cooked in tomato sauce (made from the tomatoes they grew). The kids did not like it but they were not allowed to complain, of course!
3. Delay having kids. Having had our first kid as MS4s, during residency an entire monthly salary went toward day care (there’s the HCOL thing again). After residency, half of a monthly salary went toward daycare. I breathed a big sigh of relief when he started public kindergarten and then the second one came along and we were paying for daycare all over again.
4. Do extra work on the side. I made an extra 20K last year working two hours here and there for a former employer who needed an extra body around. I filled in during staff summer vacations and also picked up extra hours whenever they were busy. Since it was only an extra two hours at the end of my work day, it didn’t feel too burdensome and I kept my weekends free. Find an urgent care that needs to fill some hours, a residency program that needs someone to precept one evening a week, do local locums to cover for docs on vaca or medical leave. I get calls from a couple of locums companies about once a month and while I have never been able to fill any hours for them, I always thank them for keeping me on their list and encourage them to call me whenever they have a local need. An IM doc I know (who is in his 50s) has started picking up hospitalist shifts at the local hospital on weekends in order to cover his two kids who are now both in college. You are highly skilled, monetize yourself!
5. Please give us an update in the future, we are all here to cheer you on! Wishing you much success!
I would advocate for both of your to do PSLF. Better yet, both of you work in the VA (currently there is $120k/loan repayment over 5yrs). Psych and primary care is quite easy to find a job that is PSLF eligible.
Don’t delay having children until debt is paid off. Enjoy being young and this time when having children is healthiest. We had 3 kids (through med/school and residency), childcare is expensive, but what can you do. We have an AuPair which is actually cheaper than other options. But we are a dual-physician couple.
Main point is not to put life on hold (meaning delay buying houses/cars/big vacations, but have kids and enjoy them).
We also used an AuPair years ago in residency. The program has improved, and the AuPair can stay longer than when we used the program. The times I have seen this program work best is when the family can accept the AuPair as a member of the family, and not as just an employee.
An au pair is a tough option when you are trying to live cheaply. A small house or apartment simply doesn’t accommodate an extra person living there. We looked into this when we were in training, but would have had to move to a larger home, defeating the entire point.
Perhaps not the cheapest option, but for the flexibility of childcare offered when we didn’t have family help, the AuPair program was our most cost effective option.
A new record!
I just got an email from a current resident whose debt burden is $662K and growing. Luckily he’s got a great plan to get it taken care of. (His ortho residency and working spouse will help a lot.)
Make that $800K from a dentist who then went to med school!
If you have monster debt, you are not alone.
Make that $970K from another OMFS doc.
WHAT ON EARTH???? HOLY CRAP. STOP IT, EVERYONE, JUST STOP THE MADNESS.
Yea a few hours ago my record was $635K for one doc and $950K for two. Now it’s $970K for one.
Just got another email. Apparently someone on the Female MD Facebook group claims to owe $1.2 Million.
Good lord! That is insane.
What the what?!?
It’s not supposed to be a competition, people. I hope she’s planning on a high paying specialty in a low cost of living area. Geographic arbitrage combined with one of the top paying specialties is a must. A two-physician couple would have a much better shot at managing a 7-figure debt.
Heres to PAYE for 20 years for that person!
And to think….I’m concerned about moving/taking out a bigger house loan instead of paying mine off in the next 2 years. Oh perspective. Thanks so much.
Holy cow. Whats crazy is that often times these extra degrees/residencies do not translate into greater pay. I mean I have a partner that is a DDS/MD/OMFS/Plastics guy now that makes the same as mean and Ive only half the acronyms! Of course he went to school 20 years earlier so maybe that helps but goodness.
Why go through all that trouble to just make the same as someone with much much less training and debt? Something will have to give in the future, and most likely not only from past tendencies but also due to this burden of debt it will be professional autonomy traded off for secure employment. Sad.
https://youtu.be/1D7L-z2fZ3U
Large student loan burdens continue to be a large issue to many millennials so this couple shouldn’t feel alone! There is no way around it, this couple will have to make some sacrifices in order to pay down the debt. They will not be able to buy a house for several years post graduation since this debt should be priority number one. I agree with you WCI that they should consider refinancing. A 4% difference in loan interest rates at 840k is $33k per year. Definitely nothing to laugh at.
I’d be interested to know if any bank would even be willing to refinance such a high amount of unsecured debt.
You mention that there is little recourse for the lender when somebody defaults on a student loan. I’m curious if you’ve encountered any high debt doctors who have decided not to pay back their loans. I can imagine a situation where a doctor keeps up the payments until they’ve secured a mortgage on their “attending house” and then simply stops paying, with the loans discharged upon death.
Having seen the rise and normalization of “strategic defaults” during the 2008 housing market collapse, I imagine this could be an issue. Is there something I’m missing that would prevent it, aside from the doctor’s honor?
Well, they do garnish your Social Security checks eventually. The government is not the best entity to owe money to.
I’ve read in our Texas State Board of Medical Examiners Newsletter of doctors getting disciplined by the Board for not paying student loan debts. Those disciplinary actions by the Board show up as permanent marks on your record and you would have to acknowledge having a disciplinary action by the Board when recredentialing with the hospital. Hopefully hospitals would have some sympathy for indebted doctors but the Medical Board doesn’t seem to yet.
Never heard of this in my state. I wonder if it is state specific? So far not on hospital applications either.
The biannual hospital credentialling forms don’t specifically ask about defaulting on student loans but does ask if the doctor had any disciplinary action from any medical board. Since the Texas State Board of Medical Examiners is now disciplining doctors for not paying student loans, the physicians will have that action listed on their records.
This loan situation is terrible for young doctors. It’s exhausting to even think of having to pay back these huge amounts.
That’s bizarre.
I dont think it would go that well. It would be a huge stain on your credit report and you’d better hope that house was the last thing you wanted to purchase. They can garnish your paycheck as well. One guy in Texas refused to show up to a court date about delinquent loans and they sent federal marshals to bring him in.
The federal government has resources that collections agencies could only dream about having. I wouldnt test them, though maybe trump could be seen as a sympathetic person to this tactic.
Whether they refinance or stick with federal loans, the government or a private lender could garnish their wages. It gets a little more complicated with private lenders after refinancing, but they definitely can garnish wages. Not to mention the stress/headache of having to go to court. I agree that if this couple chooses to forego income driven repayment they should refinance as soon as possible, but they should know that its more than just a couple of phone calls from angry lenders– it will be a much bigger legal battle than that.
We’re paying off about $650k of combined student loan debt and have chosen to refinance, but its a much bigger decision than it looks like on #5 in this post.
Thanks for sharing your experience and good luck in our journey.
The downside of the PSLF program that I am not sure has been discussed : if you read the print on the loan repayment, if you make above a certain income at the end of ten years of repayment, they only forgive the principle, not the interest. And at 6.5%, that can be a hefty amount of interest. I’m an anesthesia resident and have about $450k in student loans. Thankfully, I am in my last year of residency. The interest rate and only getting my principle paid off made PSLF not a good option for me, especially when I can make about $100k more In private practice than in academics. I think that the principle only forgiveness is an essential part of the discussion when advising someone what to do.
Can you link your source or the “quoted section”? I google searched this and couldn’t find this stipulation. Thanks!
I agree if that is the way the law is written that it is a critical component. That is not, however, my understanding of the law. Can you cite an authoritative source and an income level at which that change occurs?
I’ve never heard that before, and I’ve done a lot of reading about student loans. Frankly, that would be a major stipulation and limitation, and I’d be very surprised for it to have remained so hidden. Regardless, the actual law says this:
(d) Forgiveness Amount. The Secretary forgives the principal and accrued interest that remains on all eligible loans for which loan forgiveness is requested by the borrower. The Secretary forgives this amount after the borrower makes the 120 monthly qualifying payments under paragraph (c) of this section.
There is nothing that I could find that even approaches anything resembling a limitation based on current income. Please let us know where you’ve discovered otherwise.
It was nice to read this post because I’m in a low-paying field and have a mountain of student debt (not anywhere close to the record and near-record numbers), and because of the lower salaries, it would make more sense to use PSLF. I’m hoping it will stick around long enough for me to take advantage of it.
These are some of the debt free screams that I heard on Dave Ramsey from doctors and their RADICAL measures to ELIMINATE their debt FOREVER.
https://www.youtube.com/watch?v=bXVrPiUGqSk
Doctor couple pay off close to a million in debt in three years
https://www.youtube.com/watch?v=rP51bujri-A
Single doctor pays off over 800k in 4 years while living in Los Angeles.
The doctor in California had 5 kids while he did his payoff.
Well, about half that was mortgage debt and they sold their house eliminating it. Still very impressive, but 802k of student loans and 5 kids would have been surreal.
Luckily his wife was absolutely on board and was willing to sell her dream home. Its hard to get people on board with budgeting the small stuff let alone a dream home.
WOW! My jaw is off the floor now after 5 minutes. Live in a tent, shower at the hospital, survive on food from the hospital (come on we all learned as residents where the food was in the hospital), wear only scrubs (from said hospital) and find a state with low or now income tax (i.e. not California!!!). Then as you get paychecks endorse them (except 1 or 2 a year) directly to your debtors!
I got the heck out of California after residency (yes, I left family and yes already had a child) because my spouse and I realized it was best for long term plans (and we had minimal debt, but were counting on lost time spent in med school and residency).
This is INSANE!
I’d probably go with squirrel’s plan! I wouldn’t want to spend on anything other than loan repayment and basic survival expenses until I retired that debt. I think it’s terrible that young doctors and dentists are being placed in this situation. I know it’s a multi factorial problem but tuition has become ridiculously expensive.
Some massive mainstream media exposure of these huge loan amounts is needed to show parents and pre-med and pre-dental students how bad the situation has become and to make their choices very cautiously.
WHAT IS THE TUITION BREAKING POINT where application rates plummet? 1 million, 2 million?
How much more absurd can it get?
The funny part is it will never plummet due to the prestige associated with being a doctor.
Just wanted to add my situation to the pile though it is nowhere near some of those other amounts, I’m closer to the proportions of the original post and feeling the pressure hard.
$445K in debt right now ($188K in 20 yr fixed 5.47%, $210K in 10 yr Var at 3.71%, $47K 6.55% haven’t consolidated yet)
Single income ~$220K gross
Stay at home spouse who just started selling Younique (any buyers let me know!) for some extra cash
3 children (10, 8, 5)
A couple of my thoughts:
1. Paying down those loans hard will still take me ~7 years. My oldest will be 17. Does that mean she doesn’t get to do dance or piano lessons or anything else that I think is important in childhood because every extra penny is heading towards loans? Maybe it isn’t the right answer here, but I don’t want that. I know I have to pay for it, but delayed gratification has it’s limits too. At some point, you have to be able to enjoy life at least a little.
It sucks, but I’ll probably spread it out a little further than that so I can give my kids a few experiences in the world around them. If all of that is delayed until they are in college, the opportunity cost for shaping their view of the world is gone forever.
2. I am a little confused about financial priorities. For now, I’m sending about 10% gross income to 401K and putting the rest of extra money towards loans. Previous posts by WCI have suggested I should first put max towards 401k, then pay down 5-8% loans. Should I get my 401k up to max? (I’m allowed to self match at current job up to $54K max this year), or should I contribute nothing until I have a more favorable loan to income ratio? I realize there is no “right answer” but I’m curios to hear other people’s thoughts.
Thanks in advance!
You’re in a tough situation for sure at a 2X debt to income ratio, basically the borderline of what is really doable. Sounds like you’re not going for PSLF, which is obviously the first thing to consider. Assuming a 3 year residency, you’re <7 years away from getting that forgiveness, which is less than the time you're planning to pay off the loans. So maybe think really long and hard about a PSLF-eligible job before doing any refinancing (which you may have already done.)
It's important to realize that it isn't me that is dictating how you live your financial life for the next 5-10 years. That is dictated purely by the decisions that you have made in the past. These include choosing medicine, perhaps medical school choice, how you paid for medical school, specialty choice, job choice, what your spouse does for a living, how many kids to have and when to have them etc. I'm not faulting your choices (I have made many of the same ones), but it is important to realize that the financial situation you are in is a consequence of your choices. Likewise, your future financial situation will depend on the choices you make now.
With a huge debt like that, I think the debt deserves maybe a little more emphasis than it otherwise would just because it is such a huge part of your financial life. For example, it might be reasonable to max out your 401(k) rather than pay off a 3.71% loan, but when you also include the info that you owe 2X your income in student loans, maybe the loans deserve more priority. At any rate, I think making sure you get any offered match and save something for retirement (10% is great given the loan burden) are reasonable things to do. The point is you want to dedicate a big chunk of your income to building wealth (20-50%) at this stage of your life. Whether that money goes toward a 401(k) or the loans is a less important point than just how much you're dedicating to building wealth.
One other point that I think needs to be made. You want to make sure your kids have a great start to life. That is very admirable and I share your priorities. But bear in mind that "a few experiences in the world around them" are something that every parent wants for their kids, including the half of American households with an income of less than a resident's income. You make over four times that much. You can provide some pretty awesome experiences for your kids while still cleaning up this financial mess and I think you need to be careful not to justify prolonging the mess by arguing (with yourself) that you're not a good parent if you don't provide some particularly expensive experience. I went on a lot of trips with my kids last year, some very expensive and some quite cheap. In retrospect I think the cheapest one (the backpacking trip) provided the most valuable life experience.
Bottom line: Have a reasonable written plan to get rid of those loans in a timely manner. You may find that you pull it off in less time than you think. Incomes often go up, extra money is often found, your "financial muscles" get stronger with time and it wouldn't surprise me to have you write back in 4-5 years and say you paid off all the loans, maxed out your 401(k) each year, saved something up for college for your eldest, and still had some great experiences with the kids. Keep us updated!
Agree with WCI. Kids are older and in school now, or are they home schooled? If theyre not home schooled maybe you can convince your wife to work even part time, and that money can go to either the fun stuff for the kids and you can focus on the loans/401k.
There are all kinds of experiences that are super important, and piano and dance are probably very very low on that list. Not that they cant have it, but it should be weighted in regard to what it really is, a luxury. If you want your kid to get a music/dance scholarship thats something else, but otherwise its basically a luxury and there are probably cheaper ways to get the same experience.
If you knock these things out sooner than you thought the experiences available to your family will increase in scope and power dramatically. The older I get the less I remember about those earlier years of life, and a good portion of your kiddos wont remember when they went without piano/dance/etc…they will only remember how great their life was overall in middle/high/college.
I’m not sure that piano and dance are out of reach on $220K even with big loans. But the 6000 sq ft home probably is. As is the Tesla X. As is private high school. It’s really the big rocks that count.
No. They are too small too matter overall. Its the mindset though, that kind of rationalization eventually allows you to get whatever you want.
Your hard work and determination in how you handle loan payoff will be internalized by your kids and shape their world view by your example far more than a few luxury experiences. Just don’t work so hard you miss these early years with them. They fly by far too quickly.
You don’t need to provide expensive experiences for your children. IMO kids want your time and attention. Yes they freak out and get all happy if you surprise them with a gift or a trip, but really that fades. Last night I was outside teaching my 8 year old how to play handball and we had a blast. Agree with WCI, I find the cost of something sometimes seems inversely proportional to how much bonding or enjoyment my and my kids (and I have 4 now, thought two and very young and in diapers) get from it. Also more time together is probably the best way to help “shape their view of the world” in a way that is probably in line with whatever our values are which is usually what parents seek. Silly easy example, my kids love movies. Have gone to the theater (tickets, popcorn, etc) usually $30 or so minimum, or red box, some blankets and watch in the basement with popcorn at home usually $2-3. We cuddle, goof around and enjoy each others time more at home than sitting in separate seats in the movies theater. Also no time lost driving back and forth either! Just a small example.
Also if you want piano lessons or something else, whats wrong with a keyboard and a library book plus youtube or other online tutorials and you BOTH learning it together? Show your kids you can learn stuff too, and if they watch you struggle to learn something new but succeed with time and effort that is a huge life lesson that will pay it back over their lifetime. Again more time spent together. If your kid seems interested and really takes to it them may branching out with an occasional private lesson with someone who could guide more home lessons?
Lastly, if you live anywhere that has YMCA, you should check it out. Tons of family family activities and classes (dance, gymnastics, camps, etc) that are usually much cheaper than other options.For your 8 and 5 year old check out Y guides (their answer to the boy scouts and girl scouts). Camping trips, service projects, fun local activities, hikes, and dedicated time with Dad. One of my kids we are on year 4 and the other we are starting this fall. My daughter has learned a lot about charity, made friendships and it has given us a lot of time together for me to watch her grow, give guidance, and get goofy together and make awesome memories
Are these loans all private at this point? If they aren’t, then in my view it’s inappropriate to refinance them based on what you said that you’d like money available for other purposes. I ran your numbers through my calculator and REPAYE looks better than private refinancing on a discounted cash flow basis especially if you already have credit towards the loan forgiveness clock.
Assuming no credit towards loan forgiveness though, I estimate your income grows to $300,000 in 7 years, inflation after that. REPAYE total cost $818,000, which is $430,000 discounting the cash flows back at 5%. Private refinancing with an average rate of 5% at a 20 year term costs $720,000, which is $467,000 discounting the cash flows back at 5%.
Additionally, if Trump passes his plan of 12.5% of income and 15 year forgiveness, that cost would be $581,000 and about $380,000 in 2017 dollars discounting the cash flow over time.
So if you haven’t already refinanced, you shouldn’t in my view. The monthly cost of $1500 w REPAYE vs $3000 a month w/ refinancing would do the trick on having money for kids. You could also cut the above costs by saving $54,000 for retirement and lowering your AGI.
From the rates you posted though, you might have refinanced already. In that case, you have to make a lot more money to make that work financially. Instead of doing all $54,000 in the 401k I’d split it b/w the highest interest rate loans and retirement.
In my view, writing off PSLF in a case like this isn’t just a bad idea, it’s a horrible one. Yes it could go away or get capped, but if you have an expected value bet that 50% you win hundreds of thousands and 50% you lose a few tens of thousands in extra interest for the next 6-7 years, you take that bet every time.
First off they’re probably on the wrong repayment program. If they’re on IBR, they should evaluate REPAYE vs PAYE. Probably REPAYE as I doubt they’ll hit the cap of the 10 year standard monthly repayment figure. Depending on their accrued interest that would capitalize, they’d probably be able to cut down their effective rate to about 4% to 5%.
They need to file PSLF right away. Make sure their loan servicer is keeping accurate records. Put away the max for retirement to lower the required loan payment. DO NOT buy a house in California rent a small 1 or 2 bedroom apartment. Any leftover savings put it in a moderately conservative stocks bonds portfolio and use it as your payoff fund. If PSLF happens then you’re set. If it doesn’t then come back and refinance.
In my view as someone who does this professionally, refinancing with a debt to income ratio above 2 with PSLF on the table in 6 to 7 years is not a good idea.
I would appreciate any advice coming my way.
I am a current second-year FP resident in Texas. I am approaching 400 K on student loans. I have just begun talking with potential employers for the future. The way I see I have 2 options, I find the most lucrative position I can, live in an undesirable location off of 60-70 K per year while I throw every spare penny towards my loans and have them paid off hopefully in 3-5 years. Option two is PSLF, it would open up my options some in looking for jobs, I would not have to focus on compensation alone when looking for a position. I’d have 150K+ forgiven on my current loan amount plus all the accrued interest (I assume – though the above post referencing principle only being forgiven thoroughly scared me). I feel like this would set me up better financially for the future as I would be making the minimum payments on my loans every month and be able to put large amounts toward college/retirement funds etc for 10 years (yes 10 years, my payments dont currently qualify as my residency is at a for profit institution). I dont like the idea of my loans sitting there for 10 years but would I be a fool for not taking the free money??
$400K as an FP. Yes, you have a serious issue. If you are willing to work for a 501(c)3 then that is likely the right thing to do in order to get PSLF. If you are not, then live like a resident until they’re gone.
The money isn’t entirely free. You do have to work for a 501(c)3, which despite your assertion, limits your employment choices more than just making sure your job pays you fairly. Plus there is risk the program will change.
Be aware that for an FP willing to work in a rural community, there are often other loan repayment assistance programs from the feds, states, and employers. The assistance is often taxable, but it also often comes much faster than PSLF. Typical might be $25K a year for 5 years.
Jase, are you interested in working in free standing ERs in Texas? Most of them will hired board certified family doctors with ER experience (which you could probably obtain through electives in your family medicine residency program.) You could make $150 to $200 per hour in free standing ERs (more if the place is desperate and offering bonus.) There are almost an unlimited amount of 12 hours shifts you could get in Houston and surrounding areas working as an independent contractor in free standing ERs. Once your loans are paid off you could switch back to family medicine if you prefer.
The residency is at a for profit? That’s the first time I’ve heard about that. I would go PSLF. Worst case scenario it gets repealed then you move to the undesirable location and get it paid off fast. Just make sure all your loans qualify (they’re under the Direct loan program) before making that employment decision
There are a few residencies and even more fellowships where you are not an employee of a non-profit. They’re rare, but they do exist.
What about rolling their student loans into a mortgage when they buy a house? Then they can deduct the interest they pay on their taxes and the interest would be at housing rates?
Very few people can achieve this Katie because companies that offer it have a loan to value ratio limit at 80%, which means you need a solid amount of home equity to cash out to use in the refinancing for the student loan. Very few people with significant student loans have had enough time to build this home equity
Works fine if you have equity. You’re trading high-interest, non-dischargeable, non-deductible debt for something much friendlier.
Also worth considering is a split-strategy where one spouse goes for loan forgiveness (making min. payments) and all of the surplus goes into the other spouse’s loan.
This thread has been so incredibly helpful but has scared the crap out of me. I’m 4th year psych res and my wife is 1st year FM attending. I’m in PSLF but she’s not because of the for-profit residency. 800k debt together 🙁 We’re at the point now where we need to figure out the best way to get rid of these loans and we’re thinking the PSLF + surplus in other loan option. We’re thinking of using my wife’s 200k salary for all of the loan repayment and my 300k salary for living.
$800K is a lot on a $500K income. It’s almost at the upper border of what is really feasible (2X income). I like your plan of going for PSLF with yours and throwing all the extra at hers. If you two can manage to live like a couple of residents (or even better like one resident) you should be out of debt by the time you’re 6 years out of residency.
What would happen legally if they divorced?
My wife and I are considering this. 800k in debt together. I’m psych doing PSLF and she’s FM and didn’t do PSLF because of for-profit residency. Thinking of me staying in PSLF and using her 200k salary to pay off loans and my 300k salary for living.
Hey White Coat Investor, I am a rising 4th year medical student with some pretty large student loans all Direct loans, I am curious to see what you think the future of PSLF is? I plan on going into cardiology which has a pretty long training period. Do you think if congress make changes in the future if they make changes, will students like myself get grandfathered into the original deal? Considering those terms are in the master promissary note we signed. Thanks for the feedback and advice!
Yes, I do think you’ll be grandfathered in if it is in you promissory note.
I finished my family med residency last year. I have $360k in student loans at 7.25% interest. I have made 38 qualified PSLF payments in the PAYE plan. Currently, my income is $255k and I expect it to settle off at $300k over the next 6 months. My PSLF payment is currently $1172 per month.
I have a couple thoughts/questions:
1. the $1172 payment is not even covering the interest of my loan. Since I’m doing PSLF I guess it won’t matter, but it sure makes me nervous! Keep on keeping on?
2. I’m setting aside another $2500/mo in addition to my loan payment as a ‘back up fund’ in case PSLF eventually tanks or if they decide to tax the forgiven amount. Question is, what type of fund should I put that monthly $2500 in so I don’t just have it just sitting in my money market account for the next 7 years? I’d love it to be in a ‘safe’ account obviously but also want to start accruing some interest so I don’t want to be overly conservative with it.
Love your website/book by the way!
My story.
Glad I’m not the worst but I have $600k from dental and orthodontic school. But I took the long road and did an Orthodontic fellowship which cost $20k (which we paid cash). But the delay in deciding on specializing, 1 year fellowship and the 2.5 year residency caused it to grow to it present level. We have made many bad decisions and WCI has caused some severe depression in my married but wonderful slaps in the face to get my wife and I on similar pages (at times). Being on IDR we were able to buy a house we should not have but we did get an interest rate of 3.1% 10 year arm. But now we have a $2500 payment and a expected life style that’s hard to change. Until my wife and I read the WCI book we really weren’t attacking our student loan debt but just doing what peers had said to do and just paying the minimum on student loan debt IDR program. We finally sat down with a Finacial advisor and ran the numbers for IDR. Basically once my income exceeds $315k (this year most likely) I would end up paying the entire amount off before the 25years. Under $315 the tax on what was forgiven resulted in essentially the same amount. There was some major assumptions being made in these numbers but it motivated us to just get on a repayment schedule and get them paid off as fast as possible. Sofi got us 4.25 rate on a 15 year but we are going to try and put as much as we can to pay it off sooner. Wish I could do the 5 years but I can’t find any room with health ins cost, mortgage, DI, LI, etc to contribute more. Each year my pay increases and I plan on not adding any expenses to our life style so hopefully the pay increases can just go toward loans.
I am unsure if I should max out my HSA and IRA every year but we did decide to contribute the full amounts for 2017.
I agree that IBR/PAYE/REPAYE forgiveness rarely makes sense for a doc. You typically have it paid off by then and the taxable aspect of the IDR forgiveness programs definitely makes it a worse deal if there is something left to forgive. It’s typically either PSLF or just refinance and pay them off.