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I received this question by email a few months back. I sent a very nice reply, some of which is included in the “answer” to this question. However, the more I got to thinking about this, the more I thought it was worthy of addressing as a blog post, because I want what I see to be obvious to any one whose situation is even remotely similar to that of this doc.

I am at a point where I feel I should commit to either starting to pay down my student loans or going the direction of IBR and planning for forgiveness in 23 years (I have been on it for 2 yrs already). For the last two years I have been paying my dues and making peanuts so I have been on IBR. I have recently bought into my practice with my partners and now am starting to see a bump in my income. I am now at a point where I have the money to put towards my loans OR to put towards investing and retirement. I am married with 5 kids and have $510,000 of student loans at an average of 6.8% interest (interest during school is what killed me- 140k accumulated in interest). I am fairly confident that I should make 325-350 this year after paying my practice loan.

I budgeted $4000/month for student loans. IBR sounds too good to be true and having to only pay $2000-2500/month on IBR would leave me $2000 to invest each month. If I pay 4000 a month to my loans I should be able to pay them off in about 19 years and then can direct the money to retirement. If I commit to pay them off I can work with SoFi and other places to get the interest down but if I go the route of IBR then I want to keep the loans with the government.

Do you have any words of wisdom that could help me with my decision? What would you do if you were in my shoes?

The question is a very reasonable one that many docs struggle with. It's the classic “Go for forgiveness vs refinance and pay off” student loan question. When the forgiveness is via the PSLF program (10 years of payments, tax-free forgiveness, 501(c)3 employers only), and you've already made 36-84 (out of 120) qualifying payments during your training, the math will show that it is pretty much a no-brainer to go for forgiveness, which at that point is only 3-7 years away. As a general rule, if you are not going for forgiveness, you should refinance, live like a resident, and pay off the loans ASAP.

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In the event that you have a very large loan burden, especially when combined with a very low income, going for PAYE forgiveness (20 years of payments, fully taxable forgiveness, any employer) may be reasonable. However, there are two issues here that makes this a less attractive option for this doc:

  1. He isn't enrolled in PAYE. For some bizarre reason he's enrolled in IBR. IBR not only requires you to make larger payments, but it also requires 25 years of payments instead of just 20. I can't think of a reason to be enrolled in IBR when PAYE is available.
  2. He wasn't even enrolled in IBR during his training.  (2 years out of training and he has only been making IBR payments for 2 years.) The real bang for your buck in the forgiveness programs is getting the amount you “should have paid” (had you been on a full repayment plan while in training) but didn't because of the lower payments, forgiven. A doc with 5 kids would have made 3-7 years of $0 payments, all of which counted had he enrolled earlier. That's water under the bridge now, but it cost this doc tens of thousands (maybe hundreds) of dollars. [Update prior to publication, he wasn't able to enroll in IBR during training as an orthodontist as he was still considered a student.]

The Main Issue

So at this point the doc can look at his options. He can enroll in PAYE, make 18 more years of payments, and get the rest forgiven (I'd have to use a calculator to see how much would be left to be forgiven, probably not much) or he can refinance and pay them off. But that's all ignoring what I see as the main issue-


Let's look at the evidence.

Exhibit A: $510K in student loan debt

Don't get me wrong, raising kids is expensive, especially 5 of them. But this is the classic situation of lots of kids, a stay at home partner, many years in the medical pipeline, and all of it paid with debt. By the time you get to the end of it, you have an expensive mortgage and no house to go with it. What no one tells medical and dental students is that everything you're buying using those handy student loans really costs three times as much as you think it does. Choosing the cheapest school you can get into in the lowest cost of living area possible, delaying family a few years, living more frugally, not taking out the loans until you absolutely need them (rather than at the beginning of the year,) having a working spouse, getting a side job can all assist in keeping the total loan burden low.


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Exhibit B: Not enrolled in PAYE

If I owed a half million bucks in student loans, I'd be the world's foremost expert in student loan programs. I would probably be working at a 501(c)3, but I would certainly know the difference between IBR and PAYE (and would have enrolled in PAYE the first month possible during intern year.)

Exhibit C: Debating between $2000 and $4000 per month payments

The interest alone on that debt is $35,000 per year, or nearly $3000 per month. Yet this doc is debating between making $2000 per month payments (which don't even cover the interest) and $4000 per month payments (which barely does.) The discussion shouldn't be $2K or $4K, it should be $12K or $15K. There is simply no sense of urgency here. No concept that his debt is an emergency. As Mr. Money Mustache correctly points out,

Your debt is not something you work on. It is a huge flaming emergency!

Nowadays I receive emails from people who are working on developing their own Money Mustaches. They often detail income, spending, and debt situations. Often, there is a category for credit card debt. Yet these budget sketches also include amounts for entertainment, cable TV, and multiple cars….

Do you see the glaring problems in these stories? If not, you have not yet developed the appropriate hatred for unnecessary debt. So let me spell it out for you.


If you borrow even one dollar for anything other than your primary house or a profitable investment,  the very next dollar you can get your hands on should go to paying that back. You don’t space it out all nice and casual with “monthly payments”, and you don’t have a “budget”, “entertainment allowance”,  or any other such nonsense. You don’t start a family or get yourself a dog, and you don’t go out for drinks and dinner with your friends. There will be plenty of time for these things later….

I mean, consider this situation. The doc makes $350K. How much can a family of 7 reasonably live on? Well, there are millions of these families in America living just fine on $50K a year. But you're a doc, and you've deferred gratification for a long time. So let's be super generous, and give you an extra 50% raise after residency! Now you're up to $75K a year. Subtract out 25% for taxes (no Tax Nazi comments please, I know some of you pay more than 25% in taxes because you are a single employee in California at some job with a lousy retirement plan) and $75K for living expenses, and that leaves this family $187,500 with which to build wealth. The only question he should be struggling with is how much of that $187,500 should be going toward paying off the debt and how much should be going into retirement accounts. I think $37,500 into retirement accounts and $150K toward debt is about right, but reasonable people could have a different opinion. The question he should NOT be struggling with is whether to pay $24K or $48K a year toward the debt.

My 10 yo daughter Whitney rappelling off a climb at Red Rock- She says $500K in debt is "Crazy! Did he go to Harvard or something?"

My daughter Whitney rappelling off a climb at Red Rock- She says $500K in debt is “Crazy! Did he go to Harvard or something?” No, just dental school.

What I Would Do

My advice to this doc was to do the following:

  1. Set a date to be out of debt, a maximum of 5 years from today. Eventually that day will come, but if you never set the goal, you'll never reach it.
  2. Boost income in any way possible. Now, I work 15 shifts a month and have a profitable website on the side. But if I owed a half million in student loans? I'd be working 20 shifts a month and you would be getting emails from me every week trying to sell you something so I could boost my income. My wife wouldn't be spending all her time volunteering- she'd have a paid job. I wouldn't need a new mountain bike because I wouldn't have time to ride the old one. An extra $50K in net income goes straight toward the principle and gets you out of debt that much sooner.
  3. Cut expenses like crazy. It's not like this doc has a small shovel with which to fill in this hole. That's a heck of a good income. We lived on much less than $350K last year and that figure included a lot of unnecessary spending. If I had a half million dollar debt emergency there wouldn't be any vacations (other than driving to stay with family.) There would be no new mountain bike, table, boat etc. Gazelle intensity is a Dave Ramseyism that illustrates the power of focus. Until getting rid of that debt is the most important thing (at least financially) in your life, it isn't going to go away. It might involve selling stuff you really like. It might involve moving into a smaller house. It might involve selling that Suburban and buying one ten years older with cash. It might turn date night into a trip to the dollar movie rather than the symphony with your partners. But look at the alternative (23 years of $500K hanging over your heard) How is that better?
  4. Start saving for retirement. I think it's insane to put off saving for retirement for 23 years. Heck, I want to BE retired (or certainly eligible to do so-i.e.financially independent) in less than 23 years.
  5. Refinance the loans, and I'd do it into a variable rate. 18-23 years is obviously a long time to run interest rate risk, but 5 years isn't.  The difference between 3% loans and 7% loans on $500K is $20K a year that can go toward principle.

I'm not writing any of this to be critical of this doc, his family, his past choices, or his financial knowledge. His debt isn't even my record for student loan debt for a single doc family. Only he and I know who he actually is. I just want to help. But most importantly, I want to help the tens of thousands of docs out there who are heading down this same pathway to avoid getting to this same place.

What do you think? What would you do if you had $510K in student loan debt? Would you stretch it out for 18-23 years to try to get some taxable forgiveness? Or would you follow my advice? Comment below!