“My current thought is if someone wants to stay and pursue non-profit jobs with PSLF route, they have to consider the marriage or a partner with income if you will be on REPAYE/PSLF. When you no longer receive subsidy benefit (that’s when my AGI is 155k for 230k loans), it is better to switch to IBR/PAYE at that point. If your income or combined income is over 300k, then it is better to switch to standard or graduated plan to pay the minimum cap to get the full benefit from PSLF forgiveness at the end. These are my current thoughts if one wants to go for PSLF and try to pay the minimum monthly as much as possible considering the marriage factor for those who are on REPAYE. But, then one will be only limited to 503c organizations when job hunting comes. In addition, the salary difference b/t academic and private in radiology is likely at least greater than 50k plus from what I heard in average.
Since I am open to both academic/private for a job, I will likely start with REPAYE/PSLF (since I am a single) for ~6 yrs of training and hopefully I will know where I will end up during the fellowship year. Then, decide whether I want to pursue PSLF if I will end up in academic. If I get a job at PP, then I know it is time to finance ASAP at that time.
I have a follow up question…
Would you pay extra payment to prevent the interest accrued over these 6 yrs of training or pay the minimum only during these 6 yrs when you are not sure whether you are going to get a job at either academic or private place? I heard about Obama’s proposal on maximum gov can forgive is around 57k two years ago and nobody can guarantee how the gov will execute PSLF program for the next 10 yrs. Should I try to pay the extra amount only to prevent interest accrued over 6 yrs of training under REPAYE and save any leftover cash flow into IRA ROTH? What is your stance on this if you were in my shoes?
One more point…It seems like refinance with bank right now may not be a right idea due to two things: I still consider academic/private jobs AND difference in amount of saving being on REPAYE for 6 yrs (~25k total saving over 6 yrs under REPAYE) vs. refinance now (~22k total saving for 6 yrs under 4.5% fixed rate). So, in fact, it will be better off to stay on REPAYE just during residency and if I end up in academic, then I will switch to standard or graduated plan to finish 120 payments for PSLF route OR if I get PP job, then refinance asap at that point. What do you think?
I really appreciate your time reading and commenting on this, DWM!”
you got it. there are more variables to consider when you are on REPAYE as it is the most complex IDR. but that’s life; life changes and change is the only constant.
- yes PSLF can diminish or vanish all together, but hopefully those who are already signed up will be grandfathered in. ie. government may cap or get rid of forgiveness for those who have not signed up for PSLF yet, but if you are already in the program, the fed should not change the terms on you… (that’s the hope, not a promise…)
- your 2 questions are thoughtful but can only be best answered in hindsight. I say this because, I would have a totally different approach during training if I Knew I’m for sure getting a job that’s 1/4 the available jobs in the radiology job market, i.e. 503c W2 jobs. I will pay the very minimum, switch back and forth between programs to minimize my monthly & total lifetime payment and maximize forgiveness.
if I Knew that I’m working PP out of training, I would pay my student loans aggressively even during training so that I minimize how expensive my education could become when all is said and done (all the interests over the life of the loan).
But since no one truly knows whether they will get a 503c W2 job or PP job out of training, especially during MS4, PGY1 year, it is impossible to say which of the above 2 approaches to take.
personally I don’t like surprises, which is why I destroyed my 6.8% student loans before contributing to my Roth IRA/Roth 403b, even though I could have potentially increased my net worth faster by channeling cash towards index funds (7-8% long term return) rather than paying down student loans 6.8%. I like the Guaranteed return of paying my debt. So yes, if I were in your shoes, I’d put majority of my cash flow towards paying my student loans aggressively. but if you ask someone else, like WCM, he’d probably say the opposite. (You can ask him to answer your questions too so you consider both ends of the spectrum.)
As long as you take into account that with each successive year, you are making more AGI, getting less REPAYE subsidy, and effectively, your interest rate on REPAYE is rising each year. So personally, I like to reevaluate annually and refinance as soon as I see that my refinance rate is lower than the effective REPAYE interest rate. If you did the calculation to get your above total savings figure, you will know exactly during which PGY, your REPAYE interest exceeds refinanced interest (it is entirely possible for some PGY’s, not-married, not much moonlighting, that REPAYE interest is always lower than Refi until becoming attending).
Answer to your second question:
Evaluate how you want to balance between cash flow and interest savings.
Assuming REPAYE saves you more interests based on your calculations, 3k over 6 years.
REPAYE also ties up more of your cash flow, REPAYE payment climbs with your AGI, refinanced monthly payment stays the same @ $100/month with DRB, $0/month with LinkCapital.
For simplicity sake, let’s just assume your average annual REPAYE payment throughout 6 pgys is $3000/yr (clearly, for a typical single pgy, pgy1 REPAYE is near $0/mo and pgy6 REPAYE is probably above $300-400/mo).
compare this to the $1200/yr on DRB refinanced loans. This means you can direct additional $1800/year to index funds investment: you leverage your 4.5% interest refinanced student loan for the potential long term profit @7-8% from investment.
While I decided against leveraging my 6.8% student debt for a potential 7-8% investment return, I could have probably gone with leveraging 4.5% student debt for a potential 7-8% investment return. The greater the differential between the interest I pay and the potential interest I collect, the more likely I will go with the refinancing to a lower monthly payment route.
PGY3 income (include your projected moonlighting)
on REPAYE vs. on Refi
Find out the following,
calculate your effective interest rate on REPAYE, compare to refi interest rate.
if REPAYE interest rate exceeds refi, then I’d go with Refi as PGY3 and not even bother the rest of the calculation/comparison. because this means Refi gets me the best of both worlds: more long term interest savings (due to lower interest rate) AND greater today cash flow (due to lower monthly payments.)
but if Refi interest rate exceeds REPAYE, then check the rest of the comparisons below.
- total minimum payments in 1 year on REPAYE vs. Refi.
- total debt balance at year’s end on REPAYE vs. Refi.
- assuming you put the difference between REPAYE & Refi minimum payments into index fund, earning you 7-8% long term annualized return. calculate how much total investment (principle & gain) you have at year’s end.
- compare your net worth (debts subtract from assets) at year’s end on REPAYE vs. Refi.
This way you can see the numbers and know which approach gets the bigger bang of the buck:
paying more towards student loans at a lower interest on REPAYE vs. paying less towards student loans (but investing the difference) at a slightly higher interest rate on Refi loans.
Also, I ask you to run the numbers based on PGY3 income because likely our PGY1 REPAYE beats Refi on both financial considerations: interest savings with lower rates, & greater cash flow with lower monthly required payments.
Any time either plan beats the other (REPAYE vs. Refi) in BOTH interest savings & cash flow, the decision is clear, go with the double winner.
It’s when REPAYE or Refi each wins in 1 consideration, that’s when you need to do the projected calculations to see the numbers for yourself.
Hope this helps.
- REPAYE or Refi for you?
- Do you value cash flow or long term interest savings more?
- Do you pay down your student loans more or invest more?
Share your insights, experiences, and questions below!