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- Mar 7, 2014
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Hello. I would greatly appreciate posters' comments and perspectives on my loan situation. I have started to seriously read WCI and Ben White's student loan content to formalize a plan for paying back my loans, but unsurprisingly, I don't know what I don't know. I also have a situation that isn't as common and thus not discussed as frequently. I'll try to lay it out below but please feel free to ask additional questions if I omit something pertinent. I am well-versed in the other aspects of personal finance and feel comfortable there. Thanks for your time.
~$240k total obligation including interest at graduation coming this summer. No private loans.
Interest rates ~5-7% so obviously not great.
6 more years of training in well-paying specialty
Spouse currently makes ~$200k but will probably cut back. Will make $125-150k in that case but definitely not less and will not stop working.
Definitely not interested in academic career or PSLF jobs. Will go straight into PP.
Assumption of 0% interest by government until September ends but not longer. If this gets extended then I will reassess timeline of initiating plan.
Assumption that we will never qualify for any future student loan forgiveness from Biden or whatever. I'll just leave it at that.
From what I understand, this situation leaves me with: PAYE, REPAYE, and refinancing.
REPAYE:
I have previously read that REPAYE will not work in my situation because my spouse earns too much and that can't be thwarted by filing taxes separately. The benefit to REPAYE is that the unpaid loan balance at the end of the term is forgiven. This is likely irrelevant as the higher monthly payments made after residency will likely cover the rest of the loan before the 25-year term is up. If I'm understanding this correctly, I would never see the benefits of the interest subsidy. I also do not want to be paying my loans for that many years. This seems like an obvious method to eliminate.
PAYE:
So PAYE allows me to avoid the pitfall of REPAYE by filing my taxes separately. Payments are never more than the federal 10-year standard repayment plan amount but repayment is a twenty year plan. Interest is not capitalized until I leave the program, but even then, the amount capitalized is limited to 10% of the loan balance. Payments are capped even if income rises as an attending. There is no interest rate subsidy like REPAYE. Being a federal program it would qualify for any (unrealistic IMO) loan forgiveness and I would be eligible for any interest rate policies that may continue. Let me reiterate that I have no desire to use PSLF.
Refinance:
This is the option that I am leaning toward for my personal situation. Interest rates would greatly decrease and I can refinance as many times as I want over the years if desired. I believe the savings from a far better interest rate would far outweigh any possible savings from REPAYE or PAYE. Most companies like SOFI now have $100 minimum payments during training should I need flexibility one month for something but we can handle the relatively higher payments than PAYE with our cashflow during training. I can make payments to principle just like federal loans. In the event of my death, I already have a mechanism in place to pay the loan so my spouse isn't on the hook if she cosigned to get an even lower rate (and I believe places like Sofi don't even have that clause anymore anyways.) I do need to verify that the residency period can be changed to accommodate training longer than 3-4 years. A negative is that I shut the door on federal programs. Interest capitalizes when I refinance. I do not get any loan forgiveness if Biden delivers that, which I doubt anyway.
Sequence of events:
My plan is to not touch my loans until the 0% deal ends. Interest is not compounding and I would owe $0 payments. There will be plenty of notice on when that deal is ending IMO. Given our saving characteristics and discipline, the plan is to save that money through various mechanisms and continue to max out retirement accounts, roth etc. When it gets close to the end of the 0% deal, we will make a large payment to the loan and then refinance it close to the deadline.
Any critiques, pitfalls, or flaws in my plan would be welcomed. Like I said, I don't know what I don't know. It means a lot.
~$240k total obligation including interest at graduation coming this summer. No private loans.
Interest rates ~5-7% so obviously not great.
6 more years of training in well-paying specialty
Spouse currently makes ~$200k but will probably cut back. Will make $125-150k in that case but definitely not less and will not stop working.
Definitely not interested in academic career or PSLF jobs. Will go straight into PP.
Assumption of 0% interest by government until September ends but not longer. If this gets extended then I will reassess timeline of initiating plan.
Assumption that we will never qualify for any future student loan forgiveness from Biden or whatever. I'll just leave it at that.
From what I understand, this situation leaves me with: PAYE, REPAYE, and refinancing.
REPAYE:
I have previously read that REPAYE will not work in my situation because my spouse earns too much and that can't be thwarted by filing taxes separately. The benefit to REPAYE is that the unpaid loan balance at the end of the term is forgiven. This is likely irrelevant as the higher monthly payments made after residency will likely cover the rest of the loan before the 25-year term is up. If I'm understanding this correctly, I would never see the benefits of the interest subsidy. I also do not want to be paying my loans for that many years. This seems like an obvious method to eliminate.
PAYE:
So PAYE allows me to avoid the pitfall of REPAYE by filing my taxes separately. Payments are never more than the federal 10-year standard repayment plan amount but repayment is a twenty year plan. Interest is not capitalized until I leave the program, but even then, the amount capitalized is limited to 10% of the loan balance. Payments are capped even if income rises as an attending. There is no interest rate subsidy like REPAYE. Being a federal program it would qualify for any (unrealistic IMO) loan forgiveness and I would be eligible for any interest rate policies that may continue. Let me reiterate that I have no desire to use PSLF.
Refinance:
This is the option that I am leaning toward for my personal situation. Interest rates would greatly decrease and I can refinance as many times as I want over the years if desired. I believe the savings from a far better interest rate would far outweigh any possible savings from REPAYE or PAYE. Most companies like SOFI now have $100 minimum payments during training should I need flexibility one month for something but we can handle the relatively higher payments than PAYE with our cashflow during training. I can make payments to principle just like federal loans. In the event of my death, I already have a mechanism in place to pay the loan so my spouse isn't on the hook if she cosigned to get an even lower rate (and I believe places like Sofi don't even have that clause anymore anyways.) I do need to verify that the residency period can be changed to accommodate training longer than 3-4 years. A negative is that I shut the door on federal programs. Interest capitalizes when I refinance. I do not get any loan forgiveness if Biden delivers that, which I doubt anyway.
Sequence of events:
My plan is to not touch my loans until the 0% deal ends. Interest is not compounding and I would owe $0 payments. There will be plenty of notice on when that deal is ending IMO. Given our saving characteristics and discipline, the plan is to save that money through various mechanisms and continue to max out retirement accounts, roth etc. When it gets close to the end of the 0% deal, we will make a large payment to the loan and then refinance it close to the deadline.
Any critiques, pitfalls, or flaws in my plan would be welcomed. Like I said, I don't know what I don't know. It means a lot.
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