I am 1 year out of medical residency with 300,000+ in debt & a salary around 250,000 – currently on IBR my payments of around 800 a month don’t even cover the interest so I’m not at all denting my loans. I know my payments will increase next year but I am not sure to exactly how much. My employer is giving 15,000 yearly for 10 years to pay off loan interest so I am thinking of refinancing to a private loan company with a lower interest rate but it seems that everyone advises against getting rid of the federal loans. I have a family and am also trying to save for a house so I’d like to keep my monthly payments as low as I can while still ensuring that I pay off my loans with a minimal (if possible?) amount of interest. It’s overwhelming and hard to find good advice on which would be the better route for me.
May 3, 2014
There is definitely a lot for you to consider. I’m sure you already realize this, but even a percentage point change in interest could mean tens of thousands of dollars in interest over the life of the loan.
I’d start by first asking whether or not you are in a public interest position. Many medical professionals are able to qualify for public service student loan foreignness because they work for a non-profit hospital. If this applies to you, it might be an ideal route. More details on the public service student loan forgiveness can be found here: https://studentloansherpa.com/public-service-student-loan-forgiveness-basics-fine-print/
If you are in private practice, you still have options. The interest rate perk from your employer complicates things a bit, but obviously in a good way. From what you write I’m assuming the 15k is a ceiling and that it can ONLY be applied to interest, not to the principal balance. If that is the case the math gets pretty tricky. How good are you with spreadsheets? Something to keep in mind is that each month you make a payment, assuming something goes towards the principal balance, your monthly interest will be reduced.
I’d suggest you map out a few options in excel, and track the following numbers… monthly payment, principal balance, interest paid, interest paid out of pocket. If you do apply to consolidate your loans, make sure you only apply to companies that are willing to consolidate all of your loans… many have limits in the 200k range (our huge list is available here: https://studentloansherpa.com/big-list-private-student-loan-consolidation-refinancing-companies/ ). When you apply the lender will offer a few different repayment plans at different interest rates. Use this data to plug in different options in your spreadsheet.
You can give a similar treatment to the available federal repayment plans. Though there is some guesswork as you don’t know what your future salary will be, your best estimation will have to suffice.
For most people the high interest rates of the federal government end up being a slightly more expensive option. The question you have to decide for yourself if whether or not the perks associated with the federal loans are worth the extra cost. With your employer assistance on your interest, this could shift the favor back to staying with the federal government. You could also consider consolidating after 10 years, because that is the point the lower interest will matter the most to you, but interest rates 10 years from now are a huge variable.
Another note about the payment plan you are on: just because that is the amount due, doesn’t mean that you cannot pay more. Having a low monthly payment will be very beneficial when it comes time to apply for a mortgage, but you can treat it as a different repayment plan and pay more each month. Before you make any final decisions, you might want to talk with a mortgage company and do a little research into local housing prices. You may learn that having a low minimum payment is critical, and you may also learn that it really doesn’t matter.
Hopefully this gives you some thoughts on how to evaluate your situation. Feel free to post more if there is anything further you want to discuss.
Thank you so much! This is very helpful. It is so hard to find good information.
I am in a for-profit clinic so the public service doesn’t apply to me unfortunately. The 15K is a ceiling and cannot be applied to the principal so I have mapped our spread-sheets and run the numbers for different interest rates which all show over over 100K in savings just changing intererst rates and then the extra from my employer over the next 10 years which totals very significant savings but would also significantly increase my monthly payment. The idea to pay more is a good one depending on the exact interest rate percentages that are offered.
Even with a salary approximation, how do I figure out exactly how much I will pay total on IBR? Does it change year to year if my salary stays the same?
Thank you so much for your time!
May 3, 2014
As long as your salary is the same, IBR payments will be the same.
IBR is calculated using either your two most recent paychecks or your most recent tax return. The renewal process is actually pretty easy. They connect you with the IRS website and it approves use of your most recent AGI.
IBR payments are 15% of your discretionary income. The discretionary income is that which you make in excess of 150% of the federal poverty level. This number changes based upon your family size. So if your discretionary income (AGI minus poverty level number) is $120,000 per year. Your monthly income would be $10,000, and your payment would be $1500. That being said, keep an eye out for REPAYE going into effect later this year. It essentially lowers the monthly payments for IBR people from 15% to 10%… more on REPAYE here: https://studentloansherpa.com/repaye-federal-repayment-plan/
Thank you thank you thank you! I am so happy I found this site, the information you provided has been so helpful in figuring out how to manage huge student loan debt. I appreciate your time and will definitely take REPAYE into consideration as I calculate out what makes the most sense for me.
Thank you again,
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