PETE Q&A PT 1

Q1. I applied to DRB with my current income of $0 with current debt, I got denied. Should I have put my future PGY1 salary on my application?

A1. Yes, PGY 1 income.

Q2. Refinancing vs. Fed payment with PSLF? Since I am a single and have no desire to spend on unnecessary things during my residency training, currently, I don’t think I will need extra cash flow from refinancing/consolidating my loans. If I am left with only fed loan repayment options, you recommended RePAYE with PSLF, due to the fact gov. pays the interest subsidy.

A2. Yes, Repaye makes senses as long as you are not paying more than the monthly-accrued interest. Remember the interest subsidy is 50% of the difference between your monthly-accrued interest and your monthly Repaye payments. As your income grows, your mandatory Repaye payments will too grow, which will lead to a smaller absolute value of interest subsidy.

By the time you are able to make your Repaye payment greater than the monthly-accrued interest, there will no longer be any interest subsidy. So Repaye is truly designed for the high debt/income ratio folks (like us in PGYs’).

Q3. If I apply to PSLF with RePAYE, am I locked in myself to only applying to 501(c) job positions during my job hunting time?

A3. No, you apply to IDR and PSLF separately.

Residency counts towards the PSLF 120 payment requirement. When you finish training, you can choose any job you want. 

Although people who allow their debt to grow out of control tend to limit themselves to non-profit PSLF eligible jobs so that they can get their debt forgiven in 4.5 years (assuming they enrolled in PSLF right after the grace period, in mid PGY1). You also CAN choose the job you like the most even if it’s Not non-profit. At that point, you will know definitely that PSLF is not for you and you can refinance your loans ASAP to a much lower rate.

Q4. If my assumption is correct and if you can recommend just one of IDR options, would you still just recommend me to be on RePAYE without PSLF (since radiologists are mostly privately contracted) compared to others like IBR or PAYE plans?

A4. If you choose and IDR, definitely sign up for PSLF too, because that’s the only reason one will sign up for IDR rather than refinance. Signing up for PSLF doesn’t hurt you but can potentially get your debt forgiven if you fall in love with an academic or government job.

Q5. If my ultimate goal is to pay off loans within 8-10 yrs. starting this yr. as I will start internship in July, 2016 (6 yrs. being on one of IDR options and 2-4 yrs. paying off aggressively by switching to standard 10yrs repayment after I become an attending) for a current 228k loan, what is the most appropriate option for myself who is trying to pay off as quickly as I can without letting the interest building up for a long term?

A5. Great plan, you can definitely plan to pay off your loan within 2-4 years of finishing training. 

If that’s your plan, I really recommend refinancing now. Because that means you get the low interest locked in and can start aggressively paying your loan down during residency. Check out if your program offers moonlighting. some of my seniors make 90k/year with moonlighting, which means you can really pay the interest and pay some principle down each month, which put you in a much better position than letting your loan negatively amortize (balance grow larger and larger when you are paying just IDR (Repaye, Paye, IBR) minimums).
in the even that you are seriously paying down your debt, Repaye is Not good at all because it does NOT subsidize interest at all when you pay off the interest accrued each month. In other words, your interest rate will be 6.08% on all IDR including Repaye.
But DRB refi rate can probably get you 4.5-5.5 %. 

Q6. I do not want to pay the government more than I need to, but during my time in residency, I have no confidence to go with standard or graduated or extended graduated plans since my cost of living at Houston won’t be cheap (where my radiology training will be at next year).

A6. check for moonlighting opportunities in your program
-make projected income and budget to see how much you can realistically throw at your student loans
-you may be surprised, I threw $2000/mo. at my student loans during intern year at times.

Q7. Even if you are on one of the IDR plans, you can always pay more than your monthly payment to pay quicker, right?

A7. yes, but what sucks is the interest rate.

Q8. If I am willing to pay extra monthly on top of whichever one of the IDR plans requires me to pay during my next 6 yrs., isn’t IBR the best option for me during 6 yrs. where I can pay more monthly to get rid of interests hopefully during 6 yrs. compared to other PAYE or RePAYE?

A8. if you want to pay extra, the best plan is refi, because you will have a lower interest rate to start with. Potentially 4.5%… this rate does not change and is lower than fed rates by 1.5%. Whereas Repaye says it subsidize, but rate increases anytime you make a larger payment.

Q9. I will for sure also run for moonlight opportunity during my rads residency so I will likely use that into a loan payment as extra on top of monthly loan repayment trying to pay quicker.

A9. great if there’s extra income in rads, you are well set. 
If I were you, I’ll just refinance ASAP and get the lowest interest rate I can, and start paying down VERY aggressively.

Q10. Let’s say I am on one of the IDR plans. There is no limit or restriction on me if I will change from IDR to standard 10 yr. plan, correct?

A10. definitely no restriction going from anything to standard 10 year, currently no restriction changing between IDR either. But there may be restriction in the future to change from Repaye back to Paye/IBR. 

4 Flavors of Rainy Day Fund

I have $0 emergency fund liquid savings, with the exception of periods of time when I’m trying to purchase a home and need at minimum 5% down payment, I never lend the bank my $ at lower than inflation rate in a liquid savings account. However, I understand those of us who need the peace of mind to have some liquid asset to support our loved ones when there are unexpected expenses. So I wrote about 4 sources of rainy day funds 1. with 0% interest rate for 21 months 2. with 0% fee for getting (almost) immediate cash for 15 months interest free 3. highest cash back 10% on rainy purchases you make and 4. for the highest liquid savings rate at 1.11% annual interest rate.

Some principles I recommend include:

  1. learn about how much credit limit you may get.
  2. don’t open the card until you actually need the money, this will provide you with the longest 0% interest promotional period buffer, allowing you to save up the money to pay it off.
  3. if you’d like, you can always have one card open for immediate access, and then open another card when the actual emergency hits. So the card you already open may only have 3-6 months of 0% interest promotional period on it, but you can balance transfer whatever you spend/charge on this card onto the new card you open (you usually get the card in the mail ready for activation/usage after applying on line/on the phone within 3 weeks.)
  4. cash is king, credit is queen. Smart credit use allows your cash to work harder for you. Be stingy and selective when you lend out your hard earned cash!
  • Longest Interest Free Promotional Period. Citibank Simplicity.
    • 21 months 0% interest/APR on purchases. Almost all emergencies can be paid for with credit card nowadays. So if I need to buy a 20k new roof and I want to only pay $200-400 monthly minimum until I pay the remaining balance in 20 months, I’ll use this card.
    • Alternatively, I can use the balance transfer offer, which is 3% fee on the amount balance transferred, or in an access check written to myself. 3% fee over 21 months is effectively 1.71% annual interest rate.

Citi Simplicity® Credit Card with balance transfers Citi.com

  • Easiest fast access to cash, no transaction fees for within first 60 days of opening the account. Chase slate. Simply write myself a check within 60 days of account opening date, I get completely interest free money this way. This is the only card in the market without transaction fee.

slate

  • Biggest incentive. Any card discover. Rotating 5% plus double rewards at anniversary. (10% cash rewards if you are using a particular categories.) How about a rainy day fund that pays you cash for taking care of your emergencies? 10%, not shabby. 10% on a 15k roof is $150 cash back in your pocket for being a discover customer. More cards that will reward you with cash, millage, amazon dollars, gift cards. I just like the 10% hard cold cash from discover the most.

discover

  • 1 month of liquid asset such as high interest savings 1% in online banks. Truth is I don’t have such an account, but simply don’t believe in letting banks borrow my money for 1.11% while I could keep this cash for myself in a tax-sheltered index funds making me annualized 8% over the long run (>10 years). However, I understand some need the peace of mind of having completely liquid assets. So this is a good one at least it pays the highest interest in liquid savings in the market.

Money Market Account EverBank

I hope this expends our mind a bit in the definition of rainy day fund. We work hard, it’s probably not a bad idea to put our money to work, in index funds earning potential annualized 8%, or pay or student loans, guaranteeing 7% interest savings, or pay our mortgage earning guarantee 3-4% interest savings. Or anything else that will earn us more than 0.03% sitting in BOA checking/liquid savings.

Personal finance is personal. While I’m comfortable having all my pennies in my investment (403b, roth ira, MWM’s 529, MWM’s roth IRA, my solo 401k), and nearly no cash at all in liquid assets bearing low interest to me, some may want to have 3-12 months of monthly expenses saved in a liquid account. It doesn’t need to be all or nothing. You don’t have to be an extremest like me 🙂 I hope this article open up some options for you to consider the best combination of rainy day fund for your loved ones and you!

What are your thoughts?

Personal Finance, Investing, Retirement, Lifestyle More articles like this on Physician’s Money Digest.

Click by Click Banner Match!

Banner Match has arrived. As of July 1st 2016, you can sign up at the fidelity website @ https://nb.fidelity.com/public/nb/401k/home. If you have already worked at UAHN starting July 1st 2015, you are eligible to get the 4% Banner match for PGY’s. Here’s the step by step on signing  up for 401k to get the the Banner Match.  Additionally, if you had already started a 403b or a 457 while with UAHN, you already have an account and you can just log in.

All the red arrows in the pictures below means “click here.”

Step I. Sign In or Register if you are new to fidelity (i.e. you did not have a fidelity account for 403b or 457 from prior).

1

Step II. click on 401k.

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Step III. Click on contributions so you can designate how much per paycheck you want to contribute to your 401k.

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Step IV. Click on contribution amount.

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Step V.  Specify the % in pre-tax portion and post tax/Roth portion.

I put 4% pre-tax because Banner requires pre-tax from me to match me 4% pretax from them.

I put the rest All in post-tax so that I can pay cheap taxes today and my principle investment today gets to grow tax free and withdrawn later tax free.

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Step VI. Click on investments. You can compare the 19 choices Banner set up with fidelity for us. Check out their return rates. I red-boxed the highest return rates. Then click on fees to see how much each investment option cost you.

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Step VII. I red-boxed the lowest fees. I personally have no interest in funds/investment costing greater than 0.5%. But that’s a personal choice. I know fee is a guaranteed way to lose money while return rate is a Not guaranteed way to make money. So I find my personal balance between return rate and fees/costs.

7

Step VIII. Banner has selected a default investment fund for us. If you don’t like it, (I don’t because the fees are way higher than I like), you can change it.

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Step IX. Click “change investment elections.”

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Step X. I like DIY finance. If you do too, click select funds.

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Step XI. You can make your own portfolio. Super easy, put the % next to the type of fund you like. There are 19 choices which you can compare and contrast in step VI-VII. Then you can designate what % of your 401k you want in which fund. Notice in general, the Ready Mix investment options come with higher fees. They are like ready mix salads. Core investment options demand lower fees as you are in charge of assembling a salad from vegetables you select. I like the latter, more control yet cheaper.

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Whala you are all set!

Comment below if you have questions, please. your questions/our discussions can help others.

I can’t respond to texts, emails, and social media messages, because it’s overwhelming and it’s not fun to answer the same questions repeatedly 😉

MEET PETE

Recently a reader reached out to me for custom advice. I am always glad to help whenever I can, and so although our discussion was tailored for his unique situation, I thought I would share it here to potentially benefit others, perhaps it will jumpstart another young doctor in training thinking more comprehensively about their debt management!

 

 

He is a COM class of 2016 graduate who will be starting residency (with internship) this July

 

He is unmarried and owes $228k in federal student loans

 

His two primary options are to:

 

do Income Based Repayment (IBR) for the next 6 years (1 intern, 4 radiology, 1 fellowship) and get a job at the non-profit organization for 4 years so the leftover amount will be forgiven after 10 years with PSLF

 

OR

 

do IBR for 6 years, switch to standard payment for 2-3 years to aggressively pay off the loan completely

 

He is leaning towards the latter as he wishes to avoid long term payment

 

When he reached out to me, his main questions were 1) Do I have to consider the consolidation or refinance or loans? And 2) For people who are not sure whether they will go into private (for profit) practice or non-profit, which loan payment (IBR, PAYE, RePAYE) is the most appropriate during the 6 years of residency training and after?

 

 

Initially I referred him to some of my posts that dissect PSLF at greater length. In short I advised him that as there are more opportunities and better pay in private practice, it makes more sense to not count on PSLF. At which point his options are:

 

  1. Refinance with DRB or LinkCapital, which can be done here:
  2. IBR
  3. PAYE
  4. REPAYE

 

It is free to apply to DRB and receive a quote. He (and others) could potentially be quoted the best interest rate AND the smallest amount of monthly payments for the amount owed. (DRB only requires $100/month throughout 6 years in pgy radiology training + 6 months after fellowship completion). This option provides the most cash flow out of the four.

 

Cash flow matters because of the time value of money.

 

DRB will refinance MS4s with contract in hand. Upon approval, you can start saving interest on your student loan while everyone else is just letting their loans grow… 9 months of 3% interest savings on 200k is $4,500 interest saved. You can funnel your savings into higher return investments or use it pay down your debt further for guaranteed return in further interest savings.

 

For someone who isn’t interested in the extra cash flow made available by refinancing, and is instead interested in PSLF, the easiest approach is to go to https://studentloans.gov/myDirectLoan/mobile/repayment/repaymentEstimator.action and start plugging in numbers. The website will generate different monthly payment amounts given options 2-4.

 

My advice is to run a few different incomes that may apply:

 

Payment is based on prior year tax return:
2015 tax return is small as MS4→this gives your payment as PGY1.
2016 tax return is half pgy1 income→this gives your payment as PGY2.
2017 tax return is half pgy1, half pgy2 income→this gives your payment as PGY3.
2018 tax return is half pgy2, half pgy3 income→this gives your payment as PGY4.
So for most pgy1 their federal payments are ~$0; most single pgy2+ start making a couple hundred dollar payments on IDR.

 

I find it is best to project the different monthly payment amounts long-term to see how they will affect your overall financial wellbeing (does it limit your ability to contribute to Roth IRA or take advantage of company employer match for retirement etc) before deciding whether to stick with federal payment options or to refinance.

 

Of the federal repayment options, Repaye makes the most sense because there’s a 50% interest subsidy on the difference between your Repaye payment and your monthly-accrued interest. I would also sign up for PSLF immediately so I can start in on the 120 payments.

 

 

The above constitutes our initial exchange that I reformatted so other readers can follow along more easily. Our discussion continued after in pretty standard Q&A format so I will reproduce those unaltered in the upcoming posts.

DWM Grand Rounds #1: Doc-to-Doc on Personal Finance

Title:

Doc-to-Doc on Personal Finance & Physician Support Initiative

 

Highlights:

  1. Student loan management
  2. Public Service Loan Forgiveness
  3. Maximize Tax Efficiency/ Investment Return
  4. Physician Support Initiative P.S.I.

 

Date & Time:                                                              Location:

July 6th, 2016 12-1 pm                                                 COM 2117

 

Presenter:

The mission of Dr. Wise Money is to assist the highly educated (& frequently heavily indebted) individuals maximize the power of TIME & cash flow to achieve financial freedom.
The mission of Dr. Wise Money is to assist the highly educated (& frequently heavily indebted) individuals maximize the power of TIME & cash flow to achieve financial freedom.

As Dr. Wise Money (DWM) achieves her financial goals of purchasing a home (MS4), paying off her student loans (PGY1), refinancing her home (PGY1), maxing out retirement savings (PGY2), & now closing on her second home, and on track to becoming retirement-eligible in 7 years (3 years after fellowship completion), she writes about & gives talks on personal finance for doctors, assisting her colleagues to achieve financial success.

DMW is featured by websites including Physician’s Money Digest, Physician Financial Success Podcast, White Coat Investor and Non-Clinical Doctors. You are encouraged to join “30-day Mindful Financial Practice with DWM” @ Dr WiseMoney YouTube Channel.

Through her blog https://www.drwisemoney.com/, Amanda shares ideas and experiences on how to achieve financial goals efficiently.