The Real Reason Doctors Can’t Pay Down Their Student Debt

I was sitting at work once (and many times after), talking to colleagues of mine who were all in their early thirties – fairly young by doctor standards. We were talking about student loans (what else?) and how steep the price has become to get an education (in this case dental, but it applies to education in general). We were going through our numbers and they were going through their excuses as to why it was impossible in their situation to pay down debt. Of course, me being me, I gently stated the obvious which was that the real reason doctors “can’t” pay down their student debt was because they thought they deserve more than everyone else.

This statement may hurt many doctors’ feelings, but actually, it’s true.

For example. I had one person complaining about drowning in student debt. He blamed it on the kids and the fact that he is a single income household. Fine. But he also just bought a brand new Tesla SUV. He gets a nanny to watch his kids so that it’s easier on his stay-at-home wife. He gets help (did he say $100k a year??) from his in-laws that is budgeted for the kids. His dining out bill is $800 a month. But he can’t afford his student debt.

Another person also bought a brand new car after graduation, enrolled his 6-month old in Montessori private school, took wild vacations (without travel hacking!), and bought a grand house for their family of three.

Yet another person owns two medical-grade massage chairs in his home, bought his girlfriend a Tesla, and drops $10k on trips around the world.

What if I told you that this story is repeated many times over? I have spoken with my fair share of indebted graduates, especially after releasing my own personal story with ChooseFI.

They all wish to banish their student debt. They also don’t wish to do the work.

Here’s the thing I see most often with doctors. They work very diligently to get through school. They do anything to get to their dream career, including taking out a huge sum of moolah (hell, I did too). They sacrifice the best of their young years. They put off buying a home, earning money, and settling down. Then graduation hits and they think, “I’ve made it.” For a brief second, they breathe a sigh of relief thinking it’s all going to be worth it.

So they buy a new car to celebrate. Then they buy a home or a practice. They go out every weekend for food. Sometimes they dine out a few times a week! They want to live in affluent communities. They want to go on vacation. They throw themselves a dream wedding. They buy nice clothes and expensive Figs scrubs. But more than all this are the little purchases. They want the daily coffee, the trinkets from the $5 section in Target, the happy hour events, the spin class – you know, the harmless stuff.

They become obsessed with the high-life and quite quickly, they refuse to give it up.

And if you think I’m being extreme, I’m not.

Because when I graduated, I wanted all these things, too!

The most excruciating part about facing my student debt, the part that nearly killed me, was realizing that after every sacrifice and sleepless night, after giving up the best of my youth, after working three jobs during school, after wracking my brain on ways to extend $40 for another week, after being a model student, the good daughter, the most loyal employee, the most valuable I could be to the community – the work was still not done.

And when I tell new grads coming to me for advice on making loans disappear that they have to use their beat-up high-school ride, possibly move-in with their parents or take on a roommate, cook dinner every night, manage a budget every week, wear their same scrubs from dental school for five more years, and try their darndest to travel for FREE – well, their faces fall and I can see the disappointment plain as day scrawled on their furrowed brows.

Only thing is, I can’t tell if the disappointment lies in the fact that they have to continue living like a college kid for ten more years or if the disappointment lies in me – because I wasn’t the magic genie they wanted that would grant them their wish.

I can tell you how to repay your loans. You just might not like it.

99% of graduates with more than $350k of debt choose to stay with loan forgiveness. Probably because it hurts the human psyche too much to know that everything you’ve done thus far is not enough.

Becoming a doctor does not end the day you graduate. Not for me. It ends the day everything you need to become a doctor is behind you. Loans included.

Not everyone thinks this way, though. Many people truly believe that the hardship stops the day you get the degree. Ahhh, time to sit back and enjoy the benefits of all our hard work. But how can that be when you don’t even know what a hard-earned dollar looks like?! What makes you better than the rest of ’em?

I know I’m making enemies here but I must pose the question. If not I, who will?

I don’t blame the docs. They were merely children when they signed their lives away for a chance at the American Dream. I blame our upbringing for creating the expectation that a doctor’s life is a rich and easy one. I blame the institutions that are set in place that allow universities to charge this much money to get educated. I also blame lending companies who are handing out loans this large. Child robbery, that’s what I call it.

I implore to all the existing doctors that make it seem like being a doctor is easy. How will we ever change the trajectory if we keep implying to young ‘uns that pursuing this career path will mean they won’t have to work hard for the rest of their life. How will they realize and make an informed decision when the time comes?

I know the real truth.

That behind the facade of wealth is an increasingly long list of medical professionals patiently waiting 25 years for loan forgiveness to hit. Behind every confident thrust of the credit card is an avoidance technique that makes life a bit easier to live. Behind all our heroics and saving lives lies a coward afraid to face our social responsibility to pay back debt that we chose to take out. And behind every accomplishment lies a lifestyle creep that is avalanching too fast out of our reach, propelling doctors further forward towards an unsustainable way of living.

The real reason doctors “can’t” pay back student debt is because they won’t.

They choose not to work hard anymore. It isn’t burn-out, although that stuff is real too. It’s the social expectation that a doctor’s life is breezy. The mindset to pay back debt just isn’t there. Many cannot accept that graduation is not the end-game. They think they already won.

There will be excuses. I don’t buy any of it.

There will come a day when I will finish my loan repayment journey, and people will think it’s a miracle. They’ll think I was one of the lucky ones, rather than a penny-pinching maniac. Perhaps the stars aligned and the pandemic gave me this “unique” ability to pay back loans faster because I was not being charged interest for six months. My parents must have helped me out. An investment strategy probably worked out for me but not them. I can’t wait to see the excuses they make. But none of that will be true.

My current car is a high-school ride that I’ve had for 13 years. The passenger’s rear-view mirror doesn’t match, because when someone broke it (probably to re-sell it), I didn’t want to pay an extra $60 to get one that was white when the stock color was black. Mike even helped me put it on the car myself because I didn’t want to pay a service fee at the auto shop. My neighbor came out of his garage this past week and looked at me funny when he saw me physically hand-washing my car. He said, “That’s … nice…” and walked away slowly.

I sometimes have to wipe graffiti off my windows, because I chose to live in a lower income neighborhood so that I could buy a business storefront AND a dwelling at a very low price. Last Friday night, it was getting ratchet at the club next door since they moved the party outdoors due to COVID restrictions. I’ve had to run away from my own home before when the riots first started and they fired fireworks at the cops.

I spent a third of last year working midnight shifts. I still wear my USC scrubs that I was forced to buy upon entering dental school in 2012. I run with the Nike’s that my husband bought me as a gift when I was attending dental school so that I could “be cool”. They used to be orange but now they’re mostly black. I sell my de-cluttered stuff on Poshmark. I research heavily in order to travel the world for FREE. I come home from work to work. I still actively budget every week. I aim to spend only $200 a month in groceries for the two of us and $150 a month in dining out. I created a lifestyle where my job is three blocks away, to reduce the gas I have to buy. TO REDUCE THE GAS I HAVE TO BUY. I spent my last birthday repainting our bathroom. We spent Mike’s birthday picking up birthday freebies. Heck, even our cat was free.

Do you know the real reason THIS doctor can pay off student debt?

Hard work and a willingness to.

It’s not rocket science.

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Finance: The Second Year of Paying Down $550,000 in Student Loans, An Update

I can’t believe how fast time flies! The second year of paying down my student debt has passed, and I didn’t even notice. After the first year, I posted an update that outlined a review of our journey. It seemed to help some, so I decided to do the same for the second year. This year there were some ups and downs (a lot more downs than we thought would happen), but I am so pleased to announce that we are on track to finish paying off our debt in under 10 years. In fact, if we continue on this same trajectory that we’ve been on, we are actually estimated to finish 6.9 years from now, for a total of 8.9 years!! And I have high hopes to bring that number even lower. Read on to find out how we got here, and where we plan to go.

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To recap, we started off our journey with $574,034.50 of student debt (including the interest that had accrued)! All of which was mine. To date, we have paid a total of $145,128.48 towards my student debt over the last two years, bringing the principal amount down to $481,368.06.

To understand the progress, do recall that after year one, only $28,000 went towards paying down the principle. The rest of the $84,000 that we had paid towards the loan went towards the interest only. This means that only 33% went towards paying down the principle amount of the loan.

In year two, you start to see improvement. Of the $61,000 we paid to the loans, $29,000 went towards paying down the principle. That’s 47.5% of our payments going towards actually making the loan smaller!

Off course, you will see right away that we paid way less towards the loans in year two ($61,000) versus year one ($84,000). If we had paid the same amount or higher, we would have had an even higher percentage going towards the principle balance. So I guess this is a great time to recap what slowed us down this year.

THE SET-BACKS

In September of 2018, we decided to buy property. Property ownership was something we felt was right for us to do. We bought a live/work space that we hope to utilize in the future for some sort of business. Meanwhile, we are co-housing, or as financial independents might say, house-hacking, our way towards paying down the mortgage. Buying the property did entail two things to happen: We used some of our emergency fund to place a down payment on the home. Because of that, we are now re-building the emergency fund back up to what it was, which decreased our ability to pay back loans. Currently, we are setting aside $1k a month to rebuild the emergency fund and are on track to being back to normal in March of 2020. Also, it raised our total payments towards our housing a teeny bit, since now we pay for things like HOA fees and home insurance.
In October of 2018, we were delivered some shocking news. Mr. Debtist’s company experienced a laying off of 80% of the people working there, and even though Mike was one of the “lucky” few to stay, his pay got decreased by more than 50%! It was something we were not really prepared for, so on top of wanting to re-build the emergency fund, we also had to deal with a huge blow to our income. Since we were living off of one income, the change in salary really affected our ability to pay down the loans. But we made it work! That’s part of the joys of being on Loan Forgiveness Program even though we were paying it back aggressively. They still only required the minimum payments. Off course, we continued to pay more than the minimum. We were able to keep up with the interest that accrued and to slowly bring the loans down.

THE POSITIVES

Now that those two negatives are laid out, here are some positive things that happened!

A conversation with Travis from Student Loan Planner (affiliate link) is saving us THOUSANDS of dollars. He brought to our attention that we could optimize the loan repayment by switching from IBR to REPAYE. How does this help? Under REPAYE, the government subsidizes the interest at 100% for the first three years for an subsidized loan, and at 50% for unsubsidized loans and subsidized loans that have been present for longer than three years. Which means every month, we are given a free $850 to go towards our loans and help us out! This is fantastic because now that Mr. Debtist has a new job and we are back to our previous income, we also are getting help to pay back the debt. Whereas last year we were paying $6,500 per month towards the loans, we are now sending $7,300 towards the debt with the help of REPAYE’s stipend. And while we were dealing with the smaller income stream for four months, we were still getting that helpful $850 to add to the few thousands that we were contributing to the loan. If you want some loan advice, I really think Travis is your guy, and you can schedule a call with him to discuss your particular situation.
Additionally, the side hustle game has been ramping up since 2019 started! Now that we have our budgeting in order, it was time to start increasing our income. I was already writing on this blog and doing some dog-sitting on Rover, but I just recently started as a bread baker, and soon thereafter opened my own bakery called Aero Bakery. In January, I made only $14 in side-hustles, which made sense since we were off traveling in Australia and New Zealand for the first half of January. In February, I made $450, and in March, I made $750. For April, I am on track to make an extra $1,500 in side hustles! Read more about why I am an advocate of side hustles, here.

Why the Future Is Bright

So now, we are not only back on track with making $6,500 payments, but we are actually on track to be finished one year early! How did we do that? By being AGGRESSIVE. The minimum payment for a 10 year repayment plan was $6,063 a month. We set our sights on $6,500 a month. Even with the lapse during those few difficult months while Mr. Debtist struggled with his work situation, we were still able to be at a point where we have only 6.9 years to go! How exciting is that?! And what’s even more exciting is that I predict this will all snowball even more! I turn 30 years old this year, and wouldn’t it be great if this would all be cleared by the time I turn 35? That’s right! I have my sights set on getting rid of this in 5 more years. Here’s what we have planned.

Since we are now switched to REPAYE, we are making $7,300 contributions towards the loans, instead of the $6,500 that we were previously doing under IBR. That will vastly improve the trajectory of our path.
In March of 2020, we predict to have saved enough for our emergency fund, leaving an extra $1k to be funneled into the loans. That would increase our contributions next year to $8,300/month.
Also in Spring of 2020, Mr. Debtist is scheduled to finish his car loan payments. While I was in dental school, Mr. Debtist got a car loan and we currently pay $585 towards it every month. Freeing up $585 will increase our loan contribution to $8,885/month.
The side-hustling is just getting started. I hope to continue with many of these hobby-turned-hustles, and we will see how that impacts our payments.
Lastly, we decided not to refinance our loan at this time because of the risk of not being able to meet the minimum payments in case we have another fiasco like the job situation. However, when the loan is small enough (say under $300,000), we may still consider refinancing the loan. It’ll be less of a risk at that point, since the monthly payments will be way more doable. If we DO refinance as we get closer towards paying the loans off, then we will be able to attack the loans at an exponentially improving clip.

Please note that we are paying back student loans aggressively, but we are also doing it responsibly. We are living within our means, investing in our 401ks respectively, and are diversifying by entering real estate last year. I make myself less susceptible to fluctuating job conditions by having my own dental S corporation, opening my own bakery, working as a dog-sitter, working as a baker for another company, and doing some writing on the side. We are also a dual-income household, which greatly affects the possibility of this success.

If you are feeling lost in your student loan repayment journey, or you simply want to know your options, I would start with talking to a consultant at Student Loan Planner. This path is not for everyone, but it also may be more doable than they want us to believe. For those who just want to get budgeting down, why not start with my free course on creating a budgeting tool?

How Switching Your Student Loan Forgiveness Plan Can Save You Thousands of Dollars!

This post may contain affiliate links. Please see my disclosure to learn more.

How would you like to save thousands of dollars a year, simply by switching the loan forgiveness program you are on? We know we did! A recent conversation with Travis Hornsby of Student Loan Planner informed us that we could speed up our loan repayment simply by switching from IBR to REPAYE! The information that Travis shared with us was so valuable, because it could in fact save us thousands of dollars on our student loans! That’s equivalent to refinancing to a lower rate, thus cutting down our repayment timeline, while still allowing us the safety net of being in a loan forgiveness program. After conversing with Travis for an hour, I would highly recommend Student Loan Planner as the starting point for any student or new grad looking for student debt advice.

So how do we save $$$ this year? It’s simple. All we need to do is to switch from IBR to REPAYE. Today, I will outline why.

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A Case Study: IBR VS REPAYE

We were under the IBR program since we embarked on this journey to repay our student debt of $574,000. Before you consider which loan forgiveness program you want to choose, you should probably read Finance: Student Loan Forgiveness Options: IBR VS PAYE VS REPAYE. We had initially chosen IBR despite the fact that the monthly payments would be 15% of discretionary income vs REPAYE’s 10% of discretionary income because of this one factor: IBR allows you to file taxes separately as a married couple and it will only consider the loan holder’s income, versus REPAYE which will consider the income of your spouse as well. Since Mr. Debtist also makes a six figure number, we figure that we would have the better deal using solely my income.

Here is an example of how to calculate that:

Let’s use estimates from our personal story to calculate the difference.

Assume that our loan is an even $550,000, my income (the debt holder) is $125,000 and Mr. Debtist’s income is $120,000.

Under IBR, they would calculate our yearly loan payment by multiplying my income by 15%.

125,000 * 0.15 = 18,750

Now we divide that by 12 months to find the monthly payment.

18,750 / 12 = 1,562.50

Therefore our monthly payment would be $1,562.50 under IBR.

Under REPAYE, we need to use the total household income of $245,000 to calculate the yearly payment, however we will only be paying 10% of our household income.

(245,000 – 1.5 * 16,460) * 0.10 = 22,030.85

To find the monthly payment, divide by 12 months.

22,030.85 / 12 = 1,835.90

Therefore our monthly payment would be $1,835 under REPAYE.

As you can see from this example, IBR would be the better payment plan because you would be paying the cheapest amount per month and allowing the program to forgive as much as possible.

HOWEVER, there is a rule with REPAYE that IBR does not have. REPAYE will subsidize 100% of the interest accrued for the first three years for subsidized loans, and 50% of the interest accrued after the first three years, which changes the game. Note, if you have unsubsidized loans or GRAD PLUS loans, they will only pay 50% of the interest accrued, period. Let’s see how.

Under REPAYE, the government will subsidize the interest that does not get covered by your minimum payment. In my case, I took out GRAD PLUS loans, so that would be 50% of the interest that accrues. We have already calculated the monthly payment to be $1,835.90. Let’s convert that to yearly payments.

$1,835.90 * 12 months = $22,030.85 owed this year under REPAYE

This year, based on last year’s income, we owe $22,030.85 in total payments under REPAYE. We also know that interest on $550,000 at 7% is $38,500. Therefore, our payments under REPAYE are not even enough to cover interest, as is usually the case with a loan this large.

So the difference is calculated as follows:

$38,500 – $22,030.85= $16,469.15 * 0.5 = $8,234.58

Which means that for our case, the government will subsidize over $8k per year! You would be missing out on thousands of dollars just by being on the wrong program! We certainly did.

Why We Stuck with IBR in the past

We decided to be under IBR right when I got out of dental school, BEFORE we decided to pay back our loans aggressively. The reason being in my first year, I only worked for the last three months of the year, having waited for my license to be approved after graduating in June. In my first year’s taxes, I made $25,000. So taking 15% of $25,000 would be cheaper than 10% of $145,000. Now in the second year, the numbers completely changed since I started working full time for the entire twelve months. My salary jumped from $25,000 to $125,000. The ultimate question: Why didn’t we make the switch?

In April of my first full year of work, we had decided to pay back the loans aggressively. Meaning, our monthly payments were MORE THAN the minimum amount required. In order for there to be excess interest accrued on the loan, our monthly payments should not exceed the interest gained, which was about $3,000. But since we were paying our debt like CRAZY, we were actually paying $6,500 towards the loans, so no interest was accruing and it did not matter if we stayed in IBR or went to REPAYE.

Or so we thought…

We were VERY wrong!

A Common Misconception

According to Travis Hornsby of Student Loan Planner, REPAYE calculates the difference between the interest accrued and the amount paid back on the loan at the beginning of the year. REPAYE assumes that you will only make your minimal payment each month, which means that they lock in the assumption that $11,500 would be accruing in interest (for our particular example). Every month, they will subsidize a portion of your loan to make up for the interest that will supposedly accrue, REGARDLESS OF THE MONTHLY PAYMENT YOU ACTUALLY PAY. It doesn’t matter if we pay $6,500 towards the loans or if we pay the minimum amount. Either way, REPAYE will subsidize the difference between the minimum payment and the interest that’s being charged. So we have actually missed out on an opportunity here! What’s passed is past, but we are definitely jumping from IBR to REPAYE ASAP!

What Switching from IBR to REPAYE will save us.

We need to make this jump because of the following:

It will save us tens of thousands of dollars in the long run.
Making the change will be the equivalent of refinancing to a lower rate without actually having to refinance! Which then gives us the safety net of staying in a loan forgiveness program. If ever life throws us a curveball (such as an accident, layoff, disability, sickness, or our worlds fall into chaos and we cannot work), then the loan forgiveness program will give us the flexibility to not HAVE to pay $6,500 per month.
After all the money we save, we can cut our repayment timeline down to 7.5 years!

Off course, not everyone under IBR should automatically jump to REPAYE! You have to pick the financial path that is right for you, considering your personality, your goals, your lifestyle, and more. If you are looking for sound advice on how to create a student loan repayment plan customized for your situation, don’t hesitate to contact Travis Hornsby, founder of Student Loan Planner, using my affiliate link. It will be a very rewarding hour! And check out my second podcast episode with Travis, to be released in 2019! Stay tuned.

Finance: The First Year of Paying Down $550,000 in Student Loans, An Update

Hi guys! So it has been about a year since our search for a future home turned into a commitment to pay down my massive student debt instead. I figured I would give you an update as to what paying down $550,000 at 6.7% interest looks like.

We arrived at our decision to tackle the loans aggressively in April of 2017 (our decision tree, here). The most important thing to note with a loan this large is that committing to it means REALLY committing to it. It wouldn’t be advantageous to choose to pay down the debt, and then fall back to IBR midway. From a numbers perspective, you would just lose unnecessary money that way. If you choose the loan forgiveness route, then the goal is to pay AS LITTLE MONTHLY PAYMENTS AS POSSIBLE, so that a huge chunk gets written off. If you choose the standard repayment option, then the goal is to pay AS MUCH MONEY AS SOON AS POSSIBLE. So, with a steely grip on the reality that we did not want the debt to dictate and shape our lives for twenty five years, we went head first.

Here are the numbers.

To be completely honest with you, $550,000 is a ballpark estimate. The real number is a principle amount of $538,933.50 and an accrued interest of $35,101. Meaning the total was actually $574,034.50. YIKES!

So what did we do? We decided that we will essentially live off of one income, and use the other income towards loans. We figure, out parents raised us on a single person’s income, so this can’t be that difficult especially since we don’t even have kids yet. The verdict: We were right! It was surprisingly easy. Which makes me wonder, where were we spending all that money before hand?! I don’t even want to know….

With that being said, we have been successful at making our minimum payments of $6500 per month! YAY! We were even able to add a little extra every so often due to diligent saving habits (See The Ever Growing List of Things I’ve Given Up In The Name of Frugality!). But that does not take us as far on the path of financial freedom as we would like. It took us a few months to completely pay off the interest that had accrued, but it must be remembered that the loan is at 6.7% interest. So that means that interest continues to accrue over all this time. So what does that look like? Well, once the accrued interest was paid off, approximately half of the $6,500 was going towards the interest accruing per month. Which means that the loan is only getting paid down at a rate of about $3,000 per month. And that, my friends, is how lovely interest works! Womp, womp.

So, $55,367.22 was paid towards interest. Only $28,632.78 went towards paying down the principle amount. When my husband first looked at the little pie chart graph that I had on the corner of my computer screen summarizing our progress, he said, “Well, THAT’s depressing!” For someone who is only looking at that, it CAN seem pretty depressing. However, I know better. This. Is. Amazing.

The accrued interest is already out of the way, which tells me that next year is going to look a LOT better. I can already see a higher proportion of the monthly payments being applied to our principle. It started out as slightly less than half of our payment being applied to the principle. However, as of early this year, slightly more than half is being applied to principle. I know it’s hard to look at this as any way other than a linear projection, but it really, truly is an exponential one, albeit with a slow start.

The amazing part is that we have survived our first year and our lives have actually been much improved. Choosing this journey has nudged us to be proactive with our life, not only with our financial decisions, but also with our lifestyle choices. We are experiencing less stress than when we felt helpless and unable to address the student loans. We are experiencing more happiness than when we were trying to buy our way to a meaningful life. I work less than I did last year, and love myself more. We are healthier and have better relationships. And it all started with us learning how to get our finances in order and in our efforts to remove money from our life equation.

I am very happy with this decision and I am excited to see what the next year of payments will bring.

PS: I am excited that we will hit the $400,000’s during me and Mike’s birthday months in June/July!

Also, for the curious, I have never, not once, felt regret in funneling extra money towards my student loans. I have felt buyer’s remorse. I’ve regretted going out to eat. I have regretted going to events that required spending money. I have regretted buying gifts that I know will end up in a landfill some day. But I have never regretted letting go of money in exchange for a little slice of freedom. I’m just saying.

Finance: Why We Chose Standard Repayment Over Loan Forgiveness

We started our loan repayment journey under the IBR program, as advised by so many professionals. But I always knew in my heart that this was not the best path for me. Apart from the fact that IBR resulted in more money paid towards my loans overall, there was the issue of it extending twenty five years into our distant future. I am one who values freedom above many other things. When I was young, I hated when people told me to do things that did not line up with my values. My most hated explanations were “Just because” or “Because I said so”. Talk about lack of motivation. I despised myself when I was forced to do something, because authoritative figures claimed to have the upper hand. I remember thinking to myself, when I get older, I will have control over my own life. Today, I have that same fire feeding a resolve in me to stay free, from things financial or otherwise. I want freedom to do certain types of work. I want freedom from a tight work schedule. I want autonomy in my decisions. I want the freedom to travel whenever I want to. I want to have free time. All of this also requires to be financially free. Having graduated dental school at 26 years old, the IBR program would mean that we would have this burden hanging over our heads until we were past 50 years old. Psychologically, the burden was too much to bear. It was the psychology of the thing that really pushed me towards frugality, financial independence, and hopefully in the near(er) future, freedom.

When I graduated dental school and I finally started working, Mike and I were facing numerous large payments related to moving in together, creating a home for ourselves, getting married, and going on a honeymoon. And while I would not take back any of the decisions we made, we weren’t exactly saving much at the time. The great part is, we weren’t going into debt either. Whereas some people may take out loans for things such as weddings and honeymoons and moving, we definitely stayed within our means and I am proud of that fact.

But once the dust settled and we found peace in our space and identified our roles in everyday life, we stopped having something to spend money on, and we started to see that we were not bad savers after all. In fact, we were saving at such a quick pace, that we would have saved up for a down payment for a house in two months’ time! We started to talk about buying a home for ourselves, when our financial planner asked us a simple question. Do you realize that at this rate, you can pay down your student debt the standard way in less than ten years?

At first, I was aghast. I had spent months trying to convince USC financial advisers, and Mike, and even my financial planner, that there had to be a way to do this. Mike deemed my conclusions as too optimistic, and slightly delusional. He always said, the numbers just don’t work. But in my head, they did work. The numbers don’t lie.

I then went on to bombard our CFP with a million questions. Excited, I could not wait to tell Mike when he got home that night. I remember being so stoked. Initially, he did not believe me. It wasn’t until our financial planner created a spreadsheet that demonstrated our capability to conquer the loan in 9 years, that Mike started to change his view. We were going to be free from these chains fifteen years earlier than we thought!

But with it comes a cost. We will have to give up buying a house, for now. We have to continue a fairly frugal lifestyle, and have concrete intentionality with our money. We have to be able to psychologically see a majority of our paycheck going towards paying down the loans every month. We have to give up the social status symbols that our friends will be collecting under their belts. In exchange, we will have fifteen additional years of freedom. What say you?

I say Hell Yeah! Mike and I are simple people anyway, as can be seen in the rate at which we were saving. We could rationalize not buying a house, not buying a new car, and not getting the latest gadgets. I could not rationalize being tied down by my career choice until I’m past fifty. We decided that yes, we will choose standard repayment over loan forgiveness!

One caveat. We are still enlisted under the IBR program. Why? Under the standard repayment plan, we have to make minimum payments of $6500/month to be able to pay the debt in 9 years. Under IBR, the payments are closer to $400/month. If one of us loses a job, $6500/month is impossible on only one of our incomes. Especially so if I was the one to lose a job. Switching a hundred percent to standard repayment will make us vulnerable to the whims of whatever life may throw at us. The failure of Mike’s start-up company, the selling of the practice I work at, if we decide to have children, disability for either one of us, these are all things that can greatly impact our finances and if we commit to a standard repayment, it can heavily mess with our ability to pay the loans. And trust me, you do not want to default on student loans. However, under IBR, we are able to pay more than the $400/month without penalty, so we stick with IBR in case of a future emergency, but continue to make the larger payments.

Unfortunately, this does not allow us to refinance our loans. Once the loans are refinanced, we become ineligible for IBR. So although the IBR interest rate is a whopping 6.7%, our financial planner convinced us that the IBR buffer for not-so-awesome life moments is well worth the extra interest rate. Once the loans get paid down to a more manageable sum, then we can refinance, since a smaller loan will be much more manageable.

So therein lies our decision tree, our little story.

Finance: When NOT to consolidate student loans

There was a day last year when Mike, two co-workers, and I all took the day off of work, just because. I remember it vividly. It was a Tuesday and the weather was sunny, and somewhere in the low eighties. Mike and his co-workers came over to our place to work one of his motorcycles. The goal was to change the engine, but I think the boys really just wanted to take it apart and put it back together like a box of legos. Such are the interests of engineers who design electric cars all day. I did my own thing, cooking and writing, and biking, etc. The usual. Once in a while, I popped my head in the garage to watch them tinker, to observe the progress. There were times where they struggled, muscling their way into making pieces fit. Other times, they laughed, at some overlooked rookie mistake of theirs. Most of the time they were either marveling at the mechanics of it all, or otherwise criticizing some faulty housing of electric wires. I guess inefficiencies of mechanical parts are laughable, to some. Overall, they did good. The bike ran, after twelve hours of work, sweat, and metaphorical tears.

At the end of the day, we ate a much deserved dinner of Mediterranean food. As we were talking about who knows what, the topic of student loans came up. It was actually brought up by one of Mike’s co-workers who happened to be dating a pharmacist. He was the one who inspired me to write the previous blog post, and it is because of stories like these that I am determined to share whatever little knowledge I have of finances with the rest of the world.

His girlfriend was pursuing an alternative loan forgiveness program to pay her student loans from pharmacy school. As part of the Public Service Loan Forgiveness Program, she has been working for the past two years at a VA hospital in LA county. The program states that after ten years of service at a government or not-for-profit organization, the loans will be wiped, TAX FREE (compared to the IBR, PAYE and REPAYE options which considers forgiven amounts as part of your income and is therefore taxed). She has been working here for a few years and was warned against consolidating her loans by her co-workers. Why?

She had some co-workers who have been working at the hospital for a few years. The hospital started to convince them to consolidate their loans. They said consolidating multiple loans into one will be more convenient and easier to track. Some of them went ahead and did just that, after listening to the hospital’s advice. Unfortunately, there is a clause that states that after consolidation of student loans, previous payments do not count towards the loan repayment program. In other words, despite having worked for 2 out of the required 10 years, after consolidation of the loans, the previous 2 years no longer counted towards the 10 year loan repayment. The consolidated loan is now considered a completely different loan, and in order to have that loan forgiven, they will have to work for an additional ten years. It was a story enough to make one cry. Imagine working your way towards freedom, only to have that freedom taken away and prolonged. The past two years of hard work went towards nothing. The worst part? They were advised to do this! Off course, it is not the hospital’s responsibility to be aware of the clauses associated with every loan program, so we can’t entirely blame the hospital. I just wish there was a positive end result from the decision to consolidate, which there wasn’t. All for “convenience” of having one lump sum, instead of keeping track of a few different loans.

Moral of the story: Do not consolidate your loans if you have already started a Public Service Loan Forgiveness program. If you would like to consolidate your loans, please do this right out of school, prior to working for your not-for-profit or government organization. My heart seriously goes out to those who have discovered this clause the difficult way. I am just glad that our friend’s girlfriend learned of it before she herself was convinced to do the same.

In line with all other aspects of this blog, freedom supersedes convenience in my book, always. Freedom to call your own schedule. Freedom to take the day off with your friends whenever you want. Freedom to enjoy hobbies, learn new things, and work on motorcycles. Even if it means avoiding the conveniences.

Finance: Student Loan Forgiveness Options: IBR VS PAYE VS REPAYE

I remember the days leading up to graduating dental school. I had an incurable case of senioritis, and I was ready to go. I had reached all my requirements with a few months to spare. It was just a matter of time. It wasn’t school itself that was on my mind. All I could think about at that point was the student debt that I knew I had to face once I got out.

I recall that every student at USC’s dental program was required to take an exit course that went over student loan repayment options. They called it a course to make it sound official, but it was literally a one hour power-point presentation in a small classroom with mostly empty seats. I remember sitting towards the front of the classroom, with a notepad and pen, and furiously scribbling notes throughout the entire thing. Meanwhile, classmates grumbled about what a waste of time this was. Some tardily strolled in, halfway through the presentation, just so they can sign the sign out sheets. Those that did come on time sat, and politely listened, but without a pen in hand, sitting back casually until the presenter announced the end. At that time, I thought that I was the only one who did not understand this stuff. It seemed like either everyone either had rich parents, or had a plan. I remember kicking myself for not studying this before, since my classmates appeared bored at best, presumably because they already knew the ins and outs of their loan repayment plans. There was only one other classmate, a boy, who was taking notes with me. I remember him vividly, though we never talked before, because he asked tons of questions that I was too afraid to ask. I also remember him because after the class, the speaker offered to do additional mini-lectures if we had questions. He was the only other person I saw pursue this topic as avidly as I in the upcoming weeks before graduation. I would come in for a one-on-one meeting with the financial advisor, and after I walked out, he would walk in. Or vice versa. We had meetings with the malpractice representative twice, and for disability insurance once more, after the required one. We were the only two students in the classroom during these meetings. He and I sat next to each other at the front of the room, taking notes and writing down numbers and calculations. I must have seen him on 7 different days outside of the required exit course. I never spoke to him, not once. I don’t even remember his name, although we were in the same class. I wish I did so I can hit him up and ask how his path to repayment is going. Meanwhile, I thought everyone else had it all figured out. But I was wrong.

I was so obsessed (afraid? aware?) of the student debt’s debilitating ability to control my life that I even had Mike sit in on some of the meetings. This was around the time we had talked about getting married, and I realized that now my decisions will start to affect someone that I cared about. I wanted him to a) know what he was getting into because once you’re married, you share EVERYTHING and b) not be extremely affected by the loan I was bringing in. I felt a lot of guilt, and it was the first time in my life that I realized that my misguided financial choices will impact a loved one’s lifestyle for a long period of time. I knew I had to get out. I went through projections and extrapolations and Excel sheets with counselors. Then I scheduled an appointment with Mike in order to go over the same spreadsheets and Excel sheets again (because they won’t allow you to take a copy of the real numbers home…). We are numbers people, and I had to have him see the numbers. I remember coming home to late night discussions about our “game plan”. I remember feeling trapped, and slightly depressed, that I could not find a short term solution for this. I got out of dental school and picked up just about every possible side hustle I could muster while waiting for my license in the mail. Before I even started work, I reached out to a CFP because I felt that I needed help. I didn’t know the ins and outs of finances as well as I would hope, and I wanted to make sure that we were doing everything correctly. The one thing I did know was that the only thing on our side was time. The sooner I addressed my financial problems, the less of a burden they will be in the future. I wanted to cut off all compounding problems (read as interests), nip them in the bud persay, before the weeds could grow thorns.

Throughout this entire process, all anyone would say (when I was bold enough to ask them about their repayment plan) was that they were going with the student loan repayment route. In parrot-like manner, almost. Surely, when the exit course was being taught at USC, it was implied that the student loan repayment plan is the way to go. It was the YOLOs of all YOLOs. You only pay a small percentage of your paycheck, for 20-25 years, and then your loan is forgiven after that. Have fun now, enjoy life while you are young, and worry about the debt later. I always felt in my heart that that could not have been the best option. But everyone I talked to at the beginning of our journey said that my loan was too large to realistically pay down the debt in a standard way, unless I was some baller G who landed a five star practice that I owned for myself. I mean, I understand why. A standard repayment required a $6000 check being sent to My Great Lakes, every month for 10 years. That is 120 consecutive payments of $6000. It’s a huge pill to swallow. Mike didn’t believe we could do it given the numbers. Even my financial planner, who first looked at our finances in September, said that it can’t be done according to our current financial situation. (Eventually, we did get to a point where it could be done, but I will save that for a future post). So at the beginning of our journey, everyone we consulted with said we had to choose between the following three student loan repayment options: IBR, PAYE, or REPAYE.

I chose one and then entered the real world, where I learned, that most people who graduated from college did not even have an exit course and have absolutely no idea what they are doing with their student loans. I have talked to numerous professionals, and there has been many instances where they asked a question regarding a fundamental aspect of their loan program because they just didn’t have the answer. I have dentists who have been out 3, 5, 10 years, asking me questions about loans. I am no expert at this stuff, just to clarify, but I did study it for a fair amount of time. I have been thinking about writing this post for a while, but it wasn’t until Mike’s co-worker was talking to Mike one day and said, “You know what Sam should write about on her blog? All the Student Loan Forgiveness options and their clauses. Because no one seems to understand this shit.” His girlfriend is a pharmacist working for the past two years under a Public Service Loan Forgiveness Program, and she says her colleagues have made some major mistakes that have screwed their financial plan significantly. More on that at a later post as well. The take away message here is that, maybe no one actually knew what they were doing as the graduating days neared us. I sure didn’t. I was so unsure about my options that I felt the need to hire a financial planner just to get things straight. Maybe no one still knows. And when it was outwardly voiced that there is a need for this post, then that’s what motivated me to sit down and write it. Additionally, I will walk you through our decision tree, to give you some insight as to why one of these was the option we chose. Please understand that our decision tree does not necessarily predict your own decision tree. It is only meant to show the thought process through which we reached a final decision.

When we went through the student loan exit course, there were numerous slides on that PowerPoint that, in my opinion, were haphazardly organized. As a visual person, here is the best way I could organize this information. There are three options currently, IBR, PAYE, and REPAYE. The following are the differences between the three programs.

IBR VS PAYE VS REPAYE

	IBR	PAYE	REPAYE
Eligible Loans	-All federal Family Education Loan Program, Stafford and Grad Plus Loans -All FFELP and direct loan consolidation loans that do not contain parent PLUS Loans	-All Stafford loans or Grad Plus Loans disbursed on or after October 1, 2011. -Consolidation loans made on or after October 1, 2011, unless they contain a direct loan or FFEL loan made before October 1, 2007, or a Parent PLUS loan. -Direct loan borrowers without loans prior to October 1, 2007 who also had a disbursement made on or after October 1, 2011.	-Any Stafford/Grad Plus Loan -Any direct consolidation loan that does not contain Parent PLUS loan.
Eligibility	-Payments under a 10 year term must be higher than what they would be under IBR.	-Payments under a 10-year term must be higher than what they would be under REPAYE.	-No payment amount limit.
Monthly Payment	15% of discretionary income. The maximum is what you’d pay under a 10 year loan.	10% of discretionary income.	10% of discretionary income.
Married Borrowers	-If filing joint tax returns, both spouses’ incomes and eligible debt is considered. -If filing separate tax returns, only the applicant’s income and eligible debt is considered.	– If filing joint tax returns, both spouses’ incomes and eligible debt is considered. -If filing separate tax returns, only the applicant’s income and eligible debt is considered.	– Both spouses’ income and federal student loan debt, if applicable, is considered regardless of filing status. -Exception for victims of domestic violence or if borrower is separated from spouse.
Interest Capitalization	When calculated, payment is equal to or greater than what it would be under the 10 year term and/or when the borrower leaves IBR.	When calculated, payment is equal to or greater than what it would be under the 10 year term and/or when the borrower leaves PAYE.	As there is no maximum payment, interest will only be capitalized once they leave REPAYE.
Forgiveness	Any remaining balance after 25 years of eligible payments is forgiven and taxed as income. Only payments made on or after July 1, 2009 are eligible.	Any remaining balance after 20 years of eligible payments is forgiven and taxed as income. Only payments made on or after July 1, 2009 are eligible.	Borrowers with undergrad loans only will receive forgiveness after 20 years of eligible payments. Those with graduate loans will receive forgiveness after 25 years of eligible payments. Forgiven amount will be taxed as income.

THE SIMILARITIES

The following are requirements that apply to all three loan forgiveness options:

Discretionary income is adjusted gross income minus 150% of state poverty level for the borrower’s family size.
Loans cannot be in default.
Minimum monthly payments can be as low as $0 per month. For example, if you are currently not working due to disability or maternity leave, you pay a percentage of your income, which is $0.
If payment does not satisfy monthly accrued interest, the Department of Education pays the remained for most subsidized Stafford loans for up to 3 years. For REPAYE only, the agency also will pay 50% of unpaid interest on unsubsidized loans.
Like IBR/REPAYE, payments under REPAYE count toward public service loan forgiveness. If your loan is under FFEL program, you need to consolidate in order to get REPAYE.

INSIGHTS

No Parent PLUS Loans: First thing is first. You’ve got to figure out which student loans you’ve taken out. Once you have that figured out, you can decide which loan repayment programs you qualify for. It is important to note that none of these loan forgiveness programs allow Parent PLUS loans. If you are going to consolidate your loans, you have to make sure that none of the loans that were consolidated are part of a Parent PLUS loan, otherwise, you immediately disqualify yourself from the loan forgiveness programs.
October 1, 2011 is the cut off for PAYE. If you have taken out loans prior to this date, you will not qualify for PAYE.
Payments under a 10-year term must be higher than what they would be under IBR. But does it makes sense to do IBR? This is important if your loan amount is quite small. For example, if you have a loan of $150,000 (let’s say because you worked your butt off to minimize the student loan total) and you make $135,000/year as a dentist, a 10 year repayment plan will have you paying $1718.52/month at a 6.7% interest rate for 10 years. Compare that to IBR where you pay $1687.50/month at the same interest rate for 25 years. Technically, in this example, you will still qualify for IBR, because your 10-year term payments are still higher than IBR payments. But is it worth it? To me, it would make sense to just stick with standard repayment and get rid of the debt in 10 years, rather than prolonging it for 25 years, especially since you pay about the same monthly payment. The shortened debt time will decrease the total money you end up paying, because it decreases the amount you pay in interest. Plus, you will no longer have the debt hanging over your head. Compare that to a dentist who makes the same amount of money per year, but who has a loan debt of $550,000. Now the month difference is $6500/month vs $1687.50/month. IBR works well if you have a huge loan and cannot make the atrocious monthly payment fit with your ideal lifestyle. For smaller loan amounts, it may be best to just stick with standard repayment.
Smaller monthly payments: A good thing or a bad thing? When looking at these programs with a short term mindset, it is easy to think that smaller monthly payments are better than larger monthly payments. However, may I point out that small monthly payments for a large loan may not be enough to pay down the interest at all. For example, with a loan of $550,000, the interest that accrues each month at 6.7% interest rate is about $3,200/month. However, as from the previous example, 15% of a $135,000 yearly gross income is $1687. So every month, you are only paying half of the accruing interest, which means that interest will continually add to your loan total. Over twenty five years, you are increasing your total amount under the IBR program. Because of this, your total loan amount at the end of 25 years will be over $1 million dollars. But that’s alright, because it will all be wiped in the end anyways, right? (PS: In order to equal the accruing interest rate, without even touching the principal balance ever, you would need to be making more than $300,000 / year. Yikes.)
Consider your spouse’s income. It is important to note that under REPAYE, your spouse’s income counts as part of the discretionary income. Depending on your spouse’s income, this can increase your monthly loan payments, which will actually increase the amount you pay long term.
Forgiven amounts are taxed. This is a crucial part of the clause for the loan forgiveness programs. Those who miss this will be shocked at the end of the 25 years. I actually have met colleagues who have been graduated 3 and 5 years who are not aware of this rule. When I told them that the forgiven amounts will be taxed, their jaws dropped. Why? Because none of them knew. This single rule is what made me question whether loan forgiveness was worth it. As mentioned before, under IBR, with a loan as large as $550k, after twenty five years of payment from a dentist with $135,000 income, you would end up with over one million dollars in debt. I think my number was closer to $1,200,000. This was calculated with the assumption that I would be increasing my salary to more than $135,000 as I increased my experience. Either way, at year 25, the loans will be forgiven, and the total amount forgiven will be considered income that you made that year, and will be taxed similarly. So at the end of 25 years, I was expected to pay north of $350,000, in one lump sum, on top of taxes of the income I made on that year. Unless you have a plan to be swimming in some serious dough in twenty five years, I would say it would be advisable to save up for that $350,000 over 25 years. So that’s an additional $1,166 every month you have to save. But what bothered me most was the total amount of money you would pay after loan forgiveness. It turns out, with the taxed income, you would pay more money than the standard repayment. Standard repayment will lead to a total of $720,000 going towards loans, whereas IBR will lead to a grand total of $856,250. Plus, you would have a loan hanging over your head for 25 years, instead of only 10 years (less than half the amount of time). The time may not seem such a big deal, but that is a very large psychological strain to put on yourself for a very long amount of time. Let’s say you were ahead of your class and graduated dental school at 25. This loan would be with you until you’re 50 years old. That’s a really long time.
There is no clause stating that you are guaranteed to be grandfathered in the loan forgiveness program. While I would love to believe that we will all be one hundred percent grandfathered into these programs, we must not be in denial, and agree to the fact that there is no such clause that guarantees this to be the case. This program may be subject to future changes with changes in government. 25 years is a very long time, and the government changes can occur in a short time span within those 25 years. For example, what if a law passes that changes the loan forgiveness program from being 25 years to 30 years? What if you were so far in, that all you’ve done the last twenty years was increase your loan to a point of no return? You would then have to go through with the additional five years, thus increasing your loan total even more, which then increases the final amount you’ve paid for your education. Or what if the programs are abolished completely? Perhaps you would get some help, perhaps you would be grandfathered in, but perhaps they do nothing to help you, leaving you with over a million dollars’ worth of debt in your forties that you must now pay off. People may say, that’s crazy, they can’t do that to us! Unfortunately, until I see a statement saying otherwise, I will continue to believe that anything can happen. That may just be me, being overly cautious. Or realistic, whichever.

APPLICATION: OUR DECISION TREE

So which program did we choose? As I stated before, initially, we were told that this was the way to go, so we decided to choose one category to fall under. Unfortunately, we immediately had to eliminate PAYE because I had student loans that were disbursed before October of 2011, which were my undergraduate loans. So we were down to either IBR or REPAYE. Both will take 25 years before the student loans were forgiven. It may seem as if REPAYE would be the best option, because it only requires 10% of discretionary income to be paid, whereas IBR requires 15% of discretionary income to be paid. However, we chose IBR over REPAYE because of the married borrowers section of the chart. IBR allows Mike and me to file separately, which means Mike’s income is not calculated in that 15%. Whereas REPAYE will calculate Mike’s income into the 10% owed every year, regardless of our filing status. This fact alone makes a huge difference in how much we end up paying. Without giving away the actual numbers, the example below will demonstrate this point. Under IBR, a combined income of $200,000 will yield a $2,500 check per month being written towards student loans, whereas a single income of $100,000 will yield a $1,250 check per month towards student loans. One may argue that it is better to pay down a higher portion of the loans so that at the end of the 25 years, the amount left over that you will be taxed on is less. However, if you choose to do the loan forgiveness program, it will actually benefit you most if you pay the least amount possible. Your total payment will be less in the long run. Notice how filing together will require $2,500 per month to be paid towards your loans, which is still not enough to cover the accruing interest. So even with the increased amount you are paying, the loan total will still be increasing. The numbers ended up showing that it would be better to pay taxes on a slightly larger number, than it is to pay twice as much every month without ever even touching principle. Off course, this is of the assumption that your spouse and you make the same income for work. In order to check what works best for your situation, I would recommend running your own numbers, using your loan amounts and your incomes.

I would like to reiterate that I am no expert. I can’t tell you which plan is better for you, and it is highly likely that I don’t know all the ins and outs of all three plans. But this is what I’ve learned so far, and our method of thinking. If there are ever any doubts, just run projections and calculations and excel sheets, and go with the numbers. The numbers won’t lie. I hope this has been helpful to some, and I hope more people realize the importance of thinking about this early on in their careers after reading this post. If you ever need someone to walk you through it, may I recommend a CFP? I wish you the best of luck in your endeavors, and more future insightful posts on finance to come!