WCI #214: Will Student Loans Be Forgiven?

This is the White Coat Investor podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011. Here is your host, Dr. Jim Dali. This is White Coat Investor podcast number 214 will student loans be Forgiven? Welcome back to the podcast. I am super excited. I had an email this morning that totally made my day. I'm not gonna lie, it was pretty awesome. Let me pull it up here on my computer and read it to you. So it says I just finished listening to the latest Milestones to Millionaires episode number 16 and wanted to send a small email to thank you for what you are doing. I was considering audio but this feels a bit more comfortable. I'm actually not a doctor nor as my spouse, but I'm a professional cyclist riding on Trek Segafredo and I'm marrying an American. Even though a lot of things you teach do not apply to me, they do give me ideas, understanding and inspiration on how to manage my future and the very overwhelming US tax system that as a non American seems a little insane. Yeah, I agree with you there. There are quite a few similarities in professions that I've found and truly just wanted to say thank you for all the info you give out. But the best part about this, this email is from Tom Skoinsch, who is a Latvian cyclist. He's basically the best Latvian cyclist, right? He's been the road race champion for Latvia. This is a guy who's worn the polka dot jersey for the best climber in the Tour de France. He's gotten second on a stage in the Tour de France last year. I think it was stage eight. Somebody I totally know, watch on tv, follow in the news and he sends me an email and says hey, thanks for a great podcast. So Tom, you are awesome. Thanks for what you do. You're totally inspiring to me to watch you guys suffer on your bikes all day long and then do it again the next day, day after day after day. So you're very welcome for any usefulness you've found out of this podcast. You're certainly right that you know, medicine and athletics and art really too have some things in common in that your high income is not due to your business savvy. Right? It's due to a specialized skill or knowledge base you've developed. You know, in, in the case of most doctors because they spent, you know, 10 to 15 years learning their craft. In your case, because you're so fast riding a bicycle Uphill. But either way, the truth is you got your high income not because you're awesome at business or money. And so like the rest of us, you got to turn that high income into a high net worth in order to really build wealth. But awesome to get that email from you. Thanks for what you do. And that goes for everybody else out there doing something that's not medicine. You know, if you're earning a lot of money, chances are it's not a very easy job. And I can tell you this, I've followed pro cycling long enough to know that pro cycling is not an easy job. I estimate that 80% of doctors need, want and should use a financial advisor and or an investment manager. Some investment gurus, such as Dr. William Bernstein, think my estimate is way too low. At any rate, if you want to use an advisor temporarily or for your entire life, there's no reason to feel guilty about it. Just make sure you are getting good advice at a fair price. If you need help updating your financial plan or just getting one in place, check out our list of recommended financial advisors@whitecoatinvestor.com financial advisors. You can do this and the white coat investor can help. All right. Our quote of the day today is from Henry David Thoreau who said the price of anything is the amount of life you exchange for it. And there's a lot of truth to that. You know, everything you own owns a little piece of you. If you haven't heard, we are going to have WCAI Con 22. It's in February. It's going to be in Phoen Phoenix. We're actually calling for speakers now. If you want to speak at wcicon, you can apply. Now that not only gets you into WCICON free, but I pay for you to come out and pay you something for speaking. That hasn't all been finalized, but if you want to speak, you need to apply this month. Whitecoatinvestor.com SpeakerAapp S P E A K E R A P P speaker app okay. Also the scholarship is now open. You can get details on the blog. Like every year we change it and tweak it a little bit. But you can get all the details@whitecoatinvestor.com scholarship. You can apply at whitecoatinvestor.com scholarshipapplication. Jimmy Turner over at the Physician Philosopher. He's running a masterclass this week. The masterclass is totally free to help you with money and mindset and entrepreneurship. There is a session on the 10th, which is the day this drops as well, as the 12th, I suspect you may be able to see recordings of that afterward. But you can sign up whitecodeinvestor.com AlphaClass and his Alpha coaching experience, I think closes for this session on the 14th of this month. You can sign up for that@whitecoatinvestor.com coaching all right, we got a guest on today. We've got Andrew back from studentloanadvice.com we're going to be talking about all kinds of student loan topics here, which people feels like it's been on the back burner for the last year, but it's about to come back to the front burner. And so we're going to talk about all things student loans today and get you some more information that you need in these critical moments. For those of you, especially those of you with hundreds of thousands of dollars of student loans, hopefully that's not Tom Squoinsch, but it is, unfortunately, a lot of our other listeners. So let's get Andrew on the line and get started. All right, we have Andrew Paulson with student loan advice on the podcast. Welcome.

Hey Jim, Great to be here.

Hey, in honor of this podcast, I'm wearing one of our new WCI T shirts. I'm wearing the Student Loan Slayer T shirt. I don't think it's getting bought very much in the WCI store, but maybe we'll start giving it away on the Milestones podcast to people who pay off their student loans. I don't know. We'll figure out something to do with it. But how's student loan advice going?

It's going great. Been awesome working with so many healthcare professionals thus far and being able to help them solve their problems, complex financial situations on, on student loans. But overall, loved being able to run, run a business and you know, obviously busy and you run into roadblocks and hurdles. But been a lot of fun thus far.

Awesome. Well, let's talk about some of the things people are talking about with student loans. It feels like, you know, nobody's been talking much about student loans at all for the last year. But we're about to have some events happen that I think are going to make, you know, student loans come back to the forefront both in the blogosphere as well as in people's minds, particularly with the Federal Student Loan 0% deal going away come October 1st. Basically no payments and no interest accruing since last March, I don't know, 14th or so 2020. So people have really enjoyed a nice 18 month student loan holiday that is soon coming to an end. You know, a lot of people have been talking about student loan forgiveness. It's been a hot topic in Washington. It's been hot topic in any sort of physician group. And people are really wondering how the possibility of additional forgiveness. And I'm not just talking about public service loan forgiveness, I'm talking about additional forgiveness coming up at some point in the future, how that should affect their student loan plans really. So let's talk for a few minutes about student loan forgiveness. What you think the odds of any sort of forgiveness happening, what that might look like and what people should do about it. What are your thoughts on student loan forgiveness?

Yeah, if we're separating out public service loan forgiveness or long term income driven repayment forgiveness and just strictly talking about are you going to get 10 or 15 $50,000 of loans forgiven? So I would definitely preface this that I would not anticipate you getting all of your student loans forgiven. So many of our listeners and readers have mortgage sized student loans and $10,000 or $20,000 forgiven when you've got $500,000 of federal student loans is not going to make that large of a dent. But there has been quite a bit of talk that there is going to be some loans discharged in the future. But as recent as last week in Washington, they talked about that they're kicking the can further down the road and that this is not the prime focus for them now. But what I would say is that I would expect the unexpected on this and I would not put my chips in on any of your loans getting discharged here in the near future. And if that ends up happening, that's great, that's gravy. But I think that still having a great student loan plan for how you're going to tackle your student loans and get those paid off or go for public service loan forgiveness is the much better route.

Yeah, at most. I mean, even the most liberal people out there on this topic are still talking about capping it at $50,000, which just doesn't move the needle when you owe 300, you know, you shouldn't craft your entire student loan plan around that. More realistically and particularly President Biden has definitely walked that back to a $10,000 figure. And I suspect that even if that took place, which I think is less than a 50% chance, I think those with a high income may be excluded from it. I suspect it may be means tested. And so sure, if you make less than $50,000 a year, you're going to get $10,000 forgiven. But if you make Dr. Money, you may not get anything. That wouldn't surprise me at all.

Yeah. And I just say follow it. Continue to stay posted on that. But don't, don't expect huge complete loan forgiveness of the $1.6 trillion federal student, student loan industry now.

Yeah, I think you're probably right there. The other thing to keep in mind is right now the Democrats control the White House and both houses of Congress. Chances are, come the midterm election, the President's party typically loses significant seats in Congress. It would not surprise me at all if the Republicans controlled one or both houses of Congress after the midterm. So that's only 18. And if this isn't a priority for them now, it wouldn't surprise me at all if nothing got done before really, they locked up the government with the Democrats controlling the White House and the Republicans controlling at least one house of Congress. So I wouldn't expect a huge student loan program rammed through it all, given the likely political realities of this. And I certainly, if otherwise your plan is to refinance your student loans, I, I don't think I would keep them in the federal student loans in hopes of getting $10,000 or even $50,000 forgiven. I think the odds are too low. But it's your money. You get to do what you want, right? There's a cool deal out there right now. Obviously student loans are going back to their normal interest rates come October 1st and you have to start making payments again. So lots of people have been holding off on refinancing, even if that's their long term plan, until October 1st. But common bond has tried to entice you into doing it early. They have offered now six months of 0% student loan interest. And at this point, we're now into June. So really Common Bond is offering a better deal than the government because the government's only giving you four more months of zero percent student loans. Common Bond's giving you six more months. What do you think people ought to be doing at this point? Do you think those who are planning to refinance in October maybe ought to take Common Bond up on this deal?

I mean, that sounds like a great offer. And really what we've been seeing Since March of 2020 when payments for federal student loans and interest has been put on hold, is that loan servicers, private refinancers, have been trying to get creative with ways to get people to private refinance their student loans. And a lot of people been holding off and putting off those payments and putting off private refinancing but if you can end up locking in a 0% interest rate and locking in potentially a low rate thereafter, that seems like a great idea if you're not going to go for loan forgiveness. But the question that I get always is, Andrew, what is the timing that we should think about? And I think that waiting until August or September to then be able to lock in that low rate, whether it's it's common bond or you end up going with a number of the other private refinancing companies that are out there, bottom line, there's great value in that and that can end up saving you thousands of dollars over time. And we also don't know what's going to happen with federal student loan payments and interest. If it gets reinstated and you've locked in a low rate, great, you can go from there. But say they end up extending the COVID forbearance period longer, you could continue to save money and go down that route as well.

Yeah, I guess that's always a risk, a possibility. But it seems to me given what's happening with COVID in the country right now, that seems to be pretty low risk that it gets extended again. The other thing I suppose keep in mind here is inflation's up a bit the last couple of months. Interest rates are up a bit. It may be that the rate you get come October 1st is not as good as what you can get right now. Plus there's going to be a mad rush for the doors in September and October. You may not get very good service. It may take longer than you think to get it done at that point. Maybe being the early bird isn't such a bad thing. If you're interested in that common bond deal, you can get the WCI special deal which is $550 cash back plus fire your financial advisor for free. That's a $1,349 value that you don't get if you go directly to Common bond. That's@whitecoatinvestor.com commonbond as I mentioned earlier, Laurel Rhodes is sponsored this podcast so I would include them in your search as well. Whitecoatinvestor.com LaurelRoad but they're not yet given the 0% deal. Maybe they'll feel a little pressure with Common Bond doing it and do that as well. But right now they're not offering that deal. But we're still giving you fire your financial advisor if you refinance through any of our links with any company. So. All right. So I thought today we'd Talk a little bit about some of the cases, you know, anonymously that you've given advice on in the last couple of months. So I think your first one is a pair of doctors that are, pair of doctors just graduating from medical school, both with loans. Let's, let's talk about that case and, and what maybe those people ought to be thinking about and considering and when they should come in and meet with you or you know, how they should manage their student loans at this point.

Yeah, absolutely. And Jim, I think I just want to preface this also that you know, the average student loan debt amount that my, my clients, you know, have is, it's kind of across the spectrum. It can be 50,000 or it can be up to $1 million. And so I've advised, you know, on a number of different sizes, but I think kind of on average they end up being in the 4 to $500,000 range, which is I think skewed a little bit high because of the families of couples that I've met with that have eight or nine hundred thousand dollars of student loans. But kind of getting into this more common scenario that I see with a dual physician couple. Let's just go through a hypothetical scenario of couple. One is an internal medicine, the other one's an emergency medicine, both graduating medical school now and they're going to begin three year residency programs here shortly and not, not planning on doing a fellowship, but they would both like to keep the door open for public service loan forgiveness and see what happens later down the road. They both have 250k in federal student loans. That puts them at a total student loan debt amount of $500,000. And assuming a regular federal interest rate, it's say 7% on all their loans. Make it simple. So average annual interest charge loans are growing at about $35,000 a year. And so, you know, when I first have this, I also want to look at what they're going to be making when they're attendings. And let's say the internal medicine physician is going to make 200 starting and em will be 300k. So that puts them at about $500,000 of income as attendings which will put their debt to income ratio at about one time. And usually when we see this 500 by 500 of one time debt to income ratio, they're an excellent candidate for private refinance living like a resident and then paying them off in two to five years as an attending. And you know, after that we usually get into should I consolidate my student loans and for those that are going to go for loan forgiveness, it's usually a great idea to consolidate right when you graduate as this will allow you to skip that six month grace period and be able to get public service loan forgiveness payment count three to four months earlier. So instead of this couple doing, you know, going into a grace period until December this year, they could start making payments perhaps in, you know, the end of the summer, early fall. But bottom line, with the direct federal consolidation, it issues you a new federal student loan in place of your old ones. And this is a particular benefit to those who have older loans, FFEL loans, because they'll be eligible for more income driven repayment plans and loan forgiveness. But I would mention that when you go from school to into repayment, whether you do the six month grace period or you do a direct federal consolidation, your interest is going to capitalize. So you don't get to take out 500k in student loans and then pay back 500. Unfortunately you have to pay on the interest, so that's something else to be mindful of. But going back to this particular borrower situation, it's usually a good idea for them to look to private refinance their federal student loans, particularly if they're able to cut their interest rate from 7% down to 3 and a half or 3%, because it's likely going to save them thousands over the long run. However, loan servicers may not give you that great interest rate right when you finish school, you know, particularly in your intern year. And you may be better off keeping your loans federal and going into an income driven repayment plan, usually revised pay as you earn. And the reason being is with your low income as a resident, it's likely your payments aren't enough to cover the interest that's accruing on your loans each year. This is called negative amortization. And half of the unpaid interest for the year will be paid in an interest subsidy. And in this couple situations, if they both make they're both in school, let's assume a $0 income in 2020 and they end up reporting that on their tax return. And then they file their income driven repayment certification form at $0. Their payments for the first year would be $0 payments and they would be unable to chip away at that $35,000 of interest charge for the year. But they would also receive 17,500 in an interest subsidy, which effectively cuts their interest rate in half. And they would probably be eligible for this for the first year to maybe three years of their residency and Keep their interest rate probably after the repay subsidies apply less than 4%. So then it gets back to should I private refinance right from the get go. And if you can't get lower than perhaps a 4% interest rate in this couple scenario, it's probably better to keep your loans federal because you're going to be guaranteed with those low payments, the interest subsidy and you keep the door open for loan forgiveness. But I think I'd like to clarify one point. If they also had private student loans and a number of you do from grad or undergrad, you should look into if you can get a lower interest rate. Anytime you have loans that are private and you can go to lower interest rate, it's usually a no brainer to refinance. And a lot of you have 7, 8, 9% private student loans that that's all you could take out when you were in school and you can get a much lower rate. So then kind of moving forward with this family, let's assume they've got a child and their income in their residency they're both making 60,000. So household income of 120k at a household size of 3, they should anticipate monthly payments in their residency and revised pays you earn from the 200 to $800 range. And a common thing that I see from residents is they see the standard 10 year payment which on a 500k loan is $5,800 a month and that's really hard to stomach and they can't make that payment so they decide to go into forbearance. Don't go into forbearance, rather enroll in income driven repayment, get the interest subsidy, the low payment and keep the door open for pslf. I can't tell you how many times I've talked to attendings who went into forbearance during their residency and they are kicking themselves now because they missed out on the perks of keeping their staying in repayment. Because if you go into forbearance during your residency, those years won't count towards loan forgiveness and you'll miss out on that, that significant interest subsidy.

Yeah. So you miss out on those extra payments being made in case you go for forgiveness. You also miss out on the repay subsidy if you're otherwise eligible for that and your cash flow is really not that bad on an IDR program. And even if you have private loans, you can refinance those and get $100 a month payments. So there's really no reason to go into forbearance. Just for cash flow purposes, your cash flow would have to be so tight that you could really truly couldn't carve out even a couple hundred bucks a month for student loan payments. And I just don't think most residents are truly that tight. If they are, they really need to get serious about their budgeting, I think. But forbearance is almost always the wrong move during residency. And yet it's common. I don't know. I wouldn't be surprised if 25% of docs go into forbearance in residency and I don't know who's telling them to do that. Maybe they're getting it at medical school, maybe it just seems like the right thing, they don't get any advice. But it's almost always wrong.

Yep, absolutely. And then, you know, after we've really kind of talked through that, then we get into the step of nailing down, we've nailed down their payment on a monthly basis. Then we're going to talk through what are their best payment options of whether they should go into revised pay as you earn, pay as you earn or income based repayment for older borrowers and really give you an idea which which payment plan is best aligned to your goals. Then we'll look at ways and strategies that we can reduce your payment. And usually that's through increasing your pre tax contributions, mainly through your 403B and your residency or if they offer some other type of retirement plan or if you want to do your own ira, contribute to an hsa, any of those pre tax retirement accounts are going to reduce your adjusted gross income, which would thereby reduce your monthly student loan payment.

So this is a tricky point for a lot of people, right, because they hear, well, Roth's best as a resident, right, Because I'm in the lowest tax brackets of my life, now's the time to be stuffing those Roth accounts full. And yet the best thing for student loans is actually pre tax accounts. And so I think it's hard for a lot of people to decide between those two. Almost surely if you don't end up going for forgiveness, you're still probably better off with a Roth account, even if you miss out on some subsidy from repay. But if you go for public service loan forgiveness, you're probably better off with the pre tax. And yet a lot of people at the beginning of their residency aren't sure if they're going for public service loan forgiveness. What do you tell those people that are trying to decide between Roth and and traditional accounts and aren't really quite sure if they're going for loan forgiveness or not. Do you just tell them which one do you think is most likely and do that or what do you tell.

Them, you know, if their employer is going to match up to a certain percent, I really like them to take that. And let's say they need to contribute 3% to get 3% from their employer. However they can do that. If they can do that pre tax, great. That's going to end up lowering their student loan payment. If they have to do it with Roth, that's fine as well because it just kicks the can a little bit further down the road with your federal student loans. But then they have the opportunity for that to end up growing in a tax, an account that's already been paid taxes on. And so. Right. There's a lot of talk of the going one way or the other. But I think bottom line, contributing to a retirement account and making your student loan payments is, is a great way to go.

You're choosing between two good options there for sure. Yeah, yeah. Especially given that most residents aren't saving anything for retirement. So you're already ahead if you're putting it in either account.

Exactly. If they can just rip the band aid off and start saving and start learning how to, how to do that, that's, that's definitely the best route. And they can certainly run the numbers on which, which way or the other and how to invest that.

What else would you talk to them about?

The next part we talk about is taxes sometimes come into play here. And if they can get the student loan interest deduction and we talk about tax filing status, some in their residency will be able to get the interest deduction. But as you know, most, most of you are high earners, you're going to get phased out of this pretty quickly. But we definitely want to take advantage of that when we can. But bottom line, for this scenario and this couple that have a debt load of 500k and an income anticipated of $500,000, they're an excellent candidate to do revised pay as you earn and then to private refinance. And the way we usually look at that is as soon as their effective interest rate after the repay subsidy is applied, once that is higher than the private refinance rates they can go with, and they're not going to do loan forgiveness, you might as well just go ahead and private refinance it, live like a resident and start paying your loans off.

Yeah. So let's get into specifics on that. Student loan interest deduction for 2020. This is last year's numbers, your modified adjusted gross income. This deduction phases out between 70 and 85,000 if you're single. So most residents, if you're not moonlighting, you're going to qualify to get your student loan interest deduction. Now, it's only $2,500. If you pay at least $2,500 in student loan interest, you get that deduction. Maybe it's worth, you know, in that tax bracket, it might only be worth 250 bucks or 300 bucks off your taxes, something like that. $350 off your taxes, maybe. But if you're married, that number goes up to 140 to $170,000 a year. So, you know, you put enough money into a retirement account and many docs might even qualify for that as attendings. But I would guess that most attendings probably aren't going to qualify for the student loan interest deduction. And again, it's still probably only going to be $500, $600 deduction. It's not going to be a massive deduction for you even if you qualify for it. But if you can get it, you might as well take it. Just assume, though, that most residents will qualify for it and most attendings won't. I think that's the way it works out for most people.

So then if we can kind of take a step a little bit into a more, more complex situation that I encounter a lot is let's take another couple, another physician and a periodontist. They live in Arizona, community property, state, and they have $900,000 of federal student loans. The physician has 300k from school and the periodontist has $600,000. And physician still has three more years of residency, and the periodontist is a partner in their own practice. And this is very, very common where sometimes people are, they're going through their training programs together, but other, other times, one's still in school or one still in residency, and the other's a couple of years into their career, which can end up making things a little bit more complex and need a little more review. And let's assume that the resident's making $60,000 in their residency and they're going to make 200 as an attending, and the periodontist makes 300. So bottom line income right now is 360k for the couple. This physician is looking to work at a nonprofit and pursue public service loan forgiveness. And the periodontist is looking for the right time to private refinance their loans and pay off their Student loans as they've moved into private practice and not eligible for loan forgiveness. But the law, the periodontist has defaulted on one of their student loans because they didn't make the monthly student loan payments for almost one year. And when I see a scenario where somebody has defaulted on a federal student loan, we want to make sure that we address that first and foremost. Because before we start talking about repayment plans, private refinancing, loan forgiveness and their options, we need to get this resolved. Right, right from the get. So there's four ways to really address default. One is to pay it off, two is to discharge the debt, three is loan rehabilitation, and four is to do a consolidation. Number one, repaying the debt can be a good thing if it's a small amount, but perhaps this is a large loan and you can't just pay that off. So sometimes that's too hard to do. Two, discharging the debt, which could involve some litigation, could ensue legal, which can get, you know, complex. And so that's something that I'd say we usually shy away from advising our clients on. But number three, loan rehabilitation is really the most common of these four. And the reason why is because this default can get removed from your credit history. But it does take about nine months to do that, so you got to be patient. And then lastly, the consolidation, also common, not quite as common as loan rehabilitation, which you're just issued a new federal student loan for that loan that is in default and it takes about 30 to 60 days to rehab it. So once we've addressed the default, we get back into your student loan plan and what we can do to get you in the best payment. So most loan servicers are going to say just enroll and revise, pay as you earn. That's the best payment plan. And while repay is great for some borrowers, it's not for everyone. And it's probably not a great idea for this couple where we want to get the periodontist in a position where their interest rate's probably seven, six and a half, maybe higher with their federal student loans. And we want to get that down to 3% or 2.5% as soon as possible so that they end up paying much less in interest over time. So we would look to private refinance their student loans, but what we would encounter is that while their spouse is a resident, you know, they might be strapped with cash flow. Whereas if they did a private refinance on this $600,000 student loan, the required monthly payment on a 10 year term 3% interest rate would be about $5,600. Couple that with the federal student loan payment, which if they're in revised pays, you're going to be $2,500. That's over $8,000 a month, which could be tough when one's still in their residence. But now if we take it a step further and we decide to look at filing their taxes separately and have the physician enroll in pay as you earn, we could reduce their payment from $2,500 a month down to 225, which is a huge reduction in student loan payments.

That's the physician's payment.

Yeah, we're just looking at the position payment, which ends up dropping their payment about $2,000. And if we're looking to go for loan forgiveness, you want to go down the route where you're paying the least amount towards your student loans and trying to maximize that. But, you know, this kind of goes even a step further for those in community property states is if the resident makes $60,000 and their spouse periodontist makes 300. So household income of 360. If you file taxes separately in the community property state, your income will be divided evenly between the two of you. Effectively $180,000 of income will be reported on each of your individual tax returns. And this can be problematic for student loan payments in particular when the physician is making much less in their residency. And because when you do your income driven repayment certification form, it'll ask for your tax return which is going to report your income at 180 instead of 60k, resulting in you as a resident having a larger student loan payment. But the way that we get around this is using alternative documentation of income. So instead of using a tax return, you can actually use a pay stub on your income certification form and get.

Around that and still be able to take advantage of the pay plus married filing separately strategy. Despite living in one of the community property states. And for those who aren't aware of what community property states are, they are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin, mostly in the West. The history behind these is pretty interesting, actually. Most of them were governed by Spain or France at some point rather than England. And so it's more a reflection of the continental legal structure than it is anything else. And it just kind of grandfathered into some of these states. But it has real implications when it comes to asset protection and estate planning and student loan management and all that stuff. But I like that strategy of simply using your pay stubs to document Your income. It's really interesting. A lot of people don't realize that the Department of Revenue and the Department of Education are two totally separate departments. They do not talk to each other. You know, there are a lot of strategies, and people can argue whether they're ethical or not, that involve telling the Department of Education one thing and telling the Department of Revenue, the irs, essentially something different. For example, you can file taxes as married filing separately, and then refile them a couple of years later as married filing jointly. And that gives you the best of both worlds. Low student loan payments and eventually the lower tax bill as well. That one seems on the, you know, certainly the gray area of ethics. But it's interesting how these departments do not talk to each other. The right hand doesn't talk to the left.

Yeah, that's exactly right. Where you can be filing your taxes separately for student loan purposes and get low student loan payments. And then fast forward three years, you could go back to that tax return that you filed separately and amend it to filing jointly and be able to recoup some of that additional tax liability that you pay. Let's say you paid $5,000 more in taxes filing separately and you did it because of student loans. You could end up amending that return later on and get that $5,000 back towards you. But right, if you're going to end up doing this every year for the 10 years that you're going for loan forgiveness, there's probably going to be a red flag that goes off. Just another thing you can have in your quiver to reduce your student loan payments and save money. So I think one other thing, when you're in a community property state, it, it not only you have to be be aware of when you're the lower earner, but when you're a higher earner. And in this situation, if the periodontist ended up going for loan forgiveness, instead of them having an income of 360k that's reported on their tax return, they would get their income reported at 180k, which would then end up benefiting the higher earner. Where we could look at the higher earner getting the benefit and then if we wanted to keep the lower earner at that lower amount, their resident salary, then they would use their pay stub. And this is something that's pretty common that I've seen across consults of helping people out get their loan payments down.

Yeah, certainly could work well on the other end as well, where the, the person with the larger debt is going for forgiveness to help keep their Required income down.

So, you know, after we kind of talk through that piece, the next question is if I pay my taxes, if I file my taxes separately, I'm definitely going to pay more in taxes. Right. And I don't know exactly what the tax liability increase is going to be. Not a CPA or a tax advisor, but I'd recommend that you do ask a CPA tax advisor or use tax software and run the Numbers. Filing jointly versus filing separately.

Yeah, it's usually just click or click one button and it'll give you the number.

Exactly.

TurboTax or whatever will spit that out. And I think most people are going to find that either it's about the same or they're paying more when they're doing married filing separately. Married filing jointly is usually a lower tax bill than married filing separately.

Yep. And then, you know, the bigger question is, am I in a better financial position filing taxes jointly or separately? So from the calculation we did earlier, you know, they'd be paying about $2,500 a month in their residency in revised pay as you earn by filing their taxes jointly because they have to incorporate their high earning spouse's income. But if we looked at pay as you earn filed their taxes separately, we can separate their incomes and you could reduce your student loan payment down to about $225, basically saving you 2 grand a month, which is $25,000 of savings annually. So then we would need to calculate the tax liability increase from filing your taxes separately versus jointly and compare it to the increased tax savings and increased student loan payment savings. And we rarely encounter situations where you would be better off filing your taxes jointly. So kind of where we're getting to is by enrolling in pay as you earn and filing your taxes separately. This will allow you to focus less money on the federal student loans and be able to have more cash flow and capital depending on pay down those private student loans from the periodontist, save for retirement and maximize their loans for forgiveness. But you know, one, one small caveat for those that are considering public service loan forgiveness is if part time work is in the future, public service loan forgiveness may not be best for you if you're going to work part time. And that's because if you're working part time, you don't get payment count in public service loan forgiveness. And in that situation, you're probably better off private refinancing or perhaps looking towards the long term loan forgiveness. I don't love extending out my loans 20 years, but that's certainly something that you could consider, I guess you gotta.

Be, you can't be a procrastinator either because those payments also have to be on time. Not only do you have to work full time, but you have to make on time payments. One day late. They don't count. So you may end up, if you're a procrastinator, making an extra six or 10 payments just because you missed deadlines on them.

Yeah, and one other thing. When you're keeping your loans federal, don't pay more than the required federal student loan payment. This can throw your payments into something that's called pay ahead status and can cause the loan servicer to lose track of your payment count and can kind of mess that up later down the road. If you're going for loan forgiveness, so keep great records.

Better to put that money into a public service loan forgiveness side fund, invest it on the side, and if you end up not going for pslf, you can whip it out and throw it at your student loans at that point.

Exactly. Then you have a down payment on your federal student loans, which you can apply that directly to that. Hey, and if public service loan forgiveness works out great, you've got an extra couple hundred thousand dollars stocked away for whatever reason.

Now what if somebody's running into this problem where their student loan servicer can't count? Is that something your service offers? Do you help them, you know, communicate with and negotiate with the student loan servicer to try to get their payment count to be accurate?

Yeah. So I'm not going to hop on the phone with you with, with the loan servicer and talk through that, but I can certainly give you best practices of doing that, of good record keeping. And you know the way, the way I do that is you need to keep track of the student loan payments that you make in an income driven repayment plan at a qualifying employer with, with qualifying loans. So you know, if you can keep great records of all the payments that you've made in public service loan forgiveness and file your employment certification form. This is really the PSLF certification form that you need to file. They say annually. I would do it every six months just to make sure that they're keeping track of your loan payments. And because I don't want you to get to the end of your 10 years and not get your loans forgiven because there's three years that they can't validate your payments. So we make a plan for that and I keep supporting documentation for each student loan payment you made. It's just a bank statement for each payment which is really easy to keep. And then just keep track of your correspondence with the loan servicer because they may tell you different things each time you talk to them.

Yeah, everything in writing and maybe even record your conversations. Huh? I mean, I've run into a few people that have had a lot of problems and you almost have to be paranoid every time you talk to them. Taking a notes who you talked to, what their number was, what the date was, what they told you, et cetera. But then I run into a few other people's where it's just slick as snot and they're like, no, no problems. I sent in my form and everything was checked off. So I feel like they're getting better as time goes on.

And that is one of the number one questions I get right from the get go is, Andrew, is this public service loan forgiveness thing going to work out and why is the success rate so low with all these, you know, smart healthcare professionals, you know, professional program people that have been in school a long time, why is it working out? And you know, it's a new program enacted back in 0708 and we're starting to see a lot more people that are getting loan forgiveness because they have a plan up front of what to do and they're meeting all the requirements, which, you know, decade or so, this was a lot harder to figure out.

Yeah, for sure. But now I've regularly got people on the Milestones to Millionaire podcast that have received public service loan forgiveness. It's not one person. Docs are getting it all the time. And I think particularly into 2022 and 2023, we're going to see lots of doctors receiving public service loan forgiveness. All right, so what are other common questions you get? Do you get the. What's the difference between consolidation, refinancing all the time?

Yeah, because this is a really easy one to get mixed up because you hear this consolidation and you don't know whether that's federal or private. A federal direct consolidation is when you are issued a new loan from the federal government which consolidates all your outstanding federal student loans generally into two loans, a subsidized and unsubsidized portion. And for most of you, the unsubsidized portion is going to be larger from graduate school, and then it rounds your interest rate 18 of a percent up and takes a weighted average interest rate for all your loans to calculate your interest rate so you can no longer pay down on those larger Direct plus Grad loans versus your smaller Direct Stafford unsubsidized ones, it's just going to become effectively one loan. And it generally allows you to have more people, payment repayment plan options and the ability to obtain loan forgiveness. So if you have some older FFEL loans and you want to be in repay or pay, you do need to do a direct federal consolidation to do that. But I would bear in mind that if you have payment history and then you do a direct federal consolidation, your payment history is going to go to zero, it's going to start over again. And I've seen a number of clients of mine that have done multiple consolidations, federal consolidations down the road, because they just thought that was the thing to do. So make sure when you're doing it that you're doing it at the right time. And most of the time that's right. When you graduate med school.

Yeah. So the benefits of consolidation, I mean, obviously you get one loan, so you only have to worry about one loan. You can get the ball rolling counting your payments toward public service loan forgiveness, but that's about it. I mean, those are the only real benefits of consolidation. Right. Am I missing anything else? I guess maybe you can get some loans that wouldn't otherwise qualify and basically combine them into a direct loan. Is that the one you were thinking of?

Yeah. Yeah. So that's one part. Taking some older loans and then doing a direct federal consolidation and then getting them eligible for repay and pay and loan forgiveness. But I'd also say we're in a weird time right now where federal loan and interest rates are at 0%. But normally if this couple is graduating in May or June of this year, they're going to go into a six month grace period before they need to start making payments. And normally your loans are going to be continuing to accrue interest over those six years. Which example number one, it's $35,000 of interest for the entire year. That's going to be another $17,500 of interest that's accrued over six months. And what you could do is you could get enrolled in, you could do a direct federal consolidation and opt out of that six month grace period and get into repay or pay as you earn four months earlier and start getting payment count towards public service loan forgiveness four months earlier, which if you look at four months more as a resident versus a high paid attending, I'm going to take that deal every time being having more payments as a resident versus an attending because that's going to save you thousands of dollars over time.

Yeah, that could be 10 grand or maybe even 20 grand in lower payments. So pretty good deal there for sure.

So that's the federal and then for private, pretty straightforward. You take any number of doing a private refinance or private consolidation. You can take any number of your existing loans, federal or private, and consolidate them with a private refinancer and get that down to one loan. A lot less headache and paperwork. And then your loan payment works just like a mortgage. Right. You have, you know, some high required payment, you can make that or above that and just pay that down as soon as possible and really likely to get a lower interest rate. Converting into private.

Okay, so let's put you on the spot. Let's say you're one of these people who's been sitting around for the last year on their federal student loans. They're not going for public service loan forgiveness. They're planning to reset refinance eventually. Trying to decide whether to do it now or wait for October. Do you start looking at this common bond 0% deal or are you going to wait a few more months and see what happens?

Yeah, with interest rates very, very low right now and if I am absolutely certain that I'm not going to do loan forgiveness and with the influx of tens of thousands of people that are going to try to private refinance right when the announcement's made of payments being reinstated, probably a great idea to look at an option like common bond or any of the other private refinancers out there and at least lock in a low interest rate because then you have a 30 to 60 day period generally that you can decide to move forward on that rate. So I would certainly consider that and have the mentality of getting these paid off as soon as possible.

All right, so if people want to hire you for some student loan advice and coaching, what's the best way for them to get in touch with you?

Yeah, the best way to get in touch with me is to go to studentloanadvice.com and read about us studentloanavice.com book and book a meeting there and you'll.

Take doctors, dentists, other high income professionals, even people that aren't high income professionals, correct?

Yeah. You know, a lot of people think that I'm exclusive just to physicians. I love working with healthcare professionals and do every day, but I've also met with business executives, you know, people law school, you know, so I'll meet with anybody, you know, that needs help with their student loans.

What if a Tour de France cyclist came to you for help with their student loans? Would you take them.

I probably have to do a bike ride with them first and have them tell me about all the riding over there. I love following cycling, but I would love to help them out.

Awesome. My problem is I don't think I can keep up with anybody who rides over there. But hey, you know what? Tom's coins. If you need student loan advice, we'll give it to you free. So sign up right now and come on over. We'll get you taken care of, but we're glad to have you as a listener. Andrew, you probably didn't hear this part, but I opened the podcast talking about some feedback we got from a Tour de France cyclist about the podcast.

Oh, awesome.

Any rate, thanks for what you do and if people want to get in touch with you. Studentloanadvice.com this is a few hundred dollars that may save you tens of thousands of dollars from mismanaging your student loans if you need it. If you got any sort of a complex situation at all, give Andrew a call. Spend an hour with him. It'll be well worth your time. Andrew, thanks for being on the podcast again.

Thanks for having me. Appreciate it.

All right, that was great to have Andrew back on the podcast. Thanks to those of you who have been leaving us five star reviews on Apple podcasts. It really does help spread the word. Our most recent one came in from Alexander. He said, extremely helpful and concise. I'm a fourth year medical student in California who found Dr. Dali's podcast and website a few months back. Been listening to this every day. Each podcast has its own learning objectives. Even if you don't remember a topic discussed in that podcast, another one will address it and so you'll really solidify the info one way or the other. One of the best finds of this year. Awesome. You know, that's probably more typical of us to hear from medical students and residents and doctors and it is Tour de France cyclists. But we'll take you no matter who you are. If you're interested in learning and becoming financially literate and financially disciplined, it's amazing if you have those two things. It's like having a superpower in our world these days because they're so rare. That combination is so rare. I estimate that 80% of doctors need, want, and should use a financial advisor and or an investment manager. Some investment gurus, such as Dr. William Bernstein, think my estimate is way too low. At any rate, if you want to use an advisor temporarily or for your entire life, there's no reason to feel guilty about it. Just make sure you are getting good advice at a fair price. If you need help updating your financial plan or just getting one in place, check out our list of recommended financial advisors@whitecoatinvestor.com financial advisors. You can do this and the White Coat Investor can help. Keep your head up, shoulders back. You've got this and we can help. We'll see you next time on the White Coat Investor Podcast.

My dad, your host, Dr. Dahl, is a practicing emergency physician, blogger, author and podcaster. He is not a licensed accountant, attorney or financial advisor. So this podcast is for your entertainment and information only and should not be considered official personalized financial advice.