The Complete Guide To Physician Mortgage Loans

The Complete Guide To Physician Mortgage Loans

On the surface, physician mortgage loans look great. No money down. No jumbo limits. No private mortgage insurance (PMI). But let’s be real. Lenders are in business to make money and they can’t just give you a free ride. So, how do these loans stack up against everything else that’s available? Are they really as good as they sound?

You’ve already made a solid decision about how much to spend on your home and you have your financial ducks in a row. Now, it’s time to decide how to finance your home and whether a physician mortgage loan is the best option for you.

To help you make an informed decision, we’ll cover:

  • How Physician Mortgage Loans Work
  • Alternatives and How They Compare
  • Deciding On The Best Mortgage For Your Situation

Physician Mortgage Loans

Physicians are extremely profitable customers for lenders. They take out big loans early in their careers and almost always pay them off. Lenders use physician mortgage loans to lock in early-career physicians by lending them more money with fewer stipulations than their competitors. They make it even more appealing by marketing it as a “special program” just for physicians.

The goal is to get you in the door and sell you other stuff as your needs change. A medical student transitioning into residency with zero earnings history, no cash and a boatload of student loans would normally never qualify for a mortgage if it wasn’t for physician mortgage loans. However, there’s no such thing as a free lunch. These loans are appealing at first, but often end up being more expensive than the alternatives.

What’s So Special?

So how is the physician mortgage loan different than a typical mortgage? Here are some of its common features:

  • Zero (or very low) down payment required
  • No private mortgage insurance “PMI”
  • No rate increases on jumbo loans (typically, loans larger than $417K)
  • Lending based on a physician’s signed employment contract
  • Less critical of student loan debt

Who Counts as a Qualified Borrower?

A “qualified borrower” is normally a medical resident, fellow or attending physician with a signed contract for employment. Some lenders also include dentists, veterinarians, and other doctors.

Who Offers Physician Mortgage Loans?

There’s a growing list of lenders offering physician mortgage loans, including:

(Note that we do not have a financial relationship with any of these lenders. If you’re a lender and would like to be added to our list, please let us know.)

Mortgages Expenses:

There are a few costs that make up your total mortgage expenses:

  • Interest – The cost of interest is based on the interest rate, loan balance and loan repayment term
  • Closing costs – A one-time, out-of-pocket expense paid at closing, wrapped into the loan balance or wrapped into the loan in the form of a higher interest rate
  • PMI – The monthly fee typically paid until reaching 20% equity

Closing costs and interest rates are kind of like a teeter totter: reducing closing costs on a mortgage increases the interest rate. Or if you want the lowest rate possible, you’ll have higher closing costs. You can see how this works in this breakdown from the Mortgage Professor website.

Pic 1

As for PMI, you either have it or you don’t. It’s typically going to cost between 0.3% to 1.5% of the original loan amount per year. A surefire way to avoid PMI is to put 20% down. Some loans, however, like the physician mortgage loan, do allow you to avoid PMI even though you don’t have 20% equity.

Another way to avoid PMI is to get two mortgages – one that finances 80% of the deal and the second that covers the remaining debt (up to 20%). But keep in mind that all of these PMI avoidance tactics come with additional costs.

Rates and Costs

Let’s assume you’re a physician considering a $500,000 home. You have fantastic credit but no cash for a down payment. What are your options for mortgages with no PMI? Here are the most popular:

  • Physician Mortgage Loans: 30 yr fixed rate – 4%
  • Physician Mortgage Loans: 7/1 ARM – 3.25%
  • Conventional 80/20:
    – First mortgage (80%) – 30 yr fixed – 3.5%
    – Second mortgage (20%) – Interest only HELOC (prime + .5% or 4% today)
  • VA Mortgage (must be military): 30 yr fixed rate – 3.25%

Which Option Should You Choose?

If you’re in the military, the VA Mortgage is usually a home run, especially if you’re considered disabled.

Physician mortgage loans have the highest interest rate but it’s locked in. The ARM has a better rate than the 30-year physician mortgage, but the rate becomes variable after seven years.

The conventional 80/20 offers the best rate on the primary mortgage, but the second one has a variable rate.

Assuming you’re not in the military and can’t get a VA Mortgage, you should base this decision on how long you’ll own the home and how much you plan to pay on the mortgage. Let’s go over the best options based on these factors:

  • 0-7 years – If you don’t foresee yourself living in the home for at least seven years, the Physician Mortgage Loan 7/1 ARM is your best option. But, really, if you plan on living in it for fewer than five years, you should be renting.
  • 7+ Years (and average income and savings) – In this case, the Physician Mortgage Loan with 30-year fixed rate is the better choice. But this should be revisited when you have 20% equity, you drop below the jumbo limits or if rates drop in general. Once you fit the profile, you can often refinance into a new, non-physician loan that’s much more competitive.
  • 7+ Years (and ability to pay the HELOC off very quickly) – The Conventional 80/20 typically provides the best deal if you can get the home equity line of credit knocked out within a year or two.

To simplify the math, we didn’t include closing costs. We always suggest asking lenders to provide an estimate with as close to zero closing costs as possible – at least for starters. That way,compare apples to apples. It’s much easier to compare mortgages structured similarly from a cost standpoint.

Should You Put Cash Down?

What if you have some cash to put down or are considering waiting until you have the cash? In that case, you’ll be comparing the physician mortgage with the conventional 20% down mortgage. Once again, we’ll assume both are structured to wrap closing costs into the loan to make the math simpler. To give you a clear comparison, let’s structure the 20% down conventional loan to have the exact same payments as the physician mortgage loan. The only difference is the down payment and the interest rate.

Option #1 – $100K down payment conventional loan

  • $400,000 balance
  • 18.1183 year fixed rate at 3%
  • $2,387.08 per month principal and interest

Option #2 – $0 down payment physician mortgage loan

  • $500,000 balance
  • 30 yr fixed rate at 4%
  • $2,387.08 per month principal and interest

Looking at those numbers, you’re probably thinking you’d take the $0 down option. Maybe you don’t have that much cash available or maybe you think there are smarter ways to use that $100,000. You could use it to pay off loans or start investing. And 4% is still a really good rate. But how does it really compare to the 20%?

Pic 2

Pic 3

The total lifetime interest costs:

  • Option 1 – $118,998
  • Option 2 – $359,348

Coming up with the $100,000 will end up saving you over $240k in interest, plus you’ll get your mortgage paid off almost 12 years sooner. On top of that, having equity will provide greater security and flexibility, especially if something unexpected happens. With the 100% financed physician mortgage loan, you should expect to start out underwater. If something doesn’t work out and you’re forced to sell quickly, you should be prepared to write a potentially large check for up to 10% of the purchase price just to get out of the home.

On the flip side, if you do come up with the $100,000, you could finance 100% using the physician mortgage loan and invest the cash. If you run those numbers, the end result will look much better. But not only does this require an aggressive investment, it also requires greater leverage on your home, which further adds to the risk. It will also require many years of disciplined investing and assumes you never spend any of it. That’s not impossible, of course, but it’s much easier said than done.

At the end of the day, getting the conventional mortgage and paying it off more quickly is a much better deal. If you don’t have the cash for a down payment, however, the physician mortgage loan is a solid alternative worth considering. Still, it’s not always automatically best solution.

What if You Already Have a Physician Mortgage?

If you already have a physician mortgage loan but you’re not paying attention to it, there’s a good chance you’re throwing away good money. You should review your options for refinance if any of the following occur:

  • Interest rates drop
  • You reach 20% equity
  • You get below the jumbo limits
  • Your plans change

In the past few years there’s a good chance all four of these things have happened for many of you. Here’s a scenario that illustrates one of the most common money saving opportunities for physician mortgage loan borrowers:

Dr. Smith bought her home using a 100% financed physician mortgage loan at 4.75% in July of 2013. The original loan amount was $500,000 with monthly principal and interest payments of $2,608.24. The lifetime interest for that loan would have been $438,965.21. Fast forward three years to today and Dr. Smith’s property has appreciated to around $600,000 in value and she owes $475,712 on her original mortgage.

When she bought the home, she had no cash to put down and very few options. The physician mortgage loan was probably her best bet. But now that she has over 20% equity and a healthy earnings history, all sorts of options have opened up. Odds are she’d be able to qualify for the best deal around.

If she had the initiative to refinance and wanted to keep the payment similar to the one she was already used to, she’d be looking at a new 20-year fixed mortgage at 3%. The monthly principal and interest payment on the $475,712 new mortgage would come up to $2,638.29. More importantly, she’d be shaving seven years off her repayment term with only a $30/mo increase in payment. Now that’s a home run!

She could also consider refinancing into a new physician mortgage loan. That would have been better, but nowhere near as appealing as the conventional mortgage. She’s now in the sweet spot for traditional mortgages and she should take advantage of it.

Pic 4

When you’re considering a refinance, be sure to check out a few different lenders. And remember that while refinancing into a new physician loan may be a good deal, it’s not always the best one. Doing your homework before refinancing your physician mortgage loan will pay off. Ideally, you also have someone, like a financial planner, who can help you analyze your options objectively.

When Should You Avoid Physician Mortgage Loans?

You should probably stay away from physician mortgage loans if any or all of these conditions apply:

  • The ease of getting a physician mortgage loan is causing you to consider buying too much house
  • You have (or will have) at least 20% to put down on the home
  • You’re in the military – look at a VA loan instead
  • You expect a large influx of cash shortly after buying, and are using the physician mortgage to get the deal done now
  • You aren’t comfortable with the prospect of starting out 5-10% underwater on your home (in other words, you don’t want to write a big check to get out of it if your circumstances change)

Alternatives to Consider Before Signing

In my opinion, it’s best to wait until you have at least 20% to put down on the home. That way, you’ll to get the best deal possible. Plus, you don’t have to take on any of the risks that come with financing anything 100%.

If you like that idea, go ahead and rent for now and start stashing away some cash in preparation for buying your first home. If you already own a home and plan to upgrade, the best way to save for your future down payment is by paying your current mortgage off more quickly. You might even consider refinancing your current mortgage into a shorter term to get used to monthly payments. You can also structure the new loan so that it allows you to build equity to the amount necessary to have 20% by the time you plan to upgrade.

There are several other types of loans we didn’t cover that could come into play. Here are some of them:

1) The Conventional Loan with PMI typically requires at least 10% down. If you have 10% to put down, this may be a better option than the physician mortgage loan, if you plan to own the home long enough for the PMI to stop.

2) The FHA Loan typically requires 3% down and has very competitive rates, but it also comes with a monthly permanent fee similar to a PMI. The monthly FHA fee makes it way less appealing for most borrowers.

3) The Jumbo Loan with PMI typically requires at least 10% down. This type of loan would be worth comparing to larger physician mortgage loans. Often, it comes down to how long you plan to own the home. The Jumbo might have a lower rate but it also comes with PMI.

Other Mortgage Resources

If you’re feeling overwhelmed by all of these options, please reach out to us. We help clients navigate these types of decisions all the time. We’re happy to set up a free consultation to find out whether we’re a good fit.

Or if you’d prefer to do it yourself, there are tons of online resources to help you learn more about mortgages. One of my favorites is the Mortgage Professor. This site has a great inventory of mortgage calculators and spreadsheets to help analyze mortgage options. You can also check mortgage rates based on your circumstances and without providing personal information.

Also, White Coat Investor has a great post similar to this one. It includes a very thorough list of physician mortgage lenders, including the states they work in.

Do you have any experience – good or bad – with physician mortgage loans? Share your story with us in the comments.

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13 Mistakes Young Physicians Make With Student Loans

13 Mistakes Young Physicians Make With Student Loans

Student loans have quickly become the most complex financial issue facing young physicians. The average physician in training owes well over six figures. And these aren’t your normal run of the mill loans. Student loans today come with high interest rates and 100’s of options to analyze – all of which end up intertwining into personal and professional planning. The additional complexity paired with massive balances dramatically increases the potential for costly errors.

As financial planners for young physicians, student loan planning has become a big part of our business. I can tell you first hand that we see an alarming volume of errors occurring. Even those people I would consider “on the ball” are missing opportunity to the tune of tens to hundreds of thousands of dollars.

I’ll share 13 of the most costly errors we see young physicians making with student loans. My hope is that you can learn from the mistakes of others instead of making these mistakes yourself.

Forbearance

Student loan forbearance is tempting during residency and fellowship. What’s the harm in delaying payments when finances are tight? It’ll be easy to make up on the back end when the big bucks start to come in. After all, student loans are “good debts”. Many young physicians use logic like this to justify entering into forbearance during training. But they’re failing to figure up the true cost of this decision!

Forbearance sets off a number of negative triggers with opaque costs. Collectively these negative side effects make forbearance a terrible idea for anyone with the means to make payments.

Not Going For PSLF

Let’s look at how this might affect someone with $300,000 of unsubsidized federal student loans at 6% coming out of medical school that’s not going for PSLF. To simplify, we’ll assume Income-Driven payments are $0/mo. (which is reasonable for the person legitimately considering forbearance because they lack discretionary income). Forbearance payments are also $0/mo. Check out how the balance grows over time.

Residency Student Loans

Total balance at the end of 4 years of residency:
Forbearance – $378,743.09
IBR/PAYE – $372,000 ($6,743.09 savings)
RePAYE – $336,000 ($42,743.09 savings)

Medical School Loans During Residency

Total balance at the end of 8 years of residency and fellowship:
Forbearance – $478,154.42
IBR/PAYE – $444,000 ($34,154.42 savings)
RePAYE – $372,000 ($106,154.42 savings)

When PSLF isn’t in play, total balance owed is critical because 100% must be paid back. If you come out of training owing $100,000+ more because of poor decisions, you must own it.

Going For PSLF

Forbearance is also terrible for the PSLF crowd but for totally different reasons. PSLF makes total balance much less important. Instead, it’s all about making qualified monthly payments that are as small as possible (lower payments = greater forgiveness). Let’s use the same loan scenario and consider PSLF.

Say Dr. Davis originally plans to go into private practice and chooses to forbear on loans during residency. Then midway through, she realizes the hospital she’ll likely work for is a PSLF eligible not-for-profit. At this point, she starts the PSLF clock by signing us for RePAYE. But what’s the cost of missing two years? Let’s assume her payments would have been $0/mo. for the first two years of residency. When she is in practice, payments max out at $3,000/mo.

With PSLF, you clock in 120 qualified payments and then you’re done with the loans. As far as PSLF is concerned, $0/mo payments are equal to $3,000/mo payments. She misses the opportunity for 24 “free” PSLF payments and is forced to make them up in practice at a cost of $3,000/mo. In just two years, this mistake costs her $72,000 ($3,000 times 24 months) in future wealth.

In these examples we looked at extended periods of forbearance during training. It’s also common to see intermittent forbearance periods (many of which are a surprise to borrowers). We’ll cover these more in mistake #4.

The only way forbearance makes sense is when you truly have a major financial hardship – obviously it’s more important to feed your family than to make payments on student loans (when you could otherwise forbear). I get that. But if you’re fortunate and have enough to cover life’s necessities, don’t forbear. Get rid of your cable TV or your decked-out cell phone plan so you can make the minimum student loan payments.

Wrong Repayment Plan

With so many options on the table, this is bound to happen. You have PAYE, RePAYE, IBR, new IBR, 10 year standard, graduated, extended graduated… and several others.

When PSLF is off the table, student loans act more like traditional debts. In general, it’s wise to minimize interest and maximize payments. Ideally, you pay off debt with the highest interest rate first.

With PSLF, the goal is to make qualified payments at the lowest amount possible. One of the requirements of a “qualified payment” is being on a certain type of repayment plan. If your repayment plan is not qualified, those payments don’t count toward the 120-payment clock. If you are using a qualified repayment plan, the key is to pay the least amount possible. Each payment has the same net effect no matter the amount. Therefore, it’s absolutely critical to make sure your repayment plan offers the lowest possible payments for your circumstances.

For example, many young physicians can qualify for PSLF under RePAYE or IBR but aren’t eligible for PAYE based on the dates their loans were taken out. Most of these physicians are using IBR because it was the original option. However, in many cases, RePAYE provides a payment that’s 30% lower. This easily results in $10,000’s in additional forgiveness. Many are missing this opportunity.

Failure to Consider Tax Implications

Taxes used to be independent of student loans. Today, though, that’s not the case with “income-driven” repayment, PSLF and income-driven forgiveness.

Student loan decisions can affect taxes. If you’re going for income-driven forgiveness (20 or 25 year), you better be prepared to pay income taxes on the ultimate forgiveness amount.

Tax decisions also can affect student loans. Lower PSLF qualifying payments = greater forgiveness. One simple way to lower your PSLF qualifying payments is to make decisions that lower your Adjusted Gross Income – “AGI”. If you save in pre-tax retirement plans like the 401k, your AGI will be lower and, therefore, income-driven payments will be lower. This can ultimately increase the amount forgiven under PSLF and income-driven forgiveness.

Another example… if you’re married and elect to file taxes separately, IBR and PAYE payments only consider one borrower’s income. If the tax cost of filing separately is less than the increased projected forgiveness caused by lowering payments, this strategy can add value.

Income-driven Application Procrastination

We regularly see NSLDS student loan reports showing periods of forbearance around the time people file for income-driven recertification. Often the borrower has no clue that the forbearance periods exist. They submitted the forms before the deadline and never missed a payment. Often, that’s not enough.

Loan servicers need time (apparently a lot of time) to process the application. If you submit the income-driven application a couple weeks before the deadline, it’s likely they will not finish “processing” until after the deadline. The average student loan report we see has intermittent forbearance periods sprinkled into repayment that the borrower was totally unaware of.

Let’s look at an example – Dr. Smith is going for PSLF and his student loans have a 10 year standard payment of $2,500/mo which he expects to begin paying after a few years in practice. During his 5 year training, he has the opportunity to rack up 60 PSLF qualifying payments that average $200/mo. Although he successfully makes all 60 payments, to his surprise, he only gets credit for 50. The 10 non-PSLF payments were actually periods of forbearance he wasn’t aware of. At a net cost of $2,300 per payment, we’re talking $23,000 of total additional costs.

To counter this, submit the application as soon as you receive the annual letter. Fax in the paper version and follow up weekly until you receive confirmation that it’s complete. This may sound like a hassle, but for the average physician with six figure loans going for PSLF, it’s worth thousands to get right.

Failing to Verify Employment

According to the US Government Accountability Office Student Loan Research Report from August ’15, about 147,000 borrowers had employment and loans certified in anticipation of PSLF, and 4 million current direct loan borrowers may be employed in public service. Essentially, less than 4% of those likely eligible for PSLF are proactively positioning themselves for approval. The problem is that people have a choice: Verify now – or – verify later.

“Employment verification” is not required until you apply for PSLF (after 120 payments). You can either verify when you apply or as you progress through time. It seems most people are opting to verify later. They choose to work for 10 years “unverified” and then go back and verify all 10 years at once. This is all happening while they’re waiting to see if they qualify for $10,000’s and sometimes $100,000’s of forgiveness benefits.

Based on my experience helping people apply (over time) for employment verification, I expect this to be a huge mess for some borrowers opting for the procrastination method. I see the challenges and surprises that pop up going through this process year by year. Mistakes are made, people get confused, the process gets dragged out. I can only imagine what that might look like when you try and verify 10 years all at once.

Paying too much Interest

This is mainly for the non-PSLF folks out there. When you’re not going for PSLF, student loans are more like a typical debt. The higher your interest rate, the more you end up paying back. What’s interesting with student loan interest rates is that they vary considerably. There are loans out there with interest rates in the 2% range and others with rates over 10%.

As a general rule of thumb, if you’re not going for PSLF or any other forgiveness program and your rate is above 5%, you should be considering refinance. The higher your rate, the more emphasis I would put on this. Failure to refinance into a lower rate can easily cost $10,000’s in extra interest payments.

Be extremely cautious when refinancing – especially if you or your spouse (see #10) have any chance of going for PSLF or income-driven forgiveness.

Poor Refinancing Decisions

If you or your spouse are eligible for PSLF, refinance is almost always a really bad idea (see #10). You must maintain qualified federal loans in order to maintain eligibility for PSLF. Some borrowers unknowingly refinance when they are qualified for PSLF. Others aren’t confident in PSLF panning out and refinance. Either way, it’s going to cost you.

And for those who aren’t eligible for PSLF, you have to watch out for bad refinancing deals. Many lenders offer student loan refinancing deals that are not in your best interest. Do your homework and make sure you understand the options. Here is more info on several of the lenders offering student loan refinancing.

Bad Consolidation Decisions

Some borrowers fail to consolidate loans they should have consolidated, and others consolidate loans they should have never touched. Still others wait to consolidate and miss out on valuable cost savings. Either way, consolidation mistakes are very common.

Dr. Turner is finishing up medical school, has lots of Direct federal loans and plans to go for PSLF. When she goes through loan exit counseling, she’s confused by all the options. Ultimately, she decides to go for PAYE and will fill out income-driven paperwork before her grace period is up to get the PSLF clock started. Consolidating her loans never crosses her mind – why consolidate two loans? What she doesn’t realize is consolidating into a Direct Consolidation loan immediately after graduation allows income-driven payments to begin much sooner by side-stepping the grace period. If she were able to get payments started six months earlier, it would have increased her projected forgiveness amount by $12,000. For most recent medical school grads, these early payments are very low or even $0.

Dr. Baker is also going for PSLF. He has some Direct Loans and some older FFEL (or non-direct) loans. FFEL loans were very common federal loans before 2010 and aren’t PSLF qualified unless you consolidate them into a Direct Consolidation loan. Dr. Baker chooses to leave the FFEL loans as is because he doesn’t want to mess up his PSLF progress. When you consolidate, this starts your PSLF 120-payment clock. A big misconception is that when you consolidate, you must wrap all loans into the new consolidation loan. Naturally this would discourage someone like Dr. Baker with Direct loans well on their way to PSLF from consolidating an old FFEL loan. Fortunately, it’s not true. You can leave the current Direct loans as is and consolidate the FFEL loans into a separate Direct Consolidation loan. This allows the otherwise non-PSLF loans to joint the party.

Dr. Jones has a similar loan profile to Dr. Baker – mostly Direct loans with some older FFEL loans – except he’s not as far along with PSLF. He hears somewhere that it’s smart to consolidate FFEL loans so they become PSLF qualified. Like Dr. Baker, he believes consolidation is an all or none deal. After running the numbers, he decides it’s best to reset the PSLF clock on all his loans to allow the FFEL loans to be included on PSLF. So he does the full consolidation. This comes with a major cost – all those PSLF payments made on the already qualified loans are lost when he “resets the clock”. Instead, just like Dr. Baker, he should have consolidated the FFEL loans only.

Either one of the above consolidation mistakes eaisly cost tens of thousands of dollars. Be extremely cautious with consolidating your loans. Make sure you have a good reason for each loan you choose to consolidate. And always keep PSLF qualification in mind before making decisions.

Reactive Income-driven Verification

Young physicians, like many people, tend to make reactive decisions. Income-driven verification is no different. They receive the annual notification that it’s time to re-certify and they knock it out. And that’s about the only time they think about it each year. What people don’t realize is they always have the option to volunteer income verification outside the normal annual timeline.

This can prove extremely valuable when income verification results in lower PSLF qualifying payments. This might occur if your income decreased as a result of changing your filing status, going back into training, or reducing moonlighting. Or maybe you’re expecting a pay increase or bonus before your next recertification date. Why not recertify now at the lower income level. If your income decreases or is about to increase, don’t wait until your next verification. Apply now.

Not Considering Spousal Student Loans

For many physicians in private practice, refinance may seem incredibly obvious. Why hang onto your 7% interest rate student loans when lenders are offering 4%? Especially if PSLF is off the table. But what if your spouse is going for PSLF? Many physicians fail to consider the impact a refinance has on their spouse’s federal loans.

Your spouse’s income-driven payment calculation uses income to set payments. The resulting payment then gets prorated between ALL household FEDERAL student loans. In many cases where loan balances are high, the total payment will not be affected when the total federal loan balance decreases as a result of private refinance. Therefore, the income-driven payment due for the family stays the same after refinance. Effectively, the PSLF spouse’s payment increases substantially to compensate. This comes with massive PSLF costs to the total household that typically dwarf interest saved from a refinance.

It may be a good deal for you, but if your spouse is going for PSLF, refinance can end up costing them 10’s of thousands in the missed PSLF benefit. Before refinancing, consider your spouse’s PSLF impact. In many cases, it’s better to keep both spouse’s student loans with the federal government, and save the additional desired payments into a side account. Then as soon as the PSLF spouse qualifies for forgiveness, the non-PSLF spouse refinances (assuming rates are still favorable) and pays a lump sum using the side account.

Not Fighting Servicer Errors

Loan servicers will inevitably make errors that negatively affect unfortunate borrowers. As student loans become even more complex, this will likely increase. It’s a mistake to assume the loan servicer will always look out for you.

You should be keeping an eye on your progress and make sure your records match the loan servicer and NSLDS records. When you spot errors, they should be addressed immediately.

As you submit paperwork and have interactions with loan servicers, it’s important to document everything. Save copies of all paperwork and correspondence (like annual income driven applications and confirmation letters). Write down notes from all calls you make that include the name of the people you talk with and the date of the call.

Taking Bad Advice

As a result of growth in student loan balances and complexity, companies are popping up everywhere claiming to be student loan experts. Be extremely cautious taking advice from a student loan advisor. Figure out if they Fee-only (100% of revenue comes directly from clients) or not. Many of the student loan companies aren’t fee-only and get compensated from student loan refinance companies to send business. That’s a major conflict of interest that can cloud their advice.

Student loan planning today is very different from traditional debt planning. It’s much more complex and traditional rules of thumb don’t apply. As a result, many financial advisors, accountants and other advisors are unknowingly providing the wrong advice.

Improperly Negotiating Student Loan Stipends

Every year, not-for-profit 501(c)(3) hospitals all over the country hire thousands of young physicians. Many offer student loan stipends and repayment packages for new hires. These hospitals agree to pay annual lump-sum student loan payments for new physician hires. Normally these payments are made directly to the student loan servicers.

On the surface, this seems like a fantastic benefit. However, it’s often an absolute waste of resources when PSLF is in play. With PSLF, the goal is to pay the minimum payment. Lump-sum extra payments end up providing no economic benefit as they end up reducing total forgiveness dollar for dollar. On top of that, it’s typically a taxable benefit. So you pay tax on money you effectively give right back to the government. We have seen cases where people are better off not receiving anything at all. It’s a mistake to let this happen without intervening.

A better route would be to negotiate a salary increase instead of student loan payments. Or have the payments paid directly to you. Most hospitals are happy to make the adjustment once they realize it helps you and doesn’t affect them. However, some hospitals won’t allow this even though it’s an absolute waste of money.

Bringing It All Together

As you can see, student loans have become pretty intense. To help you simplify this concept and wrap your head around the best path to take, we created this student loan flow chart you can see below.

Also, if you’re interested in our student loan advising services, check out this page for more info.

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The Physician’s Complete Guide to Medical School Loans

The Physician’s Complete Guide to Medical School Loans

Medical school loans have become a big deal! 37 million Americans collectively owe over 1 TRILLION dollars – and yet nobody seems to fully understand them.

As you can see below from the Medscape 2016 Residents Salary & Debt Report, the average medical school grad comes out owing amounts that look more like mortgage balances than student loans.

medical-residents-student-debt-breakdown

Every year new repayment plans and forgiveness options pop up and further complicate the already complex loan programs. This guide is intended to answer questions and help provide a little clarity.

In case you’re looking for a specific topic, the Table of Contents below should get you to the right spot. If you’re just trying to get a better understanding of your loans, hopefully this guide will help answer most of the questions you have. If you look at the Table of Contents and decide this is way more complicated than you have time for – you can skip to the bottom where we link to our Student Loan Advisory services & you don’t have to read one more word!

Where Do You Stand?

Clarifying where you stand can be broken down into four components…
1) Student Loan Details
2) Financial Circumstances
3) Professional Circumstances
4) Personal Circumstances

Student Loan Details

Do some homework and identify exactly where you stand with ALL of your student loans. Don’t skip over details or you may miss an important factor!

Federal Medical School Loans

Log into the Federal Student Loan Database and pull your NSLDS text file. This report will provide the detailed information you’ll need on all your federal student loans. If a loan doesn’t show in this report, it’s a private loan. Here are directions on how to do this.

Private Medical School Loans

Pull your credit report to verify private loans.

It’s a good idea to create a spreadsheet to keep inventory of all this information. Click here if you would like us to send you ours.

Financial Circumstances

It’s essential to clarify exactly where you stand financially in order to make good decisions with your loans. Here are some questions to ask yourself:

  • Do you have an appropriate emergency fund in place?
  • Do you have credit card debts or other consumer debts?
  • Do you have appropriate insurances in place (disability, life, health, etc)?
  • Do you have an updated listing of all your assets and liabilities (debts)?
  • What does your income look like each month? How about your expenses? Do you have money left over each -month?
  • How much are you contributing to various retirement plans? Are you contributing to an HSA?
  • What is your plan for the medical school loans?
  • Do you expect any big financial changes in the next few years that could change your general financial situation?

Professional Circumstances

  • Will you work for a not-for-profit, government, or other PSLF qualified employer?
  • Is your medical residency and/or fellowship employer a PSLF qualified employer?
  • Is your current or future employer providing loan repayment assistance?
  • Are you unemployed, disabled or a veteran?
  • Did you withdraw from school prior to completion?
  • How will your income change in the future?
  • What is your spouse’s income and how will it change in the future?

Personal Circumstances

  • Are you married or you have children?
  • How will this change in the future?
  • Are there any unique circumstances where family may be involved with your student loans?

By gathering all of this information and answering these questions, you will be well positioned to make educated decisions regarding your student loans.

Student Loan Interest

Don’t let the complexity freak you out – understanding the basics of how student loan interest works will allow you to take on your debt like a champ. Complacency, on the other hand, will increase your chances of throwing dollars away.

Federal Student Loan Interest Rates

Federal student loan interest rates are set by the government and in most cases, do NOT take into consideration your individual situation. Every borrower receives the same deal. It makes no difference whether you are a millionaire or flat out broke. Some needs or profession based federal loans are the exception as they consider only a small set of facts for qualification and typically offer a rate break over normal federal loans.

If the government is not subsidizing the program (aka picking up some of the tab), the available interest rate should be higher than the best market rates available, but lower than the worst.

Private Student Loan Interest Rates

Private student loans originate from non-government lenders and work differently than Federal loans. The interest rates are set by the lender based on your specific situation and the products they have available. If you have fantastic credit, no debt and high income, you should receive the lender’s best interest rate option.

The interest rates on private loans are all over the place. We have seen loans with interest rates from as low as 2% all the way up to more than 20%!

Variable vs. Fixed Rates

Federal and private student loans can be fixed or variable. Federal loans that were originated before 2006 were variable rate only. From 2006 until now, the rates on new federal student loans are fixed.

Sometimes it’s difficult to determine whether your rates are fixed or variable, especially since rates have been relatively consistent.

Fixed Rates

Fixed rates are pretty simple. The interest rates are fixed for the life of the loan and are independent of the repayment method and economic conditions. At origination, the fixed rate is normally higher than the comparative variable rate loan. However, if (or when) market rates increase, it does not affect the fixed rate loan’s interest rate.

Variable Rates

Variable rates are a little more complex. The interest rate can go up and down and is typically tied to some sort of market rate (like the prime rate). Economic conditions go up and down, which will cause your rate to go up and down with it. Many loans have a cap on interest rates which tell you the maximum rate you would ever pay.

Subsidized vs Unsubsidized

The government picks up the interest tab on any subsidized loans while you are in school or deferment and sometimes during grace but never during forbearance.

With unsubsidized loans, you are responsible for the interest that accrues during all periods. All private loans are unsubsidized.

Under Income Based Repayment “IBR”, Pay As You Earn “PAYE”, and RePAYE if you have a subsidized loan, the government picks up the tab on all interest above your normal monthly payment for the first three years of repayment. Therefore, your outstanding balance will not increase for the first three years if your payments aren’t keeping up with interest.

Interest Capitalization

Most loans require that your monthly payment, at minimum, cover any interest accrued. This is not true with student loans. In many cases, your payment will only be a fraction of the interest. You need to know what happens to this unpaid interest in varying circumstances! Either it does not capitalize and builds up in a side account that doesn’t accrue interest, or it capitalizes and gets added to the principal balance. When capitalization occurs, you begin paying interest on your interest. As a result, large unpaid interest balances begin to build up.

Capitalization Example

This can be confusing and hard to describe in a blog, so let’s look at an example:

In your first year of medical school you borrow $100 at a 10% interest rate. The interest does not capitalize while you are in school. After one year of having the loan, you have made no payments – so your principal balance is still $100 and your interest for the year is $10. The new interest does not get added back to your principal because it’s not capitalized. After 4 years you enter repayment and your outstanding balance still at $100. Plus you have $40 of interest. At that point the $40 is added to the $100 (aka capitalized) and you now owe $140.

Alternatively, many loans capitalize interest daily, monthly or annually. Let’s use the annual capitalization example to make the math simple:

You borrow $100 from a private student loan lender at a 10% interest rate. After one year, you build up $10 in interest and it’s added to the original balance of $100 (capitalized)– which means you now owe $110. At the end of year two, your interest is $11 (10% of $110). This is capitalized and you owe $121. Year three interest is $12.10 and at the end of the year you owe $133.10. Year four interest is $13.31 and at the end of the year you owe $146.41. The $6.41 difference is the cost of having interest capitalized annually vs. at the end of four years. It’s interest charged on the interest.

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Federal Loans Capitalization

Generally, federal loans “capitalize” when at least one of the following triggers occur:

  • Repayment begins
  • Deferment ends
  • Forbearance ends
  • Upon default
  • Change of repayment plan
  • Loan consolidation

Capitalization During Income Based Repayment

Under IBR, if your payments don’t cover all of the interest, it will be capitalized (added to the outstanding balance) IF you leave the IBR plan OR you no longer qualify to make payments based on income.

The same is true with PAYE, except there is an interest capitalization cap if you no longer qualify to make payments based on income. The maximum interest that will be capitalized if this occurs is 10% of the initial loan balance at the time you entered PAYE.

Private Student Loans Capitalization

Similar to Federal student loans, many private student loans offer delayed capitalization on unpaid interest in certain situations. However, there are many variations and you should never assume your private loan works this way. Private student loans are all are over the place – as we mentioned before, there is really no rule of thumb. You must understand how your specific loan works to make the best decisions.

Loan Fees

Some federal and private student loans charge loan fees above and beyond interest. The most common fee is the origination fee charged when you take the loan out. It’s best to include any fees and interest when considering the entire lifetime cost of your student loan.

Consolidation Loan Interest Rates

Consolidation loans allow you to wrap all your loans into one. They set your new interest rate by taking the weighted average of your underlying rates and rounding up to the nearest 1/8th percent. Student loan consolidation is NOT a way to get lower interest rates, but it can be a way to switch from variable to fixed interest rates.

Student Loan Consolidation

What Is Student Loan Consolidation?

Consolidation allows you to combine all your existing qualified federal loans into one new federal loan. The current vehicle available for doing this is the direct consolidation loan. There are pros and cons that you must understand before moving forward with this type change. Use caution – once you consolidate, you cannot undo the transaction.

There are also options for consolidating your existing private and federal student loans into a new private loan, however, most of these lenders set your new rates and terms based on your financial situation – not based on the underlying loans.

Direct Consolidation Eligible Loans

The following is a partial list of federal student loans eligible for consolidation:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Subsidized Federal Stafford Loans
  • Unsubsidized Federal Stafford Loans
  • Direct PLUS Loans
  • FFEL PLUS Loans
  • Supplemental Loans For Students “SLS”

  • Federal Perkins Loans
  • Federal Nursing Loans
  • Health Education Assistance Loans
  • Some existing consolidation loans

Private student loans are not eligible.

How Do You Qualify?

You are eligible to consolidate once you complete, drop out or drop below half-time enrollment in school.

In order to qualify for direct consolidation, you must have at least one Direct or FFEL student loan that is in grace or repayment. For example, you would not be able to refinance a Perkins Loan by itself – it would have to be paired with an FFEL or Direct loan.

Direct Consolidation Student Loan Basics

The new direct consolidation loan interest rate is fixed for the life of the loan. It’s calculated by taking the weighted average of all the underlying loans and rounding up to the nearest one-eighth of 1%. This allows you to lock in pre-2006 variable rate loans at today’s low rates.

The direct consolidation loan offers multiple repayment options as follows:
IBR
PAYE
ICR
Standard
Graduated
Extended

You are not required to consolidate all of your loans. Often, it makes the most sense to only consolidate specific loans as long as at least one of them is a Direct or FFEL loan. You cannot consolidate an existing direct consolidation loan unless you include at least one additional eligible loan in the consolidation.

You are able to preserve your underlying subsidized loan benefits (except with Perkins Loans). If you do have eligible subsidized loans, you will actually end up with two direct consolidation loans – one for the subsidized and one for the unsubsidized.

Perkins Loan Consolidation

By consolidating your Perkins loans into a new Direct Consolidation Loan, you lose several important benefits:

  • Loss of subsidized interest-free periods during school, grace or deferment
  • Loss of Perkins loan cancellation programs (different than public service loan forgiveness)
  • Loan Forgiveness and Direct Consolidation

By moving forward with a new direct consolidation loan, you reset your clock for qualifying for income based repayment and public service loan forgiveness – “PSLF”. Any payments made prior to a direct loan consolidation will not count toward satisfying these forgiveness requirements. This is very important to consider before consolidating.

Interest Capitalization

Direct loan consolidation will trigger interest to capitalize (or be added to the loan principal) on the underlying loans in certain situations. For example, by leaving certain income based programs, interest will automatically capitalize. See part 2 of our series for more info.

Once the loans are consolidated, interest that accrues and is not fully paid by your monthly payments will capitalize at the end of deferment or forbearance.

Summary Of Pros & Cons

Pros:

  • No origination or prepayment fees
  • Can change variable loan rates to fixed (pre-2006 loans)
  • Simplify loans by centralizing
  • Access to PSLF with FFEL & Perkins loans
  • Access to PAYE for certain loans without PAYE option
  • Offers more payment flexibility in some cases

Cons

  • Resets PSLF and income based repayment forgiveness clock
  • May trigger underlying loans to capitalize
  • It’s never a lower interest rate and in some cases may be higher
  • Lose special benefits associated with any Perkins loans

Again, be cautious about moving forward with direct loan consolidation – particularly if you have more recent fixed rate loans that already offer many of the perks that come with the direct consolidation loan. There are cases where it’s an obvious benefit, but others where it actually hurts you.

Student Loan Repayment Plans

The good news here is that you have a ton of options. You should be able to find a repayment plan that fits your needs. The bad news is… you have tons of options. Often, complexity is paralyzing. Please avoid this as it will cost you – keep reading so that you can make educated decisions!

For starters, you can change repayment plans at any time as long as your underlying loans are eligible for the desired repayment plan. There is a super handy repayment estimator online which allows you to run the numbers on your loans.

It’s important to know exactly what types of loans you have FIRST before analyzing your options.

Student Loan Status

Before we get into the repayment options, it’s important to clarify how loan repayment status works. Your federal student loans will always be categorized under one of the following repayment status, depending on your situation and how you are repaying them (or not repaying them). We will reference these more in future posts as they are extremely important for student loan planning, but for now it’s important to define each.

In-School – It is what it says. Interest treatment is similar to the deferment status detailed below.

Deferment – Repayment of the principal and interest of your loan is temporarily delayed. No payments are required. Interest will accrue on your federal loans; however, if they are subsidized, the federal government picks up the tab. Interest will capitalize at the completion of deferment.

Grace – Offers a set period of time when you graduate, leave school, or drop below half-time enrollment before you must begin repayment of your loan. Interest will typically accrue during your grace period. Grace is not available on all loans. (Example – PLUS loans have no grace period)

Forbearance – Available in some situations when you don’t qualify for deferment and you cannot make scheduled loan payments. Your monthly payment is reduced or eliminated depending on the circumstances. You qualify for forbearance in 12 month increments of time. Interest will accrue on your subsidized and unsubsidized loans during this period. Interest also capitalizes at the completion of each forbearance period. Use caution with Forbearance. We see many medical residents defaulting to it, however, it’s rarely your best option.

Repayment – The period of time when you are actively making payments under one of the qualified repayment options which we will cover below.

Delinquent – This period begins the first day after you miss a payment and continues until all outstanding payments are caught back up and your loan becomes current. Delinquencies of at least 90 days are reported to the credit bureaus and likely will negatively affect your credit rating.

Default – After a long enough period of delinquency, your loans eventually default. You want to avoid this as there are many negatives associated with it. Most notably, interest capitalizes and your credit takes a hit.

Standard Repayment

Available for the following loans:

  • Direct Subsidized and Unsubsidized Loans
  • Direct PLUS Loans
  • Direct Consolidation Loans
  • Unsubsidized and Subsidized Federal Stafford Loans
  • FFEL PLUS Loans
  • FFEL Consolidation Loans

Monthly payments are fixed (minimum $50/mo) and are made for up to 10 years for all loan types except Direct Consolidation and FFEL Consolidation Loans. If you have a FFEL or Direct Consolidation Loan, your monthly payments are fixed (minimum of $50/mo) and are made for 10 and 30 years depending on your total education loan indebtedness.

Graduated Repayment

The Graduated Repayment plan is very similar to the Standard Repayment plan (same eligible loans, same repayment periods, same exception with consolidation loans).

The main difference is that payments are not fixed – they start out low and increase every two years. The payments will never be less that the amount of interest accrued between payments and will never be more than three times your lowest payment.

Extended Repayment

The Extended Repayment option is available on the same loans as the Standard & Graduated Repayment plans. Although Direct Loans are eligible, there are some additional requirements specific to Extended Repayment you should be aware of which you can read more on here.

With the Extended Repayment, you can set up monthly payments that are fixed OR graduated. The monthly payments, which are generally lower than Standard or Graduated payments, can be made for up to 25 years.

Income-Driven Repayment Options

Income Based Repayment “IBR”

Available for the following loans:

  • Direct Subsidized and Unsubsidized Loans
  • Direct PLUS Loans made to graduate or professional students
  • Direct Consolidation Loans that did not pay any parent PLUS loans
  • Unsubsidized and Subsidized Federal Stafford Loans
  • FFEL PLUS loans made to graduate or professionals studies
  • FFEL Consolidation Loans that did not repay any parent PLUS loans
  • Federal Perkins Loans (only if you consolidated)

Payment amounts are based on a percentage of your discretionary income, but are never more than the 10-year Standard Repayment plan amount. The percentage depends on when you became a new borrower. If it was before July 1, 2014, it’s 15% of discretionary income. If it was on or after July 1, 2014, it’s 10% of discretionary income.

The repayment period also depends on when you became a new borrower. If it was before July 1, 2014, the repayment period is 25 years. If it was on or after July 1, 2014, the repayment period is 20 years.

Pay As You Earn “PAYE”

Available for the following loans:

  • Direct Subsidized and Unsubsidized Loans
  • Direct PLUS Loans made to graduate or professional students
  • Direct Consolidation Loans that did not pay any parent PLUS loans
  • Unsubsidized and Subsidized Federal Stafford Loans (only if you consolidated)
  • FFEL PLUS loans made to graduate or professionals studies (only if you consolidated)
  • FFEL Consolidation Loans that did not repay any parent PLUS loans (only if you consolidated)
  • Federal Perkins Loans (only if you consolidated)

Payment amounts are 10% of discretionary income but never more than the 10-year Standard Repayment Plan amount. The repayment period is 20 years. To qualify, you must be a new borrower as of October 1, 2007, and must have received disbursement of a Direct Loan on or after October 1, 2011.

Revised Pay As You Earn “RePAYE”

Available for the following loans:

  • Direct Subsidized and Unsubsidized Loans
  • Direct PLUS Loans made to graduate or professional students
  • Direct Consolidation Loans that did not pay any parent PLUS loans
  • Unsubsidized and Subsidized Federal Stafford Loans (only if you consolidated)
  • FFEL PLUS loans made to graduate or professionals studies (only if you consolidated)
  • FFEL Consolidation Loans that did not repay any parent PLUS loans (only if you consolidated)
  • Federal Perkins Loans (only if you consolidated)

Payment amounts are 10% of discretionary income and are not capped. The repayment period is 20 years for undergraduate loans and 25 years is the loans were for graduate studies. Also under the new repayment plan RePAYE, when your monthly payment is less than the total interest accrued, the government “subsidizes” 50% of any unpaid interest payments. This benefit is in play on all types of RePAYE eligible loans (subsidized and unsubsidized loans).

Income Contingent Repayment “ICR”

Available for the following loans:

  • Direct Subsidized and Unsubsidized Loans
  • Direct PLUS Loans made to graduate or professional students
  • Direct PLUS Loans made to parents (only if you consolidated)
  • Direct Consolidation Loans that did not pay any parent PLUS loans
  • Direct Consolidation Loans that repaid PLUS loans made to parents
  • Unsubsidized and Subsidized Federal Stafford Loans (only if you consolidated)
  • FFEL PLUS loans made to graduate or professionals studies (only if you consolidated)
  • FFEL PLUS loans made to parents (only if you consolidated)
  • FFEL Consolidation Loans that did not repay any parent PLUS loans (only if you consolidated)
  • FFEL Consolidation Loans that repaid PLUS loans made to parents (only if you consolidated)
  • Federal Perkins Loans (only if you consolidated)

Payment amounts are the lesser of either 20% of your discretionary income OR what you would pay under a 12 year fixed payment plan, adjusted according to your income. The repayment period is 25 years. The ICR Repayment strategy is very rarely used.

“Only if you consolidated” means that if you consolidated the loan type into a Direct Consolidation Loan you are eligible.

“Discretionary Income” for IBR & PAYE is the difference between your income and 150 percent of the poverty guideline for your family size and state of residence.

Income-Driven Loan Forgiveness Options

If your loans are not fully repaid at the completion of the repayment period under any income driven repayment plan, the remaining balance will be forgiven. This repayment period includes periods of economic hardship deferment and periods of repayment under other plans. The amount that is forgiven will be taxed at ordinary income in the year in which it is forgiven.

There is also a special forgiveness program called Public Service Loan Forgiveness “PSLF” for those working in not-for-profit and making payments under any of the income-driven repayment plans. In certain circumstances, PSLF can provide forgiveness in 10 years instead of the 20 or 25 year forgiveness available under the Income-Driven forgiveness options. Any balance forgiven under PSLF will not be subject to income tax.

We will cover this in much more depth in part 5 of our series on Student Loans.

Income-Driven Application, Qualifications & Payments

You must submit an application and provide either your Adjusted Gross Income “AGI” or alternative documentation of income such as a pay stub. If you have no income, you can state this on the application and it should suffice.

You can use AGI to qualify for your income-driven payment if BOTH of the following apply…
1) you have filed a tax return in the past two years
2) the income on the most recent federal tax return is not significantly different than your current income

Payments are based on your income and family size. This information must be updated each year so that your payments can be adjusted if necessary. The maximum payment for IBR and PAYE is the 10-year Standard Repayment plan equivalent payment. Under ICR and RePAYE, your payment is always based on your income no matter how high it goes.

Income-Sensitive Repayment

This repayment option is available for the following loans:

  • Unsubsidized and Subsidized Federal Stafford Loans
  • FFEL PLUS Loans
  • FFEL Consolidation Loans

Income-sensitive repayment allows you to qualify for decreased monthly payments based on income, as compared to standard repayment, but is limited to a 10 year repayment term.

If your payments are reduced in the early years, remaining payments are increased to compensate. You must pay at least your monthly interest and it’s required that you reapply each year. It’s basically a 10 year repayment plan that allows for graduated payments based on income but because the term is set at 10 years, those reduced payments must be made up on the back end with higher payments.

This repayment plan will be more costly than the standard 10 year repayment plan. This option is rarely the best choice. Always check out the Income Driven and Graduated repayment plans before considering this option.

Choosing Your Repayment Plan

There are many factors to consider when choosing your student loan repayment plan. What specific loans do you have and what options are available for those loans? Do you plan to keep the loans in their current form or will you refinance or consolidate them? Do you plan to qualify for one of the forgiveness programs? What will be your income and financial situation? What’s your goal for loan repayment?

These are all critical questions that you must answer if you want to make the best possible decision.

See below interactive flowchart. It gives graduating medical students and residents an idea of options to consider when choosing student loan repayment.

Student Loan Forgiveness

Public Service Loan Forgiveness “PSLF”

The PSLF program is available for certain Direct Loan borrowers (including Consolidated Direct Loans) employed by not-for-profit or government organizations. To qualify for forgiveness of the remaining balance on your Direct Loans, you must have made 120 qualifying payments under a qualifying repayment plan while working full-time for a qualified employer. PSLF is a bear of a topic, so it has it’s own section below where you will find more details.

Income-Driven Repayment Forgiveness

If you are repaying loans using one of the income-driven repayment plans (IBR, PAYE, or ICR), loan forgiveness may be available on any remaining balance(s) at the end of the repayment period (if you make it that far). Essentially, for this forgiveness option to be of any benefit, you must have a loan balance at the end of full repayment period (20 or 25 years depending on your loans). Keep in mind this is totally different than PSLF. Most notably, it does NOT require “qualified employment” and the qualifying period is the full duration of the respective income-driven repayment plan.

How could you still owe money at the end of full repayment? Because it’s INCOME based. Results will depend on several factors, such as your income over the repayment period and the size of your total debt. Higher income and resulting higher payments will lower the likelihood of forgiveness. There is a point where your payments are high enough to pay off the entire loan on or before the full repayment period. This eliminates any benefit associated with income-driven forgiveness.

The forgiveness option is typically something to consider when your total student debt value exceeds total income. However, there are many factors to consider over a long period of time. Ultimately, it will depend on your specific circumstances. Also, under current tax law, the amount forgiven is taxable whereas the PSLF is tax free.

Total and Permanent Disability or Death

Borrowers of Direct, FFEL and Perkins loans who become totally and permanently disabled or die during repayment may be eligible for loan discharge. If you would like more information on qualifying for discharge, you should check out this outline from The Federal Student Aid Office.

Teacher Loan Forgiveness (5 year forgiveness)

Full-time teachers that work five consecutive years for a designated employer serving students from low-income families may be eligible for up to $5,000 (or up to $17,500 for certain special education, math and science teachers) of loan forgiveness at the completion of the fifth year. This program is available for certain Direct and Stafford Loan borrowers. Check out more information here.

Perkins Loan Forgiveness Options

Several additional forgiveness options are available specifically for Perkins Loan borrowers. Here are several of the cancellation conditions that may exist for borrowers that are unique to Perkins Loans:

  • Service in the US armed forces in a hostile fire or imminent danger area
  • Full-time firefighters
  • Full-time law enforcement or corrections officer
  • Full-time nurse or medical technician
  • VISTA or Peace Corps volunteer
  • Certain librarians
  • Full-time attorney employed in a federal public or community defender organization
  • Certain full-time employees of public or nonprofit child or family agencies working in low-income communities
  • Various other education and social service related jobs

Other Loan Forgiveness Programs

There are many other loan forgiveness and repayment options available. Here are a few to consider:

– The US Military offers several loan forgiveness programs that vary by the specific military branch and occupation.
– Many states offer medical and other health professionals loan repayment assistance or scholarships. This website will help you to search these programs and find out more info.
-The National Health Service Corps offers loan repayment for qualified health care providers who choose to work in certain need areas. This website will provide more information on this program.
-The National Institute of Health provides loan repayment to certain qualified health professionals focused on research careers. This site will provide more info.
-Many employers offer loan repayment programs. Some are very rigid programs whereas others can be negotiated and directly relate to your specific compensation package.

Public Service Loan Forgiveness “PSLF”

As we touched on in the section above, this program is for certain Direct Loan borrowers employed by not-for-profit or government organizations. In order to receive forgiveness, the borrower must make 120 qualifying payments (under a qualifying repayment plan), while working for a qualified employer (full-time).

If you meet all of the qualifications for PSLF and your income-based monthly payment is less than the 10-year standard repayment, you will have some amount forgiven at the end of 10 years. The amount of total forgiveness depends on your income (lower = more forgiveness) and total debt (higher = more forgiveness).

Alternatively, if your income-based repayment is equal to or greater than the 10-year standard repayment amount for the entire 10-year qualifying period, you will not realize any loan forgiveness under PSLF. Check out the Federal Student Aid website for more details on PSLF.

The classic example shown in the graph below is the medical resident working in an academic not-for-profit hospital that plans to continue working at a not-for-profit hospital in practice. This example shows a hypothetical borrower who is eligible for PSLF and has income that allows for income-based payments far below the 10-year standard payments. This low income period lasts for 5 years. In year 6 their income jumps up and, as a result, they must then begin to pay the maximum payment under PSLF (10-year standard payments) for the remaining 5 years.

Although this borrower ends up with a very high income, they still realize plenty of value because half of the PSLF qualifying years are at a very low income level (as a ratio of the total debt). This person ends up paying back only 80% of what they originally borrowed over the 10 years! The forgiveness occurs at a point when their income is 2x greater than the original loan balance. And under current tax law the forgiveness under PSLF is tax free.

Capture1

To put the value of this into perspective, let’s consider another example illustrated below. This person is PSLF qualified based on their employment, however, their income and total debt requires that they must pay the 10-year standard payments over the entire duration of the 10-year repayment period.

Although they are technically PSLF qualified, by paying at the 10 year repayment rate for 10 straight years they end up paying off the entire loan themselves. There is nothing left to forgive. In the example below, the borrower ends up paying back 140% of the original loan balance. This is more consistent with a normal loan repayment.

Capture2

Keep in mind, these examples are hypothetical, rough estimations of varying scenarios and will not be reflective of your exact situation. You must calculate the numbers based on your specific circumstances in order to get an accurate projection. These scenarios will vary considerably for each borrower’s situation.

Qualifying for PSLF

Pay attention if you have student loans and work for a not-for-profit or government employer! The PSLF program is a heck of a deal for certain qualified borrowers. You would be surprised how many people actually qualify and are unknowingly missing out on the opportunity. Others realize they qualify for PSLF but aren’t maximizing the benefit. Today we will dig into how PSLF works and help you avoid missing opportunity.

The PSLF program allows certain borrowers loan forgiveness after making 120 qualified payments. In short, it’s a big deal (if you qualify).

It’s all about the qualifiers:

  • Employment
  • Loan Type
  • Payments

Qualifying Employment

You must work full-time for one of the following employers to qualify:

  • Government organizations at any level
  • Not-for-profit 501(c)(3) organizations
  • Other not-for-profit organizations providing qualifying public services
  • AmeriCorps or Peace Corps

Keep in mind that most academic hospitals and institutions are not-for-profit and would therefore be considered a PSLF qualified employer.

What exactly does “full-time” mean?

For PSLF, you are typically considered full-time if you meet your employer’s definition of full-time or work at least 30 hours per week, whichever is greater.

Qualifying Loans

A qualifying loan for PSLF is any loan you receive under the Direct Loan Program including Direct Consolidation Loans.

What about FFEL and Perkins Loans?

Student Loans from the FFEL and Perkins programs do not qualify for PSLF, but they may become eligible if you consolidate them into a Direct Consolidation Loan.

It’s important to note that Direct Loan Consolidation will restart the PSLF clock on your 120 payments. For example, if you are consolidating a Direct Loan and a Perkins Loan and have paid PSLF qualifying payments on the underlying Direct Loan, those will be lost if you consolidate.

Qualifying Payments

A PSLF “qualifying payment” is a full, on-time, monthly payment made after October 1, 2007 under a qualified repayment plan while employed full time by a qualified employer. Keep in mind, you cannot make qualifying payments while in deferment, grace, forbearance or default. Your 120 qualifying monthly payments do not need to be consecutive.

What is a qualifying repayment plan?

Qualified repayment plans include all of the income-driven repayment plans (IBR, PAYE, ICR) and 10 Year Standard Repayment (required when your income reaches a certain level under income-driven repayment plans).

If you are in repayment and make all 120 PSLF qualifying payments under the 10-year standard repayment plan, you will have no remaining balance left to forgive. Alternatively, if under the same scenario your income allows income-driven payments be lower than 10-year standard payments, you will begin to see benefits from PSLF.

It’s important to understand that the ultimate benefit depends on the variance between the 10-year repayment and your actual qualifying payments (for all 120 payments). The bigger the variance, the larger your forgiveness will be. Therefore, if you are going for PSLF and want to maximize your benefit, you want to seek the lowest payment possible on every payment you make.

A great starting point if you’re considering PSLF would be the Federal Student Aid “FSA” repayment calculator and the PSLF overview page.

Verifying Employment & Tracking Progress

Make sure to qualify your employment using this form annually or whenever you change jobs! Employment verification is not required until you apply for forgiveness, however, it’s far better to keep up with it over time so you don’t run the risk of not being able to verify it when it really counts. Employment verification allows the following to occur:

  • Confirm with FSA your employer is or is not PSLF qualified.
  • If your employer is PSLF qualified, any of your federal student loans not held at FedLoans are transferred to FedLoan Servicing. This will allow all your PSLF eligible loans to be serviced in one place.
  • If your employer is PSLF qualified, FSA will review your payments and determine your progress toward PSLF qualification.
  • FSA will notify you of their findings

Once you complete your 120th qualifying monthly payment, you must submit the PSLF application. Keep in mind, you must be working for a qualified organization at the time you submit the application and when your remaining balance is forgiven.

Maximizing PSLF

The amount you ultimately pay for each income driven payment directly affects your ultimate benefit from PSLF (lower payments = larger forgiveness). In most cases, your payments are set based on your loan situation, Adjusted Gross Income (AGI) and tax filing status.

It’s important to note that you have some level of control over your AGI and filing status. It is possible to lower your AGI based on actions you take over the course of the year.

Examples of the most common AGI reducing actions are pre-tax retirement contributions, HSA contributions, and qualified moving expenses. For example, if you contribute to a deductible IRA instead of a Roth IRA, you allow your AGI to be lower which, in turn, lowers your income-based payment. This ultimately provides for greater forgiveness.

A similar scenario occurs with your tax filing status. If you are married and both you and your spouse earn an income, odds are you file taxes jointly. So here’s the scoop… you typically owe more taxes as a couple when you choose to file separately. At the same time, your income-driven payments are reduced as a result of the lower AGI with separate filing. If you want to maximize PSLF, it’s very important to run the married filing separately numbers for BOTH your tax return AND your income-driven payments.

If the amount you save in income-driven payments over the coming 12 months by filing separately over jointly is greater than the tax cost of filing separately, you will benefit by filing your taxes as married filing separately. The larger the variance, the greater the benefit.

This calculation is not simple, however, it can have major impacts on your ultimate PSLF benefit. If you and your spouse both work and one or both of you have federal student loans that are PSLF qualified, make sure your tax advisor runs the analysis every year before filing your taxes!

Stay on Top of Income-driven Repayment

You also have some control over when you file for income-driven payments. Ideally, you file at the most efficient time based on your circumstances. Keep in mind your income-driven payments are based off of prior year returns or other income verification provided by you. It’s important to be aware of your deadlines and options relating to providing income verification.

Unsure About Qualifying for PSLF?

If you haven’t ironed out your exact career path but are currently employed by a PSLF qualified employer, it’s often best to position yourself for PSLF by using one of the income-directed repayment plans.

For example, most medical residents fall into the above scenario. They are working as a resident at a not-for-profit hospital but are unsure if their future employer will be PSLF qualified. On top of that, the medical resident often has limited available cash flow to make payments. Unfortunately, a large portion of this crew is defaulting to forbearance and, in most cases, this is a bad move. It’s worth paying the minimal income-driven payment to position yourself for PSLF and defer interest capitalization.

The Government and PSLF

Many people are worried the government will do away with PSLF midway through their qualifying repayment and, as a result, they will lose forgiveness benefits. They feel it’s risky to count on something that could be taken away at any time, and that if PSLF doesn’t come through, they will be faced with a much bigger problem than they started with. If this is a concern you have, you should read this article from Jan Miller. He is a student loan consultant and has worked in the industry for many years. He eats, breathes and sleeps student loans.

Student Loan Refinance

If you aren’t going for student loan forgiveness, your next consideration should be student loan refinance. Many people today pay thousands more in student loan interest than is necessary.

Until recently, there wasn’t much to do about it. But, fortunately, in the past few years, several legitimate lenders have started offering much better deals on your student loans. Before you sign on the dotted line, though, there are a few potential downsides to consider as well. Private lending is like the Wild Wild West compared to federal student loans.

What Is A Student Loan Refinance?

Student loan refinance is where you pay off one or more old federal or private student loans with a completely new private loan. This differs from consolidation because you receive entirely new terms that have nothing to do with the underlying loan(s). You typically qualify for refinance based on your financial situation, so you must be considered low risk to the lender in order to receive a good offer.

Keep in mind you do not have to refinance all of your student loans. It’s easy to pick and choose which loans you want refinanced. The most common reason for refinancing is to lower your interest rate.

Should You Refinance Your Student Loans?

Before you waste any time looking into student loan refinance, take an honest minute to reflect on your finances. If you’re a wreck financially, odds are that private lenders will decline your application. Even if you could find a lender, you probably shouldn’t refinance any federal loans when your finances are weak.

Do you own long term disability and life insurance? Take this into consideration, as many private loans come with weaker protection for disability and/or death than federal loans.

Next, analyze your potential new loans. Find the lenders that are likely the best fit. Learn about a potential lender’s financial standards, loan options and terms. And read the promissory note – this document will outline the terms and conditions.

Run through various worst case scenarios and determine how the loans compare in each. Consider situations such as a job loss, early loan repayment, death, disability, or another major financial hardship. Federal student loans, for example, typically offer flexible options during financial hardship (forbearance, etc). Private lenders generally aren’t as generous with these types of benefits. If you were in a bad spot financially, could you keep up with the refinanced student loans payments?

Be especially cautious about forfeiting Public Service Loan Forgiveness (PSLF) eligibility with federal student loans. Once you refinance, this option is eliminated for good. If there is any chance that you may be eligible for loan forgiveness, you should avoid refinance. If you aren’t familiar with how forgiveness and PSLF works, check out part five and six in this series.

Common Scenarios

Student loan refinance most commonly provides value when you have an existing student loan that can be refinanced into a new loan with the same terms, no closing costs, and a significantly lower interest rate. This refinance becomes an instant financial benefit.

Also, medical residents who plan to work in for-profit employment should put much consideration into refinancing their student loans. There are new programs available from DRB and LinkCapital that allow medical residents to refinance and make very low payments while in training (similar to income-driven repayment).

Finally, anyone who will not receive a forgiveness benefit from a government program, has above market rates on their loans, and does not need the other federal loan protections, should definitely be looking into refinance.

The Refinance Process

So you’ve done all your homework and feel great about refinancing your student loans! What’s next?

The Typical Application Process

It’s important that you come into this process organized, otherwise it could take considerable time and effort to complete.

The Initial Phase

Typically you will fill out an online or paper application (typically asks about financial, personal and professional information). The loan company will run a credit check. You should already know your credit info before they check – if you don’t, here are a few free resources: Annualcreditreport.com, Quizzle.com and Creditkarma.com

Some companies provide tentative offers once they see your initial information. Don’t count solely on this initial quote when making decisions, though, as it’s subject to change.

Additional Info Often Requested:

  • Photo ID
  • Copies of recent pay stubs
  • Proof of graduation (official transcript, diploma, degree verification, certificate of completion, etc.)
  • Loan statements indicating your 30 day payoff amount. It can be a BIG pain to get this information.
  • Often, medical professionals must provide a license to practice and proof of malpractice insurance.

Approval

After reviewing your information, the lender provides a formal offer. If you accept the terms of the loan, the lender will send you a final disclosure and promissory note. You then sign and return that promissory note. Review these document before signing!!!

The new lender will then send checks to your current lender(s) to pay off your student loans.
The lender may also open a checking account if you request this (often comes with a .25% rate reduction). Your first payment is typically due in 30 days.

Refinance Company Reviews

The student loan refinance market is heating up. New lenders seem to pop up every couple months – many with competitive products to consider. This is great for you, the consumer, however, it also requires that you be on your game and understand how lenders compare. This list should get you started.

Note: Your specific offer (rate and terms) can vary within a specific loan type. If you fall outside of a company’s approval range, you will be declined. Your final offer will ultimately depend on your specific financial circumstances.

Darien Rowayton Bank “DRB”

  • Refinance available to working professionals with bachelor’s or graduate degrees (U.S. citizens and permanent residents)
  • Refinance available for federal and private student loans
  • Application process done online
  • No maximums for student loan refinance
  • Offers 5, 7, 10, 15, or 20 year fixed and variable interest rate loan terms (other terms available upon request)

  • No prepayment penalties or origination fees
  • Spouses can combine all student loans together into one loan as long as both apply as co-signers
  • Offers limited forbearance options
  • In the event of death, DRB will forgive all amounts owed under the loan
  • In the event of permanent disability, DRB may forgive some or all amounts owed (see promissory note for specific definition of disability and terms)
  • Special program available for medical residents and fellows: payments of $100/mo during residency, fellowship and your first six months in practice
  • Interest does not capitalize until you begin making normal payments (6 months into practice)
  • Special deal now being offered for ADA members that allows for additional 0.25% rate reduction
  • B- rating with BBB and 3 closed complaints

CommonBond

  • Refinance available to U.S. citizens and permanent residents who graduated from specific schools in the CB network (2,000+ schools)
  • Available for federal, private, corporate-sponsored, and international student loans
  • Application process online
  • $500,000 maximum refinance
  • Offers 5, 10, 15, 20 year fixed and variable interest rate loan terms
  • Offers a hybrid loan: 10 year term with 5 yrs fixed then 5 yrs variable (This could be good for someone that will pay of the loan in 5 years but cannot commit to the 5 year fixed payments today – ie. your income is going to increase considerably next year).
  • When you apply for this loan, the interest rate offer on the fixed rate period should be lower than the 10 year fixed rate offers but higher than the 5 year fixed rate offers.
  • The variable rate period will be based on future rates at that time.
  • No prepayment penalties or origination fees
  • Able to use a co-signer if you do not qualify on your own
  • Offers limited forbearance options
  • B+ rating with BBB and 1 closed complaint

LinkCapital

  • Refinance available to U.S. citizens that have graduated both from college and medical school
  • You must be a medical resident, in a fellowship program, or be employed by a health system, hospital, or medical practice to be eligible for refinance
  • Refinance available for federal and private student loans in all 50 states
  • Application process online
  • $450,000 maximum refinance
  • Offers 7, 10, 15 & 20 year fixed interest rate loan terms to residents and fellows
  • Offers 3, 4, 5, 7, 10, 15, & 20 year fixed and variable interest rate loan terms to practicing medical professionals
  • Co-signers accepted if applicant does not meet criteria
  • Spouses cannot combine loans all into one loan
  • No prepayment penalty or origination fee
  • Late fee 5% of the unpaid balance or $10 (whichever is less)
  • In the event of death or total and permanent disability, the terms of your credit agreement will be nullified (see promissory note for specific definition of disability and terms)
  • Special program available during residency and fellowship (up to 7 years)
  • Payments of $0/mo and interest accrued during the deferral period capitalized at the end of the deferral period (this allows you to avoid paying interest on your interest during residency/fellowship similarly to how income-driven repayment works with federal student loans)
  • Structured like federal loan forbearance without the annual interest capitalization
  • 3-month grace period offered at completion of residency or fellowship
  • Loans serviced through Aspire Resources which has an A+ rating with BBB and 39 closed complaints

Social Finance “SoFi”

  • Refinance available to U.S. citizens or permanent residents
  • Eligibility requirements: U.S. citizen or resident of 18 years or older, hold a 4 year undergrad or graduate degree from a Title IV accredited institution, must be employed or have offer of employment within 90 days from the time that you apply, must be in good standing with current student loans, steady employment history, convincing monthly cash flow, credit score of 700+
  • Refinance not offered to residents of Nevada
  • Variable rate loans not offered in Ohio and Tennessee
  • SoFi will refinance both private and federal student loans
  • Application process online
  • No max for student loan refinance
  • Offers refinancing terms of 5, 10, 15, and 20 yr
  • No origination fees or prepayment penalties
  • Spouses cannot combine loans all into one loan
  • Adding a co-signer is optional and occasionally accepted
  • Parents able to refinance parent PLUS loans
  • BBB rated A+ with 22 closed complaints
  • Loans serviced through MOHELA have an A+ rating with BBB and 185 closed complaints

Citizens Bank

  • Available for students with undergraduate and graduate degrees
  • Student loan refinancing available for federal and private loans
  • Loans available in all 50 states
  • Maximum Refinance: $90k undergrad, $130k grad, $170k professional
  • 5, 10, 15, and 20 year terms available
  • Must currently be in repayment and have 3 payments on time and paid in full
  • Minimum household income $24k
  • Strong credit score required
  • Can receive up to 0.50% rate reduction through signing up for automatic payments and having an account with their bank
  • No prepayment penalty, origination fee or application fee
  • Limited forbearance options for those with financial hardships

CordiaGrad/Purefy

  • Available for working professionals with bachelor’s or graduate degrees
  • Student loan refinancing for federal, private, undergraduate, and graduate loans
  • Application requirements: Must be 23 years old and employed 2 years before applying for loan, minimum income of $42k per year ($25k with co-signer), strong credit history
  • $350,000 maximum refinance
  • No prepayment penalties or origination fees
  • Limited forbearance options available
  • 5, 8, and 12 year terms available
  • Fixed/variable rates vary depending on degree and credit score

Earnest

  • Available for students who have graduated or will graduate in 6 months
  • Offers federal and private student loan refinancing
  • No maximum – 100% of outstanding loans can be refinanced
  • Personalized terms and interest rates available
  • No prepayment penalty, origination fee, application fee, or late fees
  • Eligibility requirements: 18 years or older, must be employed or have offer of employment, already graduated or will graduate within 6 months, live in eligible states, loans must be from an accredited university
  • Available in 36 states across the country
  • Online application with additional information required (Education history, personal info, employment history, and financial history)
  • Hyper-personal underwriting – application process is very detailed and will consider your full financial picture allowing you to receive a more personalized offer.
  • Earnest looks to lend money to borrowers who are in control of their finances and know how to manage them
  • Flexibility offered by allowing the following: Borrower can switch between fixed and variable rates for no additional charge, structure loan terms based on available budget, allows for considerable payment flexibility without penalty
  • Forbearance is offered for protection of employment
  • Allowed to defer payments for three months at a time, up to 12 months of the life period of the loan
  • Offers a deferral of up to 3 years if the borrower goes back to school
  • Promises to never pass you off to a third-party servicer
  • Rated A by the BBB with 0 closed complaints

Education Success Loans

  • Available for working professionals with a bachelor’s degree or higher level of education after 30 months of being out of school
  • Loans not offered to people living in AZ, IA, IL, or WI
  • Refinance available for both private and federal student loans
  • $100,000 maximum refinance
  • Online application with additional documentation (pay stub, tax return, etc.)
  • Co-signer is accepted
  • Offer several different types of forbearance (military, economic hardship, in school, etc.)
  • All loans are a hybrid loan option (initial fixed rate that changes to variable after certain amount of time)

EdvestinU

  • Student loan refinancing available for private loans only
  • Online application process
  • $125,000 maximum refinance – unless loan was funded by New Hampshire Higher Education Loan Corps
  • No prepayment penalty or origination fee
  • Co-signed loans available with co-signer release option after 24 months of consecutive, on-time payments
  • Specific rate ranges unknown

First Republic

  • Available for undergraduate and graduate students
  • Must apply at a First Republic office location (https://www.firstrepublic.com/locations) (California, Oregon, Florida, New York, Connecticut, and Massachusetts)
  • Refinance both federal and private loans
  • No forbearance offered
  • Only offer fixed rates
  • Offers refinancing terms of 5, 7, 10 and 15 years
  • $60k minimum and $300k maximum refinance
  • No origination fee, prepayment penalty or annual fees
  • Eligibility requirements: must have FR Checking account with auto-pay, working professional for at least 24 months
  • Interest prepayment rebate program – First Republic will rebate interest paid on the loan, up to 2% of the original balance, if the loan is paid in full within 48 months

U-fi (Nel Net)

  • Refinance available to U.S. citizens or permanent residents
  • Will refinance federal and private student loans
  • Apply online with additional documentation (Social security #, income amount, etc.)
  • Maximum refinance amounts: $125,000 undergraduate degree; $150,000 graduate degree; $175,000 MBA or Law degree; $225,000 Graduate health professions degree
  • Terms of 5, 10, 15, 20, and 25 years
  • No origination or prepayment fee
  • Offers a co-signer option
  • Forbearance: 2 years max, 3 year deferment if currently in school, 4 year military deferment
  • Qualification requirements: US citizen/permanent resident, 18+ years of age, attend one of the eligible schools on list, borrow minimum of $1,000, not exceed max student debt limit, annual income of $12,000+
  • Offer discount – 1.5% cash back rewards after 12 months of consecutive, on time payments (capped at $500 per borrower)

RISLA

  • Available for undergraduate and graduate loan refinance
  • Online application process
  • Student loan refinancing and consolidation for private loans only
  • Terms of 5, 10 or 15 years
  • Currently refinancing available for any state
  • No prepayment penalty
  • There is origination fee on student loan refinances
  • Our Picks:

    • Best fixed rate options – First Republic
    • Best lenders for medical residents – LinkCapital & DRB
    • Best lenders for practicing dentists – DRB
    • Most flexible terms & underwriting – Earnest
    • Fastest application process – SoFi

    Keep in mind, with any refinance of federal loans into private loans, you will be giving up federal loan benefits such as Public Service Loan Forgiveness, income-driven repayment, disability discharge and forbearance options. You should fully understand exactly what you are giving up with your federal student loans before moving forward with this process. You should also consult with your tax advisor to understand the tax implications of this type of transaction.

    We do not accept any compensation of any type from any of the lenders mentioned on this list. We have established welcome bonus programs with several of the lenders which can provide a financial benefit for the people we refer. However, we do not receive any financial benefit from the welcome bonus programs.

    Tax Considerations

    If you are still not convinced that student loans have become extremely complicated, then this should seal the deal for you. In many cases, student loan planning will become very much intertwined with your tax planning. Unfortunately, just keeping up with student loans alone isn’t enough. In order to get the best deal, you must also regularly analyze various tax scenarios and keep up with applicable income tax laws.

    You might think this trouble is not worth your time – but not so fast! It can easily result in thousands of dollars being saved each year. I suggest either making time to keep up with all of this yourself OR hiring an expert to help – like us :-).

    But for now, we will go over the basics to help get you started.

    Public Service Loan Forgiveness Maximization

    Tax Deductions – PSLF Booster #1

    Certain types of tax deductions are like boosters for maximizing PSLF. When going for PSLF, the goal is to repay the least amount possible on each of your 120 qualifying payments. Your income-driven payments are normally established based on your Adjusted Gross Income or “AGI”. AGI is your gross income minus above the line deductions. The more above the line deductions you have, the lower your AGI. The lower your AGI, the lower your income-driven payments (assuming you qualify to use AGI). The lower your income-driven payments, the more future forgiveness you receive. Catching my drift?

    See below screenshot of the 1040 IRS form listing above the line deductions (bracketed in red – lines 23 – 35).

    capture3

    You may recognize some of these deductions. Health savings account (HSA) contributions, for example, are great because contributions are pre-tax, the balance grows tax-free, and qualified withdrawals are tax free. A solid deal can turn into a home run when going for PSLF because of the reduced income-driven payments resulting from a lowered AGI. You receive the normal tax benefits AND you get the additional PSLF value resulting from your reduced AGI. Typically, each dollar of reduced AGI reduces your income-driven payments by 9-15% under PAYE and IBR.

    For example, during lower income years such as those in medical residency, the Roth IRA would normally be your best bet. You would compare your current marginal tax rate to your expected future marginal tax rate to make this decision. If your tax rate is lower now that you expect it to be in retirement, the Roth IRA is the easy choice. However, if you are going for PSLF and therefore working to minimize your income-driven payments, your calculation of the Roth vs. the Traditional IRA decision must also include PSLF additional value. For some, this can totally swing the pendulum in favor of the Traditional IRA.

    Married Filing Separately – PSLF Booster #2

    Another easy way to potentially boost PSLF benefits for married, dual-income households is by analyzing the tax and student loan implications of filing separately vs. jointly. Filing separately often brings negative tax implications and positive PSLF benefits. The key is the NET benefit of this decision. For example: a couple might pay $1,000 in additional income taxes by filing separately, however, by doing this, they reduce income-driven payments by $6,000 in the following year. This reduced payment results in pure savings when going for PSLF. Therefore, their net benefit from filing separately is $5,000. You must perform this analysis every year before filing taxes to determine how it shakes out.

    It’s surprisingly common to see that filing separately provides much more net value when considering both taxes and PSLF. You can play with the numbers using the Federal Student Aid’s repayment estimator – it allows you to input filing separately or filing jointly. At a minimum, it’s well worth your time or the cost of paying for help to run these numbers each year!

    Managing Income-Driven Repayments – PSLF Booster #3

    Lastly, you must be very proactive about managing your income-driven repayment planning to maximize PSLF.

    Understanding how they verify income is KEY. You are required to verify income annually under income-driven repayment. However, you can also choose to re-certify income whenever you’d like (typically if your income decreases). Let’s say, for instance, that your income decreases one year by a considerable amount. Most people would wait until their annual request to re-certify income, but if you want to maximize PSLF, you should be proactively requesting that income be re-certified ASAP. In most cases, you can use AGI to verify income. Examples of exceptions would be if your income changed “significantly” from the prior year OR if you haven’t filed taxes for the prior two years. When you are unable to use AGI, you must verify current income another way.

    Timing is also KEY as you can control (to some extent) when you apply for income-driven payments. Typically, for the medical professional, filing for repayment ASAP is a good strategy because your income stair-steps upward. For example, the medical school graduate may want to file for income-driven repayment before they officially start earning their residency income so they can claim no income (this strategy is becoming harder than it used to be). Waiting too long to file could force you into higher monthly payments if your income increases and/or you file a new tax return. Maybe you are getting married to someone with a much higher income in August – it’s probably a good idea to file for income-driven repayment in July before you are officially married.

    Avoid forbearance and missed payments like the plague. Knocking out your 120 payments to qualify for PSLF asap is key. You can only qualify for 1 payment per month – if you miss a month you can never get it back. The lower your payment each month, the more impactful PSLF will ultimately be for you. People usually file for Forbearance during one of the best possible times for maximizing PSLF (when income is really low). Often, they don’t realize they can re-certify their new lower income or that payments would be lower under PAYE.

    Let’s say someone is paying $400/mo during medical residency under IBR. They cannot handle the payments and choose forbearance for 6 months. Fast-forward 7 years and they are in practice finishing up the last year of PSLF qualification. Their income is much higher so they are paying the maximum payments at $3,000/mo. Because of their decision to forbear a total of $2,400 in payments, they now must pay an additional $18,000 in payments to qualify for PSLF.

    To further make a point, let’s say instead that this person used a credit card to pay the IBR payments for those 6 months. (DON’T EVER DO THIS – I AM SIMPLY MAKING A POINT OF HOW IMPACTFUL THIS IS). This credit card charges 30% interest – this may be over the legal limit but I’ll assume it isn’t. This unpaid credit card balance with interest over the 7 year period ultimately ends up being $17,972 at the beginning of the 84th month.

    Student Loan Interest Deduction

    The current tax law allows certain taxpayers to deduct student loan interest paid during the year on qualified student loans. You can find much more detailed information here. Some of the high points to consider are as follows:

    • Most private student loans would be considered qualified student loans
    • You cannot deduct interest if no payments were made (Ex. forbearance)
    • Voluntarily paid interest would qualify as student loan interest payments
    • You cannot deduct student loan interest when filing taxes separately
    • You cannot deduct student loan interest on a loan from a related person
    • In most cases, student loan interest on a refinanced loan would qualify
    • The maximum deduction for 2014 is $2,500
    • The student loan interest deduction is phased out in 2014 if your modified adjusted gross income (MAGI) is between $65,000 and $80,000 ($130,000 and $160,000 for joint return)

    Several takeaways to consider…

    Once again… avoid forbearance like the plague. Often, people chose forbearance at a point when student loan interest is actually deductible. Don’t miss the opportunity to deduct interest if at all possible. Medical residency is the classic example when it’s likely the only point in your life where you will actually qualify for this deduction – use it when you can!

    If you are using income-driven repayment and are not going for PSLF, you should consider making enough additional voluntary payments to maximize the interest deduction each year if you qualify.

    If you are going for PSLF, when you calculate the value of filing separately make sure to consider the fact student loan interest cannot be deducted.

    Taxation of Loan Forgiveness

    Under current tax law, the amount forgiven under Public Service Loan Forgiveness is NOT considered taxable income and the amount forgiven if you still have a remaining balance at the end of your income-driven repayment plan is considered taxable income.

    Nothing in this post should be considered tax advice. For more information or specific recommendations, seek advice your tax advisor or check with the IRS.

    Student Loan Resources

    Here are some of the tools and resources we have compiled related to managing your student loans:

    Student Loan Calculators

    Federal Government Repayment Estimator: use this link when you are beginning repayment of your federal loans for the first time, or exploring your repayment options based on your income.

    Student Loan Payment Calculator: wondering what to expect for your monthly student loan payments? Use this simple calculator to get an estimate.

    Student Loan Term Comparison Calculator: this link will help you see how different terms of repayment affect your monthly payments and total interest paid over the life of the loan?

    Student Loan Refinance Calculator: get an idea of how much interest you can save by refinancing student loans to a lower rate.

    Student Loan Deferment Calculator: (https://studentloanhero.com/calculators/student-loan-deferment-calculator/) use this link to determine how much interest will accrue during a student loan deferment or forbearance period

    Important Student Loan Paperwork & Documents

    Public Service Loan Forgiveness Program: (https://studentaid.ed.gov/sa/sites/default/files/public-service-loan-forgiveness.pdf) Details on PSLF, which loans are eligible, how to become eligible, etc.

    Public Service Loan Forgiveness (PSLF) Employment Certification Form: Fill this out annually to ensure you’re on the right track with qualifying for PSLF (here are some instructions)

    Public Service Loan Forgiveness Q&A: Questions on PSLF? They might be answered here.

    Public Service Loan Forgiveness Application: Once you’ve made your 120 qualifying payments, you will need to fill out a form to actually apply for forgiveness. The form is still being developed. It will be available prior to October 2017 when the first borrowers will become eligible for PSLF.

    Income-Driven Repayment Plans Fact Sheet: Details on IBR, PAYE, etc.

    Other Helpful Links

    Here are a few free resources for obtaining your credit information:

    Annualcreditreport.com
    Quizzle.com
    Creditkarma.com

    WFP Media Links

    In our webinar “How You Can Save Thousands on Student Loans”, you’ll learn how to avoid the most common student loan pitfalls that will cost you thousands, deciding between filing taxes jointly vs. separately to maximize PSLF, and how to reduce your income-driven payments.

    Our Student Loan Services

    If you are interested in seeking the help of an expert, check out our student loan advising services.

    We regularly revise this guide to keep it up-to-date and provide you with the most accurate information available, so be sure to check back periodically for any revisions or updates! Please comment with any observations, questions or comments you have – we’d love to hear from our readers & help in any way we can.

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    © Wrenne Financial Planning | Crafted by Harris & Ward

    Wrenne Financial Planning LLC (“WFP”) is a registered investment adviser offering advisory services in the State of KY, TX, TN and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. The presence of this website on the Internet shall not be directly or indirectly interpreted as a solicitation of investment advisory services to persons of another jurisdiction unless otherwise permitted by statute. Follow-up or individualized responses to consumers in a particular state by WFP in the rendering of personalized investment advice for compensation shall not be made without our first complying with jurisdiction requirements or pursuant an applicable state exemption. All written content on this site is for information purposes only. Opinions expressed herein are solely those of WFP, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.

    The Most Important Money Habits To Teach Your Children

    The Most Important Money Habits To Teach Your Children

    Kids are like sponges. They’re ready to soak up whatever we’re willing to teach. Now is the time to be teaching our children about money.

    Excess money mixed with lack of money maturity can ruin lives. At its extreme, money can be the difference between life and death. On the other hand, money can be a wonderful tool – controlling it can provide opportunity, security and flexibility. It allows us to do what’s most important in our lives.

    So where do we start with the little guys and gals we love?

    It’s All About Cash Flow

    Controlling your money starts with managing cash flow. These critical cash flow habits start at an early age. Most young people never receive any education on this subject and tend to default to spending what they make. You can see these habits start to show up in the college years when people begin managing any amount of income and outflows.

    Why not have an impact on how your children view cash flow from the get-go? It’s never too early to begin teaching. Start by figuring out what your children have to work with as far as money. Maybe you provide an allowance or maybe you provide payment for chores provided above and beyond a baseline household requirement. Or maybe your children receive cash gifts at holidays or birthdays. It doesn’t have to be a lot of money. The key is determining what they might have to work with as far as income.

    Next, talk with your child about the responsibility of managing where their money goes. This conversation would obviously vary based upon ages. Either way, discuss the major categories of where people can choose to direct their income. The main categories are taxes, savings, giving and spending.

    Taxes

    Share with your children how taxes work. Tell them they must set aside a certain percentage for taxes, maybe 20%, for this future potential obligation. Odds are they won’t really owe any tax on their income, but if that’s the case, maybe it gets transferred over to their savings for the time being. Nonetheless, it’s about becoming familiar with the concept & developing the discipline.

    Saving

    Next comes savings. Discuss how important it is for people to set aside a certain percentage for short and long term savings. Talk about the benefits that come with this. For certain personalities and ages, it might help to share how their balance can grow if they start early. Maybe you suggest they set aside 20% for savings. Help them set up a system for directing this 20% into a separate account. As their savings grows, you could begin talking to them about investing. Encourage them to do it themselves with your guidance so they can acquire valuable experience. Establish goals and targets for short and long term savings to make it more exciting.

    Giving

    Next, talk about giving. Talk about your values and share your experiences with giving to others. Talk about a good percentage to target – maybe you agree to set aside 10% toward giving. So every dollar they have come in, 10 cents gets directed to an account which will ultimately be given away. As their “giving” account builds, have conversations about choosing where to give. Talk about what’s important to them and get them involved with choosing where to give. Since it’s their money, they’ll be more likely to buy into the cause if they have input.

    Spending

    At this point, 20% has been deposited into the tax savings, 10% into the giving account, and 20% has gone into short and long term savings. The key is to prioritize in this order: tax, savings, and giving first. And then you can spend the remainder. This leaves 50% to spend on whatever they’d like.

    If you’re feeling ambitious, you could also throw “debts” into the mix. Every young person will eventually be forced to learn about how debt works – why not teach them your philosophy at a young age? You could tell them they are able to spend more than 50% of what’s leftover, however, it will require they take out a debt from you. Explain the basics of how debt works. Set an interest rate on the debt, like 10% to keep the math easy. If they want to take out debt, keep track of it and set up repayment plans. Maybe you direct the 10% interest you charge to their 529 or savings. Or if you’re really hard core, keep it. Hold them to repaying the debt.

    Takeaways

    The key is creating an environment for them to learn real life lessons. This will prove to be extremely valuable as the stakes increase for them. Money failures and mistakes are great learning experiences and will inevitably occur – why not let them figure it out while it’s easy to fix? Put your children in position to fail forward at a young age under your oversight and at much lower dollar amounts.

    Also, as any parent knows, your children are always watching. As you introduce these concepts, be prepared for questions on how you manage these things yourself. Use this as motivation to lead by example and practice what you preach. If you’re struggling with managing cash flow yourself, work on improving your habits to help lead your children in the right direction & help them put their best foot forward.

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    © Wrenne Financial Planning | Crafted by Harris & Ward

    Wrenne Financial Planning LLC (“WFP”) is a registered investment adviser offering advisory services in the State of KY, TX, TN and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. The presence of this website on the Internet shall not be directly or indirectly interpreted as a solicitation of investment advisory services to persons of another jurisdiction unless otherwise permitted by statute. Follow-up or individualized responses to consumers in a particular state by WFP in the rendering of personalized investment advice for compensation shall not be made without our first complying with jurisdiction requirements or pursuant an applicable state exemption. All written content on this site is for information purposes only. Opinions expressed herein are solely those of WFP, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.

    The Pros And Cons Of The 15 Year Mortgage For Physicians

    The Pros And Cons Of The 15 Year Mortgage For Physicians

    Q: What are the pros and cons of the 15 year mortgage for physicians or other high income professionals?

    Many physicians and their advisors fail to give the 15 year mortgage a fair shake. Here are the pros and cons…


    The Pros

     

    Forced wealth building

    Your odds of having more wealth 15 years from now are considerably higher if you opt for the 15 year mortgage over the 30 year mortgage. The disciplined analytic would immediately object and claim you’ll actually be wealthier going with the 30 year and investing the difference. The numbers will typically agree but the numbers miss one massive factor. It’s exponentially harder to make your required mortgage payment AND invest an equal amount systematically over 360 months than it is to make your required mortgage payment for 180 months.

    Even the most disciplined people miss a month here and there every couple years. The numbers don’t look so pretty when you opt for the 30 year and spend the difference, even if it’s only a fraction of the difference. There are other important and more complex errors we regularly see people making in this analysis which you can read more on in this Nerds Eye View article.

    Less interest paid

    The 15 year mortgage will save considerable interest over to the 30 year. This is a sure bet. Most people would be excited to get a guaranteed 4% on their investment. Yet they stretch their mortgage out as long as humanly possible. Why not pay more toward the mortgage and consider those payments to be your conservative investment allocation. If your considering physician mortgage loans, you should check this guide out first before going down that path.

    Faster path to true ownership

    It’s not always about the numbers. Although hard to quantify, there is a major qualitative benefit associated with true home ownership that should not be overlooked. Ask anyone you know that owns their home outright how they feel about it. True home ownership comes with additional security and financial peace.

    Greater future cash flow flexibility

    The 15 year mortgage will be paid off sooner than longer term mortgages. Once it’s paid off, monthly required expenses instantly decrease. Not having a mortgage provides much greater cash flow flexibility which can be especially appealing when you’re retired and living off your assets.

    The Cons

    Weak creditor protection in many states

    In some states, the equity in your home is not protected fully from creditors. The 15 year mortgage will cause you to build equity in your home faster than the 30 year mortgage. Therefore if you’re in a state with weak creditor protection on homes, you should take that into consideration when comparing the 30 and the 15 year mortgage. If this is of concern, you should see legal counsel on the matter.

    Less interest deduction

    The 15 year mortgage will require less interest than the 30 year mortgage. Most physicians are able to deduct some or all of their mortgage interest on their taxes. Therefore, the 15 year mortgage will result in more income tax paid compared to the 30 year. The specific differences will depend totally on your circumstances. However in every case, the tax savings will never totally offset the interest. And at the end of the day, after you net out the tax differences, the 15 year still results in less total interest.

    Less to invest

    Monthly principal and interest payments will be higher with the 15 year compared to the 30 year mortgage. As a result, you’ll have less to invest (or spend). This will reduce your ability to build wealth in the alternative investment. However, it will also increase the pace at which you build home equity. And this gets back to our first point. Investing systematically requires much more discipline than paying a required mortgage payment.

    Less cash flow flexibility today

    This alone can be a deal breaker. If you opt for the 15 year mortgage, will you be forced to reduce savings? Is the required payment of the 15 year mortgage going to restrict your ability to make ends meet? If so, stay away from the 15 year mortgage. And consider this a sign you’re spending too much on the home no matter which mortgage you take on. When considering buying a home, you should be able to live your ideal life AND afford the 15 year mortgage OR the 30 year mortgage. The choice between the two should really come down to other pros and cons. Avoid going with the 30 year simply because it’s the only option you can afford.

    At the end of the day, it really depends on your goals and circumstances.

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    © Wrenne Financial Planning | Crafted by Harris & Ward

    Wrenne Financial Planning LLC (“WFP”) is a registered investment adviser offering advisory services in the State of KY, TX, TN and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. The presence of this website on the Internet shall not be directly or indirectly interpreted as a solicitation of investment advisory services to persons of another jurisdiction unless otherwise permitted by statute. Follow-up or individualized responses to consumers in a particular state by WFP in the rendering of personalized investment advice for compensation shall not be made without our first complying with jurisdiction requirements or pursuant an applicable state exemption. All written content on this site is for information purposes only. Opinions expressed herein are solely those of WFP, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.

    10 Ways We Have Saved Our Clients Money

    10 Ways We Have Saved Our Clients Money

    “I can’t afford to pay for one.”
    “My net worth isn’t high enough.”
    “I don’t have any extra money to save.”
    “I’ll do it next year.”

    We hear all kinds of reasons NOT to engage in financial planning – some are legitimate, but many are just misinformed views about what financial planning really entails. Here, our ultimate objective is to put you in the best overall financial position to achieve your goals. We review all aspects of your financial life, from basic budgets and insurance, to more complicated investment and estate planning analysis. Our review of all of these areas frequently allows us to find money-saving opportunities for our clients along the way. Here are some examples of the more common ways we’ve been able to accomplish this:

    1) Tax Planning & Review

    To say that taxes are complicated would be an understatement. Fortunately, we see tax returns every day. We are familiar with what we should and should not see on a tax return, and spotting those errors and omissions have literally saved our clients thousands:

    • Did you miss a deduction?
    • Did you know there’s a credit for that?
    • Are you withholding too much from your paycheck instead of putting that extra cash to work for you throughout the year?
    • Would you be better off making pre-tax or roth contributions?
    • Are you tax-loss harvesting in your taxable accounts?
    • Should you file jointly or separately? (especially when considering your student loan repayment plan)

    These are all things that can have a large & direct impact on your bottom line. Are you sure that you haven’t missed something? A second or third set of eyes can help make sure you don’t!

    2) Insurance Analysis

    Very rarely do we find that people have the right amount or type of insurance… whether it be life insurance, homeowners insurance, auto insurance, etc., it’s often in need of improvement. To be clear, we do not sell these products, but we do run an analysis on what amounts of coverage you should have and what kinds of coverage you should have.

    For example, it’s very common for people to get their home & auto insurance early on and never revisit it. And you’d probably be very surprised to learn how many people are over-paying for their insurance (some significantly – $1k/yr+). We have helped clients cut back on monthly premiums just by assisting them in comparing coverage with different companies.

    We also see many clients paying for insurance they DON’T need. Some are over-insured, some are paying for permanent life insurance they don’t need, some are paying for extra benefits & riders on their policies that they’ll never use, and many can save hundreds a year by paying premiums at a different frequency (semi-annually or annually vs. monthly) and just don’t realize it.

    3) Employee Benefits Review

    Similarly, we see a lot of people paying for benefits they don’t need, and some who are not utilizing benefits that could help them. $10/paycheck for that unneeded insurance may not sound like much now, but when you pay it for 10 years.. there’s ~$2,500 you’ll never see again.

    Are you using your HSA? Most people aren’t. Do you understand the benefits of an HSA? You might be interested to know that you are potentially better off saving here than you are your IRA from a tax-standpoint. Further, did you know that many companies make HSA contributions on your behalf? We’ve seen company contributions up to $2,400/yr! That’s a lot of free money & you could be missing out! Not to mention the potential savings in health insurance premiums.

    And then there’s the retirement plan – are you using this in the most efficient manner possible? Are you using the right plan? Does it make more financial sense to use your 401k, 403b, or 457? Are you getting your full employer match? Does your plan have a “true-up” option? If not, you could be missing out on part of your employer match and not even realize it.

    4) Student Loan Analysis

    This is a biggie – I’m talking 5-figures in potential savings big. Student loans are a bear of a topic and it’s very difficult to find a planner who truly understands the ins and outs. Fortunately, we make it a point to keep up with the changes & stay informed because it drastically affects such a large percentage of our client base. If you can’t answer these questions, you may stand to benefit from a discussion:

    Especially for someone with a high student loan balance, getting help with this is CRITICAL and can have a MAJOR impact on your future.

    5) Investment Expense Reduction

    Most people don’t understand what they’re paying for with their investments, or the enormous effect these fees can have over the long-run. Check out the image below. This scenario assumes you have a 401k with $100k in it today. You max it out at $18k each year, and your average return before fees is 8%. Over 30 years, the difference between a portfolio with an expense ratio of .25% and .75% is over $300k! And then if you compare .25% and 1.25%, that jumps to over half a million dollars.

    Capture

    That is SERIOUS money, and most portfolios we review are closer to the 1.25% end than they are the .25%. Do you know how to determine what you’re paying? Are you literally missing out on hundreds of thousands of dollars without even realizing it?

    6) Debt Refinance

    Especially in today’s market, refinance opportunities are everywhere… auto loans, home mortgages, etc. Do you know if your rates are competitive? If not, do you know which lenders to go to? How do you keep those closing costs down? Recently, we helped a client refinance from a 30-year mortgage to a 20-year mortgage while keeping the monthly payments approximately the same. Not only did this save thousands of dollars in interest a year, they’re now going to pay off their home several years earlier than anticipated.

    And then there are other questions to consider.. Should you get rid of your ARM? Are you paying PMI? What it would take to get out of PMI? What about physician mortgage loans?

    7) Estate Planning Analysis

    Some of the biggest potential issues we find are with beneficiary designations. Sure, you may have the right amount of life insurance coverage in place, but is it set to go to the correct person? Most of the time it is.. But sometimes that $2M death benefit is still set to go to your ex-spouse. Or your parents. We’ve seen this on a handful of occasions, and this small error could mean potential ruin for your loved ones. Make sure your hard earned money is going to fall into the right hands.

    8) Salary Negotiation & Contract Review

    We do a lot of pay stub and tax return analysis as a part of our services, so we likely have a pretty good idea of what people in your field can expect to be paid. We’ve encountered a few clients that were underpaid compared to what we typically observed in their field, and encouraged them to present their findings to their employers and discuss/negotiate opportunities. So far, outcomes have been positive!

    Or for those going into a new job, do you know what to expect from your salary and benefits package? We are aware what the market dictates… especially for physicians. Are you getting a good (or at least fair) deal? Should you be negotiating for more? Are you missing out on anything?

    9) Big Financial Decisions

    Are you considering making a major purchase? Buying a new car or a new house? Have you sat down and thought about what you SHOULD afford, versus what the lenders tell you that you CAN afford? Because there is a major difference. Have you considered your financing options and how they can affect your interest rate and out of pocket costs?

    Or if you have a rental property, have you taken the time to sit down and analyze its profitability? It’s not as simple adding up as the rent you collect. Have you calculated the return you actually realize after taxes, maintenance, etc? Many rental properties we analyze are not nearly as profitable as an alternative investment. Make sure you’re not missing out on earning more money somewhere else.

    10) Time Savings

    And for your most important asset – your time… it’s nearly impossible to put a dollar amount on this one. What is an extra hour of family time, relaxation time, time with friends, etc. worth to you? How do you quantify that? You really can’t, because time is invaluable. We allow clients to outsource tasks to professionals, which, in turn, allows them to spend more time with the people they love, doing what they love.

    After running through those points, it becomes more clear that financial planning can be for everyone. It’s not just about investments, and it’s not just for the 1%. If you don’t work with an advisor yet, are you doing everything above for yourself? If not, you could be missing out on both time & money saving opportunities. Or if you do work with an advisor, is he/she doing everything above for you? If not, it might be time to consider a change – make sure you work with an advisor you trust, and who will work in your best interest 100% of the time.

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    What's Next

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    Are you interested in having a conversation? We’d love to connect! Click here to request a free consultation. We look forward to hearing from you.

    Looking to create your own financial plan? Click here to download our free guide to getting started.



    © Wrenne Financial Planning | Crafted by Harris & Ward

    Wrenne Financial Planning LLC (“WFP”) is a registered investment adviser offering advisory services in the State of KY, TX, TN and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. The presence of this website on the Internet shall not be directly or indirectly interpreted as a solicitation of investment advisory services to persons of another jurisdiction unless otherwise permitted by statute. Follow-up or individualized responses to consumers in a particular state by WFP in the rendering of personalized investment advice for compensation shall not be made without our first complying with jurisdiction requirements or pursuant an applicable state exemption. All written content on this site is for information purposes only. Opinions expressed herein are solely those of WFP, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.