REPAYE & Residency Finance help

[GamerTheRock]

I'm Graduating Medical school this month. I will be doing a residency in PM&R, which is a 4-year residency and possibly a 1-year fellowship. Currently have 290k in loans, all federal loans. I will be making 70k before taxes and plan to live at home (a roughly monthly estimate on expenses is 1,500 - single and no kids). Rest for loans, retirement, or investment. Not sure if PM&R can do PSLF, I think most are private?

1- Overall everyone recommends REPAYE. I don't want to consolidate my loans and use the avalanche method to take care of the highest interest loan first, anything wrong with that? Once the subsidy hits 1st of the month, plan on making 1,500 toward the highest interest each month ( would that work or a better way to approach ? ) - Loan is from MOHELA

2- I plan on contributing to ROTH as much (annually 3k) or should I lower the monthly loan payment and contribute more?

3 -I have roughly 5k saved up (started working around January this year) - would you recommend to invest (ROTH for 2019? or any other recommendation - stocks ) or pay back loans before the interest consolidates (currently 0% interest) or wait till august and make a big payment ( if I do make a big payment, should I target the highest interest ?)

4- Anything else you can recommend feel like I'm a mess financially



Thank you

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[TMP-SMX]

1) If you have all direct loans you don't have to consolidate so you are good there whether PSLF or not. The benefit of early consolidation is to simplify your payments (just one) and it gets you out of grace period quickly. If you were doing PSLF, your payments after graduation would have 0% interest and $0 payments would be counting now during the Covid forbearance. If you don't consolidate, your loans are still 0% like all of us until September whether you were in repayment or not. What you do want to do is to maximize your REPAYE interest subsidy once you are out of grace. This is based on the calculation from your servicer based on calculated (not actual) payments as of the date the repayment form is processed not monthly. So it doesn't matter when you pay the loan. There is a concern if going for PSLF of making extra payments you could be put into paid ahead status and some payments won't be correctly accounted for.

2)Roth IRA is better than untaxed money for you in 2020 and you may even get money back from the feds on the savers credit. If you didn't have income in 2019 you can't contribute to an IRA (unless your spouse does in which case one can use the spousal IRA and the deadline for 2019 is July). Put as much into Roth (6000 per individual) and you can put another 6000 for a spousal IRA if you are married filing joint. You can and consider Roth 403b/401k contributions if available at your employer. If there's a 403b/401k match definitely put at least the percentage into the account that will maximize your match.

3)Keep the 5k for your small emergency fund. Any difference you pay towards your huge amount of interest right now isn't going to make much a dent in the grand scheme of things.

4)You are not in a mess financially you are better off than most since you are here and know a lot more than others.

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[mvenus929]

1. I don't think the subsidy for REPAYE is done monthly, and any additional funds you contribute will just lower your subsidy for the next month. The subsidy only covers half of your unpaid interest accumulated under the repayment plan, and you will have to pay off interest before touching your principal. So paying extra doesn't help you.

2. Given that you won't be eligible to contribute directly to a ROTH IRA once you're an attending (and your tax rate will be higher), I'd advise you max out your Roth IRAs while in training. Even over contributing extra to your loans, in part due to the issues in #1.

3. Agree with TMP-SMX--keep the $5K as an emergency fund. Things come up and you'll be grateful that you have a little cushion. For instance, I broke my ankle in January and required surgery. While my health insurance is pretty good, I still had a $2000 deductible to cover (which was done with just my surgery). In residency I also had the alternator in my car go out and had to pay about 1K to fix that, and in med school, I had one of the electric boards in my car stop working and had to pay about $800 for that. An emergency fund is critical.

4. Make sure you have a budget so that you don't have more leaving than coming in each month. After that, you're well on your way to financial peace.

 

[TMP-SMX]

1. I don't think the subsidy for REPAYE is done monthly, and any additional funds you contribute will just lower your subsidy for the next month. The subsidy only covers half of your unpaid interest accumulated under the repayment plan, and you will have to pay off interest before touching your principal. So paying extra doesn't help you...

As far as I know, (may be servicer dependent) the subsidy is set yearly based on the statement they send you after payments are calculated. So additional payments might put you into paid ahead status (this can be removed) but should not affect the subsidized amount. Read the comments on this WCI post regarding some of the uncertainty of how it is treated.

 

[mvenus929]

As far as I know, (may be servicer dependent) the subsidy is set yearly based on the statement they send you after payments are calculated. So additional payments might put you into paid ahead status (this can be removed) but should not affect the subsidized amount. Read the comments on this WCI post regarding some of the uncertainty of how it is treated.

I stand corrected.