The Student Loan Roller Coaster - WCI Podcast #391

This is the White Coat Investor Podcast, where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high-income professionals stop doing dumb things with their money since 2011. Hello, WCI listeners. I'm still taking some time off to rest and recover from my accident. But don't worry, I'll be back in a few weeks. Until then, enjoy this episode from one of our friends of WCI. All right, friends, happy Halloween. My name's Tyler Scott. I am excited to be hosting again today while Jim continues to recover. Great news, this is your last episode without Jim. He's gonna be back next time. So thanks for being patient with us while we've tried to keep the content going. Thanks for being patient with me. I'll ask for that again today. But we're excited to be here with Andrew Paulson, the head of Student Loan Advice, to talk about the current state of the Federal Student Loan Program, especially as it relates to this judicial quagmire that the income-driven repayment plans are in and how that can affect all of us that are pursuing public service loan forgiveness and other income-driven forgiveness options. Andrew is a personal friend and one of my bosses here in the WCI complex. We just got back from a week together at Lake Powell as part of the WCI retreat in Southern Utah. We had a lot of fun wake surfing and rappelling and cliff jumping and relaxing as a team together. That was fun to be there. Andrew also came through in the clutch as our DJ on the Top of the House Boat Dance Party. That was a good time. Yeah, Megan kind of bullied us into doing that. She is our podcast producer, my wife, and rave master at the retreats. So thanks for, that was fun. It was fun hanging out together. What was fun for you? What's a quick little highlight for you from Lake Powell? Yeah, I don't think a white coat investor retreat would be fitting without some type of adrenaline junkie type stuff. So like, as you're well aware, we know a lot of people on our team like to rock climb, like to mountain bike, skydiving, all that sort of stuff, right? So it was fitting that my favorite part was rappelling a 50-foot cliff. And yeah, so that was a blast. And we just, we were right up at the top and we were able to kind of look down under. And I know you did it. And I think about half of our group did it. I can remember Megan did it as well. Yeah, Megan's giving me a thumbs up, but that was our favorite part. But you wouldn't just rappel down into the water. They had the rope about 10 feet off the ground so that you would get down and then you had a free fall. So that was probably my favorite part of Powell. I felt like Tom Cruise, like letting go of the rope, like falling into the water. Jim played a different song for each of us as we came down on the boat. That was really fun. Wonderful. Well, let's get our sponsorship taken care of here. Today's episode is brought to you by SoFi, helping medical professionals bank, borrow, and invest to achieve financial wellness. SoFi offers up to 4.6% APY on their savings account, as well as an investment platform, financial planning, and student loan refinancing, featuring an exclusive rate discount for medical professionals and $100 a month payments for residents. Check out everything that SoFi offers at www.whitecoatinvestor.com slash SoFi. Loans originated by SoFi Bank, NMLS-696891. Advisory services by SoFi Wealth LLC. Brokerage product is offered by SoFi Securities LLC. Member FINRA, SIPC. Investing comes with risk, including risk of loss. Additional terms and conditions may apply. All right, everyone. So Andrew and I are here gathered in Jim's office. We've, this is one of the experiments we're trying is like in-person, in-studio interviews. And we're both certified student loan professionals. And I've worked with Andrew over this past year at Student Loan Advice, where they provide customized, personalized student loan consultations to help navigate the ever-maddening labyrinth of student loan decision-making and optimization facing millions of Americans today. Andrew and I talked before and we've got a couple of goals for today. The first one is to articulate the current reality of the student loan situation as of today, October 9th. The second goal is to identify what is at risk for borrowers right now who are pursuing different loan forgiveness options and what is not at risk. So what should you be stressed about? What should you not be stressed about? Our third goal is we're trying to keep the discussion as high level as possible without wading into the weeds too far. There's a lot of weeds that are necessary. So please forgive the inevitable technical talk and we'll do our best to identify the jargon before we get started. We're gonna try to follow Einstein's advice to quote, keep everything as simple as possible, but no simpler. And we're gonna use that as today's quote of the day to keep everything as simple as possible, but no simpler. So we wanna reduce it down to a way that's digestible. And when things are complex, we have to honor and name that complexity. And our last goal is just to provide some hypothetical case studies that we think are representative of various circumstances listeners might be in right now with the hope of providing some guidance for which of those considerations might most be applicable to you. So Andrew, before we get into all of this, would you mind giving us a little vocab lesson and a little acronym guide? You and I are gonna start throwing around sentences like for those on IDR plans going for PSLF, they may need to consider save, repay, or IBR and make sure they avoid that old IBR plan now that ICR is gone. And that is a nonsensical statement, sounds a little like a really weird episode of Sesame Street with all that letter madness. So can you give the listeners a little understanding what do these acronyms mean? Help us set the stage here. Yeah, and I'll say another thing too is that much of this conversation, this is all federal student loans, right? We're not gonna be delving into private student loans and refinancing today. So know that this is for those of you out there that have federal student loans and in specific to federal student loans, we're gonna be talking about a specific type of repayment program that is income-driven repayment plans, okay? And these terms get thrown all around a lot, IBR and ICR and IDR, but let's start from scratch here. So the first thing you need to know is there are income-driven repayment programs where payments are based on your income. They're usually somewhere between 10 to 15% of take-home pay and there's four different IDR plans, Income-Based Repayment, IBR, Pay As You Earn Pay, Saving on a Valuable Education, SAVE, and the last is called Income Contingent Repayment. So we're gonna be spending most of the time today on the SAVE program and on the Income-Based Repayment program because the ICR plan and the PAY program are currently no longer allowing any new applicants. So as of July 1st this year, they have phased out those payment programs to any new entrants. And we'll talk a little bit about those of you that are already in a payment program like PAY, you know, what you should be thinking about, but just so you know, there's four different income-driven repayment programs and these income-driven repayment programs are a great vehicle for you to help pay down your loans, particularly if you're interested in a loan forgiveness track. Wonderful, thank you, that's really helpful. So listen closely out there to our Ds and our Bs, right? Our IDR is fundamentally different than IBR, right? IBR, Income-Based Repayment, is one of the IDR options. So it can get a little complicated. We'll try our best to talk slow and highlight those differences. Also, I want, Andrew, can you speak about the difference between public service loan forgiveness, which we will be saying PSLF, and other income-driven or IDR forgiveness options? I don't want people to get lost in those two tracks. Yeah, so these are the two most common federal forgiveness tracks out there. And, you know, public service loan forgiveness is the holy grail of loan forgiveness. There's been almost a million borrowers that have received public service loan forgiveness. We've successfully helped a lot of doctors get PSLF, right, and navigate that. And that program has four rules. Number one, you need to be on an income-driven repayment program. IDR plan, IBR pay, save, one of those that we're gonna talk about today. You need to make 120 payments, okay? So that means about a decade of payments are required. They don't have to be consecutive. This is cumulative. So if you take some time off after you graduate residency for boards, or you take time off for kids or whatever it may be, you know that you can just pick up where you left off. Third rule is you need to have qualifying student loans. That is direct federal student loans. And the last rule is that you need to be working at a qualifying institution. That's a non-for-profit or a 501c3. So, you know, a lot of academic centers, VA, community health-based centers, those sorts of things. Okay, so that's the four rules for public service loan forgiveness. Oh, and I should also throw in there, you need to be working at least 30 hours per week at a qualifying institution, okay? So that's PSLF. And after you have made 10 years of payments, whatever the outstanding loan balance is, it is discharged tax-free. So now talking about IDR forgiveness, it is similar in some ways to public service loan forgiveness, where you need to be on an income-driven repayment program, but it is much longer. It's 20 to 25 years, depending on which payment program you're on. In the pay program, it's 20 years. In most of the others, it is 25 years of payments. So not only is it two times as long, but after you've been paying for 20 to 25 years, whatever your outstanding loan balance is at the time, it's tax-free. And this is what we call the tax loan. And this is something, if you wanna do that track, you gotta prepare for that tax bill in 20 to 25 years, because suppose you have $400,000 of loans and you live in a high-tax state where you have to pay 40% in taxes, you could have almost a $200,000 tax bill that year. So there's a lot of planning considerations that need to be made for that. And frankly, taking a step back on IDR forgiveness, we very, very rarely see this being the optimal option for doctors, unless your debt is three or 4X your income. And we're talking about a 10-year income. Awesome, thank you. That's really helpful. And for today's episode, we're not gonna go down door number two. We're not gonna be talking really about the IDR 20 or 25-year forgiveness. We're mostly gonna be talking about the public service loan forgiveness. Though anyone pursuing forgiveness, some of these recent changes are applicable to them. So that's wonderful. The other thing, Andrew, before we get started, is we're gonna be talking about the IBR repayment plan a lot. And in reality, there's two versions of income-based repayment. And income-based repayment as a plan is not actually available to all borrowers based on the ratio of their student loans to their income. So can you just give us a quick primer on the two different versions that you and I call new IBR and old IBR, and then which people qualify and which don't? Yeah, so sorry, folks. We're muddy in the waters early on today for Halloween. But the way to think about income-based repayment is did you borrow before July 1st, 2014, or did you borrow after that date? Because if you have a loan dispersed before July 2014, you would be eligible for old IBR, okay, where payments are 15% of discretionary income or take-home pay. If you started borrowing after July 1st, 2014, then you would be in the camp for new IBR, which payments are 10% of income. That's a big difference, okay? The other thing we need to mention is it has an income phase-out. It's called partial financial hardship. And that means if you have filed a tax return that is, and your income is greater than your student loan balance, you may not be able to get into income-based repayment. Wonderful, thank you. And we'll talk about some of those details when we do our case studies here in a little bit. So just know that there's two types. Old IBR is worse. We would rather have new IBR because that's a lower percent of your discretionary income for your payment. Awesome. So this actually brings up an important disclaimer I wanna mention before we keep going. As a financial planner, people ask me a lot of questions at dinner and at football games. And my answer usually starts with, it depends. And there is no area of personal finance right now that is more subject to the it depends clause than student loans. There's just so many variables. Those variables include what state you live in, what state you're moving to, when your training ends or when it ended, what type of job you take, if you're married, if you're getting married, your income now, what your income will be in the future, your partner's income, how many kids you have, the types of loan you have, your student loan balance, the student loan balance of your partner, the date of your first loan, the date of your last loan. And then I stopped making my list because I thought that was long enough, but there's more variables than that. So this stuff gets detailed and into the weeds really fast. So I think it always makes sense for clients with a lot of these variables, which is most people, to get a specific consult on your specific situation. If you have questions, reach out to Student Loan Advice, let Andrew and his team help navigate your unique situation. I work in finance all the time. This is all I do. And I still need Andrew's help all the time. So it's just a really challenging area. So with that disclaimer in mind, Andrew, can you give us a quick state of the union here on the student loan situation? What's going on? What's at risk? What's not at risk? Yeah, so the first thing we wanna talk about is the SAFE program. It is in legal peril right now. And it's our belief, it's a pretty good chance if you're in the SAFE program right now, it's not gonna be around next year. So what are the ramifications right now? If you're in SAFE, you are placed into a forbearance, very similar to COVID, where there is no interest and there are no payments currently, okay? But there is a huge difference that this type of forbearance has that is dissimilar from the COVID time, where you're not getting credit for PSLF or IDR forgiveness. Not great, okay? And I know that there's a lot of frustration around that right now, as we've been getting lots of emails about this is changing my plan of when I'm done with everything, it's changing my plan at my employer. Okay, we hear you. And I also wanna highlight too, that if you're in residency right now, if you're in training, we would absolutely wanna be looking at options to be able to be in repayment. Because remember, your payments are based on your income. And we would much rather that you're getting credit for all those months when your payments are 200, 300, $400 a month, instead of when you're in attending, high powered attending, and you can afford the three, four, $5,000 monthly payment. Okay, so just wanna really be cognizant of this if you're in a situation right now where your income is lower, okay? So another thing that we've been getting a lot of questions about is what else is at risk? What else is at risk if the SAVE program is, right? The SAVE program came up about a year ago, and it was previously called Repay, and the Biden administration rebranded this as SAVE with a couple of new features that help out borrowers, okay? And I should say that there is a lawsuit that was brought about by multiple Republican lawmakers that took place on July 18th, okay? And it's been blocked ever since then. So back to the risk that is at hand here. The issue is that the government will tend to make loan policy through two methods. One, by way of Congress, and second, through administrative rulemaking. Now, Congress passed public service loan forgiveness and income-based repayment. Those are written into law. Payments, payment programs such as Pay, SAVE, and ICR were made through administrative rulemaking. And I'm not gonna get into all the legal nitty-gritty today. And I know that Jim did a lot of this about a month ago, or really, I think one of his last podcasts that he recorded before his accident, going into the legality of student loans and public service loan forgiveness and how to think about that. So you should definitely check out that episode. But what we know is that things that are created through administrative rulemaking are much easier to tweak and to do away with, as we've seen the shelf life with SAVE, which is about a year's time before it is no longer eligible for enrollment and perhaps is gone, okay? But I wanna make a key point here, is for those of you that are wondering about public service loan forgiveness, this is written into law by Congress. It is much, much safer to be in income-based repayment or the public service loan forgiveness program because they're piped by Congress, much harder for them to get rid of that. Awesome, thank you. That is so helpful. If I'm hearing you correctly, there is no need to panic about PSLF going away. That is not one of our stressors, which is nice. We also don't need to be worried about IBR going away because both PSLF and IBR have a more entrenched position due to their congressional statutory process they were created. What is unclear is if the other IDR plans, like SAVE and PAY and ICR will survive this court battle and or what they could look like afterwards. Correct. We don't know that, okay, awesome. So that is one of the deliverables we were trying to hit here today is what is at risk and what is not. So I hope that was helpful. We've got some things coming up with the Eighth Circuit Court in October and probably a Supreme Court appeal to their spring docket. So we may not have an answer until summer of 25. Is that a fair supposition? Yeah, it's kind of a good outline of how things are right now, Tyler. We're gonna have a hearing actually right before this podcast airs on October 24th. And then there's gonna be a decision by the State District Court, whatever the result, it's probably gonna go to the Supreme Court and then they have to go through their legal proceeding. We went through this a couple of years ago with that big student loan forgiveness, where we were waiting and we were thrown back and forth like we were on a roller coaster. And then there's probably gonna be a decision in the summer but we all think it's kind of a foregone conclusion right now with the 6-3 conservative majority that they're gonna rule SAVE as unconstitutional. Not looking good for SAVE. Yeah, yeah. Okay, so if we don't have to worry about PSLF, what do we get to worry about? Let's worry. And so for those who are saying, yeah, I get the PSLF is safe but I really need these months to count while I'm stuck in administrative forbearance limbo because maybe these payments, as you said, are gonna be a lot lower than future payments. What would you say to them? What other fallback options do they have for people who are stressed about this? Yeah, everybody's asking, how can I get back into repayment? How can I get my clock resuming again? I don't wanna kick the can further down the road, especially for those of you that are hitting your 10 years right now. You're like, I don't wanna wait for this next election that's coming up and further delay things. So one option is you could apply to switch your payment program. So we'll talk more about that and what's kind of going on there. But the other option is called PSLF buyback. This is a pretty new program and we have seen it work. We have seen this help borrowers onto their track to public service loan forgiveness. And here's how it works. Whatever forbearance months there are for this legal forbearance, maybe it's six months, maybe it's nine months, maybe it's 12 months, at a later date, you could apply to get retroactive credit for these forbearance months and have those months converted from forbearance to credit or qualify towards your 120 for public service loan forgiveness. Now, in order for you to get credit for those months, you fill out an application through the PSLF reconsideration application and their specific verbiage that we, and we put this all together in a previous article on the White Coat Investor blog. If you search PSLF buyback, you're gonna find this and we walk you through from A to Z how to do it. But another key point is that you're gonna need to make a lump sum payment based on however many months you were in forbearance. And they're gonna calculate your payment on whatever your income was at the time. So if you're in residency right now, that's gonna be a piece of cake for you, okay? If you're already making attending money, that's something you may need to save up for when you've got a 20 or a $24,000, $30,000 lump sum payment, okay? But let me talk a little bit more about the downside of buyback. You can't use PSLF buyback until you are at your 10 years. Okay, so that means realistically, if you're not getting credit for six months or a year of all this legal forbearance, you've probably got 10 and a half to 11 years of employment, right? And you're beyond your 10 years. Well, the trouble is that you can't get PSLF buyback credit right now. We couldn't apply for it right after this legal forbearance unless you're already at your 10 years. You have to wait until it's going to get you to your 10 years. The other thing, it was also made through this administrative rulemaking process. So I know we are going to have a change in the White House next year, right? There's a chance that whoever is elected could just do away with this because you may be several years out before you would be eligible to apply for it. Awesome, wonderful. So one potential option for those people who want these months of administrative forbearance to count could be PSLF buyback. But there's, if I'm hearing you right, three caveats to keep in mind. First, you cannot apply for buyback until you reach your 120 payment threshold, not counting the months you're hoping to buy back. Correct. Okay, so if the pause lasts six months, the soonest you can apply for buyback is after 10 and a half years, or is that, am I hearing you right? Yeah, that's right. Great, so that's caveat one. Number two, the payments you are buying back are based on whatever your payment would have been during this paused period. So if your payment is 500 bucks right now and pauses six months, then you have to come up with $3,000 as a lump sum to buy back your months. But, and that payment's due, I think, within 90 days of applying for buyback. Does that sound right? Okay, yeah. So that's not that big a deal. But if your payments are $3,000 a month right now and the payment pause lasts 12 months, now we're talking about a $36,000 lump sum payment to buy back our months. And you can see how this could represent a cash flow issue for someone who is still required to make that $3,000 payment up until they get to 120. They also need to be saving, creating what I call a PSLF buyback side fund. They've gotta also be redirecting money to come up with their 36 grand or whatever. So it's just a little bit of a cash flow crunch as you think about this potential buyback. Is that fair? Any edits on that? Yeah, and the one other thing I would include there is that if you have hit your 120 payments and you're there, I usually recommend people will remain in repayment while they are reviewing your application because any of those overpayments you've made, so suppose you pay 123 months, those extra three months of payments will be reimbursed to you when you hit your decade. Great, so just be aware of that. You have 90 days to come up with that lump sum payment. Might not be a lot. If you're in residency right now, could be a lot. And then caveat number three is the whole buyback thing may not survive the court case at all because it was made through administrative rulemaking. So you may not wanna lean too heavily on that. It's worth knowing, but it's not foolproof. Cool, okay, so as I've been explaining this to clients as I've been meeting with them and they've been emailing me, the next question I understandably get from them is, okay, Tyler, sounds like a mess, right? Like, I'm not sure I wanna go on this trip into Mordor with the save plan and this PSLF buyback. I just wanna go ahead and switch to IVR since that plan is statutorily protected. What are your thoughts on that logical next question people are asking? Yeah, so it is a great question and it kinda depends on where you are. And we're gonna go through some scenarios of how to think about it when you should, maybe when you shouldn't. But currently with the legal injunction that was blocking the save program, they're not letting anybody switch payment programs, okay? So if you applied for the save program or the IVR plan in the last three or four months, they haven't even moved you into that payment program yet and you're all left still in this limbo. So wanna shed a little bit of positive light though, the online application to switch payment programs, to enroll into an IVR plan or to consolidate your loans was not available. It was just out and that was for two months. Last week, early October, they did reopen the application to again, enroll into IVR plans and consolidations online. Now, before that you could do a paper application where you fill out a PDF and then you upload it on your servicer site or you can fax it or mail it, folks. Yeah, that pretty, pretty old school stuff, right? So, for those of you that are interested, the online application is up and it's running, but I heard from a client last week who applied, they called Mohila, one of the student loan servicers and they said, we are still, we still haven't gotten the directive from the Department of Education that we can process the application. So yes, you can apply, I guess you can get in line, but they're still not processing that application. My hope is that before we things settle out with the save legal resolution that is probably on par, on track for next summer, that they're allowing borrowers to switch payment programs again. Yeah, that would be great. So yeah, I've just been telling my clients like, yeah, you can apply if you want. And so maybe if your income's really low or you're super close to forgiveness, you could apply to IVR online and get in line while everyone waits their turn. But for most people, I've been saying, let's just let the dust settle. There's too many unknowns. There's a lot of uncertainty and we're gonna get into those scenarios next, but that was a good recap. Thank you. So yeah, let's talk scenarios. And our hope here is that you, the listener, can hear enough similarity in one of these four scenarios we're gonna go through that this hypothetical conversation can at least give you an idea of what steps you may wanna take or what you wanna be considering. So that's our intention here. So first scenario, let's start, we've got a single doc. Maybe they're a couple of years from forgiveness under PSLF. Let's say they make 375 and they owe about the same amount and they are in the pay plan because they were in before it closed. What should that person be thinking about? Yeah, so in this scenario where your income and your debt are pretty similar and you're on track to PSLF and you're already in the pay program, you've got the golden ticket right now, okay? You are thrilled. If you are in pay currently or you're in IBR, don't make any knee-jerk reactions, okay? You're just fine. You're collecting credit for PSLF right now. You're continuing down that path. You don't have to try to switch anything around here and you just wait until your next income verification date, okay, which you can find that on Federal Student Aid, but for a lot of you out there, your next income verification date probably falls next year, okay? Another thing, now that your repayment situation, that's all resolved, what can you do to improve the prospect of PSLF? Well, with payments based on your income, there's some things that you can do to tweak your income and that is generally through retirement accounts. And a lot of doctors out there generally have two retirement accounts. Here I am talking to the financial planner who knows this inside and out, but there's a 401k or 403b or a 457, which usually you can contribute 23,000. Do I have that right, Tyler, 23,000? Probably 23,500 next year when they get a little bump in 2025. That's good. And can I say just quickly, Andrew, that when we say payments are based on income, they're actually based on adjusted gross income or AGI, which is what you're talking about right now. It's not our top of the line gross income. So if we can take any above the line deductions or anything that lowers our AGI, that's where we wanna go. Is that fair? AGI is our number in question. Yeah, thank you for AGI. Payments are based on AGI. So take this doctor here. If they are putting money in their 401k, maybe they're maxing that out and they're maxing out their 457 deferred compensation plan, that's $46,000 pre-tax. That can really help lower your payments. There's other sorts of pre-tax accounts. There are defined contribution plans, cash balance plans. There's health savings accounts. There's, you can set up a solo 401k or a SEP IRA, right? We have so many resources on that, on White Coat Investor about how that all works. But suppose you're a doc who maxes out their 401k and 457, and you're putting $4,000 in an HSA each year. That's $50,000. How does that look when it comes to your payments? Well, if student loan payments are about 10% of your discretionary income, and you just lowered your income $50,000, that'll save you about five grand a year. So if you got three, four, or five years left until you hit loan forgiveness and you're saving five grand, that's huge. That's a big win-win here because you're putting money towards your financial goals. You're paying a little bit less in taxes and you're lowering your student loan payments. Really efficient choice for a person in that situation. So are you confident enough in the pay plan, even though it's not as entrenched in that congressional statutory way that IBR is? Are you confident enough in the pay plan to tell this scenario, this doc who's in pay, that they in fact have the golden ticket, that they can stick with it? Am I hearing you right? I am, yeah. Cool. I'm comfortable with pay. That's been my favorite email to send to clients is I am like, hey, no problem, man. You're already in pay or IBR. You don't have to pay attention to any of this noise. Just keep going on. So that's a fun scenario. Scenario two, let's talk about maybe someone in residency. They're a second year resident. They think they're gonna work in academics or some other nonprofit as an attending. Maybe they make 70 grand right now as a resident. They owe 250,000 in federal student loans. And maybe they've been planning on getting married to their partner next year. And let's say that person makes 100 grand. They don't have student loans. So our engaged nonprofit-minded resident is in the save plan right now. What do you say to them? Yeah, so I think one of the first things is we want you to be getting credit for PSLF right now, okay? While you're in residency. That's a huge deal because there's a day that you're gonna be making $300,000 in just a few years. We'd much rather that you have those lower payments on the $70,000 of income, okay? So I think this is a scenario where somebody could apply for the Income-Based Repayment Program now with the hopes that that takes effect early in 2025 rather than summer or fall of 2025, okay? So, and this also brings up another key point. If they have applied for IBR, what are they gonna use for income verification? And this is something we haven't talked about, but when you're on income-driven IBR plans, they require you to re-verify your income just like you do your taxes once a year, right? You gotta do that or else you're gonna get in trouble, right? But with income-driven plans, once a year you're going to verify your income. Your servicer will let you know when you have to do that. And they either require a tax return or a pay stub, some sort of income documentation to do that. Most people use a tax return. In this case, this resident could use income from 2023. And by the time their payment readjusts, it'll probably be 2025. So they're in this two-year lag, okay? And this is kind of neat because as their income goes up, they get married next year and then their spouse's income is considered, right? And then in subsequent years, as their income continues to increase, well, what if their payments are based from two years previous? That means that they're gonna be able to milk that lower income and lower payment for longer, which bodes really, really well when you're doing loan forgiveness. Now, if your income verification date falls between May and September, you're probably thinking, well, I'm hosed. I'm gonna have to use my income from the year previous. But what you can do is you can file an extension on your taxes. And filing an extension, super easy to do. It's usually very low cost. It delays your tax filing from April to October so that when your income verification happens, you can still use income from two years previous. So that's a really common strategy. Because if they're gonna ask me for my income in June, and if I filed my taxes in April, like on time, now I've gotta show last year's income, which is probably higher. But if I filed an extension and moved my filing deadline from April 15th to October 15th, and they ask me in June for my most recent tax return, I get to point not to last year, but to two years ago tax return. And that's a great hack. And as it relates to our engaged or wanting to be engaged resident, can you speak briefly about which plans allow us to file separately and exclude spousal income and which plans require that we show the entire household income? Yeah, so back to IBR, save and pay. And I'm also gonna bring up the repay plan because there may be a chance that if we do away with save, that they reinstate the predecessor repay. Repay standing for revised pay as you earn, different than pay as you earn. So for a while we had pay and repay, and then repay got turned into save. Yes, yeah, exactly. And so the big issue with the repay plan was that in this scenario, you've got a resident who makes 70,000 and their partner that they're getting married to makes 100,000. That is a household income of $170,000. And if you file as a couple jointly, then it would use the $170,000. But what if the spouse is thinking, well, I wanna file my taxes separately so I can just base payments on my income? Well, on the repay plan, they didn't allow you that option. Even if you file separately, they would still incorporate your spouse's income. Okay, so that was a very key point and a big reason why married borrowers that had a spouse that made money really wanted to look into the others. So then save, IBR, and pay, all of those have the ability to exclude spousal income. Okay, and in thinking about this scenario, if they're able to lower their income $100,000 through filing separately, that's gonna be lowering their payments about $10,000 per year. Okay, so that can be a huge help when the goal is to end up paying the least amount over the term until you hit forgiveness. But it is usually almost always more expensive to file separately. So it's kind of case by case. But generally when I see income dispersion of maybe only $30,000, it might just be a few thousand bucks extra that you would pay to file separately. But if you're in a scenario where one of you is making 900K and one's making 20 grand, it might be really, really expensive to file separately. So definitely run the numbers jointly versus separately when you're looking at the benefits of doing it to keep your student loan payments low. Awesome, thank you. And when you say more expensive to file separately, you don't have to pay TurboTax more, you don't have to pay your CPA more. What we mean by that is you are using now single filer tax brackets, which are both narrower and shorter. So more of your income gets taxed at those higher brackets and a number of deductions get phased out, credits go away. So that's what we mean by it's more expensive. Your tax bill is often higher. So this is one of those in the weeds things that I think it makes sense to have a professional run for you is, yeah, how much would I save on my student loan payments filing separately? And now compare that to a reasonable projection of how much more it would cost me in taxes. And the details of that are beyond the scope of today. But is that a fair recap? Yep, that's a great point. Awesome, cool. So that was scenario two. I like the context there of a doctor who could benefit from enrolling into IBR right now and who could consider filing separately. Now let's take maybe an orthopedic surgeon. They're worried about their income becoming too high to enroll in IBR. So let's say she makes 400 or she has $400,000 in loans graduating this coming year and thinks she'll make like 600,000 a year as an attendee. And this is a situation where the lack of a partial financial hardship could possibly prevent her from enrolling in IBR. So what would you have her think about? Yeah, so this is one, this is a scenario that we run into a lot where maybe you don't have very much in student loans or you have 100K or 150K or your income is gonna be way above it. You're in orthopedics or neurosurgery, cardiology, whatever it may be, right? Or you're just a high earning physician in your specialty, right? Can you get into the income-based repayment program? And if you make more than you owe right now and you file the tax return on income that is higher than your student loan balance, it's gonna be tough to get into IBR, okay? And we're not gonna get in there. Now remember, there's old and there's new. And usually if you're making more, you're not gonna qualify for old IBR. There's a little more breathing room where you can be making about $100,000 more than you owe in talking attending income to slide into new IBR. But definitely look into this if you're thinking about enrolling into income-based repayment. And I know there's some of you out there that are currently in SAVE or were previously in REPAY. And if that's demolished, that goes away. And you're thinking, well, I still wanna do public service loan forgiveness, but now I can't enroll into any IBR programs, okay? There'll be more to come, okay? We'll keep you posted on that because we don't know the answer with that yet if they're going to reopen a payment program that doesn't have any income phase out. Because in the REPAY and in the SAVE program, there was no income phase out. You could get into those at any income, okay? So let's get back into this case study here and talk about, well, what should this doctor be doing? Should they stay in this SAVE program or apply for IBR? And I think there's really, you know, there's a couple of key points that this doctor needs to think about. Number one, IBR is the only option for this doctor, right? So we definitely want IBR. Number two, they need to make sure that they apply prior to their income jumping up, okay? Because they just graduated residency. And now they're making the big bucks, okay? And then thirdly, something we haven't talked about yet is there is a payment cap in the IBR and in the PAY program. We'll talk more about how that works. So now getting into this, you know, this doctor with them applying to enroll into IBR this year, you know, maybe they made $90,000 as a resident in 2023, right? Their income is less than their debt, right? They're making $90,000 and their student loan balance is 400 grand. No issues there for them to go ahead and enroll into IBR. But not for long. Right? Yeah, this is a time-sensitive situation for them because they're about to be in a situation where they would have to report 600,000 of income. So am I hearing you right? This is a, these people have a little bit of a narrow window to make the call. There's a timeframe. And there's kind of a deadline here where this doctor wants to make sure that they have applied for the IBR plan before they file that 2024 tax return, right? Because think about it, this year, you know, you made half the year as a resident, so you made 40 or $50,000. And then you got your big paycheck and you're gonna work your attending job for, I don't know, four or five months. So they're gonna make like 250, $300,000. Throw in a sign-on bonus, throw in a relocation bonus. Maybe they were paying you a stipend your last year, right? There's a really good chance this doctor could make more than their student loan balance this current year and be income-ed out of being able to apply for IBR, okay? So really, really, if you're in this scenario where your income is exponentially jumping, definitely look at doing that, okay? And, you know, and the other point here is that the IBR plan has a payment ceiling. And on a, the way that would work is on $400,000 of student loans, think of the payment cap as about 1%. So that means your payments would get up to about $4,000, which is no measly amount. I know that's a mortgage payment, right? And that's a big payment. But for those of you out there that are making 50, 60, $70,000, think about how high your payments could be. If you're making 60 grand a month, that's a $6,000 monthly payment if you're on a IBR plan that doesn't have any of these payment caps. So that's another real benefit for those of you out there that are making more than your debt is you may end up being better off because this payment caps your payment and keeps it lower than it would be otherwise if you were in a repayment program like Repay or Save that didn't have the payment ceiling. Yeah, knowing which plans have a payment cap and which ones don't has been a key consideration as we've been helping people make these choices. So, okay, this is wonderful. So I'm hearing you say if you're graduating this year or maybe you're getting married to another earner, you got a big promotion. In other words, if you think your income's going up a lot, you wanna review which plans you're eligible for now and which ones you may or may not be going forward. And you may wanna get into the IBR now before your income jumps. And that gives you a known payment amount, could be 15 or 10%, but at least it gives you the payment cap. So is that a fair? Yes, if income's going up, take a long look at IBR. Yes, awesome. One other thought on that, let's say you get into IBR and then later your income goes way up. Can I stay in IBR if I no longer have a partial financial hardship? Yes, as long as you get in before your income has jumped up, you can stay in it for the duration of repayment. So being able to get in, usually we say as a resident, as a fellow, before you make your attending income, make sure you've applied for one of these payment programs because it can really help with that payment soon and they won't kick you out of it. Awesome. Cool, okay, one more scenario. Let's say we got two doctors, they're married and they live in a community property state, one of the 13 community property states. But two of them, Texas and California, they got a lot of our people. So this comes up a lot. Let's say one's an internist and the other is a cardiologist. The internist is interested in working at the VA or some other nonprofit and the cardiologist is in private practice. I see this scenario a lot. So let's say our internist is gonna make 225 at the VA and the private practice spouse is gonna make 475. The loan balance is 300,000. They're currently in SAVE. Should they switch or think about switching to IBR? Yeah, I think the short answer on that is yes, they should switch to IBR. And now the long answer, well. Give me the long answer. Let's talk about community property states. And Tyler and I have worked intimately on a lot of clients that are in community property states, hundreds, thousands that are going through this and trying to figure it out. If you're living in California, Texas, Louisiana, Arizona, Washington, I missed some in there. If you're in a community property state, you really, really wanna understand the tax ramifications, especially if your spouse is a doctor or somebody that makes money or makes good money, okay? Because this couple here should be filing separately usually, right? Because you don't wanna have payments based on $700,000 of income. You want it based on just the internist who has student loans, who's making 225. But if you file separately, what ends up happening is instead of payments based on the $225,000 that the internist is making, they take the $700,000 of income and they divvy it up evenly between the two of you. So you, as the doctor on track to PSLF, has to report 350. And your spouse, it also reports 350 on their taxes. But what that does is it artificially increases your payment, number one. And the second issue here now is that that's higher than their student loan balance of $300,000, so they may not be eligible to even get into the IBR plan. And they may be stuck waiting to see what happens with save or if the repay plan is reinstated. Here's the workaround. There's a loophole, okay? The loophole is that when it comes time for you to verify income, instead of using the tax return that reports one half of household income in this scenario, $350,000, you can use your pay stub that's reporting the $225,000. By so doing, it allows you to enroll in the income-based repayment because now your income is low enough that you meet the partial financial hardship requirement. And secondly, now your payments are gonna be based off of 225,000 instead of 350,000. So that means a lower monthly payment as well. Awesome, yeah, that's been a fun loophole to show people in those states and use that workaround. And I should clarify in my scenario, the $300,000 of loans in my question all belonged to our- Internist. An internist going to the VA, our private practice cardiologist, they had no loans. Yeah, so that's, I should have made that more clear. And if I can just touch on one more thing on this case here, Tyler, is that this doctor now, once they get into IBR, they could continue to use a pay stub to file separately. But I know a lot of you are thinking, but what is the additional tax cost going to be? How much deductions are we gonna lose out on? How much higher is that tax liability going to be? And know that if they're in a payment program where their payment is capped, the difference between what the payment capped at, which could be about $3,000 versus what it would be on their 225 of filing separately income may not be that big of a difference. So maybe this doctor could file jointly in future years. But these are the sorts of things that we can help you analyze through a one-on-one situation. The last little wrinkle there, and you had a great post, something about controversial topics in public service forgiveness or in student loans, which I love. And one of those was that when the IRS tax code allows married couples who filed a married filing separately return, the IRS allows you to amend those past year's returns back to a joint return after the fact. So do you wanna speak to that quickly? And where it's not illegal, some people might feel like it's ethically gray. We're not here to litigate that, but can you just speak to that file separately and amend back to jointly to recoup your tax savings you would have gotten? Yeah, so a lot of couples are going to file separately because it helps keep their student loan payments. But sometimes they have to pay a lot more in taxes, 20 grand, 30 grand, 40 grand, 50 grand. I've seen everything. So suppose you're a couple and you file separately one year and you have to pay another $30,000 in taxes above what you would end up paying if you filed jointly. So you have to pay another $30,000. You've got like the married filing separately penalty tax. But we've saved maybe 50 or 55,000 in student loans. 50 grand in student loan payments. We were net positive. It was worth it. Then the next year you get PSLF. Well, up to three years after your tax return has been filed, you can amend it back to joint. So then you could pay a CPA to go back and amend that tax return for a few hundred dollars or a thousand dollars. And then you could get back that extra 20 grand that you paid to file separately. And you could do that multiple times. Like there's no rule that says you can't do that. There's only a three year period of time that you could go back and do that. The Department of Education and the IRS don't talk. No, they're very siloed. Yeah, so that people are like, wait a minute. And yeah, so that is a useful piece of information to know. Okay, Andrew, thanks for going through all that and those scenarios. There's a lot of considerations to be aware of out there with our student loans. Touches on taxes and budgeting and retirement and which state you live in and marital things. And as I said, there's so many variables. If you need help and I need help and this is the world I live in, you can trust a pro like Andrew to help you get it right with all that's going on right now. So if you're looking for some assistance, go to studentloanadvice.com, book a consultation. I've never been more confident in our ability to provide value at $580 for a consult and we're delivering these 50, 60, $280,000 savings. It's a fun work to be a part of. All right, everyone, thanks so much for hanging in there with us. I hope that conversation was helpful and I won't lie, there's a part of me that hopes that it was confusing because that is the truth of this situation. But our intent as always at WCI is to be helpful and get you pointed in the right direction. This is a challenging area and we appreciate you listening. Before we go, I wanna share a review that we had on the podcast and it is entitled Trustworthy Advice. Great title, five-star review. Good to see trustworthy advice exists. Been following for a while now. Any conflicts of interest are clearly disclosed. You can get this advice elsewhere via books, blogs, et cetera but it's compiled in an easy to digest format so no need to scour the internet. Keep up the good work. Thanks for the wonderful review. Thanks again for your patience with me and with all of us while we've been trying to come and pinch hit for Jim here. Obviously, no one can do what Jim does and that's not been our intention. Our intention's been to just provide ongoing conversation and a space to connect as a community and we're all very excited to have Jim back next time. So thanks for your grace and those of you who have sent nice emails to me or the editor inbox or to Megan, that those are read and really appreciated. Thank you for your support. Today's episode is brought to you by SoFi, helping medical professionals bank, borrow and invest to achieve financial wellness. SoFi offers up to 4.6% APY on their savings accounts as well as an investment platform, financial planning and student loan refinancing, featuring an exclusive rate discount for medical professionals and $100 a month payments for residents. Check out all the SoFi offers at whitecoatinvestor.com slash SoFi. Loans originated by SoFi Bank, NMLS 696891 advisory services by SoFi Wealth LLC. Brokerage product is offered by SoFi Securities LLC, member FINRA SIPC. Investing comes with risks, including risk of loss, additional terms and conditions apply. Thanks again for being with us and until next time, make sure your pets are spayed or neutered and don't take any wooden nickels. Have a great day. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.