WCI #391: The Student Loan Roller Coaster
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This is the White coat investor podcast where we help those who where the White coat get a fair shake on wall street. We've been hoping doctors and other high income professionals stop doing dumb things with their money since two thousand eleven.

Hello, W C I S. I'm still taking some time off to rest and recover from my accident, but don't worry, i'll be back in few weeks until then. Enjoy this episode from one of our friends of W C I, all right, friends, to happy halloween.

My name's Taylor Scott. I am excited to be hosting again today while jim continues to recover. Great news.

This is your last episode without gym. He's going to be back next time. So thanks for being patient with us while we've tried to keep the content going. Thanks for being impatient with me.

I'll asked for that again today, but we're excited to be here with Andrew paul and the head of student one advice to talk about the current state of the federal student one program, especially as a relates to this judicial quagmire that the income driven repayment plans are in um how that can affect all of us, us that are pursuing public service long forgiveness and other income driven forgiveness options. Uh Andrew is a personal friend, a and one of my bosses here and the W C. I complex.

We just got back from a week together at like power, uh, as part of the W C. I retreat and southern new taw. We have a lot of fun wake surfing and repelling and Cliff jumping and uh relaxing uh, as a team together that was fun to be there. Andrew also came through in the clutch as our D J. On the uh top of the .

house boat party was a good time.

Yeah Megan kind of bully us into doing that. He is uh our podcast producer, my wife and um and rave master at the retreats so thanks for that was dying out together um what was one for you? What's the click go low highlight .

for you from like so yeah I I don't think a White co investor retreat be fitting without some type of a jamal and junky type stuff. So like as you're well aware, uh we we know a lot of people on our team like to rock climb like a mountain bike, sky diving, all that sort of stuff, right? So IT was fitting that my favorite part was repelling a fifty foot Cliff.

And ah yeah so that was a blast and we just we were right up at the top and we we were able to kind of look down under. And I know you did IT and I I think about half of our group did IT. I came from Megan, did IT as well.

Yeah mean, Megan, give me a thumbs. But that was our favorite part. But you wouldn't just repel down into the water. They had the rope about ten feet off the ground so that you would get down, and then you had a free fall. So that was about my favorite part of pal.

I feel like tom cruise, like then go to the road, fAllen into the water, played A A different song for each of us as we came down on the boat. I was really fun, wonderful. Well um let's get our sponsorship taking care of here.

Today's episode is brought to vice so far helping medical professionals bank, borrow and invest to achieve financial wellness so far offers up to four point six percent A P Y on their savings account as well as an investment platform, financial planning and student one refinancing features an exclusive rate discount for medical professionals and hundred dollar among payments for residents. Check out everything that so I offers at W W W W Y co. Investor outcome flash sofi loans originated by sofi bank N A N M L S six nine six eight nine one advisory services by sofi wealth l brokers products is offered by sofi security L L C A member funeral S I P C.

Investing comes with risk, including risk loss. Additional terms and conditions may apply. All right, everyone. So um andrei are here gathered in jims office we've uh where this is one of the experiments for trying is like in person in studio interviews and verbal certified student loan professionals and i've worked up with Andrew over this past year at student advice where they provide customize personalized student loan consultations to help navigate the uh ever madding laboring of student loan decision making and optimization facing millions of americans today. Android, I talked before and we ve got a couple goals for today.

The first one is to articulate the current reality of the soon situation as of today, october night. The second goal is to identify what is at risk for borrowers right now who are pursuing different one forgiveness options and what is not at risk. So what should you be stressed about? What should you not be stressed about? Uh, our third goal is we're trying to keep the discussion at high level as possible without waiting in the weeds too far.

There's a lot of weeds that are necessary so please forgive the inevitable technical talk and will do our best to um identify the jaron. Before we get started, we're going to try to follow einstein's advice to quote keep everything as simple as possible but no simpler and we're not use that as today's quoted the day, to keep everything as simple as possible, but no similar. So we want to reduce IT down to a way that's digestible.

And when things are complex, we have to honor in a name that complexity. And our last goal is just to provide some hypothetic 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 not be applicable to do so. Uh and uh, before we get in to all of this, would you mind giving us a little vocab lesson and a little, uh, acronym IDE uni are gna start throwing around sentences like for those on I D R plans going for p slf.

They may need to consider safe repair I B R to and make sure they that old I B R plan now that I C, and uh, that is a nonsensical statement. Sounds a little like a really weird p ode of the ministry, uh, with a letter madness. So, uh, can you give the listeners a little understanding? What do these acronyms mean? Help us up the stature.

yeah. And i'll say another thing to is that much of this conversation, this is all federal student loans, right? We're not going to be delving into private student loans and and refinancing today.

So know that this is for those of you out there that have federal student loans. And in specific of federal student loans, we're going to be talking about a specific type of repayment program, that is, income driven repayment plans, OK. And these terms get thrown all around a lot, I B R and I C R and I D R.

But lets start from scratch here. So the first thing you need to know is there are income driver payment programmed where payments are based on your income. They're usually somewhere between ten to fifteen percent of take pay.

And you know there's four different I D R plans in combash repayment. I dr pays you are and pay saving on available education, say in the last is called income contingent repayment. So we're going to be spending most of the time today on the save program and on the income based repayment program because the I C R plan and the pay program are currently no longer allowing any new applicants.

So as of july first this year, they have faced out those payment programs to any new entrance. 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, just, you know, there are four different income driven repayment programs, and these income driven payment programs are a great vehicle for you to help pay down your ones, particularly if you're interested in alone. forgiveness. P wonderful.

Thank you. That's really helpful.

So listen closely out there to our ds and our bees, right? Our I D R is fundamentally different than I B R, right? I B R income based repayment is one of the I D R options so we can get uh a little uh complicated, will try our best to uh talk slow and highlight those differences also I want, uh, Angel, can you speak about the difference between public service loan forgiveness, which we will be saying p slf and other income driven or I D R forgiveness options? I don't want people to give lost in those two tracks.

yes. So these are the two most common, uh, several forgiveness tracks out there. And you know public service long forgiveness is the holy grail of of loan forgiveness.

There is spent almost million borrowers that have save public service information. We've we've successful helped a lot of doctors get P S of right and and navigate that. And that program has four rules.

Number one, you need to, beyond an income driven repayment program, I D R plan, I D R pay save. One of those that we're going to talk about today, you need to make a hundred and twenty payments OK. So that means about a decade of payments are required.

They don't have to be consecutive. This is cumulative. So if he takes some time off after graduate residency for boards or you take time off uh for for kids or whatever IT may be, 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 last rule is that you could be working at a qualifying institution at a non for profit or a five, once, three, three. So, you know, a lot academic centers, V A, A community help base centers, is those sorts of things.

Because as the four rules for public forgive, oh, I, I should also throw in there. You need to be working at least thirty hours per week at a qualifying institution OK. So that's psl f and and after you have made ten years of payments, whatever the outstanding low baLances, IT is discharged tax free.

So now talking about idea of forgiveness. IT is similar in some ways to public service phone forgiveness, where you need to beyond an income driven repayment program. And IT is much longer.

It's twenty to twenty five years depending on which payment program you're on in the pay program is twenty years and most of the others, IT is twenty five years of payments. So not only is at two times as long that after you've been paying for twenty to twenty five years, whatever you're outstanding long baLance at the time, it's tax free. And this is what we call the tax.

And this is something if you want to do that track, you ve got to prepare for that tax bill in twenty to twenty five years because suppose you have four thousand dollars of loans and you live in a high tax state or even pay forty percent in taxes, you could have almost two hundred thousand dollar tax feel that year. So there's a lot of planning considerations that, that need to be made for that. And you Frankly taking a step back on idea or forgives. We very, very rarely see this being the the optio option for doctors unless your debt is three or four x, your income and we're talking about attending income.

awesome. Thank you. That's really helps in for today's episode. We're not gonna go down door number two, we're not gonna talking really about the I D R twenty or twenty five years forgiveness.

We're mostly even be talking about the public service loan forgiveness uh, 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 going to be talking about the I B R repayment plan a lot.

And in reality, there's two versions of income based for payment. And income based repayment as a plant is not actually available to all borrowers based on the ratio of their student loans to their incomes. So can you just give us a quick primer on the two different versions that you N I call new I B R and old I B R um and then which people qualify which don't yes.

So sorry folks, we're mody in the waters really early on today for for halloween. But the way to think about in cambaya payment is did you borrow before july first twenty fourteen? Or did you borrow after that date? Because if you have a loan dispersed before july twenty fourteen, you would be eligible for all I V R OK where payments are fifteen percent of discretionary income or take home back.

If you started borrow in after july first twenty fourteen, then you would be in the camp for new ibr, which payments for ten percent of income. That's a big difference, cay the said. 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 attack, return in your income is greater than your student long baLance, you may not be able to get into uh income by your payment.

wonderful. Thank you. And we'll talk about some of those details when we do our case that is um here in a little bit.

So just know that there are two types. Old I B R is worse. We would rather have new I B R because at a lower percent uh of your directionally and come for your payment.

awesome. So this actually brings up an important disclaim. Er I want to mention before we keep going uh as a financial planner, people asked me A A lot of questions.

Uh you know a dinner and you know fit football games. And my answer usually starts with IT depends and there is no area personal finance right now that is more subject to the IT depends class, the 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 partners income, how many kids you have, the types of loan you have, your student loan baLance, the student loan baLance of your partner, uh, the date of your first loan, the date of your last loan. And then I stopped making my list. Ks, I thought I was long enough, but there is more variable than that.

So this have 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 console on your specific situation, if you have questions, reach out to student own advice, let Andrew and his team help navigate your unique situation. I work in finance all the times is all I do, and I still need Andrews help all the time.

So it's just really chAllenging area. So with that discount, im er in mind, Andrew, can you give us a quick status of the union here on the soon situation? What's going on? What's at risk?

What's not at risk? yeah. So the first thing we want to talk about is the safe program IT is in legal perl right now. And it's it's our belief it's a pretty good chance if you're in the safe program right now, it's not going to be around next few. So what are the ramai fictions right now?

If you're in save, you are placed into a for baLance, very simple to cover where there is no interest and there are no payments currently. Kay, but there is a huge difference that this type for bearance has. That is the similar from the covered time where you're not getting credit for p slf or r forgivenesses.

Not great, kay, and I know that there's a lot of frustration around that right now as we we've been getting lots of emails about this is changing my plan of when i'm done with everything, is changing my plan at my employer. Gay, we hear you. And I also want to highlight to the if you are in the if you're in residency right now, if you're in training, we would you absolutely want to 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 two hundred, three hundred, four hundred dollars a month instead of when you're in attending high power attending and you you know you can afford the three, four, five thousand dollar monthly payment, kay. So just want to really be cognition of this if you're in a situation right now, where were you income is lower. okay.

So another thing that we've been getting a lot of questions about is what else that will what what is IT risk if the safe program is right? The safe program came up about a year ago, and IT was previously called the repay and the by administration rebrand. This is, say, couple of new features that that help out borrowers.

okay. And uh, you know, I I I should say that there is a lawsuit IT was brought about by multiple republican lawmakers that has a went that took place on on july eighteen, kay, that in the spend block ever sense them? So back to the risk, that is, that is a hand here.

The issue is that the government will tend to make long policy through two methods, won by way of congress and second, through administrative rule making. Now congress passed public service long forgiveness and in campaign repayment. Those are written into law.

Payment programs such as pay, save and I, C, R, were made through administrative rule making. And i'm not gonna get into all the legal midi greedy today. And I know that jim did a lot of this about a month ago.

And really, I think one of his last podcast, city recorded for his accident going into the legality of student loans and public service loans. Forgive us 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 rule making are much easier to tweet and to do away with. As we've seen, the shelf life was saved, which is about a year's time before IT is no longer eligible for enrollment in perhaps is gone, kay. But I want to make a key point here is for those of you that are wondering ing about public service, forgive this is written into in the law by congress. IT is much, much safer to be in incoming tion payment or the public service long forgiven ness program because they are by by congress, much harder for them to get right about.

awesome. Thank you. That is so helpful. If I am hearing you correctly, there is no need to panic about p slf.

Going away. That is not one of our stresses, which is nice. Uh we also uh don't need to be worried about I B R going away because both P S O F and dr.

Have a more entrenched position due to their congressional statute process, they were created. What is unclear is if the other I D R plans like save and pay and I C R will survive this court metal and or what they could look like afterwards, right? We don't know.

OK, that's awesome. So um that is one of the deliverables we are trying to hit here today, is what is at risk and what is not. So I hope that was helpful. You'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 till summer of twenty five is out of opposition.

Yeah it's a good it's of a good outline of of how things are right now. Tyler, we're going to have hearing actually right before this podcast air on october four. And then they going to be a decision by this at the first court, whatever the result is, probably going to go to the supreme court.

And then they have to go through the illegal proceeding, right? We went through this a couple of years ago. That big stood d alone forgiveness, right where we were waiting. We were thrown back and forth like we were on a roller coaster. And then if there's probably going to be a decision in, in the summer, but we all think it's kind of a gone conclusion right now with the six, three conservative majority that they're going to rule save is on constitutional.

No, we can be IT for safe. Yeah, yeah. okay.

So we don't have to worry about P, S, L, F. What do we get to worry about? Let's worry. And uh, so for those who are saying, yeah, I get the P, S, life is safe but I really need these months to count while i'm stuck in administrative for barrons limbo because maybe these payments, as you said, we're going to be a lot lower than future payments. What would you say to them what other fall back options today have for people who stressed about this?

Yeah everybody y's asking how how can I get back into a payment? How can I get my clock resuming again? I don't want to kick the can further down the road, especially for those of you that are hitting your ten years right now.

You're like, I don't want to wait for this next election that's coming up and and in further delay things. So one option is you could apply to switch your payment and programs that will talk more about that and you know what what's kind of go on, on there. But the other option is called p slf buyback.

This is a pretty new program, and we've seen at work we have seen this helps borrowers onto their track to public service from and here's here's how work, whatever four ballots months there are for this legal for baLance, maybe it's six months, maybe it's nine months, maybe it's twelve months. At a later date, you could apply to get retroactive credit for these four bearance months and have those months converted from four bearance create or qualified to towards one hundred and twenty for public service from forgiveness. Now in order for you to to get credit for those months, you've fallow in applications for the P S.

Left reconsideration. Looking and there are specific verbiage that we and we put this all together in in a previous article on the White code investor blog. If you search P S O F fie back, 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 to make a lumpsum payment based on however many months you are in for barren, and they're going to calculate your payment on whatever your income was at the time. So if you're in residency right now, this can be a piece of cake for you. okay?

If you're already making attending money, that's some you may need to save up for when you've got a twenty year and twenty four thousand dollar, thirty thousand dollars lumps. okay? Let me talk a little bit more about the downside of by that you can use p slf.

Buyback until you are at your ten years. Oh, so that means realistically, if you're not getting credit for six months or a year of all this legal foreigners, you've probably got ten and a half to eleven years of employment, right? And and you're beyond your ten years.

Well, the trouble is that you can't get p slf biba credit right now. We couldn't apply for right after this legal for baLance unless you're already actually ten years. You have to wait until it's going to get you to you ten years.

The other thing I was also made through this administrative rule making process. So and we are going to have a change in the White house next year, right? There is a chance that you know whoever is is elected could just do away with this because you maybe several years out before you would be eligible to .

apply for IT are some wonderful. So one potential option for those people who want these months of administrative grancy count could be p slf fie bag. But there's, if i'm uni, write three caveats to keep in mind.

First, you cannot apply for buyback until you reach your hundred and twenty payment threshold, not counting the months you're hoping to buy that, jay. So if the pause last six months, the soon as you can apply for buyback is after ten in a half years or is O K great? That's keva one.

Number two, the payments you are buying back are based on whatever your payment would have been during this paused period. So if you're payment is five hundred box right now and poses six months, then you have to come up with three thousand dollars as a long time to buy back your month. And that payments do I think, within ninety days of a plant for buyback, is that sound right? okay. Yes, so that's not able to deal.

But if your payments s are three thousand dollars a month right now and the payment pause last twelve months, now we're talking about a thirty six thousand thousand or lumps on payment to buy back our months and you can see how this can represent cash flow issue for someone who is still required to make at three thousand dollar of payment up until they get to one twenty, they also need to be saving crane, would I call A P S. Buyback side from they've got ta also be redirecting money to come up with their thirty six grander, whatever. So it's just a little bit of a cash flow crunch as you think about this potential by that. And my is not fair and edit on that.

yeah. And you know the one other thing I I would include there is that if you have hit your hundred and twenty payments and you're there, I usually recommend people will remain in repayment while they were are reviewing the application because any of those over payments you've made. So suppose you pay a hundred and twenty three months.

Those extra three months of payments will be reivers to you when you hit your decade. So great. So just be aware .

of that you ninety days to come up with out lum, some payment might not be a lot of you and residents might not could be a lot in kavya number of three is the hope buyback thing may not survive the court case at all because IT was made through administrative role making. So we may not want to lean too heavily on that. It's knowing, but it's not a for proof.

good. okay. So as i've been explaining this to clients, as i've been meeting with them and they be mAiling me, the next question I understandably get from them is okay, dyer sounds like a mess, right? Like, i'm not sure I want to go on this trip in the mood with the safe plan and the p so that buy back, uh, I just want to go and switch to I D R, since that plan is statutorily protected. What what are your thoughts on that logical next question .

people are asking? Yeah so you know, IT IT is a great question and IT IT kind depends on on where you are. We're going to go through some scenarios of how to think about IT when you shoot, maybe when you shouted.

But currently, with the legal injunction that was blocking the safe program, they're not letting anybody switch payment programs. Kay, so if you applied for the safe program or the ivr plan last three or four months, you can they haven't even moved into that payment program yet, and you're all left still in this limbo. So want to shed a little bit of positive light though the online application to switch payment programs, to enroll and do an D R.

Plane or to consolidate your loans was not available. IT was just out and and that was for two months last week, really, really october. They did reopen the application to, again, enroll into I, D, R plans and consolidations online.

Now before that, you could do a paper application where you fell out of P, D, F, and then you uploaded on your service side, or you can fax IT or male folks. Yeah, that pretty, pretty old school s right. So you, 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 mohel a, one of the student loan services, 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 think settle out with the save legal resolution that is probably on power on track for next summer, that they're allowing bars to switch payment programs again.

No, that would be great. So I ve just been telling my clients like, yeah, you can apply if you want. And so maybe your incomes really low or your super close to forgiveness, you could applied to I, B, R online and and get in line while while i've run, wait their turn.

But for most people i've been saying like just let the dust settle. There's too many unknowns. There's a lot of uncertainty and we're going to get into that those scenarios next week that that was a good recap. Thank you. So yeah, let's talk scenarios.

Um and our hope here is that the you, the listener can hear enough similarity in one of these force scenarios are going to go through that that this hypothetical conversation can at least give you an idea of what steps you may want to take or what you want to be considering. That's our intention here. So first scenario, let's start.

We ve got a single doc. Maybe there are a couple years from forgiveness under psf. Let's say they make three, seventy five and they all about the same amount and they are in the payment ane because they were in the before IT closed. What should that person be think about?

Yeah so in this scenario where your income and your dead are pretty similar and juran track to P, S, L lap in your alt in the pay program, you've got the golden ticket right now. Okay, you are thrilled. If you are in k currently or you in I, B, R, don't make any need.

Your reactions. K, you're just fine. You're collecting credit for p slf right now. You're continuing down that path. You don't have to you know try to switch anything around here and you just wait until your next income verification day, kay, which you can find that on on federal student. But for a lot of you out there, your next in conversation, they probably falls next year.

Okay, another thing you know, now that your repayment situation that's all resolved, what can you do to improve your the prospect of K S L S well with payments based on your income? There's some things that you can do to tweet your income, and that is generally your retirement accounts. And a lot of doctors out there generally have two retirement accounts. Here I am talking to the financial piter knows this inside and out, but there is a four one k or four o three b or a four fifty seven, which usually you can contribute twenty three thousand to have that right tire. Twenty three thousand.

probably twenty three thousand five hundred. Get a little bum in five. Good quickly. When we say payments are based on income, they're actually based on adjusted growth income or A G I, which is what you're talking about right now. It's not our top of the lying gross income. So if we can take any above the lying deductions or anything that lowers, are I that's where we want to go. A G I.

our number and question. Yeah, thank you for A A G I payments based on A G I. So you know, take this doctor here.

If they are putting money in there for one k, maybe they are maxing that out and their magazine out there for fifty seven different compensation plan that's forty six thousand dollars pretax that can really help lower your payments. There's other sorts of you know pretax accounts. There are defined contribution plans, cash baLance plans.

There's help savings account. Theirs you can set up a solar four one k or a step I array, right? We have so many resources on that on on White coat.

Best about how that all works. But suppose you're a dog who maxes out there four one k and four fifty seven, and you're put in four thousand dollars in the H. S.

Each year. That's fifty thousand dollars. How does that look when IT comes to your payments? Well, student on payments are about ten percent of your direction ary income. And you just flower during come fifty thousand dollars. Let us tell you about five granted years. If you got three, four, five years left until you hit one forgiveness and you're saving five grand as huge, that's a big win win here because you put money towards your financial goals, your pain a little bit. Lesson taxes, Andrew.

understand all payments. Really efficient choice for a person in that situation. So are you confident enough in the paid plan, even though it's not as entrenched in that congressional atti way that I B.

R is? Are you confident enough in the pay plan to tell this scenario this dog is in pay, that they in fact have the go and take IT, that they stick with IT? That's been my favorite email percent to clients is I have my eight.

No problem, man. You're already and pay or I, B, R, you don't have to pay this noise. Just keep going on. And so that's a fun scenario. Scenario two, lets talk about maybe someone in residency there are second year resident.

They think they are gonna work in academics or some other non profit as an attending, maybe they makes seventy grand right now. As a resident, they owe two hundred and fifty thousand and federal student loans and maybe been planning on getting married to their partner next year. And that would say that person makes one hundred grand. They don't have student ones. So our engaged, non profit minded resident is in the safe 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 P S, I F. Right now. okay. Well, you're in residency as a huge deal because there is a day that you're going to be making three hundred or thousand dollars in just a few years. And we'd much rather that you have those lower payments on the seventy thousand dollars of in k.

So I think this is a scenario where somebody could apply for the inconvenient payment program now with the hopes that, that takes effect early in twenty twenty five rather than summer or fall of of twenty twenty five. So in this also brings up another another key point. If they have applied for ibr, what are they are going to use for income verification? And this is that we haven't talked about.

But when you're on income, dad D R plans, they require you to reverse fy your income, just like you do your taxes once a year, right? You got to do that. You're going to get in trouble, right? But with income driven plans once a year, you're going to verify your income.

You will let you know when you have to do that. And they either require a tax return or paste up some sort of income documentation to that. Most people who use a tax return, in this case, this resident could use income from twenty twenty three. And by the time their payment reach us, you will probably be twenty twenty five. So they are in this two year lag a and this is kind of need because as their income goes up, they get married next year and and and then their spouses 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 going to 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 think, well, i'm host, i'm going to have to use my income, you know, from the year previous. But what you can do with you can file an extension on your taxes and finding an extension to breezy to do 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 going to ask me for my income in june and if I filed my taxes in April, like on time now i've got to a show last year's income, which is probably higher. But if I filed an extension and moved my filing deadline for April fifteen to october fifteen and they asked me in june for my most recent tax return, I get the point not to last year, but to two years ago. That's return. And that S A great hat. And as a release to our are engaged are are wanting to be engaged resident um can you speak briefly about which plans allow us to file uh, separately and excludes fiscal income and in which plans require that we show the .

entire households income? Yeah so back to ibr safe and pay. And i'm also going to 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 are in different than pay as you are. And so for a while, we have pay and repay and then repay got turned into save.

Yeah exactly. And so the big issue with the repay plan was that, you know, in this scenario, you've got a resident who makes seventy thousand, and their partner that they're getting marry to makes one hundred thousand. That is a household income of a one hundred and seventy thousand dollars.

And if you file as a couple jointly, then I would use one hundred and seventy thousand dollars. What if this house is thinking why I wanted find my taxes separately so I can just based 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 spouses income case as a very key point in a big reason why married borrowers that had a, had a spouse that made money really wanted to look into the others. So then save I B, R and pay all of those have the ability to exclude social income k. And thinking about this scenario, if they're able to lower their, their, their income, one hundred thousand dollars you're filing secretly going to be learning their timeless about ten thousand dollars per year OK.

So that can be a huge help when the goal is to end up paying the least to mount over over the term til you hit forgiven us. But IT is hugely almost more 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 thirty thousand dollars and might just be a few thousand bucks actually, that you would pay a file apparent. But if you're in a scene where one that just make a nine hundred k and ones making twenty eight grand IT might be really, really expensive to to file separately. So you definitely run the number is joint levers separately when you're looking at the benefits of abusing IT to keepers, student payments.

awesome. Thank you. And and when you say more expensive to file separately, IT does you don't have to pay turbo tax more doesn't pay you don't have to pay your C P.

A more. What we mean by that is you are using now single filer tax rackets, which are both narrower and shorter. So more of your income gets tax at those higher brackets and a number of deduction get face out, credits go away.

So that's what we mean by um it's more expensive. Your tax bill is often higher. So this is one of those in the weed things that I think that makes sense to have a professional run for you.

Yeah how much when I save on my student loan payments filing separately and now compare that to a reasonable projection, how much more IT would cost me in taxes and that is, uh, the details a lot to be on the scope of today but is not a fair recap. That's a great cook. So I was snarly to I I like the context there of a doctor who could benefit from enrolling into I, B.

R. Right now and who could consider filing separately? Uh now let's take maybe an uh or speed surge in, uh, they're worried about their income becoming too high to enroll in I B R.

So uh let's say SHE makes four hundred or SHE has four hundred thousand dollars in loans, uh, graduating this coming year and things should make like six hundred thousand a year as an attending. This is a situation where the lack of a partial financial hardship could possibly prevent her from enrolling in I, B. R. So what would you have heard 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 one hundred k, one hundred and fifty k or your income is going to be way above IT, your p diggs and neurosurgery, cardiology, whatever may be right? Or you're just just a higher winning physician in your specialty, right? Can you get into the inconvenient payment program? And if you make more than you all right now and you've file attacks to turn on income that is higher than your studio, on baLance, it's gonna tough to get into I B R, OK and IT.

We're not going to get in there now. Member, there's all and there's new. And usually if you're making more, you're not gonna qualify for all I B.

There's a little more breathing room where you can be making about one hundred thousand dollars more than you or in talk to an attending income to to slide into the new I B R. But definitely look into this if you're thinking about enrolling into inconvenient payment. And I know they're some of you out there that are currently in save or were previously in repay.

And if that demolish, that goes away. And you're thinking, well, I I still wanted to public service phone forgiveness, but now I can enroll in the N I B. R.

program. Kay, there i'll be more to come. Kay will keep you posted on that because we all know the answer with that. Yes, if they're going to reopen a payment program that doesn't have any income, uh, phase out because in the repay and in the safe program, there was no income face out, you could get into those at any income. okay.

So let's get back into this this case study here and and talk about, well, what what should this doctor be doing? Should they stay in the safe programme or apply for ivr? And I think there's really no there's there's a couple of key points that this doctor needs to think about.

Number one, I B R is the only option for this doctor, right? So we definitely want I B R. Number two, they need to make sure that they apply prior to their income jumping up, okay, because they just graduated residency this year and now they're starting now they are making the big bug, kay.

And in thirdly, something we haven't talked about yet is there is a payment cap in the r and in the pay program, we thought more about how that works. So so now getting into this know this doctor with them applying to enroll in the I B. R this year, you know, maybe they made ninety thousand as a in twenty twenty three, right? Their income is less than their depth, right? To make in ninety thousand dollars. And there to do, on baLance is foreign. No issues there for them to go ahead and enroll into ibr.

but not for long, right up with this, the time sensitive situation for them because they're about to be in a situation where they have would have to report six hundred thousand of income. So my hearing you right this is, uh, these people have a little bit of a narrow window that makes the call.

There is a time frame and there there's kind of a deadline here where this doctor wants to make sure that they have applied for the I B R plan before they file that twenty.

Twenty four tax return, right? Because think about IT this year, you know you made half years of residents, made four years fifty thousand dollars and then you got your big paycheck and you're going to work if you're attending job for, I don't know, four, five months, they're to make like two hundred and fifty three hundred thousand hours. Throw on to sign on bonus, throw in a relocation bonus.

Maybe they were paying a dip in your last year, right? There's a really good chance this tartar could make more than their student own baLance this current year and be in comes out of being able to apply for I B R. okay.

So really, really, if you're in this scene where your income is expanding, ally jumping, definitely look at at doing that. okay. You know the other point here is that the I.

B. R. Plan has a payment ceiling. And on the way that would work is on four hundred hundred thousand dollars of student loans.

Think of the payment cap is about one percent. That means your payments will get up to about four thousand dollars, which is no measly amount. I know that's that's a mortgaged payment, right? That's that's a bit that's a big payment.

But for those of you out there that are making fifty, sixty, seventy thousand dollars, think about how higher payments could be if you're making sixty grand among that's the six thousand dollar a monthly payment. If you're on A D R plan that doesn't have any of these, these, these payment counts. 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 capture payment and keeps IT lower than that would be otherwise. If you were in a repayment program like repair safe that didn't have the payment ceiling yet.

knowing which plans have a payment cap in which one's don't has been a key consideration um as we've been helping people make these choices so decade, this is wonderful. So i'm here. You say if you're graduating this year or maybe you've get married to another earner, you ve got a big promotion.

If in other words, if you think your incomes go and up a lot, you want to review which plans are eligible for now, in which ones you may or may not be going forward um and you may want to get into the I B R. Now um before your income jumps and that gives you a known payment amount could be fifteen or ten percent um but at least he gives you a payment cap. Is that a fair? yes.

As if incomes going up, take a long look at I B R. Yes, awesome. One other thought on that, lets say you get in the I B R and then later your income goes way up. Uh, 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 your payment. So being able to get in, you see, we say, as a resident, as a fellow, before you make your attending income, make sure you can apply for one of these payment programs because you can really help with that payments seeing and they won't kick out about.

oh, okay, one more scenario. Let's say we got two doctors. They are married and they live in a community property state, one of the thirteen community property states um but two of them texas in california.

They got a lot of our people. So this comes up a lot, let's say once in international and the others cardiologist uh the internet uh, is interested in working at the V A or some other non profit. And the cardiologist is is in private practice.

I see this scenario a lot. So say our internet is going to make two twenty five at the V A, and the private practice spouse is going to make four seventy five h the loan baLance is three hundred thousand. They're currently in save. Should they switch? Think about switching the ivr.

Yeah, I think the short answer on that is, yes, they should switch to ivr. And now the long and give the long answer.

Let's talk about a community .

property states. You know in Taylor and I have worked intimately on a lot of clients that are in community property states, hundred and thousands that are are going through this and trying to figure IT out if you're living in california, texas, liii, ana, arizona, washington, I miss them in there.

If you're in a community property state, you really, really want to understand the tax ramifications, especially you've got to your spouse is as a doctor or somebody that makes money or makes good money. Okay, because you know this couple here should be finally separately usually, right? Because you don't want to have payments based on seven hundred thousand dollars and income you wanted based on just the internet who has student loans, who's making two twenty five.

But if he files separately, what ends up happening is instead of payments based on the two hundred and twenty five thousand dollars that the internet is making, they take the seven hundred thousand dollars of income, and they divided up even way between the so you is the doctor on track to p. Slf has to report three fifty, and your spouse IT also, IT also reports three fifty on their taxes. But what that does is artificially increases your payment.

Number one. And the second issue here now is that that's higher than their student own bounds of three or thousand dollars. So they may not be eligible to even get into the I, B.

R plan. They may be stuck waiting to see what happens with with save or or if the pay planets rein data. Kay, here's the work around. There's a loophole.

The look pole 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 in area three hundred and fifty thousand dollars, you can use your that's reporting the two hundred and twenty five thousand dollars by so doing, IT allows you to enroll in the income baste payment because now your income is low enough that you meet the potential financial hardship requirement. And second, and now you're in, your payments are going to be based off at two hundred and twenty five thousand instead of three hundred and fifty thousand. So that means a lower monthly payment as well.

awesome. Yeah, i've been a fun mop le to show people in those states and and use that work around. And I should clarify in my scenario, the three hundred thousand dollars of loans in my question all belongs to our interns to the V A private practice. Oh no. So um I should make that more clear .

and you know if I can if I can just touch on one one more thing on this case here, pillar, is that this doctor now once they get into ibr, they could continue to use a paste of to file separately. But I know a lot of you are are thinking, but what is the additional tax cost going to be as air?

You know how much deductions are we're going to 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 that would could be about three thousand dollars for is what I would be on there.

Two twenty five of filing separately in ka may not be that big of a difference. So maybe this doctor could file jointly in in future years, right? But these are the sorts of things that we can help you analyze ah you know through through a one on one situations.

So the last little wrinkle there and um you had a great post uh something about like controversial topics in public service forgiveness or and student loans would try. And one of those was that the IOS tax code allows married couples who filed a married finding separately return. The irs allows you to amend those past years years returns back to a joint return after the fact.

So do you want to speak to that quickly and where it's not illegal? Some people might feel like it's uh, ethically gray. We're not here to litigate that. But can you just speak to that uh file separately and amend back to join with to recall your uh, tax savings you we've got yeah so .

lot of couples are going to files separately because IT helps keep their student and payments. But sometimes if pay a lot more in taxes, grand, thirty grand, forty grand, fifty grand. I i've seen everything. So suppose you're a couple and you file separately one year and you have to pay thirty thousand dollars in taxes above what you would end up a pain if you filed jointly, he had the pain another thirty thousand dollars like the married filing separately penalty tax.

But we save maybe fifty or fifty five thousand .

student and payments positive they worth the next year. You get P, S, L, S, well, up to three years after your tax return that has been filed, you can amend IT back to join, so then you could pay, you know, S, P, A, uh, to to go back. And in a man attacks, turn for two hundred dollars or thousand dollars and then you get back that extra twenty grand that you pay to file separately.

And you could do that multiple times. Like there is no there there's no rule. This is you can do that. You just there's only a three year here, the time that you could go back and do that.

The department of education and the I R S.

Don't talk now they're very silent. No so that .

people a minute. And so that is A A useful piece of information now okay, Andrew, thanks for going through all that. Um 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 in which state you live in and marital things.

Since 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, if you look at first assistance, go to student loan advice, stock com, book a consultation. And i've never been more confident in our ability to provide value at five hundred eighty dollars for a consult.

And we're delivering these fifty, sixty, two hundred and eighty thousand dollars savings. It's it's a fun work to be a part of, alright. Everyone seeks so much hanging in there with us.

I hope that conversation was helpful and I wont like there is a part of me that I hopes that I was confusing uh because that is the truth of this situation but our intent is always the W C. I is to be helpful um and get you pointed in the right direction. This is a chAllenging area and we appreciate you listening.

Before we go, I I want to share a review that we had on the podcast and IT is entitle trust the advice. Great title, five star review. Good to see trust for the advice exists in following for a while now, any conflicts of interest are clearly disclosed.

You can get this advice elsewhere with a books, blogs, exec, but it's compiled and an easy to digest format. So no need. Discover the internet, keep up to get work.

Thanks for the wonderful review. Thanks again for your patients with me and with all of us. While we've been um trying 的 come and pinched IT for jim here， obviously no one can do what jim does.

Um and that's not been our intention. Our intention been to just provide ongoing conversation and H A space to connect as a community. Um and we're all very excited to have gym back next time.

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