The most common question that I get about personal finance from residents and early career attending physicians is about how to manage their student loans. Should I refinance my student loans? Should I pursue Public Service Loan Forgiveness (PSLF)? What if I am a high (or a low) income earning specialty? The truth is that student loan management can be incredibly complicated. Sometimes, student loan help is not only necessary, but recommended.
This post is here to help you figure it all out. And if you find that you are in a complicated situation or have a high debt to income ratio, then by the end you’ll know why I recommend you consider getting a student loan consult from Student Loan Planner.
For those who find this too long to read, you should consider getting help with your student loans if you meet any of the following situations:
- Debt to Income Ratios > 1.5
- Those who have a mixture of private student loan debt and federal debt
- People considering pursuing Public Service Loan Forgiveness
- Dual Physician Married Couples who have Student Loan Debt
- You live in a community property state (CA, WA, ID, NV, AZ, LA, TX, WI, AK, and NM)
Making Student Loans Simple
I’m not a smart enough guy to keep everything in my head, which means I have to break things down into practical concepts. This might explain why my calling card as an academic physician is making complicated topics simple.
The best way to make student loans simple is to talk about something called your Debt to Income Ratio (DIR). To understand this concept, let’s use an example. If your annual income is $200,000 and you have more than $200,000 in student loans than your DIR is > 1. On the other hand, if you had less than your annual income in student loans (say, $150,000) then your DIR would be < 1.
Understanding the relationship of your Debt to Income Ratio really helps simply what would otherwise seem like a difficult decision.
Debt to Income Ratio < 1
If you are in the group that finds your DIR is less than 1, then you have less student loan debt than your annual income. This simplifies things quite a bit.
Even if you could pursue student loan forgiveness through PSLF or through the Income Driven Repayment programs, it usually doesn’t make sense. Why drag out your payments for 10 to 25 years when you can simply pay them off in 2 to 3 years?
In this situation, you should almost always refinance your student loans at the end of training. If you are looking for cash back bonuses (or lower interest rates not offered on other sites), you can visit my student loan refinancing page to find some of the best deals available.
For example, I came out of training with $200,000 in student loan debt. Our annual income is north of $300,000. So, instead of pursuing student loan forgiveness, we opted to live like a resident and pay an average of $10,000 per month. This allowed us to pay off $200,000 in 19 months.
You can do the same, if you choose the path of Dr. EFI.
Debt to Income Ratio of 1 to 1.5
This is the middle ground between the two obvious options. With less debt, refinancing your student loans makes a lot of sense. However, as your DIR approaches 1.5, student loan forgiveness becomes more of a consideration.
For example, if you have an annual income of $150,000 and a student loan debt burden of $225,000 that will be a challenging debt to pay back quickly. You can probably do it, but you are starting to increase the time you need to live like a resident to five years, instead of a shorter time line.
As always, sit down and make an intentional financial plan. Then, decide the best course of action for you and your family.
Debt to Income Ratio of >1.5
Here is when public service loan forgiveness comes into play. Imagine an annual income of $300,000 and a student loan debt burden of $600,000. What if your student loan burden is $900,000? Do you just give up at that point and call it quits?
Now, that is trouble.
Here is a situation where you might consider student loan forgiveness. But finding the right kind of forgiveness can be challenging. You might not even be aware of all of the options you have. What if you knew that there were multiple kinds of paths to forgiveness and that the only one you knew about ended up being the wrong decision years later?
You might begin to see why getting help with your student loans would be worth every penny in this situation.
Complicated Situations That Require Student Loan Help
Wrap your head around this. I spend an inordinate amount of time thinking about personal finance and student loan management. Not only do I write on this blog, I have also authored a book on personal finance for physicians. On top of that, I’ve been asked by the medical school where I work to create a personal finance curriculum for the medical, PA, and CRNA students.
Despite all of the time I spend in this arena, when I write posts on complicated student loan topics, I still get some of the details wrong! This stuff can make heads spin, even for those of us in the inner circle of personal finance for doctors.
You might imagine that there are some other classic situations where a student loan consult makes sense. I describe some of the more common ones below to help you sort out exactly where you stand!
The take home here is that the more complex your student loan situation is, the more a student loan consult begins to make sense.
Dual Physician Couples with Loans
One of the more common and complicated situations involves a couple who both have student loans. Are you both pursuing student loan refinancing? Should one of you (or both) consider public service loan forgiveness? If you do that, how should you file your taxes?
This particular situation gets complicated quickly! Did you know that some programs allow you to file taxes separately to save on student loan payments, but that this may or may not be the right thing for you?
In this situation, it would be great to have someone who is a tax expert, who also specializes in student loans for high-income earning professionals. That exactly describes Travis Hornsby, the founder of Student Loan Planner.
A Mixture of Student Loans
Some people graduating medical school have a mixture of loans. Some of the loans are private while others are federal student loans. In this situation, you might have to deal with each set of loans differently.
You might consider refinancing them all together if your DIR is < 1 when you are finishing training. However, if you don’t fit in this situation, you’ll likely end up with a hybrid situation where you do one thing with the private loans and another with the federal.
Debt to Income Ratio >1.5-2
We alluded to this before, but the higher your student loan burden becomes, the more challenging and complex are the solutions.
For example, someone with $600,000 in student loans who earns $200,000 might think that student loan forgiveness through PSLF is the best idea, when they don’t know that they can also get forgiveness through the Income Driven Repayment programs.
Those that know both kinds of forgiveness exist may not be able to accurately determine which course would be the right choice for them.
Essentially, the higher your student loan gets in relation to your annual income, the more likely it is that you would need help figuring out the right course of action.
Common Property States
If you live in a common property state (CA, WA, ID, NV, AZ, LA, TX, WI, AK, and NM), student loans can get even more complicated. The reason is that your income is viewed differently in these states.
For example, if you file separately in these states then half of your income is still considered your spouse’s income even if they didn’t earn it. For this reason, you may be better off being in PAYE given the lower payment.
Given that every situation is unique, if you live in one of these states, then getting a student loan consult is a no-brainer if you don’t plan on simply refinancing your student loans and paying them off in two to five years.
The take home here is simple.
If your DIR is < 1, then just do the simple and obvious choice by refinancing your student loans when you finish training.
However, if you find yourself in one of the complicated situations mentioned above or you have a DIR > 1.5, then I recommend that you consider getting a student loan consult. It will be money well spent towards putting yourself on the right path to dealing with the most stressful financial piece of becoming a physician.
Did you have a complicated student loan situation? How did you figure out what to do? Would you have paid money for someone to make the process simpler for you? Leave a comment below.
I’m currently a general surgery resident: PGY4. Will be done my training in July 2022.
I have 340K Federal (Currently in PAYE), 67K in Private currently refinanced at 4.02%.
My wife has federal loans at 150K. She will not be eligible for PSLF program in the future.
When considering PSLF or not, should I look at myself alone when calculating debt:Income ratio or should I lump everything and consider as my total household ?
i.e. 407K Personal debt with anticipated 400-450K annual household salary upon graduation vs Look at it as 557K total household debt and 400-450K annual household salary ?
PSLF my federal loans (340K) (My residency doesn’t qualify as 501(C) Would have to make 120 payments at an attending salary )
Refinance 67K private and the 150K of my wife’s federal
Refinance it all 557K (Ratio of ~1.4) to private upon completion of training and pay down over five years. I am Leaning towards this option as I don’t really want loans lingering over 10yrs during PSLF qualified payment period
I am a MS4 soon to be PGY1. So my income will from nothing, to pretty good, to great in the course of 4 1/2 – 5 years. With this in mind, how do you calculate the D/I ratio? Would I use expected income as an attending or use resident income?
Hey Joe, used your ANTICIPATED debt-to-income ratio for when you are an attending physician.