My girlfriend just graduated as a pharmacist and got into a residency program, super proud of you hunnie! This gives me 1 year from June 17th to make a plan on how to create a FIRE (Financial Independence, Retire Early) plan for both her and I.
UNFORTUNATELY her loan is a massive $250,000 (before interest)! A crushing debt for anyone coming out of college. There can be worst problems in life to complain about, so let’s get a cracking.
I’m no financial expert, just a guy trying to help a gal out, not that she needs it, bc she’s awesome. There are multiple strategies here but please feel free to help a brother out.
*disclaimer, below scenarios are based off of our current situations, does not/should not apply to everyone reading this blog.
#1 – Standard 10 year pay down schedule
Pro’s – slow and steady wins the race, no fuss, no muss, just don’t miss payments. $2,900 payments for 120 installments. Interest paid $98k. Repayment total: $348k. Based off a $120k salary living in California, she would have $3660 of expendable income to live/invest after a $2900/mo loan payment. That’s $44k a year to play around with. If we take $19k in 401k (not counting potential employee match) and $6k for a ROTH we’d be left with $19k for additional savings and living expenses.
Con’s – We’d pay $98k in interest.
#2 – Debt Forgiveness Programs – https://studentaid.ed.gov/sa/repay-loans/understand/plans/income-driven
Pro’s – Pay only 10-20% of your annual income towards loans, after 20-25yrs, debt is forgiven. OR work at a federal/public health company which qualifies for the 10yr forgiveness program (just make minimum payments here, 120mo x $1200 means only paying $144k before debt is forgiven). That’s a savings of $106k+ (no income tax off of forgiven debt if working for a federal/public health company). So far this looks like the best financial decision, due to the fact that you’ll only pay $144k out of a $250k loan, Amazing! Let’s keep looking.
Con’s – If we took the 20-25yr forgiveness program it’d be slower than molasses (10% of 120k income = $1,200 x 240mo = $288k in repayments before loan is forgiven), we’d only save on the interest due to long time frame but you have to pay income tax on remaining balance that is forgiven which in this case would hover around 220k+ of forgiven interest/loan balance. If we were to pay income tax on $220k of the forgiven loan 20 years from now @30% state/federal, we’re looking at $66k in taxes. That’s $100k+ taxes/interests owed, we’d rather stick with the 10yr repayment plan, NEXT! The 10year forgiveness plan (PSLF) working for a federal/public health company is not too bad at all. Con’s of the 10yr forgiveness plan is having to work at a federal/public health company for 10 years. What if you hate it? Something to think about. The PSLF might also be discontinued by the government, along with chances that you may not even get approved after 10yrs of payments, so very risky move here.
#3 – State Sponsored Loan Forgiveness Programs – https://studentloanhero.com/featured/pharmacist-loan-forgiveness-guide/
Most health professions have state sponsored ‘loan forgiveness’ programs. These are funds to supplement areas where there is a designated shortage of health professionals…..HPSA (Health Professional Shortage Areas). They are typically 2yr contracts with a repayment aid ranging from $25k-$60k. JACKPOT!
Pro’s – Short term contracts, major assistances granted! $120k for a military contract! EUREKA. Tofu does not want to go to the military program (nor would I want her to go!) Moving to a shortage area could mean a lower cost of living, possibly a state with ZERO state income taxes (New Hampshire, Texas, Florida, Nevada, Washington….)
Con’s – moving to a shortage area could incur HIGHER living costs vs living at home and toughing it out. What if there is no public transportation, what if public transportation is not safe, what if you have to pay higher rent, all things to consider. Moving means moving expenses and having to get out of your comfort zone to make new friends and find new activities (actually doesn’t sound that bad!)
#4 – SNOWBALL effect + Live like a broke college student
Pro’s – We can pay down $250k in 3.7 years without any assistance plans. We’ll only pay $34k in interest bringing our total repayment to $284k. Monkey off your back in 3-4 years vs 10-20 years. Debt Free. Sleep happy. Start saving for FIRE
Con’s – No vacations, no eating out, no extra expenditures for 3.7 years. Entire paycheck goes into loan. We both live off of my income for the next 3.7 years.
Next weeks article, I’d like to dive into our actual FIRE #’s and plan, stay tuned.