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By Dr. James M. Dahle, Founder of WCI
For 3/4 of medical students (and other professionals), dealing with student loans is part of the sacrifice they have to make to become a doctor. Living frugally and not taking out loans too soon is the mainstay of managing student loans during school, but when school is over, there are a few tricks fourth-graders should know. Don’t be the person who wastes tens of thousands of dollars by not knowing these simple tricks.
#1 File a tax return
Every graduate student with student loans must file a tax return for the previous year. Yes, we all know that you probably had no income and are not required to file a return. So why file a case? Because that’s how you prove your income when you enroll your federal loans in a federal income-based repayment (IDR) program. If you don’t, the program will use your intern pay stubs and your required payments will be higher. This means lower cash flow during residency and, more importantly for many, less to be forgiven through the Public Service Loan Forgiveness Program (PSLF) or even IDR Forgiveness Program.
#2 Consolidate your federal loans
As soon as you can (usually right after you graduate), consolidate (not refinance) your federal loans. This turns all of your various federal loans into one big federal loan and gives you the weighted average interest rate rounded to the nearest 1/8th of a point. It’s convenient but not really the purpose of consolidation. When you leave school, you automatically benefit from a grace period of six months. However, you don’t actually want a six month grace period unless you are 100% sure that you will NOT go for PSLF or IDR forgiveness. If you think there’s even a chance, consolidate your loans. This allows you to waive the grace period and start making payments immediately. Don’t worry, the “payments” are probably $0, but they will count towards the 120 monthly payments required for PSLF (or the 240-300 payments required for IDR remittance). Start this clock as soon as possible.
#3 Take out some extra cash
In your final year of medical school, you’ll probably want to borrow a little more money than your budget indicates for tuition. While many residency interviews can now be done through Zoom with very limited expense, there are still a few places you can visit. You will also have moving expenses, including first and last month’s rent and a deposit. Also, your first intern salary may not arrive until the first week of August. You’ll probably want to eat something between graduation in May and August when that check arrives. If you can get it, having some extra student loan money is probably the best way to pay for all those expenses. Is it fraudulent since it’s not technically school expenses? I would call it a gray area, and I like to call the gray in my favor. Certainly, the interest rate will be better than what you can expect from a private loan or your credit card.
#4 Refinance your private loans
While the majority of graduating students with federal loans will (and should) enroll them in an IDR like the Revised Pay As Your Earn (REPAYE) program and therefore should not refinance their federal loans yet, they should all refinance their private loans. While it’s attractive to put them in some kind of forbearance, the truth is that you’ll end up paying later. By refinancing them now, you’ll get a lower interest rate and save thousands of dollars during your training. Many fear having to make payments during residency, but companies that refinance your loans at the start of residency also allow you to have payments of $100 a month – and even a broke intern can afford that.
Refinance your student loans today!
† Bonus includes cashback and free course value. Borrowers who refinance more than $60,000 in student loans using the WCI links will be listed at The White Coat Investor’s flagship price, Fire your financial advisor for free ($799 value). Borrowers will continue to receive the incredible cash rebates that WCI has negotiated with each lender. Offer valid for loan applications submitted May 1, 2021 through May 31, 2022. Free course must be claimed within 90 days of loan disbursement. To claim a free course registration, visit https://www.whitecoatinvestor.com/RefiBonus.
#5 Get advice
The hardest part of managing student loans is during residency. It’s much simpler when you leave the residence than when you enter the residence. If there’s a time to spend a few hundred dollars for professional advice and coaching to help you manage the numbers with your various options, it’s when you’re starting residency. You want to know which IDR to sign up for, whether to refinance, how to file your taxes, and even which retirement accounts to use. While the answer to these questions can be very simple for single doctors and doctors who are married to non-salaries (refinance private loans and enroll in REPAYE), they can be very complicated when you are or will soon be married to another support. Our recommended resource is StudentLoanAdvice.com. A $479 investment now saves you research time and reassurance, and it can also save you thousands of dollars in student loan management mistakes.
#6 Get educated
We (try to) give away a free copy of The white coat investor’s guide for college students (through our WCI Champions Program) to every freshman medical and dental student nationwide each year, but we do not give them to fourth-year students. If you don’t have a copy yet, we recommend you grab one. It’s only $9.99 on Kindle, but the education you’ll get from it can literally be worth millions of dollars over your career. You certainly have time to read it at the end of your fourth year, and there is no better time to acquire financial knowledge.
None of this is complicated, even if it’s new to you. Rest assured that thousands of physicians have already taken this route. They took advantage of these “tricks” to get their journey to student loan discharge off to a good start. You can too, and we’ll be with you every step of the way.
What do you think? Did you take out additional loans in your fourth year? Have you pooled your credits to start the PSLF clock? Did you file your taxes even though you didn’t need them? When did you refinance your private loans? Have you received any advice specific to student loans? What books do you think a graduate student should read before starting residency? Comments below!