Speaker 1 00:00:08 What's up, everyone. Welcome to the finance for physicians podcast. I'm your host, Daniel Raimi. Join me as we dig into what it looks like for physicians to begin using their finances as a tool to live better lives. You can learn more about our
[email protected] let's. Jump into today's episode,
Speaker 2 00:00:26 Jeff. What's up, man? Hey Daniel.
Speaker 3 00:00:28 It's been a great, great day so far happy.
Speaker 2 00:00:31 Yeah, man. Good to have you. We talked to pseudo loans, a couple of episodes back getting your ducks in a row for me. And so today we're going to talk about refinancing. So kind of going the other direction. When is the optimal time to refinance your student loans? So there's a lot of, um, I think timing issues here, there's a lot of different differing opinions and it can get a little, uh, technical. So ideally we can kind of talk through what this looks like, um, when, when the kind of time, and there's also some, uh, situational things going on right now, um, with COVID and all the pseudomonas stuff that we can hopefully iron out for you. So, Jeff, when is the optimal time? Is there a, a easy concrete answer for everyone?
Speaker 3 00:01:18 Well, you mentioned PSLF so if you're going for PSLF, it is not the optimal time to refinance your student loans. Yeah. There's one easy answer.
Speaker 2 00:01:26 And that is the, that is definitely the easy path,
Speaker 3 00:01:29 But for the rest of us, if we're not sure that makes it a little bit of a squishy or topic, right? Hmm.
Speaker 2 00:01:37 Yeah. I would say if you're not sure don't refinance because there's a possibility if given that, you're not sure that would imply there's a possibility you would get, you end up qualifying for PSLF and it's hard to predict the future and you never know. So pulling that refinance trigger is like pulling the plug on PSLF forever.
Speaker 3 00:01:59 Exactly. So I guess maybe first of all, why don't we talk about what are reasons not to refinance out of a federal student loan?
Speaker 2 00:02:09 Yeah, so right now, situational wise, uh, COVID forbearance is happening, uh, where they have for student loans, federal student loans, federal direct student loans, they have, um, made it 0% interest and no payments due. Uh, it keeps getting extended. I'm sure a lot of you're aware of this, but it just recently got extended into, um, what payments will start in February of 2022 and interest will start then as well. So at this point, it's 0% interest, $0 payments for everyone until February of 2022. Also those $0 payments count towards PSLF or count the each payment counts as a qualifying payment towards BSOF. So, uh, that makes it a little appealing to refinance. There's not been really many refinances happening. So when we say refinance, just to clarify, we're talking about, um, taking it out of the current loan, like where you're getting a new lender and that new lender is paying off your old loan essentially, or technically, uh, and then you will have a new loan with the company you've refinanced with.
Speaker 2 00:03:24 So in most cases we're talking federal loans, getting refinanced into new private loans. Um, so right now the federal loans, like I was just getting into, uh, due to COVID for Barron's they're offering 0% interest and $0 payments, which is a heck of a deal. And so I think it's a tough, uh, call to, uh, it would be, I would be hard pressed. It would be rare that I would tell somebody to refinance right now with federal loans period, because 0% interest is as low as you get. Now, there are occasions where I actually talked to somebody about refinancing the other day, uh, even in the federal system, even though they have 0% interest rate, there's some deals out there right now with the private companies. They're trying to compete with the federal system being 0% and they're offering 0% for a period of time. And so I suggested looking into those deals for this situation, because they know for sure they're not going for PSLF and it's just a matter of timing. Um, but when you have any possibility of getting PSLF, I would avoid refinance and even like 20 or 25 year forgiveness, that's the, uh, other big forgiveness program. If you have any possibility of potentially getting good benefit from that, you might ought to be careful about refinancing as well. Right?
Speaker 3 00:04:55 Yeah. And I think that the 20 and 25 year forgiveness is definitely the lesser known forgiveness plans that are out there. Very common, especially well with the headlines that are out there. Everything student loan forgiveness is pretty much talking about public service loan forgiveness, which that's the program where you work and make payments for 10 years and your loans are forgiven, at least direct federal loans. Right. But besides that, there are 20 year and 25 year for giving us options built into, uh, some of these repayment plans that are out there where it's income based all along the way. And after either 20 or 25 years though, balances forgiven and it goes away. Right. And that is a little different because it does not matter where you're employed or even if you're employed. Yeah. And so that, that's one of those areas that you can look at and say, as I run the numbers on this, if there's a potential for that, a benefit, um, you know, we don't want to get out of that and refinance that option away.
Speaker 2 00:06:03 Yeah. If we were to summarize that, basically you want to be very careful. You have examined all the special government federal loan benefits that are out there first before refinancing, because the second you refinance, you lose those benefits. So this 20 or 25 year forgiveness thing, that's one of those big ones. So kind of look into it's a little more complicated, but a lot of physicians will not, they're less likely to benefit from it because income is going to be higher, but, uh, the lower, the income as it relates to the percentage of debt, the more likely that is to be beneficial. In other words, if you have a big, huge student loan balance and a lower, or, you know, below average income expectation, that's when the 20 or 25 year forgiveness makes sense. So you've got the 20 or 25 year forgiveness. You get the PSLF, you got COVID forbearance.
Speaker 2 00:06:58 Those are all, you know, federal loan government specific benefits. There's one more big one that, um, there's a bunch of little ones, but there's one more big one. Um, repay. So the repay interest subsidy is another big one. Now this right now is not in play because everything's 0%. Once they kick back in to charging you an interest rate, or maybe I should say, if they ever get back in, um, once they start charging interest again, uh, with repay IE, half of any unpaid interest gets forgiven. So if you're in training and you have a high loan balance, typically you're not even close to paying even the interest payment when you're paying your monthly payment under repay IE, if that's happening, the difference between the interest that they would charge you and the amount you're paying like half of that, or at least half of that gets forgiven.
Speaker 2 00:07:54 So what happens essentially, or effectively is your interest rate that you see on paper, it gets pulled down. So if you calculate your technical interest rate, like your true interest rate, uh, it's going to be considerably lower. Uh, up to half as low in training is most likely the time that that's going to happen. So you gotta look at all those before you refinance and make sure you've checked off those check boxes and make sure they're not a value now or in the future for you. And once you have, then it's like, you know, refinance as soon as possible because interest rates are low and you know, you might as well get it into a lower interest rate set up. I
Speaker 3 00:08:34 Definitely areas to look at it when you're talking about anything that is interest rate, because that's the main reason you do want to refinance, right, is to get a better interest rate and to make progress on these, these loans without paying the least amount out of pocket
Speaker 2 00:08:47 Over time. Right? And that's why this has not been a big topic until lately. I thought it was going to be loans were going to, I thought loans were going to kick back into having an interest charged on federal loans in, uh, October originally. That's what it was, but it got kicked back to February. But whenever February comes around, it's going to ha refinancing will become a much hotter topic again, because interest will begin being charged again on federal loans. At least that's the plan. There's one other, uh, I guess side note on this, we haven't mentioned yet. What if you have private loans from the get-go?
Speaker 3 00:09:25 Oh, so if you have private loans from the get-go then, well, can we hold off on that real quick? Because we were talking about if we're going for any, any type of forgiveness or even just the interest rate in general, like you said, there, the repay, the revised pay as you were an interest rate, gets a subsidy. So it's lower than it looks. So a lot of people, it looks like it's 6.8%, but you count how much is actually accruing. It's less, but let's say you're not, you know, for sure you're not going for any of these student loan programs, the forgiveness programs, is there any other reason to stay in the federal
Speaker 2 00:10:01 Loans beyond the COVID forbearance perk we got going on now and beyond repays interest subsidy beyond the things I've mentioned already. I mean, there are, this gets into to me like the less beneficial federal programs. There's a lot of things that, that, um, the, the federal loans provide. Like for instance, they have forbearance more flexible. If you get into trouble, income-based repayment in itself is a flexible payment schedule, um, that flexes with your income. So if your income is all over the place, if it goes down for instance, or you lose your job, I would rather have federal loans. If I lose my job, then private loans, all federal loans are discharged at death. Some federal, some private loans are, but not all. Um, there's also a bunch of other little learn, a lesser known forgiveness programs that exists. Some employers require federal loans to be like the hot Davis, uh, student loans, stipend that they'll provide for you. But, uh, they require federal loans or a certain type of loan to be considered a technically alone. So there's, um, those are all kind of a littler, lesser, known, less common reasons. There's a bunch of them though. I'm not even scratching the surface.
Speaker 3 00:11:25 Yeah. I think the one thing you hit on there that I, that at least was in my mind was that the income based repayment, the income driven repayment plans are still there as an option. So if you, if you are not sure what your income is, like, if you're, if you're starting off into practice and you know, maybe you're going out on your own or where you've got some variable pay coming up, and you're not sure what's going to happen. That income based option provide some flexibility there, but probably early on, I talked to a number of residents pretty often that like, there's no chance. I'm not, not going to go for PSLF in anything. I think, well, number one, it's kind of hard to say that early on in residency,
Speaker 2 00:12:07 No chance, like 0%, but
Speaker 3 00:12:09 Let's say it's a hundred percent chance. It's a time when yeah. Maybe refinancing, you know, that you're going to refinance and let's say, let's say the COVID for bands has gone too. So that whole incentive is out of the picture. Do you refinance when you're a year one resident you're two resident.
Speaker 2 00:12:28 I would be very hesitant just because of how many times I've heard people. It's hard to tell somebody that says this, this in the moment, because it's like, kind of almost like saying you're an idiot, but when somebody says like, there's zero chance, I'm going for PSLF, I've heard people say that before, like more than a few times. And then like five years later, sure. Enough, they're in a PSLF qualified job. They just didn't expect it to play out how they, how it did or they weren't totally familiar with exactly how many, what types of jobs qualified or not. So I've seen that happen several times and it's kind of made me go the direction more of a, especially in training, like I would lean heavily towards not refinancing. And it would, I think you have to have a really, really good case if you're going to refinance in training.
Speaker 2 00:13:24 And I would be, I would just be very hesitant and make sure you're checking off all the boxes. And even then I would be hesitant to do it in training, especially. And even after you got your first job, I would probably lean towards like giving it a year because, um, I've seen this specific one specific scenario I've seen where, um, someone was a 100% certain not going for it. They started their first job and it was not qualified job. It was in private practice and they absolutely hated it. It was a train wreck. Uh, they wanted out as fast as, as they could get out. And they basically, it was like, um, four months day in a practice. And then they ended up working for a big hospital, which was PSLF qualified after, you know, eight months and being in the practice when they were 100% sure that they weren't going to do it. So I would probably even think about giving it a year to figure out your first job and make sure it's a good fit. Cause it's all job dependent. So until you are 100% sure your job is going to be awesome for the foreseeable future. There's some risks there.
Speaker 3 00:14:33 Yeah, I, yeah, it's, it's a heartbreaking sometimes to see, like I could have had student loan forgiveness, but you know, maybe there was a choice made early on that, that we refinanced and now it's not available.
Speaker 2 00:14:47 Yeah. Now the whole philosophy, I guess the idea of the forgiveness program, I don't totally agree with it. I don't totally, uh, agree with the incentives that it's creating. Exactly. Or I think there's some issues. I guess what I'm trying to say is I could see there being a really good point to just say, I don't want to be locked in. I don't like the idea of having to lock into anything for 10 years. Like that to me is going to be limiting in your life. Like you don't want to be limited. It's kind of like with employment contracts, we're telling, we tell physicians like, you know, don't sign an employment contract early on in training with a job. I mean, I would be hesitant to do that. I wouldn't say don't do it, but don't lock yourself in to something really long-term when you have no idea what your future going to look like PSLF is kind of like that. But on the other hand, I would say, it's always, if you can, and if it's not that expensive, you might as well hold out that option, like leave the option open so you can kind of play this whole middle ground. Um, and it's not that expensive. Um, because if you do end up qualifying for PSLF, the upside of those numbers are huge. Like PSLF, when you look at the actual numbers for most physicians, especially those that made payments in training, like it's a huge big value if you can qualify for
Speaker 3 00:16:14 All right. So I think we kinda went through the warnings there of, Hey, be careful if you are going to refinance, don't throw away all the protections that are there, the income based payments, like yeah, you're a resident. Can you even afford to refinance that $400,000 loan?
Speaker 2 00:16:31 Yeah. So maybe if you do go through all the checks and you are like certain, there are a few S refinance companies that offer like resident specific, uh, programs where they'll charge you a hundred dollars a month or $0 a month. Like essentially, uh, they try to replicate income-based payments and they'll offer you a lower rate. So from a pure rate standpoint, you could probably get a better rate in training even, and get a medium, you know, a reasonable payment. But you know, like, like what you're saying, I would proceed with caution. And now when you're in practice is a little different story because a lot of times in practices, like let's pay this thing off as fast as possible. So that's, that's kind of a different, um, you're not as much worried about the payment. It's more about, it's all about interest rate if you're in that situation.
Speaker 3 00:17:17 All right, good. So there, there is an option there for, right?
Speaker 2 00:17:22 Yeah. It's a, it's an option. It's just a federal loans look pretty good right now. All
Speaker 3 00:17:26 Right. So we've, we've decided we're refinancing. It doesn't make sense to stay in the federal program anymore, or you brought this up, we're finally going to circle back to it. I've already got private loans.
Speaker 2 00:17:38 Yeah. So everything we've talked about so far, throw it all out. If you have private loans because you're already out of the federal system. So none of that's relevant that we just talked about in that case, you already have private loans. It's like refinance as soon as possible. It's all about interest rate.
Speaker 3 00:17:55 Yeah. And interest rates are pretty stinking low right now for refinances aren't, they,
Speaker 2 00:18:02 They are extremely low. So sooner the better sometimes it's just about making it happen. Going through the I'm looking for, there's a bunch of different private loan companies that will refinance. Um, you can use a company like credible that will look at a bunch of companies all at once. Kind of give you like the whole landscape.
Speaker 3 00:18:22 What happens if I refinance my private loans again? Like what if I, what if they, what if rates drop?
Speaker 2 00:18:28 You can just refund it again and again and again,
Speaker 3 00:18:32 And again might even get a nice little bonus each time you do it. If you go to right now, oh, might even be worth your time.
Speaker 2 00:18:39 It's like, they'll pay you a thousand dollars, $500 or a thousand dollars to has a welcome bonus if you refinance with the different companies. So I think our average client, well it's stopped for the past year or two, but like back in the day, when they were actually charging interest on federal loans, it was more common. But ever since COVID interest rates got low and government loans were 0%. But our average client in a normal environment is probably refinancing four or five times over the course of their repayment, just cause, um,
Speaker 3 00:19:10 Well, interest rates have been going down, down, down as they've been paying. Right.
Speaker 2 00:19:14 And then their term is getting shorter too, even if they don't over pay, but a lot of them were overpaying. So like say you started with a 10 year term, you're making payments. It's three years later. Now you might as well look at seven year refinance terms. And usually they're a lower interest rate. Or a lot of times you refinance straight out of training. The companies are usually the refinance companies like the credible or the, you know, sofas and those kinds of companies. A lot of times they won't give you their best possible rate right. Out of training just because they say it's a risk, you know? So maybe they give you a four and a half percent rate when the best rate is like three. Uh, so refinancing again a year later, a lot of times just gets you back down to that 3%. So on average, it's something you want to revisit every year or two, I would say, but rates right now are particularly low,
Speaker 3 00:20:07 Which brings me to my, I think this is probably the last question, but the toughest one to answer. Yep. So my student loans, Daniel, they I've got my student loans, they're federal loans. So to get that private stuff, they're federal loans. They're at 0% until February, then they kick back in. But I know that I want to refinance them. I'm not, not going for student loan forgiveness. I'm ready to do it. Should I do that now? Or should I wait until February
Speaker 2 00:20:36 Until COVID forbearance is over
Speaker 3 00:20:38 Right until, well, yeah. Assuming that COVID for parents ends.
Speaker 2 00:20:42 Yeah. I mean, if you'd asked me this question and like, so right now when we're recording this, it's an Argus. If you'd asked me this question in like July, I would have been like, just wait until September when they're cause they're for sure going to go back into repayment in October, but we've gotten now in this thing where it keeps getting extended. So I'm starting to be like, they're probably going to extend it again, even though they said they weren't going to. So, um, that's an, a difficult question because I think if I knew I was going to pay it off fast and I knew I was not going for PSLF, I would just be like, I'm done with this whole game. Like this is too much stuff to deal with. Like, let's, let's just stop with, I hate having to pay attention to all this and, you know, have the potential and maybe the potential for let down.
Speaker 2 00:21:33 And once you're repaying alone, fully like the swing of, if you interest rate points, especially if you're going to be really aggressive with it is not as big of a deal. So going back to the, a couple that I was talking about earlier, uh, I had told, I had suggested earlier this week that somebody should go ahead and refinance now, but it's because they are, they're not going for PSLF and they want to get aggressive with it. And I'm like, I explained to them, you know, there is this chance they keep extending COVID for parents and extended it. And they're like, we don't even want to mess with that. And I'm like, perfect. And then they're wanting to get very aggressive with it. So for them, it's like, not that, uh, you know, they're going to get like a two and a half percent interest rate when they refinance.
Speaker 2 00:22:17 So even if it does get extended again and again and again, 0% does, they're still really only losing two and a half percent. And based on how aggressive they're going to pay it off, that's not like that huge of a deal. And at some point you just have to make a decision. So I would lean towards just like making a decision and getting it done. And if you can find like a little, um, I guess, incentive or help to kind of make that a little easier, if you can find a company that will honor a 0% interest rate, there were there were companies doing it. Um, in back a few months ago where they were honoring a 0% interest rate while the government was, I don't know. I haven't heard of if they're extending that or have any companies extending it until February or, or January. Have you heard, heard of that? Jeff?
Speaker 3 00:23:03 I hadn't heard about it tied necessarily to when student loans kicked back in. I think I had heard about it going until like December. Yeah. So actually at that point they were overshooting. Right.
Speaker 2 00:23:15 But now they're undershooting. So I mean, if you can find a deal like that, where, um, I think the companies I remember doing it were possibly, uh, so Phi and a common bond. I think those were the two, if you can find a deal like that, that just makes it better. So I would lean towards moving on with life, refinancing it, paying it off as fast as possible once, you know, PSLF is out.
Speaker 3 00:23:39 What if you don't want to refine it? Or what if you don't want to pay it off as soon as possible?
Speaker 2 00:23:42 Yeah. That's where it starts to get more expensive when you're dragging it out. So if you're like, I'm going to get a 20 year repayment plan, like I'm looking at 20 year refinance, that starts to be like the interest rates more important. Um, and so plus, so I could see there being a case to refinance even in that situation, mainly just because you want to lock in that interest rate.
Speaker 3 00:24:06 That one, I think is probably the toughest scenario of all right now.
Speaker 2 00:24:10 Yeah. It's made it really difficult to make decisions. That's the part I don't like about it is it's made it a very difficult for a while. There's people holding out on refinancing because they thought that they might get, uh, you know, just a one-time forgiveness. You know, I think that's kind of died down a little. It's still on the table, I believe. But people were like, I'm just going to wait until they say for sure if they're going to do that one time forgiveness, but it's like, how long do you wait? I don't know. Personal preference is what it really probably comes down to. And the future is unknown.
Speaker 3 00:24:42 It is. That's what makes it tough. Doesn't it?
Speaker 2 00:24:45 Yep. That's right. We like to talk about the future, but uh, at the end of the day, you never know. So,
Speaker 3 00:24:51 All right. Any final thoughts on reef, whether a refinance or not when's the right
Speaker 2 00:24:55 Time? No, I think that's kind of the, um, the high level, but if you guys want to dig into refinancing more, give us a shout, let us know. Um, send me an email. We can, there's a lot of this is a big topic. Um, student loans in general is a huge monster topic. And so we're kind of hitting the high points here, but if you have stuff in particular you want to talk about, or you want us to talk about or questions, feel free to reach out. We would love to hear from you, Jeff. Good. Hanging out.
Speaker 3 00:25:26 Always great. When we're talking student loans. That's right. Talk to you later, man,
Speaker 1 00:25:30 As always. Thank you so much for joining us today. If you found this valuable, please give us a review on iTunes and share with a friend. Also check out our
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