Have you struggled with trying to decide how to tackle your mountain of student debt?
Have you felt like pulling your hair and throwing your hands up in frustration over all of these options?
PSLF, IBR, PAYE, ICR, & REPAYE. All these acronyms floating around in your brain and you aren’t sure which one to choose!
Well my friend, no worries we have your back covered today!
Welcome back to our monthly fireside chat with a physician to get to know their journey, their joys, and their struggles with finances and outside of finances.
This show is not always about actionable content. It is however a chance for you to see behind the curtains, to walk in another person’s shoes and experience their lives.
Our next guest was kind enough to allow me to guest post on his blog for the second time and now he is generous enough to share with us his journey and his wisdom.
I wanted to invite him back because he is a wealth of knowledge! As a matter of fact, he helped my wife and I save a few hundred bucks on our phone upgrade.
He is currently a radiology resident at Florida Hospital Orlando. Throughout his medical education, he’s noticed a surprising lack of personal finance knowledge among young medical professionals, many of whom are extremely bright and talented. Hence, he created a blog, FutureProofMD.com
Currently, he’s been focusing on topics relevant to a recent medical graduate such as loan repayment and financial organization.
I can’t wait to get an update from him!
Please help me welcome Dr. Bo Liu
In this podcast, you will discover…
- Why he switched from IBR to REPAYE
- His inspiration to start a blog
- Learn how you can get the government to subsidize the interest on your loans
- Why you need to understand the difference between subsidized & unsubsidized loans
- Why paying zero is a good thing (Hint: It leads to a lot more of something good)
- Discover the burden of capitalized interest & why REPAYE wouldn’t be a good fit for some doctors
Resources Mentioned In This Podcast:
- Department of Education’s Repayment Estimator – Great tool!
Dave: My name is Dave Denniston, your host and welcome back to the latest – Freedom Formula For Physicians Podcast. Now, welcome back to our monthly “Fireside Chat With A Physician” to get to know their journey, their joys, and their struggles with finances and outside of finances. And my friends, this show is not always about actionable content. It is however, a chance for you to see behind the curtains, walk in another person’s shoes, and to experience their lives.
Now, our next guest, was kind enough to allow me to guest post on his blog, for the second time. And now he’s generous enough to share with us his journey, and his wisdom. I wanted to invite him back, because he’s a wealth of knowledge. As a matter of fact, my wife and I save a few hundred bucks on our phone upgrade. So, thank you sir. He is a currently a radiology resident, at the Florida Hospital, Orlando. And because he was so passionate about wanting to help with financial education, he created a blog – www.futureproofmd.com. Currently he’s focusing on all kinds of great topics, everything from stocks, to debt, to anything on his heart in getting great deals. I can’t wait to get an update from him. Please help me welcome Dr. Liu. Welcome back Bo.
Bo: Thanks Dave. Thanks for having me back. Well hey man, just for those of you that didn’t catch our last episode together. May not be familiar with you. Can you just a couple a minute recap, who are you? And what are you all about? Of course, my name is Bi Liu, I am a radiology resident, at Florida Hospital, in Orlando. I also run a money blog, as you have gladly introduced, called, “Future Proof M.D. So, my goal is to become one of the best Interventional Radiologist, you can send your patients to. And also, help everybody get ahead in finances.
Dave: Well, I think that’s an awesome mission. And what inspired you to do that, and be familiar with that? Well, I started my journey a long time ago. I was always interested in finances and math. But, I really got started during internship. I went to a physician specialist advisor group that where they gave out a lot of information. And what I noticed that a lot of information that given out were patently false. And that kind of gave me the motivation to start my own blog. So, instead of having visual conversations over and over again, with all my colleagues. I can have a singular loud speaker, if you want.
Dave: Absolutely. I think what’s interesting about you and your journey to me is? Your opened to where you at, and like so many other physicians that come into residency. This struggle with debt is, one that you personally grapple with. You want to talk about that for a little bit?
Bo: A yes, actually, I think I have a typical path through the American education process, medical education process. I left medical school with over 6 figures in debt. And I still have about a $160,000.00 left on that. So, one of the great things, I’ve decided to do is, take advantage of public service forgiveness. And if you could tell from reading my blog, I have a passion for education and just so happens that most academic medical schools happen to be non-profits. And that would qualify me for the Public Service Student Loan Forgiveness Program, so that’s my current plan.
Dave: It’s so interesting Bo, to just go back and forth a little on this. To me, you know, when you have like $150,000.00 in debt, $150,000.00, you know, to me I think if someone has $300,000.00 in debt, going for loan forgiveness is like a total no brainer, right? Because you pay the same amount regardless of what your income is? So, I would love to hear from you. Why are you, going for debt forgiveness? As opposed to looking to pay it off sooner. Refinance rates are the different choices that we have.
Bo: Well, actually I posted several times on this topic. I’ve for me personally, just the perfect storm, of where I want to be in my future career choice. Like I said, I wanted to teach medical students how residents, and so, there’s a very good chance I’ll be working for a public university or another non-for-profit healthcare provider. As far as the payment, as you may know, is pegged to, there’s this, income driven re-payment program. There’s multiple different options within that program. But they are all pegged to your monthly payment to your income. And it’s a very, very, generous allowance, if you will? I’m currently on the 10% payment plan on the re-payment plan. So, I can go into more detail about, I’m not sure how deep we should dive into this?
Dave: Let’s get deep into it. Because I think this is a really interesting choice because I know for you, you had a guest blog on “The White Coat Investor.” Which I think you’ve done a few times. And you talked about you were on, pay-as-you-earn, I think, if I remember correctly? And then you switched to this newer program, “Revised, Pay-as-you-earn.” So, tell us a bit about that? And how that switching happened and what your thoughts were about it?
Bo: So, let’s get into the reason’s a little bit. I’m a little excited here. So, when I left medical school, I opted to go on, “The IBR, or The Income Based Repayment.” And the main benefit of that, is your monthly payment is limited to 15% of your take home income, that’s above the poverty line. Which is actually a pretty good, basically it leaves me 85%. Of my income to live off of, which is really great. Late last year, in December 2015, as part of the effort to address the growing student loan epidemic. The Obama Administration announced an expansion of the pay as you earn, or PAYE program, called, “Revised Pay as You Earn” and that’s the repay, RPAYE. So, I did not qualify for the original PAYE program. Because I was a order borrower, as in the sense, I had student loans prior to 2007. Therefore, I did not qualify for the original pay program. But, with the new expansion of the availability of re-pay. Anybody can sign-up, as long as they have Federal Student Loans. And what that does is? Lower, remember I’m at I mentioned the 15% number that lowered that number 10%.
And on top of it, you do get additional interest subsidy, in the sense that it lowers your monthly payment, does not cover your required interest payment. The government will pay half of all your interest.
Dave: And so, let’s recap, just to make sure everyone understands. Before, there were basically two programs that most people chose. There are other ones that you pay more, like ICR. But, you chose the income based repayment, IBR. Because you didn’t qualify for pay-as-you-earn, initially. Did I capture that right?
Bo: That’s correct.
Dave: Now, does that undergrad. debt I assume?
Bo: That’s correct.
Dave: So, it’s your undergrad. debt that kinda forced you to go on IBR. And then, you have this new program available with revised pay as you earn, Re-PAYE, as we call it. So now, you could drop your payment. But, I know with this program, and I haven’t, to be honest, I haven’t dug into all of the numbers I have that kind of conception actually in my head. But, from what I understand, the big difference here, is that there is no cap on your, what you can pay back. Whereas before, there has kinda been a cap on your payments. With revised pay-as-you-earn, as opposed to this IBR, or the normal old Pay-as-you-earn that you didn’t qualify for.
Bo: That is correct. So, as part of this student loan expansion, they are trying to discourage high income, high debt borrowers, such as doctors and lawyers. And as part of that is, they got rid of the capped monthly payments. So, for example, in the past, when, on the PAY. Or, PAYE or the IBR Plan. If your monthly payment which is pegged to your income, or to rise above what your standard payment was with the ten-year standard repayment plan. You are automatically switched back to the standard plan. Which, means your, for example, for my 105th year $160,000.00 in student debt or so, that means, my monthly plan can never rise above about $1700.00 a month. No matter how much money I make. However, with the repay plan, they specifically designed it, so that’s no longer the case. So, if you make like, a gazillion dollars. Your monthly payment may well rise above the $1700.00 or so. Personally, for me and that limit. But, one of the great things about the income driven plans, is that you can switch back and forth between any of the plan’s options at any time. So, my current plan is right before I leave and start making the big bucks. I will transition back into IBR.
Dave: Well, alright. Let’s pause her for a second and go to our commercial break.
Dave: A, okay. So, that will put a cap up on it. And from what I understand about the revised pay is? You earn the other nice thing is that your interest is being subsidized, right? To a degree at least, especially when you’re in a residency and or a fellowship. So, what that means to me? From what I understand of it? And correct me if I have this wrong? Is that, for example, Let’s say that you are making $50,000.00 a year, $55,000.00 a year as a resident. And you have a payment of $100.00. That all goes to interest. So, let’s say you have $200,000.00 or more loan. And you paying 7%, $14,000.00 would normally be your interest. That the government says, okay, you’re making $100.00 a month payment. There’s $12,000.00 you’re paying in interest. But, the rest of that $14,000.00 we’re not going to add that to your loan balance, like IBR does right now.
Bo: Actually, very close. So, under IBR, your subsidized loans are subsidized entirely for 3 years. You have any interest that your payment does not cover. You don’t have to pay any of that for three years after you start paying. However, if you have any un-subsidized loans? And your payment does not cover interest. You are responsible for all 100% of the unpaid interest.
So, under repay, the first 3 years, is the same, for subsidized student loans. However, they added additional benefits in the sense that even if you have unsubsidized student loans, and you’re payment does not cover the entire interest that’s been accrued. They will pay half of the uncovered, or unpaid, interest on your unsubsidized loans, and even beyond 3 years. They will still pay half, of your uncovered interest, in perpetuity essentially for both your subsidized and unsubsidized
Dave: So, the real difference is, unsubsidized loans.
Bo: That’s correct.
Dave: And so, that which, when student loans, how much are unsubsidized loans? Verses subsidized student loans? You know, if you broke it down for yourself.
Bo: I think for myself, there’s pretty typical, for me it’s about $110,000.00, out of my $160.000.00, or unsubsidized. And the reason for that is, there’s a limit, as to how much subsidized loans you can take out. So, I would expect. Most medical graduates if they had taken out the loans in the same fashion I had, would have a similar, maybe 3 quarters or 2 thirds, unsubsidized loans, versus a quarter to one third subsidized loans.
Dave: So, someone who has $250,000.00 to $300,000.00 in student debt. You would think 50K would might have more than 50K in subsidized loans for example.
Bo: Let’s see, it’s a, subsidized loans are limited to $8000.00 something a year.
So, that would be no.
Dave: Maybe 50K, might be about it? For then or so.
Bo: That’s probably the max.
Dave: That’s probably it, for the larger your loan balance. And perhaps, the more beneficial this program is to be.
Bo: That is correct. That does not mean you have more unsubsidized loans.
Dave: Okay, okay. That’s good to drill down, awesome. Now, it was interesting. And I will tell you a quick story. I was trying to get more information about this. And of course, look it on online and it wasn’t that helpful, relatively. Let’s really break it down, like we are right now, I didn’t think. And so, I called, to ask more about it. And you know it’s like, every time you talk to someone. You kinda get a little bit different answer. When you talk to someone else in the government. I don’t know if that was your experience? What for you, in terms of grabbing these resources, getting this knowledge, making these decisions. Where were you looking, as you would look at that, these different programs?
Bo: So, I had the exact same experience, as you. Every time I called, Federal Loans, I would get a different answer to the same question? So, what I ended up doing. I actually just went to the source. I dug through the department of education, the actual documents regarding this. And I found the correct sections, in the words. And also they had a very high helpful IT guy. Document, which stands for, when you ask questions. Which answers a lot of this, information, so, that’s how I got most of my data. And of course, even with that, I still needed some help. And that’s why when I put my guest post up at “White Coat Investor.” There was some very helpful comments as well.
Dave: Awesome, awesome, awesome. And if you don’t mind, if you could Email me some of those resources. I’d appreciate it, so I can link to it in the show notes, as well as your article, that’d be great!
Dave: Awesome. Now, one of the questions I had that came up while I was even talking to some other bloggers. And there is a little bit of some confusion about? I would love to know, what you’re take is on it? Is, there’s when someone starts residency. Of course, you’ll want them to sign-up for these programs as soon as possible, right. Start getting credit for this 10-year program, if they’re going to go that route. I encourage everyone to do it. So, that way you have the option later on in life. Whether you chose IBR or Re-PAYE, I don’t care, just sign-up for something? But, when you start residency. Most residence don’t have any income, prior year right? So, they will tell you usually you start out with 0 payments. And this was one of those questions, I was trying to get answers. And I was getting different responses from: Bloggers,
the Feds, everyone. So, is your impression, do you get credit, you’ve enrolled in the program. You didn’t have any prior income. And you make a $0.00 payment. Are you getting credit for that, towards your 20 payments?
Bo: You are. Actually, that’s probably why, one of the program for people transitioning from Medical School, to Residency. In fact, it’s the specifically address in that frequently asked questions document. I will Email you after we’re off the air.
Dave: Awesome, okay, that’s great news. So, you get zero. And then the other thing that I’m most concerned about with? Revised pay as you earn is? Of course these things. Can change, and often you get grandfathered into it. But, let’s say, someone, is not going to be going to a non-for-profit like you are. And they do revise pay as you earn. Where their payments are lower. And they don’t, they have their interest subsidized for the unsubsidized portion of the loan. So, with that, You know, some one has $300,000.00 in debt. Now, let’s say they end up getting married. They wind up going into private practice. And they want to end up refinancing their loans, or something? Like a so fire BRE or Earnest, or Lend Key, or whoever picked the refinancer. Will the government end up adding back to this interest some. But you are no longer involved in the loan program. Who do you think, what is your impression of that?
Bo: Yes, yes, in the unaccrued interest? Is actually just listing on your account is unaccrued interest. I’m sorry capitalization interest. So you can see the interest, that is accruing every day. Every time you log into your account. So, if you are to leave the federal system at any given time, all the interest will capitalize, and you know, when you refinance. You will end up paying the full amount of that. So, if someone, is 100% for sure not going to pursue public service, and forgiveness. My goal, my advice for them, is to refinance, at the lowest rate possible, at the very first day of residency. And then, refinance again, once they leave residency. So,
Dave: Interesting, okay. So, that, that definitely clears that up. Because, and I think that’s something that a lot of residents grapple with, right. Because maybe they’re not sure what they’re going to do? They don’t know, and I talked to a lot of people that are kinda like, Eh, maybe I will, maybe I won’t, I don’t know?! What I’m going to do? Whatever fits my situation best, so that there’s a lot of lack of clarity for folks as they start residency, right. So, what guidance. See, another resident comes to you, and they say, Bo, I don’t know what to do? I’m not sure where I’m going to go? What advice would you typically give them?
Bo: I would sit down, and do the math. As part of my guest post, like any investor. Calculated, what the numbers will be. To me, it ended up being better for me personally, to go to the new Re-PAYE plan. And if anyone came to me, I would offer the same law of service, of advice to them. Is to kinda sit down, get an idea of where the interest subsidy, how much is your actual APR? So, for me, factoring the interest in. So, you might actually
APR on my Federal Student Loans is the flat, around 4%. When you compare that to the refinancing rate you get on the market these days, is around 3.95. So, you have very minimal difference. So, from me, that’s how I decided to stay put. Now, you can always switch out of the public system. But, the key is, once you’re out, you can’t switch back in. So, that’s how I decided to stay on the federal system.
Dave: It gave you some more flexibility. So, if you do decide to change your mind down the road, you could. And, I suppose you could switch to IBR. And then that interest, yes, accrues back at that time? If you did that?
Bo: That’s correct. Anytime you switch repayment plans, your interest is capitalized.
Dave: Interesting. Oh, well, we’re running out of time here. I told Bo before we started today actually, my wife is shooting a music video. So, we’re going to cut this a little short. But, Bo, so much knowledge I want to bring him back in the future. And Bo, I would love for you to leave some final thoughts for some people? Some resources they might check out. Any blogs of yourself that you think are worthwhile, to read up more on this stuff.
Bo: Of course. Thank you, Dave for having me back. The first resource you should check out as always, gonna be the Dr. Freedom Formula For Physicians Podcast, with Dave Denniston, your host. And additional resource, who would be interested in a big inspiration for me is,
“Dr. Jim Daily Investor Blog.” As well as a new comer, “Physician on Fire” of course you have “A Future Proof of M.D.” Other names you may have heard of, include – www.drwisemoney.com, as well as www.incomemd.com you can kinda just kinda search for Dr. Money blogs and ones you see one. We tend to network a little bit. And you’ll start seeing more names pop up.
Dave: Proliferate like rabbits.
Bo: That’s correct.
Dave: More and more coming around. So, Bo, any other guest posts that you have done? Or post things that you’ve done, that you think are good on this subject? Do you want to direct people towards?
Bo: A, yes. I have a few links on my site actually, the most popular post online blog is? A post titled, “Repay vs. Pay, Comparing the old pay as you earn, with the revised pay as you earn.” And in that article, I have several links to additional postings that made sense then.
Dave: Wonderful. Well thank you so much for being with us. Just in case people have more questions? How can they get in contact with ya?
Bo: Come visit me at www.futureproofmd.com.
Dave: Awesome. Well, my friends, so glad to talk to Bo for a few minutes. And I’m going to bring him back, because we ran outta time today, to talk about some of the other stuff, that he’s doing on his blog, and the deals. Make sure to check out his blog for some of the deals he posts. He’s awesome about that. I don’t know any other physician blogger doing that. So, Bo is doing a fantastic job doing that. And if you would love to be a guest, we do these physician fireside chats, from time to time. I’d love to have you on from there. So, make sure you contact me @DaveDenniston at www.drfreedompodcast.com or on my website, www.drfreedompodcast.com.