Student Loan Refi

[MDPhDWife]

Has anyone here refinanced their student loans? I did a search and spent a lot of time reading archives, but couldn't find much. The WCI blog has had quite a few posts lately about refinancing student loans, but I realize he gets a kickback on those referrals so I was hoping to get some unbiased advice here.

Here's a brief rundown of our situation:

DH has about 90K in student loans. I feel guilty about them. As you guys know he did an MD/Ph.D program so his tuition was paid for and he even got a small stipend to live off of. While I worked until our youngest DD was 11 months old, we were able to avoid any student loans. Once I quit to SAH, that's when we started taking out loans. I know it's a choice we made with eyes wide open, but for me I can't look at the loans without some guilt and thinking about what might have been. About 75K of these loans are 6.8%, the rest are 2% or lower.

DH just finished training 7 months ago. Moving, buying a house, and being without any income for almost 3 months completely wiped out our nest egg. Now that we've rebuilt it, we're at the crossroads of starting retirement or aggressively attacking the student loans. We have no other consumer debt except for DH's car that we bought earlier this month. We were able to finance it at 1.49% for three years, so I'm not too concerned about that.

More concerning is we have nothing saved for our DD's college yet and they are already 11 and 14. We've been very upfront with them that they had best work their asses off to earn scholarships because our help will be minimal and we don't want them taking out loans.

I keep hearing the market is a bear right now so that has me leaning towards attacking the student loans because we'll have a guaranteed return of 6.8%, but if we refi, that may change our strategy. This shit keeps me up at night so it's safe to say we're debt adverse. Especially since we won't be able to deduct the interest next year. On the flip side, DH is already 37 so we had better get cracking on saving for retirement!

So far, it seems like the only con to refinancing the student loans would be that they don't go away if DH dies. Is there anything else I'm missing??

[spotty_dog]

I don't have a lot of experience with loan debt because we were fortunate enough to avoid it. However, I agree with you that in the current bear market, a guaranteed 6.8% return sounds sweet. It seems like at this stage of the game, a lot of fixed expenses are already in place. You have the mortgage you have, you have the car payment you have. But I'd advise trying so, SO hard not to expand your lifestyle beyond that. It's so hard to go backward, but if you can transition pretty smoothly from "residency mode" to "residency plus a little improvement" mode, that should leave you with CRAZY amounts of wiggle room to start working on your many and various savings needs. (Edited out personal details, on second thought. But PM me if you want the kinds of figures I'm talking about.)

Being a high-income American, it's a heckuva thing...if you don't let your expenses run away with your income.

What kind of refi quotes are you getting?

[MrsSz]

Several of the loan refi places do forgiveness in the event of death. Personally, I would start aggressively saving for retirement vs pay off student loans completely. You could refi to a 10 year note at 4% that's saving interest and reducing the pay off significantly. Putting money in to a 529 would help with college for the kiddos, but focus on your retirement first and foremost. Our FA and accountant echoed this. We aren't anywhere near finished with training, but will refi as soon as we have that match letter in hand.


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[spotty_dog]

Several of the loan refi places do forgiveness in the event of death. Personally, I would start aggressively saving for retirement vs pay off student loans completely. You could refi to a 10 year note at 4% that's saving interest and reducing the pay off significantly. Putting money in to a 529 would help with college for the kiddos, but focus on your retirement first and foremost. Our FA and accountant echoed this. We aren't anywhere near finished with training, but will refi as soon as we have that match letter in hand.

Totally agree. Retirement is vital because you only have so much tax-preferred space per year and you don't want to squander it; plus compounding works best if you get your balances ramped up ASAP. But once you've hit that tax-preferred limit ($18k this year, or $53k for a solo 401(k) if you're an independent contractor, and see if you can squeeze in another $5500 for a non-deductible spousal IRA), at a ROAD income level, you should still have a good bit of discretionary income to work with. At that point, paying down a loan at 6.8% might very well beat further retirement savings AND college savings alike. I'd want to talk with an advisor to decide if a refi to take 75k from 6.8% to 4% would be worth any downside. I'm thinking it might be a wash, assuming you can save some interest with an accelerated payoff...but I'm really not sure.

[MDPhDWife]

So DH's employer doesn't offer any 401K, so I'm starting a Roth for both of us and maxing those out for 2015. I'm pretty sure that will be our last opportunity since it was a hybrid year with residency/attending income. I'm pretty sure this year and beyond we'll have to do the Backdoor method WCI describes.

We live pretty well below our means and we're both very frugal people, this is actually the first car payment we've had in 12 years! [MENTION=985]spotty_dog[/MENTION], can we do solo 401K's if DH is W-2 employed? If not, is the 18K limit individual or each?

[Deebs]

Another thing to look into - does your state provide a tax benefit to 529 contributions? When we were in Ohio, we contributed just to that amount, as our FA recommended investing elsewhere beyond that amount.


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[spotty_dog]

We live pretty well below our means and we're both very frugal people, this is actually the first car payment we've had in 12 years! [MENTION=985]spotty_dog[/MENTION], can we do solo 401K's if DH is W-2 employed? If not, is the 18K limit individual or each?

No, I think you can only contribute to a solo 401k with 1099 income (which you "match" yourself, which is where the other $35k comes from, but all the funds have to come from self-employment income). I am going to have to research whether it's possible to get that 401(k) contribution limit in any kind of a vehicle without an employer sponsor, but I think my impression is that you only have the IRA available. Unfortunately a spouse who isn't earning isn't eligible to contribute to any kind of 401k -- you only get the spousal IRA space.

[JaneDoe]

No, I think you can only contribute to a solo 401k with 1099 income (which you "match" yourself, which is where the other $35k comes from, but all the funds have to come from self-employment income). I am going to have to research whether it's possible to get that 401(k) contribution limit in any kind of a vehicle without an employer sponsor, but I think my impression is that you only have the IRA available. Unfortunately a spouse who isn't earning isn't eligible to contribute to any kind of 401k -- you only get the spousal IRA space.

I hesitate to wade in to this discussion since my knowledge is limited. However, I do understand this to be correct. We were in op's situation and very frustrated with our limited retirement savings options. Dh was employed for one year with his private practice before buying in as a partner. The practice comprises of several doctors each operating as sole practitioners with employees. There was no employer sponsored retirement plan at that time. He wasn't eligible as I understand it for the solo 401k option because he has employees. As explained to us by accountants and an attorney, Dh's only retirement options at that point were to pay to open an employer sponsored plan for his employees (cost prohibitive for him when he was starting out) or to contribute $10,000 per year to an IRA ($5,000 each for him and for me at that time). We really had no choice but to do the $10,000 IRA contribution each year. We also chose to pay off all of our student loans about four years ago. Many didn't agree with us, especially since our interest rates were much lower than they are now. We are very conservative financially and it gave us peace of mind and we remain very satisfied that we made that choice. About three years ago, Dh convinced his partners to open an employer sponsored 401K. He pushed for it and contributed a lot of the start up costs (they are expensive to start and to maintain). We have maxed out his 401K contributions ever since.

When you're starting out, what to financially tackle first can be overwhelming! I hope this helps.

[MDPhDWife]

I hesitate to wade in to this discussion since my knowledge is limited. However, I do understand this to be correct. We were in op's situation and very frustrated with our limited retirement savings options. Dh was employed for one year with his private practice before buying in as a partner. The practice comprises of several doctors each operating as sole practitioners with employees. There was no employer sponsored retirement plan at that time. He wasn't eligible as I understand it for the solo 401k option because he has employees. As explained to us by accountants and an attorney, Dh's only retirement options at that point were to pay to open an employer sponsored plan for his employees (cost prohibitive for him when he was starting out) or to contribute $10,000 per year to an IRA ($5,000 each for him and for me at that time). We really had no choice but to do the $10,000 IRA contribution each year. We also chose to pay off all of our student loans about four years ago. Many didn't agree with us, especially since our interest rates were much lower than they are now. We are very conservative financially and it gave us peace of mind and we remain very satisfied that we made that choice. About three years ago, Dh convinced his partners to open an employer sponsored 401K. He pushed for it and contributed a lot of the start up costs (they are expensive to start and to maintain). We have maxed out his 401K contributions ever since.

When you're starting out, what to financially tackle first can be overwhelming! I hope this helps.

Thanks so much for chiming in! Your DH's situation sounds exactly the same as mine. Perhaps it's an ophtho specific thing? If you don't mind me asking, how many docs are in the practice and how many total employees are there? What did it cost to get the 401K going? If you don't want to share publicly, would you mind PMing me?

It is frustrating to me that with our income jump we finally have some extra cash to get our financial house in order, we are limited to 11K a year ($5500 each). Also knowing we'll no longer qualify for the tax breaks for doing so or to at least write off student loan interest.

[JaneDoe]

I don't remember the specific costs. I will need to ask DH when he gets home. I know it's in the range of thousands for such things as accountant fees (for tax review), attorney's fees (for plan legality, document filings, etc) and plan maintenance fees (to a financial institution), etc.

I think Dh's clinic has around 45 employees. I'm not certain and will need to comfirm with DH. He and his partners share in their salaries, benefits, etc expenses.

[MDPhDWife]

I don't remember the specific costs. I will need to ask DH when he gets home. I know it's in the range of thousands for such things as accountant fees (for tax review), attorney's fees (for plan legality, document filings, etc) and plan maintenance fees (to a financial institution), etc.

I think Dh's clinic has around 45 employees. I'm not certain and will need to comfirm with DH. He and his partners share in their salaries, benefits, etc expenses.

Yep, your husbands practice sounds like it's structured very similarly to my DH's. They have 49 employees and have made it clear they will not exceed 50 because of whatever costs spike once you exceed that number. How many docs in the practice?

[JaneDoe]

Technically five, but the older two no longer do surgery and each work half time. Together they are the equivalent of one FT partner. So there is more like four contributing partners.

[MrsSz]

Have you looked in to a Roth IRA? Granted you pay taxes on the money before it goes in, but you won't pay taxes when you take it out. According to our FA, it's beneficial to have both. You might as well build your Roth side while the 401k isn't a option.


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[MDPhDWife]

Have you looked in to a Roth IRA? Granted you pay taxes on the money before it goes in, but you won't pay taxes when you take it out. According to our FA, it's beneficial to have both. You might as well build your Roth side while the 401k isn't a option.


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We maxed out both our Roth's for 2015. That will be the last year we will qualify to contribute to a Roth because half the year was on a resident salary. This year and beyond we will exceed the IRS income limitations for Roth's, so we'll be limited to traditional IRA's which we'll have to fund using post tax dollars.

[MDPhDWife]

Because our credit is stellar, it appears we can get our loans refinanced at a low 2%. No one else here has done that?