Being a doctor is super rewarding. (We’ll admit, it’s pretty hard to beat saving lives every day.)
But there can be some downsides to the career path, especially when it comes to saving. Because physicians are known to have higher incomes, they are often ineligible for a number of tax breaks and retirement programs. And while recent studies show that 60% of doctors are retired just shy of turning 70¹, current doctors have the opportunity to pursue life outside the hospital long before that.
With a few smart moves, early retirement is possible. Here are three ways doctors can save more now and end their careers at an early retirement age:
Refinance Your Student Loans
Paying back med school loans could keep you working for a while. One way to pay them off more quickly? Refinancing to a lower interest rate or choosing better terms.
As a bonus, this move can save you thousands of dollars that can help you head to earlier retirement. (However, if you are pursuing Public Service Loan Forgiveness Program, don’t do this with your federal student loans—it will make them ineligible.)
Save, Save, Save—Up to 30%
The average worker should aim to save 15% of their income for retirement4. However, it’s different for doctors—due to all the extra schooling and high burnout rates in the field, their earnings window is much smaller. That means physicians have less time to take advantage of the compounding interest that comes with investing, or even a regular savings account.
To make up for this, doctors should consider saving at least 30% of their income if they want to retire early. (One helpful tip: Live like you’re still making what you made as a resident!)
Considering Taking Advantage of any and All Pre-Tax Programs at Work
Got an employer match on a 401(k) and 403(b)? HSA or FSA accounts? Commuter benefits? Consider taking advantage of them as a way to put away more money, pre-tax.
Any opportunities you have to save money on taxes can help out a lot when it comes to your goals toward early retirement. In fact, saving money on taxes is one of the best options for doctors with early retirement goals.
These strategies are just a few of the ways you can start working toward financial independence.
If you’re interested in saving money on student loans, one thing you can do right now is check your rate in just two minutes.
Sources:
1. https://www.annfammed.org/content/14/4/344.full
2. https://members.aamc.org/iweb/upload/2017%20Debt%20Fact%20Card.pdf
3. https://www.medscape.com/slideshow/2018-compensation-overview-6009667#2
4. https://time.com/money/4807504/are-you-saving-as-much-of-your-pay-as-the-average-401k-investor/
SoFi can’t guarantee future financial performance.
SoFi doesn’t provide tax or legal advice. Individual circumstances are unique. Consult with a qualified tax advisor or attorney.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
This information isn’t financial advice. Investment decisions should be based on specific financial needs, goals and risk appetite.
Advisory services offered through SoFi Wealth, LLC, a registered investment advisor.
As a medical resident, your schedule is incredibly busy. (And even that’s an understatement.) On top of that, you’re saddled with student loan debt—and your residency salary isn’t exactly going to make a huge dent in it just yet. So what should you do about it?
There are options that can help reduce the stress of student loans—and even save you money in the long run. Here’s a quick guide to the four top student loan repayment options, so you can choose the best one for you:
1. Deferment
What it is: A temporary suspension of federal loan payments, where interest DOES NOT accrue on certain types of loans.
Pros: If you’re struggling to repay loans due to challenging short-term circumstances, it can be beneficial. Big caveat, though—residents tend not to qualify for deferment.
Cons: Not all loans are eligible for deferment, and only subsidized federal loans do not accrue interest. So if you have unsubsidized loans (typically used for medical school), your balance will still increase during deferment.
Best for: Residents who qualify. Those who have other debts to pay off first that make it a challenge to pay back loans, such as higher interest credit card debt, could be in this category.
Not great for: Residents who need a more long-term or permanent option, as interest will still accrue on unsubsidized loans, growing your balance.
2. Forbearance
What it is: A temporary suspension of loan payments, where interest DOES accrue on all loan types.
Pros: Medical residency and internship programs are usually qualifying circumstances for forbearance. As long as you meet basic requirements1, mandatory forbearance is an option that can be granted for residents up to 12 months, and be extended for up to three years, upon request.
Cons: As mentioned, interest will continue to accrue on all loans in forbearance. That means your balance will grow.
Best for: Residents with lower loan balances, or who are experiencing financial hardship where the burden of student loan payments would be significantly challenging.
Not great for: Residents with normal to high balances who have the ability to make payments and start making progress on their debt.
3. Income-Driven Repayment (IDR)
What it is: A repayment program where your monthly loan payment is a percentage of your discretionary income, typically between 10-20%. Options include PAYE, REPAYE, IBR and ICR, which vary by the percentage of income you owe and the amount of time they add to your loans.
Pros: IDR allows borrowers to keep monthly payments low without defaulting on their loans. For residents who eventually pursue Public Service Loan Forgiveness (PSLF)2, this option can lead to the greatest amount forgiven.
Cons: IDR will often extend the term of your loan to 20-25 years. Plus, your payments may not cover the full interest owed. If that is the case, interest will compound monthly, and you will be paying interest on interest.
Best for: Residents who plan to pursue federal student loan forgiveness.
Not great for: Residents who don’t plan to pursue loan forgiveness and would like the avoid compounding interest that creates a higher loan balance.
4. Medical Resident Refinancing
What it is: Refinancing is consolidating your student loans (federal and/or private) with one private lender, usually for a lower interest rate. During residency, refinancing reduces student loan payments to just $100/month. Check out SoFi’s medical resident loan refinancing rates & terms.
Pros: Refinancing simplifies your student debt by reducing your student loan payments to one low monthly payment. This option also makes it possible to avoid compounding interest during residency.
Cons: Refinancing makes you ineligible for PSLF or other federal repayment benefits. Interest will still accrue during residency, but it will not compound during that time, so you won’t pay interest on interest.
Best for: Residents who plan to work in the private sector (like a private hospital or for a private practice), and would like to reduce their interest rate on their student loans, keep payments low during residency, and save money on compounding interest.
Not great for: Residents who plan to pursue loan forgiveness or other federal repayment options by working in a public sector hospital.
It’s worth considering all your medical school loan repayment options before you dive back into the throes of residency—after all, you have patients to see and work/life balance to manage and lives to save.
Interested in seeing how much you could save by refinancing your student loans? Check your rate in just two minutes.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation. 1 https://studentaid.ed.gov/sa/repay-loans/deferment-forbearance 2 https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service
The amount of student loan debt in the United States is staggering and only continues to rise. As a result, one of the most desired employee benefits in 2018 is help with that student loan debt. And some employers who want to recruit and retain star talent, in 2018 and in the future, are coming up with creative strategies to do just that.
This trend—employers helping with student debt—is expected to increase, say some industry experts . In this post, we’ll share ways employers are helping employees to pay down student loan debt, with a focus on an August 2018 Internal Revenue Service (IRS) ruling that could provide significant relief.
Perhaps even more alarming, this amount has nearly tripled over the past 10 years , and so people owing student loan debt are understandably looking for help in repayment.
Fortunately, on August 17, 2018, the IRS made a ruling that could start to provide relief. This ruling came in the form of a private letter , #201833012. The IRS was responding to a specific request from Abbott Laboratories, but implications could be much larger in scope, making it much easier for employers to assist employees who have student loan debt.
Abbott Laboratories, the impetus behind this ruling, asked to be allowed to modify the 401(k) program offered to its employees to include student loan benefits. More specifically, they would still put 401(k) contributions into employee retirement accounts when the employee is repaying student loans, but not contributing to the 401(k) plan.
Student Debt Impact on Retirement Savings
The Center for Retirement Research at Boston College delved into whether or not growing student loan debt has affected how much people with this kind of debt are saving for retirement. Results are mixed, yet still illuminating. Findings include:
• Student loan debt doesn’t seem to have an impact on whether someone actually participates in a 401(k) program
• Asset accumulation remains about the same for non-graduates
• Graduates who have student loan debt accumulate, on average, 50% less in their retirement accounts by the age of 30
The amount of the student loan debt owed doesn’t seem to play a role in this reduced retirement account accumulation. Just the fact that the debt exists, the study authors determined, “looms large in their financial decision-making.”
So, it isn’t unreasonable to conclude that, when people get help with their college debt, such as with this student loan 401(k) perk, it might result in a positive uptick in retirement savings, as well. Win/win!
Abbott Laboratories
As the Society For Human Resource Management reports, Abbott Laboratories, in response to the IRS’ ruling, created their Freedom 2 Save program , which allows qualifying employees (both full-time and part-time) who are putting 2% of their eligible pay toward student loan repayment to receive the “equivalent of the company’s traditional 5% ‘match’ deposited into their 401(k) plans, without any 401(k) contribution of their own.”
Abbott started this initiative because they recognized that they were seeking top quality talent—with degrees in science and engineering, business development and so forth—which means they wanted students who likely were being aggressively recruited by other desirable companies.
To attract and retain them, they pursued the right to offer this unique benefit to them. An estimated 2,500 to 3,000 employees currently at Abbott are expected to take advantage of this benefit.
Student Loan Employer Contributions
According to The New York Times, 4% of employers were offering student loan repayment benefits of some kind in 2018, up from 3% in 2015.
While this percentage is still small, it is expected to grow . According to the article, these more typically consist of employees being given a lump-sum, after-tax payment to help with student loan debt. These payments are sometimes paid monthly; other times, annually.
An article in Forbes shares benefits that companies are offering to help employees pay down this kind of debt in 2018. Fidelity, for example, offers eligible qualified employees up to $2,000 annually towards repayment of their student loans, up to $10,000 overall, through their Step Ahead Student Loan Assistance program.
Because this is paid monthly, if an employee receiving this benefit leaves the company, none of the money needs to be reimbursed to Fidelity. The healthcare company, Aetna, offers a similar program, and Penguin Random House is the first book publisher to offer this type of benefit. They provide $1,200 per year/$9,000 total for full-time employees who’ve been at the company for at least one year.
Refinancing Student Loans at SoFi
Whether you work at a company that offers these types of programs or not, it may make sense to refinance your student loan debt, consolidating outstanding balances into one convenient loan—and at SoFi, qualified borrowers can refinance both federal and private loans at one lower interest rate or a shorter term.
You’ll want to decide if you want a shorter term to pay off the debt more quickly and pay less interest over the life of the loan—or a longer term that may lower your monthly payment and free up your cash flow. Whichever you decide, the choice is available at SoFi, and we charge no fees. None.
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC .
This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice about bankruptcy. Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Parent PLUS loans can be an important tool when it comes to funding your child’s college degree. When your child has gotten back his or her financial aid offer and counted their Stafford loans and Pell Grants, you might find you fall a little short. After all, the Department of Education’s budget doesn’t always account for skyrocketing college fees. That’s why the Parent PLUS loan program has gained popularity over the last 30 years. In 2017, there were around 3.5 million Parent PLUS borrowers ; the average Parent PLUS package is around $15,880 a year. Stafford loans may not cover the total cost of college; Parent PLUS loans can help fill in the gaps.
So what exactly are Parent PLUS loans? They are simply loans issued by the federal government for graduate students or parents of undergraduates. What makes them different from any other type of federal student loans? Unless you’re applying for them as a grad student, these loans are issued in the parent’s name, not the student’s. Financial responsibility, therefore, lies solely with the parent and any cosigners, not the child.
The nitty-gritty details can be a lot to handle. That’s why we made you this Parent PLUS loans guide—we’ll take you through how to apply, how much you could receive, and how much you could pay in interest.
What are Parent PLUS loans?
Parent PLUS loans (also known as Direct PLUS loans) are federal loans offered to parents of undergraduate students. Graduate students are also eligible for Direct PLUS loans, although in the case of grad students, the students themselves who apply for the loan. The interest rate for Parent PLUS loans is set once a year, and because these are fixed-rate loans, the interest rate doesn’t change throughout the life of the loan.
At the moment, the interest rate for Parent PLUS loans is about 7.6% . There is also a loan fee on all Direct PLUS Loans; as of October 1, 2018 that fee will be nearly 4.25% of the loan amount (which is deducted from each loan disbursement proportionately).
How much can I borrow?
The maximum amount you can borrow for a Parent PLUS loan is simply the cost of attendance (as determined by your child’s school), minus any grants or scholarships (or any other financial aid) your child may have received.
How do I get a PLUS loan?
Before applying for a PLUS loan, you will need to fill out and submit a FAFSA® to see what additional aid your child may qualify for. After that, the financial aid process really depends on the school in question. You may want to call the financial aid office of your child’s school before you apply for a PLUS loan, since different schools require different information. Many colleges will require you to fill out the application online. Note: This application takes about 20 minutes to fill out, and it will include a credit check.
What happens if I get rejected?
If your PLUS loan application is rejected based on what they call “adverse credit history,” you may still have options. You can seek out an endorser—which is someone who qualifies and who will agree to pay the loan back in the event that you are unable to. In addition, if you don’t qualify for a PLUS loan on your own, you will be required to go through PLUS credit counseling .
If there are extenuating circumstances impacting your credit history, you can submit documentation to support your appeal to the Department of Education (they provide a list of extenuating circumstances they will recognize if you’re having trouble getting approved for a Parent PLUS loan.)
If you continue to get rejected, your child may be eligible for other unsubsidized federal loans as a result. Consult with a qualified financial aid advisor for details.
When do I have to start repaying?
As a Parent PLUS loan borrower, you will have to start paying back the loan as soon as the entire amount is disbursed. You can, however, request to defer payment while your child is in school—as long as they are enrolled at least part-time. You can even request a six-month grace period once your child finishes school or drops below part-time enrollment. But remember, interest accrues even while payment is deferred.
What happens if I lose my job?
In the event of unemployment, borrowers can contact the Department of Education to request forbearance on the loan. If you are permitted to enter forbearance, you won’t have to make monthly payments for up to three years. However, interest still accrue during forbearance, so your debt will likely increase by pausing payments.
Pros and Cons of Parent PLUS
Pros of a PLUS loan
Parent PLUS loans are federal loans, which means they enjoy most benefits that come with federal loans. For one thing, interest rates are fixed for the life of the loan, so your interest rate will not change or go up from the time your loan is first disbursed. Under certain circumstances, federal loans may be forgiven, cancelled, or discharged.
Cons of a PLUS loan
If federal loans are taken out in the parents’ name(s), the parents assume total financial responsibility for the loan—they cannot transfer responsibility for paying off the Parent PLUS loan back to their child. As parents near retirement and their child becomes capable of paying back his or her loans, it might make more sense to refinance their Parent PLUS loan and transfer the debt into the child’s name.
Are Parent PLUS loans holding you back? Check out SoFi’s Parent PLUS loan refinancing!
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit .
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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You may be wondering whether it makes sense to prepay student loans. The answer, not surprisingly, is that it depends. It depends upon your current financial situation, as well as your projected one. In general, there are three main issues you may want to consider:
• Your cash reserves
• The cost of your debt
• The expected return on any investments
Your cash reserves are simple to understand and can be broadly summarized by your answers to the following questions:
• Do you have enough cash saved up for unexpected bills? A commonplace goal is to hold six to 12 months in cash or very liquid, safe securities for an “emergency fund.”
• If you lost your job, would you have enough cash reserves to find another one that you wanted?
If the answers are “no,” then building up sufficient savings before considering early student loan repayment is probably a smart idea. For the sake of this post, though, let’s assume you are okay with your cash reserves. The rest of this post can help you analyze those two key bullet points, as well as help you determine benefits of paying student loans early—and the life stages at which it might make good sense to do so.
Calculating the Cost of Your Debt
To determine the true cost of your debt, you’ll need to know what the real rate of interest is on your loans. With a credit card, it’s your annual percentage rate (APR). With student loans, the net cost of the loan is the rate you pay, adjusted for any tax benefit .
You may be eligible to deduct up to $2,500 in interest expense on your qualifying federal student loan. However, you only get this full deduction if you are making under $80,000/year ($165,000 for married filing jointly).
Calculating the Expected Return on Investments
Next, you need to determine what your expected return on investment could be for any cash that you’ve freed up and made available for investment purposes. It’s probably wise to consider the risk involved in each investment.
You can find basic information about common types of investments, such as stocks, bonds, mutual funds and alternative investments in our blog post titled, “How Investments Make Money.” This post also shares information about typical levels of risk for various investment vehicles to help you decide your personal investment risk tolerance (or whether to invest at all).
Consider Your Loan and Investment Options
Armed with all this information, you can now more easily assess your options. If it’s important to you to begin investing for retirement, then it may make sense to keep investing and paying down your loans simultaneously, as opposed to dedicating all your resources to debt pay off.
Here are a few more things to consider: First, paying down any loans will generally help improve your FICO® score. That could be important to you if you are considering a large purchase in the future, like buying a home, which takes your credit score into account. Second, when measuring investments against debt, keep in mind whether you can afford to be wrong. What if that great stock tip tanks? Are you in any financial danger having not paid off your loans and put money toward riskier stocks instead?
If you’ve decided it’s time to invest more strategically, then check out an investment account with SoFi Invest®, where you get the combined benefits of automated-investing algorithms and advice from experienced human professionals. And, if student loan prepayment intrigues you, read on, keeping in mind that advice given in this post is shared on the assumption that you have sufficient emergency savings and isn’t intended to be financial or investment advice.
Potential Benefits of Paying Student Loans Early
Paying your student loans off early can make excellent sense because you’ll pay less interest during the life of the loan—sometimes significantly less. Money you would have paid in interest can be spent elsewhere, perhaps contributing to the down payment of your dream home or invested towards your retirement, as just two examples. Just make sure you let your lender know where to apply those prepayments and that you aren’t advancing your due date!
Here’s another possible benefit: If you’re buying a house or making another purchase of significance, lenders typically want to see that your total monthly payments will fit under a certain percentage of gross monthly income, often 43%. This is typically called your debt-to-income ratio. By paying off student loans early, you can reduce your debt-to-income ratio because the size of your debt might decrease once your student loans are out of the picture.
And, let’s face it—paying off debt provides a sense of relief, perhaps even of accomplishment. So, another potential benefit of paying your student loans early is peace of mind, which is priceless.
When It Might Make Sense to Prepay Student Loans
There are some stages in life that make it easier to prepay student loans than others. Times when it often makes sense to pay early include when you don’t have many other debts of significance, when you get a nice bonus at work, or when you get a raise. In fact, any time you discover extra wiggle room in your cash flow or have an unexpected windfall, consider whether it makes sense to pay more on your student loan balance.
Warning: Loan Prepayment Penalties
While student loans do not come with prepayment penalties, other loans sometimes do. If you’re paying off a personal loan early, for example, you may be hit with prepayment penalties. So be sure to check the loan notes you signed to see whether this type of penalty is included in the terms and conditions of your loans.
If there is a prepayment penalty included in one or more of them, this generally means the lender requires you to pay a certain amount of interest before you can pay off your loan. If you pay it off before you’ve fulfilled the minimum interest requirements, you can be charged a penalty.
Different lenders calculate prepayment penalties differently so, if this situation applies to you, find out how yours would be calculated. Some, for example, may charge you a year’s worth of interest as a penalty, while another may use a percentage of remaining principal to calculate the fees. Still others have a flat fee you pay, no matter how early the prepayment or how much you owe.
Check to see if your loan allows a partial payoff without penalty. In that case, you may be able to pay your loan down faster without having a penalty attached. Also, check to see if conditions of your prepayment penalty lessen over the years. Remember, it never hurts to talk to your lender to see if there are ways to sidestep or at least reduce the penalty.
Plus, here’s a piece of information to protect you in the future: Because of the Truth in Lending Act (TILA), personal loan lenders must provide you with a document that lists any fees they will or can charge, including prepayment penalties. Armed with that knowledge, you can shop around for lenders that don’t charge them—such as SoFi.
Refinancing Student Loans with SoFi
SoFi is the leading student loan refinancing provider, with $18 billion in refinanced student loans from more than 250,000 members. Refinancing your student loans can allow you to shorten your term length, lower the interest rate on your loans, or lower your monthly payment by extending your loan term.
If you have unsubsidized federal loans, interest will begin to accrue during your six-month grace period. However, for those who qualify, you can refinance with SoFi during this period, and we will honor the first six months of any existing student loan grace period.
Ready to get started with refinancing your student loans? SoFi offers a convenient application process that takes just two minutes!
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement. Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
SoFi does not render tax or legal advice. Individual circumstances are unique and we recommend that you consult with a qualified tax advisor for your specific needs.
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC .
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