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Summary:
Federal Loans Highest Around 2010 To 2014 At 6.8 Percent [0:03:21]
Independent Companies For Refinancing – Link Capital, iCapital, SoFi [0:04:00]
Why Not PSLF? [0:06:00]
What If There Will Be Changes In The PSLF Down The Road? [0:10:47]
Why Do Refinancing? Because Of Compound Interest [0:13:10]
If Refinancing Done Right, We Could Achieve 3 Things [0:16:50]
Create A Strategy That Works For You [0:21:04]
Different People Have Different Financial Plans And There’s No Wrong Or Right Ones [0:22:08]
List Of Refinancing Companies Available On FB Group Page [0:27:12]
Need Help On Starting? Jon Can Assist You [0:28:15]
Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board certified ophthalmologist with a full time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here’s your hosts, Jon and Trevor.
Jon: Hello everyone and welcome to the Financial MD Show. I’m super excited about today’s show. Trevor and I talked about student loans which is the most requested topic by far. You’re going to get to hear some interesting perspectives, mainly a lot of Trevor talking because he’s the one with the largest student loan balance. He’s still working on paying that down but he tells you how he got around to choosing the option that he did, what other options he looked at, and how he is handling it now that he’s an attending, and of course, what he would have done differently when he was a resident. So be sure to stick around and listen all the way to the end. There’s some great tips here. Takes notes and here we go.
Jon: Welcome to the Financial MD Show. We are your hosts. I’m Jon Solitro. With me is Dr. Trevor Smith, and Trevor, how you doing today?
Trevor: I’m doing good, just finished, have a great day at clinic.
Jon: Good. I did not. I was in my home office again. We’re still technically in a pandemic, but it’s okay. I’ve tinted2.08 out pretty good and I’m kind of enjoying working from home. But it makes podcasting doable and if you missed the first episode, I encourage you to go back and listen to that. I gave some background on Financial MD and who we are and why and what and how and we thought we would start jumping in today’s episode with the topics that we’ve got lined up that the residents and young physicians want to hear and we’ve kind of grouped them in order of priority or demand based on the fact that I myself have done probably 300 workshops and residency programs around the Midwest, and resoundingly, the most popular topic or question is on student loans, and so that’s we’re going to cover today, and yup, actually it’s clickbait, but it is important stuff and we’re going to have some good info for you. Everybody likes to start with a story so Trevor, would you just give us your experience with student loans a little bit? How it started? Where they came from? Where they’re at now? Anything your willing to share.
Federal Loans Highest Around 2010 To 2014 At 6.8 Percent [0:03:21]
Trevor: Absolutely. Yes, I was in med school from 2010 to 2014 and I was unfortunate enough to have those highest rates I think ever from federal loans, and so it was 6.8 percent directly – is that right? I think it’s right, 6.8 directly from the government, and then friends, I didn’t have private loans but I’ve friends that did and that it was 8-plus percentage range usually; bumped up a little bit higher. I was in the 6.8 percent range and still had a decent amount.
Independent Companies For Refinancing – Link Capital, iCapital, SoFi [0:04:00]
Probably about a year and year-and-a-half into residency – I don’t think I met you yet – but I had googled around a little bit on The White Coat Investor and saw some refinancing info. I found a couple good rates there to refinance and even came across to the startup company called Link Capital – I know they’re still doing some stuff. They’re a startup and I was, “Oh, that’s pretty cool,” and they were one of the first companies that do a standard 100 dollar-a-month payment no matter how much you owed. So I ended up refinancing.
Jon: I started with that but that’s a cool link.
Trevor: Yeah. I think it was probably a year or even two before SoFi.
Jon: Oh, yeah, I remember. I have a story at iCapital too.
Trevor: Yeah, I tried to refi through SoFi and they turned me down. They were, “No, we’re not really doing medical student loans,” and I was, “What?”
Jon: Huge on some market.
Trevor: Yeah, I was just thinking, holy smokes. These Link Capital guys haven’t made it. There’s DRB (Darien Rowayton Bank) and there was another random one like a smaller bank. I want to say it – not common bond – but there was another one like that.
Jon: One of the earlier ones.
Trevor: Anyways, there was a couple of small banks that was kind of a niche there doing this and I think they’re brilliant because they’re such a reliable group and we can’t bankrupt the loans anyway. It’s a great thing to be doing. Anyways, I refinanced down to four and a quarter or something for the second year and to me it just seemed like a no-brainer and I was in ophthalmology and had no intention of trying to spend 10 years picking certain jobs just because I wanted to get a certain amount of money paid back by the government.
Why Not PSLF? [0:06:00]
Jon: Yeah, that’s what I was going to ask you why, get into the details, but why not PSLF? Why not stick to the federal?
Trevor: Yeah, I thought about it. Right, I mean, part of it was I don’t have the most faith in the government to stick to what it says because it tends to change its mind so I didn’t see it as the most reliable dealmaker in the scenario. I felt like I could trust myself and invest in myself, in my ability to negotiate and find good jobs better than I could trust them to pay my loans 10 years later, and the more they grow, the larger they’d be, the less they would want to pay them back, is kind of what I thought, and then the more likely they’d try to push some sort of cost of that back on me which it looks like they would. It would be a decent amount of taxes you’d have to pay on that because it’s considered income. I still feel very good about that decision and everybody does it differently. I think it’s totally reasonable if you’re doing that job. Anyways, I was looking at private practice and most ophthalmologists are private practice. I figured the sooner I refied even if I’m turning down that one option – it was the only thing I was turning down – and I was guaranteeing saving somewhere between 10 and 30 thousand dollars despite refinancing. And then I also had extra spending money because I was actually paying on some of my loan when I refied. I just decided I would put it off which looking back on it, I probably spend most that money on restaurants and it would have been a smart move to pay it.
Jon: But you would have been smart too, yeah. I tried to say.
Trevor: It’s fine, honestly. I think I said last week a lot of which you do in residency in terms of paying after loans is a drop in the bucket but refinancing is probably if you’re not going to do some sort of government-attempted payoff thing at a nonprofit hospital then it’s such a no-brainer. I’m so glad that I did it, and it’s easy too. It’s easy. They don’t charge you anything. I thought, oh maybe they’ll charge me some sort of fee like when you take out a loan on a house and maybe they charge you a thousand bucks just from the start, just cash up front. These refinance companies, they usually give you 300 to 700 dollars just for graciously letting them buy your loan from somebody else because it’s free money for them. It’s guaranteed. We’re always going to pay off back our loans.
Jon: Yup.
Trevor: Yeah.
Jon: Yeah, and there’s a lot of stuff there. I mean you’re right; 6.8 percent is the national average still, I think, and that happened probably back in 2008-2009. Yeah, when was med school for you?
Trevor: It was 2010 to 2014. I’m pretty sure there was like four years where it’s 6.8 percent the whole time?
Jon: Yeah.
Trevor: And four years in a row? And those were the four years that I was in med school. If I remember correctly, I’m almost sure that it was still high at the 6.6 the couple of years before but right when I was in med school or at least finishing college, every single year of the highest percentage loans from the government ever. Have you looked back? There used to be like 2 and 3.
Jon: It did and that’s what I was going to say. When we started doing this whole resident workshop curriculum, the most that the residents refinancing was not a thing because student loans were so stinking cheap at one to three percent that I still got some clients that are attendings now in their late 30’s/early 40’s or more that have those loans but our suggestion was, “Man, take as long as you can to pay that sucker off because that’s cheap.”
Trevor: Yeah, those were amazing.
Jon: Yeah. I’ve just had the conversation with one that’s probably 44. He’s a pathologist. He was talking about we’ve kind of hit a lot of other goals and student loans is his other thing. He’s like, “Oh, I want to get them paid off.” I’m like, “Dude, you got one and a half to two percent interest. Please don’t.” I know you want them to and I know it feels good and just all that stuff. Emotionally, sure. I get it. Financially and numbers-wise, no. Just don’t. If you just look at it from strictly an interest-rate standpoint like you get a thousand bucks, would you put it in something that pays off at two percent loan or an investment that could get you 8 percent for you? I have to hear the argument from people, “Well, sure but that two percent is a sure thing.” Okay, fair, so then if we readjusted, we can go into all that stuff.
What If There Will Be Changes In The PSLF Down The Road? [0:10:47]
Yeah, that’s the simplest way of putting it and like you said as well, the PSLF thing – the Public Service Loan Forgiveness – I get that question pretty much every single lecture that I do and it’s the, “Should I plan a PSLF? What do you think about PSLF? Is it going to be around? It is legit? Blah blah…Afford this?” And I get this one all the time, “Have you ever had anybody that’s gotten or given?” And no I haven’t yet. I heard of, seen articles, whatever, but we’ve got hundreds of physician clients and we haven’t had anybody that’s gotten loans forgiven yet. The good chunk of them – I’m with you Trevor – if anybody has even just any doubts or even if they’re in a nonprofit or a government job, if they’ve any doubts, I say take the sure thing. get the refinance, get the low rate now. Here’s how I typically explain it in my lectures: Okay, you got a 6.8 percent loan now. You refinanced especially these days – geez, rates are so low. But let’s say you get a four percent, okay, and you get that quote and you’re like, “No, I’m going to stick with my federal loan because of the PSLF.” Okay, I get it. So then they are working down this road on a 10-year payment schedule and then the rest is going to get forgiven after that but then what if at year 9-1/2, something drastic changes in Congress or the government, they changed their minds or whatever. They can do that, right? Some may say, well, it’ll be a class action lawsuit, blah, blah. Okay, maybe, but let’s just say something happens and maybe they put an income cap on it or they put a cap on how much is forgiven, whatever. Then you’re like, “Okay, well, that’s alright, I’m just going to go and refinance now.” And over those 10 years what’s happened to the interest rates?
Trevor: Exactly.
Jon: They’ve gone up and now, sure, you could refinance for seven percent or eight percent and now you’re like, “Shoot! I guess I’ll just stick with these loans and I should’ve refinanced 10 years ago.” I’m not saying what’s going to happen.
Why Do Refinancing? Because Of Compound Interest [0:13:10]
Trevor: Right. Even if, let’s say, interest rates stay the same. You want to refinance later, but the whole point of refinancing is getting your rate lower as soon as possible because compound interest. If you wait seven to eight years and you’re, “Oh, well now I refinance.” Okay, well, eight years’ worth of interest has been growing and depending on what situation you have and which bank you have, I guess I would just straight up with the government. It does all fall back on and create compounds principally on the principal. Some of those ones that do refi during residency just the interest accrues or you just accrue interest on the principal so if you have $30,000 loan, you keep getting interest month by month on an annual rate on the 50,000. They don’t’ keep rolling it back on 50,000 and 100, 50,000 and 500.
Jon: Subsidized loans.
Trevor: Yeah, on the subsidized loans, they don’t do that. But once you’re an attending and you don’t have one of those refinanced deals then it does. The snowball just gets bigger and bigger and bigger. So if you wait, it’s just that much bigger of a monster to have to take down. Definitely, it’s the sooner, the better for that scenario. For me, one of the core questions was, do I want to be in control of my future or do I want to depend on the government? Do I want it to be in my hands? All of these make a lot of decisions on these maybes. They could have a maybe the program will still be there and maybe I’ll take a job with a nonprofit. Maybe, I’ll stick with it for 10 years. Maybe, I won’t take it. You know I started in a fellowship and it was a private practice fellowship and I’m mashed into it. Let’s say I wanted to do this nonprofit thing and that’s not just true for ophthalmology, that’s true for lots of specialties. You can match into a fellowship with a private practice. They’re not a nonprofit and yours is out of luck. I mean, you break that up. You’re in your two years at a fellowship or three years at a fellowship. I mean that deal’s done. It’s not worth it too anymore. Let’s say you’re a general surgeon or something and you’re doing something between a 5- and 7-year residency and then you’re going to do a 3- to 4-year fellowship or something. By the time you’re starting your fellowship that could have been six years of principal that was accruing interest at only three percent instead of seven or eight, and you can take this private loans that are eight, nine percent and refi them down to three percent or something. I actually refied mine from almost seven to four and a quarter and I refied it again a year ago when I was ready to actually start paying more aggressively on a 5-year term all the way down to 3 percent. This is before coronavirus COVID. If I waited a little bit, I probably could have gotten it down to two and a half, two and three-quarters. Anyways, I think, to me, that ends up adding up for most people if you just had what should most people do. Most people are going to be in my position. Most people are not going to have all those maybes lined up as a yes. Somewhere along the way one of those maybes is going to be a no and then you’re done and you would have been better off refinancing yesterday four years ago.
If Refinancing Done Right, We Could Achieve 3 Things [0:16:50]
Jon: Yeah, and that’s what I say is so easy. It’s free. It’s more of, wouldn’t you rather have a sure thing in a lot of ways and a cheaper thing on a private. What if it wouldn’t have been forgiven? Maybe it’s a philosophical thing of, “Do you bet on the maybe?” Or like what I said, “Do you bet on here’s what I know. I’m in control. I have this. I’m going to pay it off. It’s just a thing, and it’s part of the financial plan that we worked in there.” And I always say to my residents like, By the time we get into your first or second year of an attending, if we do this right, you’re able to do three things in a pretty decent manner. You’re able to put a decent amount on your student loans; you’re able to, and by that I mean, usually pay it off within five to ten years. You’re able to put a decent amount towards your retirement, and you’re able to live a pretty decent lifestyle. And I’ve yet to have the attending that’s like, “I still have to live like a resident.” You can and there’s nothing wrong with that but most of my attendings have gotten the house and the cars and are making good progress on their loans and save for retirement. It seems bleak now but no, I mean, just like Trevor was saying, there’s nothing wrong with paying off your loans yourself. That’s what you signed up for and we can do it in a much cheaper rate.
Trevor: Yeah. I’ll add too that because you’re running Financial MD and you’re a financial advisor, I bet more often than you expect when you’re talking about refinancing loans being a grave decision, I would bet either residents that you talked to like you go to these programs and you talk to residents or here and there, you probably forget that they don’t know you don’t make any money off of that. I bet you take that for granted honestly because you’re just, “Oh, this is a great thing. you guys should do this.” And in the back of their minds, they probably sounds like disability insurance which you make a small commission if you sell a policy, and rightfully so, it’s much more time-intensive. You have to follow up, chase down tons of doctors and try to get them to fill out the health portion, do the phone interview. There’s a couple of steps and still not bad, but this is so simple. This is a few steps like SoFi. I did the whole thing on aftie, 150 minutes, and you personally don’t make any money giving this advice unless you’re Dr. Dahle on The White Coat Investor and you have a link. There’s some referral bonuses maybe you get worth 1937this…it’s nothing. It’s maybe a hundred dollars if you got a referral bonus or something and they capped it too.
Jon: Yeah, I know. I’m in bond.
Trevor: Oh, did you?
Jon: And they said you can get 300 bucks or you can pass it to your clients and we just said, give it to the clients, well, because we got a referral contract with them. It was like whatever, no big deal. And I know for residents sometimes 300 bucks is 300 bucks.
Trevor: Oh, yeah. I recommended that.
Jon: I’m probably shooting myself in the foot as you say. I mean I don’t even think about it but yeah, if I were a scrupulous financial advisor, it was like I want to have as much money as possible, it would be hey, make minimum payments on your federal loans for 10 years and hope it gets forgiven and then invest the rest with me because if you refinance and you go into practice, put in 3 or 4 grand a month onto your student loans and that could be going into your investment.
Trevor: Yeah. I bet you have clients that come to you and say, “Hey, I want to put as much money into investments as possible because I’m not risk averse and I understand that I might be splitting hairs and barely breaking even trying to beat the market, yadda yadda and paying off my loans slower at three percent or four percent. I’m going to try to be at the market and get eight percent to 12 percent.”
Create A Strategy That Works For You [0:21:04]
That’s not wrong. Tons of people try to do that and that’s fine. It’s less of a sure thing. It’s a different strategy. Some people will do that and they’ll make more money than the next guy. Some people will do that and they’ll lose a lot of money buying single stocks on Robinhood and they don’t pay off their loans. That was me three, four years ago. When I was in residency, I was like buying occasional stocks. It would go down. I would freak out. I would sell and buy high. I’d sell low. You have to realize who you are. People are allowed to make mistakes but if you keep making them, you’re never going to get anywhere. That’s why you got to create a strategy that works for you. You got to know who you are and what your risk tolerance is and people aren’t wrong for doing one way or the other but certainly refinancing is a net win for almost anybody who does it.
Different People Have Different Financial Plans And There’s No Wrong Or Right Ones [0:22:08]
Jon: Yeah, I would say so. I don’t think anybody ever regrets that. I have a story about my first year or two in this business, I sat down with a couple. He was an ER resident, she was OB-GYN. They were probably 750 to 800,000 in student loans between the two of them and here I was in my late 20’s and I was, “Oh my gosh, that’s a lot of money,” and I saw them thinking, okay, and we were starting to put together some plans because they were a year away from getting out of residency and get into practice and I said, “Okay, we’re going to probably budget. It’s going to be probably six to eight thousand dollars a month for both of you guys on student loan payments. That’s okay. You guys will make enough money that it’ll work.” And he’s like, “Nah, I’m not going to do that.” And I was like, “What now?” And he’s like, “I don’t want to pay those off. I mean I will but I wanted to take as long as it possibly can and I want to stretch those suckers out. I just come to the conclusion I don’t want to sacrifice lifestyle and I’m just going to look at those as a piece in my budget for the rest of my life and that’s to sit.” And I was like, “Okay.” I’m not going to talk this guy out of this, but what I learned over the years was there’s no right or wrong answer there. That was what they wanted to do. As I got trained in being a financial planner and asked him the question in every area of their finances, what’s important to you about money, and you’ll find people’s values and you’ll find people’s philosophies are different and that’s what drives their financial plan and drives all that stuff, and so for him it was enjoying lifestyle, he’d sacrifice for several years like you do, goes into practice like I’m not sacrificing anymore. I was like, okay. You know what that means interest-wise. He’s like, yeah, I’m fine with that. Okay, as long as you know. That’s my job and then you give decision. And so love those guys. They’re still clients today and they’re making payments but it’s a vague ‘wanna stretch those, you know, 25 years is the plan.’
Trevor: Yeah. This is not quite the same thing but there is something to be said about the fact that doctors have so much earning potential that we talked a little bit about budgeting last week. You can cut corners and you can restrict and you can live like a resident and then you still come up against the wall. You can’t live on zero dollars and doctors can earn a lot. I mean even if they’re already earning really well, there’s different revenue streams and approaches to practice and growth areas for the practice or starting their own practice and taking on a higher percentage of what they make if they can be just as busy on their own. There are so many ways in doing medicine that can increase your ceiling even higher. Yeah, maybe that guy is just driven to grow and he doesn’t want to think about what he has to pay on his loans. He’s just going to try to outearn it. That’s another strategy too and I mean you can do that. I mean you totally can do that.
Jon: And they’re good savers. You know what it means, not like they’re wasting a bunch of money either. Debt-averse means you don’t like debt but he’s averse to paying off debt. He’s not taking on more debt. He’s been a good saver, and like their first year, they saved a hundred grand, no problem, and just a savings account in addition to getting on track of other investments and stuff. So it’s like, yeah, they’re not stupid. They’re still disciplined. They’re still good savers and great clients. That was a growing experience for me and I learned some things, but yeah, that’s my story.
I always have this little competition in my head as I go and visit residency programs. I’ll never forget the first one probably two years ago where I met a guy and his wife was a resident as well and he kind of pull me aside. He’s like, “We’ve got over a million dollars in student loans between the two of us.” And I was like, “Okay.” And in my head, I’m like, okay, my first one. I’ve been waiting to meet you. So already in residency, they have a negative net worth of a million bucks. That’s tough. That’s a hard number to look at.
Trevor: That sounds like a very expensive hundred grand.
Jon: Yeah, on both for sure.
Trevor: It’s crazy.
List Of Refinancing Companies Available On FB Group Page [0:27:12]
Jon: But yeah, I would say where to get information? You know there’s companies – Common Bonds, SoFi, Laurel Road, DRB; Earnest, I think or it might be DRB now, Earnest – there’s so many refinancing companies. You can check out The White Coat Investor. I will post either on the Facebook group or the page together a list of 10 or 15 student loan refinancing companies and I would say that’s a place to start because getting the refinancing quotes, they do a soft credit pulse so it doesn’t affect the credit. Like Trevor said, it’s easy, it’s free. Just start by taking a look and then get a second opinion whether to meet with one of us or talk to a financial planner and just say, “Hey, here’s what I got. Here’s my trajectory career-wise. What do you think?” And again there’s no wrong decision here, just get the facts first, and then you can make an informed decision and just make the one that feels right for you.
Need Help On Starting? Jon Can Assist You [0:28:15]
Trevor: Yeah, absolutely, and I’ll put in a plug for Jon here, too. I mean there are so many articles on like White Coat Investor and I’m still just reading a lot. I’ve done the White Coat Investor course and all of that but there’s a lot of easy points you can grab right away and the sooner you do, the more money you save. If you’re someone who’s trying to optimize now and you want to do in just a couple of weeks something that could save you thousands and thousands of dollars, I mean, hit off Jon and he can steer you towards some of those easy points right way and you could just kind of rest easy for a couple of months knowing that you’ve done a lot of the heavy lifting and then you can start doing the fine tuning and self-education over time.
Jon: Yeah, and that’s what we tried to do at least within two or three weeks like you said. Get at least one good action plan put together and the residents can walk away with here’s five or six bullet points of things you can do right now to get you on a better trajectory, and then step by step all the way through training so that when they get started, they’re starting out on the right foot as much as possible.
Well, alright, well I think that’s our time to go guys. Hope that was helpful. I think we threw a lot at you. We’ll again try to have resources on the website at financialmd.com. Check us out on Facebook – that’s where we post all of the resources and links afterwards. Join the Facebook group. We’ve got a Financial MD community which is made up of physicians, young and old, that are sharing tips, given and getting advice and then be sure to subscribe to the YouTube channel where we’ve got new videos coming out every week on a different financial topic so leave us a review on iTunes for the podcast. Subscribe, share, get the word out, and slowly we will make the world of physician finance a better place.
Alright, thanks Trevor. Will talk to you soon.
Trevor: Thanks Jon.
Thanks for joining us for another Financial MD Show. Be sure to head over to financialmd.com to get more in-depth resources on financial tips for physicians and don’t forget to join the Financial MD community group on Facebook, where physicians at all stages of their career gather to share tips and get ideas on achieving true financial success. We’ll see you next time.
The Financial MD Show is for informational purposes only and is not an offer to invest. It is not financial, tax, or legal advice. Be sure to seek financial, legal, or tax professionals when making any financial decisions. Before investing, you should make sure that any investment strategy or investment meets your individual investment needs, goals, and objectives. Financial MD makes no claims or guarantees to individual investment performance. All investing involves the risk of loss as well as the potential for gain.
Resources and Links:
The White Coat Investor – https://www.whitecoatinvestor.com/
Link Capital Partners – https://www.linkcapitalpartners.com/
SoFi – https://www.sofi.com/
iCapital – https://www.icapitalnetwork.com/
Darien Rowayton Bank – https://www.drbank.com/
Common Bonds – https://www.commonbond.co/
Public Service Loan Forgiveness (PSLF) – https://studentaid.gov/manage-loans/forgiveness-cancellation/public-service
Laurel Road – https://www.laurelroad.com/
Earnest: https://www.earnest.com/