Finally a real payment processing system.

I have voiced frustrations before regarding FedLoan payment processing system.  They are hired by the federal government to do one thing, which is to service student loans, and they frankly suck at it.  They take an entire week to process a payment and they don’t accept payments on weekends.  What are we, living in the stone ages?

Well, with my brand new refinance, which feels like buying a new car, I made my first payment.  Guess what, the payment is processed right away and I feel some immediate gratification.  Beautiful!

Check it out:

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It actually tells me how much is applied to principal and how much applied to interest.  Well, that feels really great.  FedLoan servicing never did such a thing. I think I just like to know where my money is going. Remember I have the plan of making bimonthly payments, so this is my first half of the total payment due. If you would like to hear more regarding bimonthly payments see my previous blog post here.

I bet you are wondering about the juicy details of my new student loan?  I plan to dive into that information soon.  For now, happy Friday!

Why I am saying goodbye to public service loan forgiveness FOREVER.

Hello my friends,

Have you ever taken out a car loan, drove your new car off the lot, made a few monthly payments on the loan, then had such a clean and responsible driving record that the bank came back and told you that you don’t have the pay back the rest of the loan balance? Or how about if you have ever used your credit card to buy, lets just say, some food, clothes, and toiletries for the local homeless shelter as a good deed for the holidays and then the credit card company turns around tells you that you don’t have to pay back the balance and they will write the slate clean for your good service? The answer to these completely hypothetical situations is a definite “no” for pretty much 100% of everyone reading this right now.

My point is that public service loan forgiveness (PSLF) is similar to those situations mentioned above.  You are working in service to the public for ten years in order for the government to completely write your balance clean.  In today’s modern day banking system, where interest rates and profit margins are similar to the modern day gold rush, in my opinion there is no such thing as a free lunch.

As I have mentioned before, the bulk of my student loans have been with Fed Loan Servicing at an enormous rate of 7.375%. I have deferred making any moves toward refinancing privately because of the great appeal of doing loan forgiveness. For those new to the game, let me remind you that there is no turning back once you refinance out of a government loan.  Thus, you need to be absolutely certain that you do not want to pursue loan forgiveness once you turn down this one way street.

As you can probably guess, I remain cynical about the PSLF program.  There are a multitude of sources that are unclear as to the future of the program. Some sources say that they are going to cap the forgiveness amount to $57,000, others say that they will do away with it completely.  Potentially by retiring the program the federal government can save 24 Billion dollars.  Secondarily, there’s no reason why the federal government can’t tax you on every penny that is forgiven.  This taxable income can amount to a huge IRS bill.

Currently we are 4 months into 2018, and 2017 was the first year that any student loan would have been eligible for forgiveness.  I have yet to hear of any person who has had any amount of their debt forgiven.  I have done an internet search to see who were lucky enough.  Instead, I have only come across articles on people’s disappointment when they find major problems with qualifying for the program for one reason or another.  Common reasons being that they were not enrolled in the correct repayment plan or their original loan was not a Direct Loan.  Imagine ten years of tailoring your career choice to this program and ten years of planning for this debt to be forgiven only to find out that you have to start all over again at year one.

Lets review this chart again on my person loan situation from loan forgiveness calculator:

(These numbers are based on $490,000 of debt, $210k a year salary, 7.375% interest rate, family of 2, married)
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Total amount of potential forgiveness under PSLF under the various repayment plans.

The interesting thing to note is that three out of four of these forgiveness amounts are actually higher than my current student loan balance!  Meaning, that for ten years I could be making payments on my student loans and the loan balance could actually go up, not down!  That also means that at ten years if there is a problem with PSLF and I happen to not qualify for forgiveness I would have just wasted ten years of hard earned payments and may actually be in a worse situation than when I started. If anyone remembers the sub-prime mortgage market in 2005, banks were lending mortgages that were too good to be true.  Unfortunately we know what happened with the housing bubble that burst and suddenly many people actually owed more than what their house was worth.  We are not connected to a tangible asset here, but we are connected to our earning potential.  This ratio is important when considering the size of your student loan debt and the potential to repay. With a loan balance that is increasing in size, this may tip a person underwater completely.

The last personal reason I would like to share as to why I am opting out of PSLF is that I will not be working in public service.  I have attempted to find a job in public service and have looked into employers that carry the coveted 501-3b non-profit status.  As a hospitalist, there are very few opportunities that exist for me which may seem as a shock being a physician.  If I were a outpatient physician, this would be a more realistic opportunity for me.  However, I just can’t see sacrificing more years into a job area that I don’t have 100% interest into. I would rather not sacrifice my years of training to putting in my time card just for loan forgiveness that may or may not even qualify in the end.  I made a commitment when I signed that master promissory note, and now I have to take responsibility for that obligation.  The financial commitment I made, while sometimes sleep disturbing, still has given me a career without any regrets for the lives I touch, and the incredible job I get to do.

I beg you all reading this to please note that these are my own personal views and tactics in battling my own student debts.  Please do your own research, make your own informed personal decisions based on your own unique situation, and most of all, keep the student loan hustle going!

Dr. J

Yes, Home ownership is still possible with debt.

Yes, I have my student loans. Yes, I might be paying on them for a long time. But that doesn’t mean I am subject to living out of rentals. If it makes sense, I encourage ownership over renting a house. While it is scary taking out yet more loans and adding more debt to the collection, a house is a tangible asset that can easily become not only your sweet haven but also the largest investment of your life. Your hard earned dollars will go toward something which you may very well see a return on rather than in rental la la land. Secondly, you may see your house value increase after purchasing giving you what is called capital gains and equity. Even if you do not eventually pay off the mortgage, the increased value can mean some extra cash in your pocket when you go to sell.

Depending on what market you live in, ownership will make more sense. First of all, if you are lucky enough to live in an area where the housing prices are reasonable enough you could be looking at a monthly mortgage amount competitive with the monthly rental amount. Thus, this situation is a no brainer. Ownership also makes sense if you are planning on staying put for a long time. There are no new leases and no landlords to deal with. Furthermore, you can create that dream space, man cave, perfect zombie apocalypse hideout that you’ve always wanted.

While most would agree with all the great things about home ownership, qualifying for a mortgage is another story. Is this feasible with student loans? Absolutely. I just closed escrow on a house and I’m moving in with my half a million dollars of student loans strapped to my back. Here are some of my tips to qualify for a mortgage:

1. Its all about late payments. Late payments are displayed on your credit as 30, 60, or 90 days late. Do not be late on anything! I repeat, do not be late on anything! Not only do late payments negatively affect your credit score, mortgage companies see late payments as a struggle to pay bills.

2. Credit score. I once heard someone say that to live very well in America you don’t need a lot of money. You need good credit. Nothing holds more true than taking out a home loan. Protect your credit like its your golden ticket. I will eventually post another blog on this issue.

3. Debt to income ratio. This is simple to calculate. Take all your monthly payments and add them up. Divide this by your monthly income. Banks generally want to see a 40% or less DTI ratio to qualify for a mortgage. This is also how you can determine how much house you can afford. How much you can afford as a monthly payment is processed backwards to determine the overall purchase price of a house you can afford. The caveat is that certain things that are monthly payments are not counted in your DTI ratio such as utilities, cell phone, any type of insurance, health care bills, and all others that do not get reported to the credit bureaus. There are certain banks that may actually exclude student loan payments in calculating your DTI as well. The mortgage I am receiving included. This is how I was able to qualify for a house using just my income alone without my husband, as the bank I am using has completely ignored my monthly student loan payment. For specific questions on this feel free to contact me.

4. Down payments. Gone are the days of 2005 when you could buy a house with zero money down. These days, a down payment of 5-10% plus closing costs seems to be industry standard. So expect some up front money to get into the house. Remember this is a long term investment.

5. Time on current job. Mortgage banks are interested in one thing. Job stability. Don’t expect to be approved for a loan if you have changed jobs multiple times in the last few years. There could be some leeway if you are changing employers in the same line of work, but if you are working as a limo driver for 3 months, then a chef for 6 months, then a teacher for 4 months this is a huge red flag. As a physician I won’t run into much trouble changing employers as I would likely remain in the same line of work. They want to see 2 years of stable employment in the same line of work.

There are a few highly valuable tips I can give you if you are considering owning a house. Don’t be discouraged by the consideration of taking on more debt while still burdened with high student loans.  You can pay $1000 a month in rent or $12,000 a year to someone else, or you can have that money go to a tangible asset.  If you have determined that you are not able to qualify for a mortgage at this time, there’s no room to panic.  Now’s the time to speak with a mortgage banker and determine what it is that is disqualifying you.  You may not qualify now, but with a couple of changes you may be able to qualify in a few months or a year from now.  Most importantly, don’t let your student loan burden weigh you down from continuing to invest in your financial future.  Develop a plan for your student loans and stick with it.  Have that plan in place prior to pursing a mortgage.  And as always, keep the student loan hustle going!

Dr. J