Splash Financial is now a true forbearance alternative

In 2015, DRB (now Laurel Road) began offering private student loan refinancing to medical residents with a set monthly payment of $100. This was substantially lower than what the calculated payment for any resident would be under an income-driven repayment plan like PAYE or REPAYE but apparently too hard on the budget for a lot of residents who continued to forbear.

Not long after, LinkCapital joined the resident refinance ranks ($75 a month, eligible after intern year), followed by the very recent addition of SoFi ($100/month for up to four years of training). But for anyone who felt like every buck counted, private refinancing was still more costly to the monthly budget than forbearing.

Of course, forbearing is actually by far more costly in the long term because accruing interest grows unabated and then capitalizes while the borrower enjoys exactly none of the many wonderful benefits of participating in an income-driven repayment plan like IBR/PAYE/REPAYE.

To be absolutely clear, most residents should not be refinancing their federal loans. The vast majority of residents should be in REPAYE or—if spousal income makes REPAYE untenable—PAYE. But for those who feel forced to forbear in anticipation of a career in private practice, then refinancing is something really worth taking seriously.

Splash Financial has now made it possible for this subselected group of trainees to shave thousands off their loans painlessly: the required monthly payments during training are a token $1. With their (current) fixed rate offer of 5.29% – 5.44%, you don’t even have to complete the really quick application to know if it’s even worth considering. If your rate is in the low 5s already? Of course not! You might as well forbear and keep the flexibility of federal loans. If you have loans in the high 6s and a balance of $200k? Well, that’s a difference of a couple grand for every year of training. Please note that Splash, like all of these companies, advertises the sticker rate including the usual 0.25% autopay discount but that the discount doesn’t apply during the training period, so make sure to add on that quarter point when comparing to your federal rate.

When Splash first started offering their product last summer, they tacked on a hefty origination fee, which is unusual in the refinancing industry, where no cost-refinancing is essentially standard.  A few months later and they saw the light, nixing the fee. Now the product is a no-fee no-cost alternative that’s competitive with everyone else and the only one that allows for refinancing without the $75-100 monthly payment during training that even the other resident-friendly companies require. You can, of course, pay more per month like any other company (and the more you pay per month, the less you’ll owe later, so that’s highly recommended).

Student loans are a $1.5 trillion dollar industry, and every student loan company has referral programs. Splash’s program is a bit unique in that the welcome bonus is tiered depending on your loan amount and is the biggest in the industry for larger borrowers:

  • Anyone who refinances over $200,000 can get $1,000
  • Anyone who refinances over $100,000 can get $500
  • If the balance is below $100,000 it is $250

Splash FinancialUnless you are in financial straits now and require loan forbearance but also plan on working at a 501(c)(3) non-profit after training, then forbearance is unlikely to be the right choice for you financially. IDR is the solid option for most people and REPAYE often offers the best rates around for many residents, but that doesn’t apply if you can’t or won’t make the payments. Those just forbearing to free up cash during training probably shouldn’t be forbearing in the first place.

Be aware that with any of the resident refinancing companies the interest accrued during training does capitalize at the end of training, so trying to pay down some of that interest prior to this step is always a good idea.

 

Department of Education decides that loan holders aren’t really consumers and that students don’t need protection

Last month Betsy DeVos’ (Trump’s) Department of Education ended their cooperation with the Consumer Finance Protection Bureau, because, you know, the CFPB was “overreaching” in trying to actually protect student loan borrowers.

Shocking that the same DOE that wanted to consolidate the entire servicing industrial complex into one giant government contract with a shortlist that included a company currently being sued by the CFPB for defrauding students would now be cutting ties with the agency charged with dealing with exactly this kind of detritus.

The Single Student Loan Servicer That Wasn’t

InsideHigherEd on the rapidly abandoned plan to consolidate all student loan servicing into a single monolithic “too-big-too-fail” mega contract:

DeVos has taken heat since May from members of Congress and representatives from the loan-servicing sector over the plan to pick a single servicer that would hire subcontractors to collect loan payments. Department officials at the time argued that the plan would make oversight of servicers by the government more efficient.

But the proposal found critics among both Republicans like Senator Roy Blunt of Missouri, who argued that the system would remove choice and competition, and Democrats like Massachusetts Senator Elizabeth Warren, who warned against creating a federal contractor “too big to fail.”

Blunt and Warren were part of a bipartisan group of senators who introduced legislation ahead of the department’s announcement Tuesday to block the single-servicer plan. Their bill would instead require the participation of multiple loan servicers.

Instead, 2019 will still see the consolidation of the different servicer websites to a single portal that interacts with the borrowers (which was the original Obama-era plan already in motion). Everything else will remain separate. How that will happen basically remains a mystery, but the site itself will be developed and managed by the Office of Federal Student Aid.

Hopefully, they don’t take any tips from Navient, because their website is singularly terrible.

Switching from REPAYE to PAYE after residency

From a reader:

Incoming PGY1. Your posts are tremendously helpful! My question is, why aren’t all residents (or at least the majority) doing REPAYE and then switching to PAYE at the end of their training? I feel like I am missing a key pitfall or something. Is it a pain in the ass to switch? Are new residents scared they will not be able to switch? Or is this just information not everyone has? I understand some people are not eligible, have a large spousal income, have private loans, etc etc…But just wondering why this isn’t a more ‘popular’ way to go about it?

Both REPAYE and PAYE calculate payments based on 10% of your discretionary income. But because PAYE monthly payments are capped at the amount that would be due for the standard 10-year repayment, PAYE payments can be lower than REPAYE payments for high earners. PAYE also allows for the married-filing-separately loophole that REPAYE closes.

The first thing we do as human beings when considering any big important action is to look around and see what everyone else is doing. (One imagines that, overall, this is a helpful survival mechanism.)

The downside to this approach is when the crowd is wrong. Or, when the crowd is right, but you’re different in some critical way.

So, the first/main reason people aren’t all switching from REPAYE to PAYE? They haven’t had a chance to yet.

Reason 1: Too Fresh

The switch probably will be popular over the next few years, but REPAYE is still pretty much brand new and a lot of current residents who should be aren’t on it. It was released at the end of 2015 (which is mid-cycle for almost everyone’s annual recertification), so really only students graduating in 2016 (i.e. new PGY2s) even had the option to pick it when they first selected a repayment plan.

Reason 2: Too Mislead

Another reason is that even for the more industrious residents who considered switching when it came time for their annual recertification, it seems that a lot of servicers have been misleading borrowers about the ability to switch out. For example: Yes, you can switch back from REPAYE to IBR or PAYE or even Navient is still lying to borrowers despite lawsuit.

Reason 3:  Too Ignorant or Lazy

Most borrowers choose and set-it and forget-it strategy to student loans, which means that they don’t critically re-evaluate their decisions or maximize their strategies. I’d like to think most people fall into the reason #1 camp, but the reason #3 group is one of the reasons why I wrote a book about it. A lot of folks are just lost.

Reason 4: They Actually Don’t Need To

A final big reason is that many borrowers won’t benefit from switching to PAYE: it depends on what happens after training. Switching only makes sense if you’re trying to minimize payments for PSLF. Otherwise, having smaller payments just means paying more over the life of the loan. Additionally, the accrued interest will capitalize, which is not relevant for PSLF but is for everyone else. For PSLF purposes:

And even for those PSLF-bound:
– A lot of people don’t need to. It isn’t that easy to break past the pay cap for a lot of docs. Thus, if you’re single, have a non-working spouse, or have a spouse with a similar debt to income ratio, PAYE isn’t going to make a big difference unless you are in a high paying specialty. There are definitely attendings who will continue to earn a REPAYE interest subsidy throughout their 10 years of qualifying payments, even with spousal income (particularly heavy borrowers).
– Similarly, depending on their spouse, many won’t gain enough in lower payments by filing separately to offset the tax penalty of switching to PAYE in order to file taxes separately worth it.

The real take home

As you approach the end of training, it’s time to sit down and make your real repayment plan. You may have been in REPAYE because it was the no-brainer choice while in training, but now—with a new job and a salary increase on the horizone—you’ll have the information you need to figure out if you should stay the course, switch to PAYE or IBR, or prepare to refinance privately.

My new book: Medical Student Loans

My second book, Medical Student Loans: A Comprehensive Guide, is now out. It’s a novella-length treatment of student loans specifically for physicians and written to cover the topic for all levels: premeds, medical students, residents, and attendings. It’s especially helpful for graduating MS4s and by its nature also covers important basic financial literacy in a hopefully non-threatening way.

In other words, I hope you like it.

Despite years of writing about student loans on this site, it was a ton of work to put this together and finally get it out to the world. To celebrate, I’ve made it completely free to download from Amazon until the end of Sunday, June 25.

MSL will also be part of the Kindle Unlimited program for the next three months. You can get a 30-day free trial if you need another way to read it for free.

Consider it your first few hours of CME.