As CEO of your family, managing your DrSpouse’s student loans is just part of handling everything else.
Couple that with taking care of energetic kids, making dinner so your DrSpouse can have a full stomach before his 16-hour night shift, keeping up with perpetual laundry, possibly even working a job, and you’re exhausted.
But you can’t afford not to try to make sense of all of it. Student loan interest accrues no matter how you feel about it, accumulating quickly with time. If you don’t stay on top of it, you will be buried underneath like an avalanche.
Instead of looking at managing student loans as any chore, think of it as a very lucrative hobby. Where else can you save tens of thousands for doing just a few hours of research and being in the right plan? That’s a guaranteed five-figure return in exchange for just managing your student loans correctly. Do nothing as your DrSpouse gets out of medical school, and you miss out.
I have collected some of what I think are the most common misunderstandings and present them to you. Here is the truth you need to know about student loans.
(Psssst! Myth #4 is the most common one I hear. Scroll to read it.)
Refinancing & consolidation are the same things.
There is some overlap but they are different.
When you consolidate, you are taking all of your DrSpouse’s federal loans (mixture of all types and interest rates) and putting them all under one umbrella so they are now all one type and one interest rate. They started as federal loans, they still are federal loans.
When you refinance, you consolidate using a private lender to get a better deal. When you do this, your loans are no longer federal and you create a private loan.
Consolidation and refinancing are not for everyone, and if you do it, it’s irreversible. Be sure you know exactly what benefits you are leaving off the table forever if you do any of these.
IDR and IBR are the same things.
That’s not a “D” and “B” typo and they are not the same. IDR stands for income-driven repayment and is an umbrella term that includes the three most popular types of IDR: IBR, PAYE, and REPAYE. IBR is a type of IDR.
The amount forgiven by PSLF is taxable.
There are several types of loan forgiveness programs and each of them follow completely different rules.
PSLF, which stands for Public Service Loan Forgiveness, happens to be one of them. It’s the one you read about the most in the news.
PSLF works in that if your DrSpouse works for a non-profit 501c3 employer and makes 120 qualifying payments, his loan balance will be forgiven. The amount forgiven by PSLF is not taxed.
You can only refinance once.
You can refinance as often as you want!!!!!
Companies are very competitive and constantly offering better deals. That’s why you’ll see blogs like this one scrambling to keep up as faster than we can hit “post.”
Shop for better deals every year. If you find a better deal with another company, refinance again. And again. And again.
I have negotiated some of the best sign-on bonuses with companies in this link. If you received a bonus before, be careful and read the fine print before re-refinancing. If you refinance too soon after receiving the bonus, you may owe it back again.
Your loans are forgiven if you are disabled or die.
The answer: it depends.
If your DrSpouse’s loans are federal, they are forgiven if your DrSpouse becomes disabled or dies. That’s straight-forward.
If you refinance with a private lender, things get more complicated. The government is no longer in charge and the new company make the rules now. Most lenders forgive them upon death, a few don’t. Each lender has their own definition of disability. And their rules can change any time.
On top of that, if you live in one of the nine community states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin) — and you got married before your DrSpouse took out the loans — then you may be on the hook if your DrSpouse dies.
Then there’s the issue with co-signing loans. Some lenders require you to co-sign in situations where your DrSpouse’s credit score is too low to qualify. If you co-sign, you are likely on the hook if your DrSpouse dies.
There are ways to protect yourself if your DrSpouse’s loans aren’t forgiven if he dies. One way is to take out term life insurance on your DrSpouse to cover the repayment of the loan. A 10-year $300,000 term life insurance policy for a healthy 30-year-old male is about $150-200 per year. See my Recommendations list for agents that sell term life insurance.
There is so much information on student loans. It is up to you to get to the bottom of fact vs. fiction.
You can be spending hundreds of hours wading through sites and forums. I found Student Loan Eraser to be helpful because it took only three hours. I took it and recommend it as a one-stop place, instead of opening up hundreds of tabs and doing a lot of midnight scrolling on your phone.
Whichever way you decide to learn, my philosophy is to act. Don’t look at managing student loans as any chore and more like a very lucrative hobby that will save your family tens of thousands.
Understanding student loans is one of the best ways to impact your financial future.