YFP 177: New Book: Baker’s Dirty Dozen: Principles for Financial Independence


New Book: Baker’s Dirty Dozen: Principles for Financial Independence

Joe Baker, author of the newly released book Baker’s Dirty Dozen: Principles for Financial Independence, joins Tim Ulbrich on the show. Joe talks about several of the principles outlined in the book, why he wrote the book and what he hopes the reader will glean from applying its principles.

About Today’s Guest

Joe Baker is an Adjunct Assistant Professor at the University of Arkansas for Medical Sciences College of Pharmacy where he has taught personal finance for over twenty years, as well as an adjunct instructor at Harding University College of Pharmacy. He holds a Bachelor of Business Administration from Southern Arkansas University and a Masters of Business Administration from the University of Central Arkansas. Joe retired early in 2019 from Pharmacists Mutual Company where he provided insurance and financial services to Arkansas pharmacists for twenty-eight years. Joe has spoken to both academic and corporate groups across the country promoting financial literacy.

In an effort to give back to his community, he has endowed a scholarship fund for students graduating from his hometown of Emerson, Arkansas.

Joe and his wife, Brenda, live in Little Rock, Arkansas.

Summary

Joe Baker has been teaching personal finance to pharmacists for over 20 years as an Adjunct Assistant Professor at the University of Arkansas for Medical Sciences College of Pharmacy as well as an adjunct instructor at Harding University College of Pharmacy. Tim Ulbrich approached Joe and asked if he’d be interested in writing a book and Joe realized there were a lot of lessons in personal finance he could share. With the help of his daughter Lindsey, Joe wrote over 250 pages of the key principles he teaches and has learned along his journey of personal finances. This book is composed of practical experience and contributions and stories from over 40 people.

In this episode, Joe walks through several of the principles he has written about like finding a path that will fulfill you, getting and staying out of debt, setting up a 401(k) and Roth IRA, finding the right house and picking the right mortgage, protecting your assets and making a difference in your community.

Through November 7th, you can use the coupon code BAKER at www.bakersdirtydozen.com for 15% off your order of the book.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Joe, welcome back to the show.

Joe Baker: Well, thank you, Tim, for the invite.

Tim Ulbrich: Excited to have you. Huge accomplishment as you release your new book, and we’re going to dig in and talk about several aspects of that book, really a comprehensive guide not only for pharmacy professionals but really just a guide overall about how to live a financially well life and how to do it with intention. And we had you on the show back on Episode 082 with Blake Johnson as he shared his debt-free journey. And during that show, Blake articulated how important your guidance was, your mentorship and your role as a teacher in terms of how important that was in the journey for he and his wife to becoming debt-free. And so now we get to talk about how you have compiled all of that wisdom that Blake and other students who have been blessed with your guidance and teachings often speak of as you release your new book, “Baker’s Dirty Dozen: Principles for Financial Independence.” So Joe, first of all, congratulations. I know a lot of sweat, a lot of time went into putting together this book. And here we are, finally getting ready to release it. So congrats.

Joe Baker: Yes, well thank you for talking me into it. I guess I say thank you.

Tim Ulbrich: So I have to ask, now that you’re on the back end of this and we finally get this into the hands of folks and many, many months of writing and editing went into this, and I told you very early on, I said, “Hey, Joe, at some point, this is going to become fun.” And you kept saying, “When is that? When is that?” So as you look now backwards, tell us about the process. What was it like? What type of time was involved? And would you do it again?

Joe Baker: Would I do it again? Yes, I would do it again. But I’d have open eyes this time. I had been thinking about writing a book for years. Former students and current students would say, “Why don’t you put this down on paper and let us have it in a book?” And I didn’t really think much about it until you mentioned — I think it was in May of last year, 2019 — you mentioned and said, “Hey, why don’t you write a book and we will help you promote it?” Then that got the bug started and I started thinking about it and said, you know, I think I can come up with some things. And on August the 15, I started the book. And coincidentally, I started writing the book for something to do in the hospital room. My wife was having some surgeries. And quite frankly, I wrote most of the book in the hospital room. Now, she’s fine today and everything went well. But you know, it was pretty tough having to write a book when someone’s over there moaning in pain. I’d have to call a nurse and say, “Hey, give us some pain pills in here. I’m trying to write my first book.” They weren’t too sympathetic, nor was my wife. But most of it was written, I mean, during the hospital stay. And what’s interesting — I tell people this story — is I thought I was pretty much finished at Christmas. And my daughter, who is just very astute on editing and all that sort of thing, she said, “Well, Dad, why don’t you let me read it and edit it?” I said, “OK. Go ahead.” Well, she started into editing the book, and lo and behold, she would say, “Dad, I don’t understand.” I said, “Lindsey, you’ve got to understand, I wrote this for millennials.” And she said, “Well, I don’t understand it.” So we went almost paragraph by paragraph throughout the book and rewrote it to where she could understand it as a liberal arts major and put in some stories. It was so much involved, involvement for her that I just felt obliged to name her a coauthor because she did, she made it sound so much better. I shouldn’t say this, but one day I was reading through it for the thousandth time, and I said, “You know, I know I’m getting old. But I don’t remember writing this part.” And she said, “Oh yeah, you did not. I put all that in.” I said, “OK.” There is a lot of her in this book, and I’m very proud of what she’s done.

Tim Ulbrich: And shoutout to Lindsey. I appreciated her input along the way. She did a fantastic job. I feel like it’s — as you know, Joe, as I know, especially as you’ve taught on this much longer than I have, it’s very different teaching on this and then putting that into writing in a way that is engaging, that is accessible, that is action-oriented. And I think it takes more effort, but one of the exciting things is this will live on, and it’s going to have an impact on many, many people. And just so folks understand the effort, when you talked about going paragraph by paragraph, we’re talking about paragraph by paragraph of over 250 pages that are in this book. And I think you did an awesome job. One of the first things I said to you after I read it was, “Wow, this is incredibly engaging because of the stories that you’ve included, because of the tone of writing, because of how action-oriented it is.” And you had over 40 people that helped contribute to the book. And I say that as we get ready to jump into talking about some of the key principles because I think this is a topic where multiple perspectives can be helpful to reinforce various points. And I love how you brought in those perspectives and obviously Lindsey put her own stamp on the book as well. So just overall, incredible job. And we’ve got — I think you have photo evidence of some of that hard work writing. I remember you sent me a text at one point with a photo when you were in the hospital writing. And so we’ve got photo evidence of that. So again, congratulations.

Joe Baker: Well thank you. Can I add another story to this? And it kind of goes to one of the reasons I was writing the book is we were playing cards this summer — and by the way, I had my other daughter, Brooke, and her husband, Gabe Crooks, to edit the book. And they did a good job. They weren’t as in depth as Lindsey, but they did do that. We were playing cards, and Gabe and my daughter happened to be there, and we had a big group there playing cards at the table, and one of the card members, one of our friends who is an attorney, says, “Well I couldn’t tell you the difference between an IRA and a Roth IRA.” And all of a sudden, to my right, Gabe, my son-in-law, another liberal arts major, he started explaining the difference, how it’s the taxation, you know, you tax up front and all of that, went into great detail. And I turned to him and I said, “How’d you know that?” He said, “By editing your book.”

Tim Ulbrich: There you go.

Joe Baker: And he’s even starting investing more and more from that. So it seems to have worked.

Tim Ulbrich: That’s great. And I think you know from teaching this for over 20 years as we’ve had several of your former students on this podcast, you know, some people will read this book and go line-by-line and take away multiple things that they’ll apply. Others may take one thing or they’ll jump in and out as their financial life and plan progresses. But I am confident, I know I took many things away, and I’m confident the readers will do the same. Joe, remind our listeners — maybe they didn’t hear you on Episode 082 way back when — a little bit of your career path and then also some of the work that you’ve done over the past 20 years in teaching personal finance. I think it’s a good segway into why you even wrote this book in the first place.

Joe Baker: Well, in my adult life, I’ve worked for 28 years with Pharmacists Mutual companies, so I’m very familiar with pharmacists and pharmacy students. And I spent a lot of time in the college of pharmacy. And in the late ‘90s, I was talking to the assistant dean and the dean about a personal finance course. And one thing led to another, and we started in the fall of ‘99 at the University of Arkansas College of Pharmacy, a two-hour elective for P3s. And I’m going to brag not because of me but because of the content, it is the most popular elective at the university. So it’s been going on for over 21 years. And it’s just — it’s been great. I look forward to it. Pharmacy students are like sponges, they just absorb it all. And we just — we have a good time. We tell a lot of stories. And I learn from them as well. So it’s a two-way street.

Tim Ulbrich: Absolutely. And I have been teaching a personal finance elective for I think 4 or 5 years, not 20+ years. But one of the things I often think of is, I wish I would have had this. And I know I hear that from others as well. So lucky to have the students that have been able to take your course, that they have access to that information. And Joe, I wanted to ask, you know, we throw around the term, “financial independence,” “financial freedom,” all the time. And since it’s in the subtitle of your book, “Principles for financial independence,” I want our listeners to hear from you, what does that term mean to you? And why is that concept of financial independence so important?

Joe Baker: Well financial independence to me means that if I want to pick up roots, move to another place, I can. I’m not obliged to stay at the same job that I’m in. It just frees you up to do so many things. And I know that money can’t buy happiness, but I have been without money, and that has made it very unhappy. It’s nice to know that if the refrigerator breaks down, the wash machine, or if you want to go on a trip, that you don’t really have to think that much about the monetary. I know I always try to get a good deal, but having the financial independence to do those things and to buy things that you need, it really makes a big difference. It takes the stress out of marriage and life.

Tim Ulbrich: One of the things too, Joe, that really resonates with me as I’ve gotten to know you over the past couple years and obviously got to be alongside of you in this journey, I often tell people as I’m describing this book, is it really is just spewing out with wisdom. And I mean that genuinely.

Joe Baker: Thank you.

Tim Ulbrich: Because I feel like your life experience really comes through in addition to what you have found as effective ways to teach these principles such that they’re easy to understand and they’re action-oriented. So you mention in the beginning of the book, you chronicle your timeline, 30 years old, you got married having nothing but some debt. I think that’s a story that I can resonate, our listeners can resonate. And then if we fast forward, 59 years old, your liquid net worth percentile increases from the top 8% to the top 4% in the U.S. And you mention it took 52 years to get to 8%, the top 8%, and only seven more years to get to the top 4%. And one of the things you mention there is that the significance here was the result of having no debt. So what else as you look back on this journey going from really a net worth of $0 or negative to obviously being in such a good financial position and being financially independent in addition to no debt and having that philosophy around debt. What else has been the secrets to your success?

Joe Baker: Well, I’ll go back even further. You know, it’s a really remarkable journey considering I grew up in a small rural area in south Arkansas near the Louisiana state line. We did not have an indoor toilet until I was 9 years old. And I always, when I’m mentoring students, I say, “Listen. If I can achieve what I have coming from not having an indoor toilet, you can achieve as well.” But fast forward to age 30, you’re right. I had debt. I did have a TV and a VCR and a bed without a headboard. So I did have some assets. But the fortunate turn in my life was I married a high school math teacher. And even though I had a business background, she came in and showed me time value of money and all of the other numbers. And I said, “Wow.” So she whipped me up in financial shape, and I knew she was the one when we were having a get-together at her condo. I think this was the second town we were together. And we had some people over, and someone picked up a paper towel roll, used the second to last paper towel and proceeded to throw it away. And from a distance, I saw my wife — or future wife — go over to the trash, pull that cylinder out and pull off that last piece that was glued to it. And I said, “Wow. I’m going to marry her,” because I knew that she was tight with money. And of course, she makes me frugal today — or excuse me, she makes me look like a spendthrift. But anyway, that helped transform me. And we instilled those — a lot of the money principles with our children. Those stories and more are in the book.

Tim Ulbrich: And a shoutout to Brenna Baker for allowing you to write this book but also for giving you the foundation, I feel like, for what allowed you to learn this topic and of course in turn, teach others. And I love that line that you say in the book, “My biggest financial accomplishment came from marrying a high school math teacher.” So one of the lessons, which I couldn’t agree more with, is making sure there’s alignment with your partner, your significant other, your spouse, when you’re talking about personal finance. And the earlier you can get to that alignment, the better. And you do a great job of discussing that in the book and how important it is. Let’s jump into different areas of the book. And we’re just going to scratch the surface on these. But principle No. 1, so Baker’s Dirty Dozen Principle No. 1, is find a path that will fulfill you. And I think many may pick up the book and not expect that it would start here. So tell us about why you started here and why this concept of finding a fulfilling path is so important and relevant to the financial plan.

Joe Baker: Well, the book did not start off this way. The book was evolved that I had in mind was don’t do this, don’t do that. And then we had a epiphany — excuse me, I’m under the weather today, so you’ll have to forgive me a little bit — when you and I went to Washington, D.C., last year, it was September of 2019, last year, and we both attended a conference with a speaker. And he changed my whole focus on the book. You know, by not telling people what they need to buy or whatever, so I said, “Everyone needs to find their own path, financially, career-wise,” but the purpose of my book is to show you the opportunity cost of every economic decision you make and let you make that decision. I can’t pick a path for you. This is the path that you have to come up, and with the help of the book, maybe we’ll find a way to finance that path. And you can tell a little bit about the speaker who that was. We’ll give him credit.

Tim Ulbrich: Yeah, so I remember that. FinCon 2019, we were in D.C. You actually, Joe, if you remember, we had I think lunch or dinner, and you handed me in a manila envelope the first copy of the book. And we could go back and pull that out, and to your point, there was not this part included. We sat through this keynote, which was delivered by Ramit Sethi, which should sound familiar to our listeners, author of “I Will Teach You to be Rich.” Fantastic book. And that keynote, Joe, I remember it was one of those moments for me as well that I talk about often when I am speaking on this topic. He was talking about the concept of money dials and really identifying the things that matter most to you and finding a way to prioritize and fund those in the financial plan. And he had a great example, he called on the audience to do a couple of these, and then finding the areas that don’t mean a whole lot to you and to stop spending money on those things. And he connected that to the concept that we talk a lot about on the show about finding your financial why, having a purpose, having a vision for your financial plan, and by the way, as you mentioned and alluded to in the book, this path can and will look different for probably everyone reading and many of our listeners as well. And so finding that path, articulating that path, defining that path is so important because the financial plan should be a mechanism to help achieve that and make it reality. And for some, that means a very ‘traditional’ path of I’m going to work full-time and I’m going to do that for 30-40 years and I’m going to make a good income. Others may say, you know what? It’s early retirement, it’s staying home with the kids, it’s doing this or that, it’s working part-time, it’s having options, it’s having flexibility. And I think we’re seeing this more than ever of the importance of this. And I know it’s something that I feel personally as well. So I think it’s a great concept and I think it’s a great way to start off the book before you then get into the x’s and o’s of the financial plan. I remember we looked at each other and we’re like, alright, this is something different.

Joe Baker: Yes. I turned to you if you remember, I said, “I’ve just changed the direction of my book.”

Tim Ulbrich: Chapter One, here we go.

Joe Baker: Right.

Tim Ulbrich: I think you do a nice job too in this first principle that I know will resonate with our listeners, many of which in the field of pharmacy while this book goes beyond just one for pharmacists that I know many are struggling with what do I do if I’m in a position where I’m thinking about a career change or I want to do something different or “more meaningful,” how do I consider that? How do I weigh that? And how does that, again, connect back with the financial plan? And you do a nice job of covering that in principle No. 1. Now, you also talk about in the book this concept of avoiding financial minefields. And I think this gets into a little bit of the defensive side of the financial plan. My question here for you is in your experience teaching on this topic and working with many students, what are some of the common financial minefields that you see people stepping into?

Joe Baker: The biggest one right now are weddings. Weddings, I think the national average cost is $33,000, excluding the honeymoon. And that is just a big, big financial minefield. Now, obviously if the person reading the book is not paying for the wedding, that’s a different story. But even for parents paying for the wedding or grandparents or whoever, that should be looked at in the light of opportunity cost. And that’s what I break down in the book, showing if you use less money for a wedding and quite frankly, the stress of a wedding, wow. My daughter, well, Lindsey, she’s one that really wrote a lot about financial minefields of weddings. And she was just in a wedding, and she was — it was very similar to the movie “Bridesmaids” where everything was costing so much, spending so much time. So people have to be aware of that. And that chapter also includes on making the decision on whether you do that or not and plus other decisions, and it’s very similar to another chapter I have, principle No. 4 about understanding the concept of opportunity cost. Every decision we make there’s an opportunity cost whether it’s economic or non-economic. And I try to focus mostly on the economic choices. So weddings, one of the biggest minefields in a list I think a couple more. And I think that’s the same area where I go into budgeting to find out where you’re spending all your money. And you might be surprised at all the smaller minefields.

Tim Ulbrich: Yeah, you do. You do a good job of that, a stepwise approach for budgeting and trying to identify where those minefields may be. And obviously, you build upon that by talking extensively about student loans, a topic that is near and dear to us. And you also do a nice job in another chapter building on this concept of what I view as some of the defensive parts of the financial plan of the importance of protecting your assets. So of course, details about emergency funds, life insurance, disability insurance, liability insurance, insurance insurance. The list goes on and on, right?

Joe Baker: Right.

Tim Ulbrich: We all know how important insurance is. And what you need, what you don’t need. And I think really being able to navigate that, understand it, and as you can tell already listening to this interview, this book covers a wide array of topics. Now, one of the areas you spent the most time in the book on — and I think you did a great job — is on the investing side, the long-term savings and really breaking this down, I would say this is probably the biggest section of the book and I’m guessing the area that you’ve had through experience, identified where there’s the most questions or confusion. And so my question to you as you talk about the principle around investing and establishing an investing plan, you know, we talk about these terms all the time: stocks, bonds, mutual funds, 401k’s, 403b, Roth versions of those, IRAs, traditional and the Roth, HSA, REITs, alternative investments, cryptocurrency — you know, the opportunities and the options go on and on. And I think this can be very, very overwhelming. I know it’s overwhelming from personal experience in talking with many of our listeners. So how do you walk the reader through understanding and applying this information on the very important topic of investing in long-term savings?

Joe Baker: Well, first of all, the way I wrote the book is the way I teach class. I make a promise to the students. At the beginning of each semester, I say, “My goal is for you to never say while you’re sitting in my class, you will never say, ‘When am I ever going to use this?’” To me, that’s very important because you and I, we’ve all been there where we’re sitting and say, ‘When will I ever use that?’ So I keep that in mind, and I try to keep it as simple and really what it boils down to — you know, the three-asset class is cash, bonds and stocks. And if you’re only relegated to participating in an employer-sponsored plan, you’ll have 25-35 funds to choose from. So it’s not like the thousands of decisions you’ll have to make. And I place a couple recommendations. I like stock index funds as well as Warren Buffet, as you know, Berkshire Hathaway, that’s one of his favorites. Target date funds are good too. And I try to make it as simple as possible. And I also include several stories in there from contributors and where they have messed up. And you know, I talk a lot about individual stocks. You know, people at parties, they’ll talk about buying an individual company stock. And it is a good conversational piece, but frankly, might as well just do that for fun because your investments and your retirement should come from your employer-sponsored plan. But I do have a section in the book about picking individual stocks and how to do that. So if you want to do it for fun, that’s fine. But the bottom line is I try to keep it as simple as possible. And I do cover all the areas, and hopefully the reader will have the same experience as the students in my class and say, ‘Oh, yeah, I’ll use this one day.’

Tim Ulbrich: And I think you did a nice job, in my opinion, of keeping it simple, what you need to know, what you don’t need to know. And then through the appendices, also providing additional information for those that want to dig a little bit deeper on some of the topics or where there’s a stepwise approach to things like understanding some of the retirement accounts or opening up an IRA but that there’s a core foundation that you provide. And I think it reads, in my opinion, such that you can go cover-to-cover but then it should stay nearby because you’re going to come back to many of these decisions or need a refresher.

Joe Baker: For example, when you leave an employer, which you will. On average, I forgot the millennials, I think they have 7-9 jobs by the time they’re out. So what do you do with your 401k or 403b? I point that. You have four options. And that is in the book. So there’s some things there that are practical that you can look at and a step-by-step process for that.

Tim Ulbrich: And again, we’re just scratching the surface on topics that are also included that we haven’t discussed yet: how to make sure you and your significant other are on the same page, where to look for things that can appreciate and avoid things that depreciate, how to get out of debt, best practices for home buying, for the financial plan. Now Joe, when we package the book and said, ‘OK, is it the book? Are we going to offer some other resources?’ We ultimately landed on that we thought there would be value in essentially an investing mini-course series, videos, 6-7 videos that would take people more in depth into investing. Tell us about what folks can expect to get out of those investing videos — I know you’ve invested a lot of time and effort into doing those — and why we felt like that was an important supplement to the book.

Joe Baker: Well, a shoutout to P3 pharmacy student Jason Lam, he’s helped me with the audio and video portions. And he has pushed me pretty hard. We have done several videos that we’re — I think we’re pretty proud of. The blooper reel should be very interesting, by the way. But I just filmed it, most of the videos are out back by the pool. I’ve got a big whiteboard. I’m old school, I like to show it on the board. And quite frankly, it’s kind of a mini version of what I taught to the students in class. We’ll see how it turns out. We’ve also filmed a little skit for Halloween day, so hopefully people will check that out.

Tim Ulbrich: I’m looking forward to seeing the bloopers. So yeah, I mean, that investing video series is meant to I think present the information in a different way. Obviously they’ll have the text to read but also more of a stepwise approach. And for those that want to dig deeper on the investing topic, I think you’re going to find that video series to be helpful. And that comes with either the premium or premium pro package of the book, which is again available at BakersDirtyDozen.com. Joe, I want to read a couple of the testimonials. We’ve got a lot of people that had great things to say about this book. You know, one here that I want to read comes from Nicki Hilliard, UAMS College of Pharmacy professor, past president of the American Pharmacists Association. And she says, “Joe Baker is a good-natured, all around nice guy that is passionate about helping others. He has graciously taught personal finance at the College of Pharmacy for many years, and it is always the most requested elective course, not just because of the good information but how these lessons are delivered with great stories and insight into the big picture of what is important in life. He has put to paper his life experiences, stories and wisdom to help others lead a happier, less stressful and more fulfilling life through financial management. I highly suggest you put Joe Baker’s Dirty Dozen lessons to work in your own life.” This is just one, and as I read through others in preparation for this episode, there was a theme that I kept seeing over and over again of the influence that your teachings have had on people and how they have been able to directly apply that information to their personal financial plan. You know, one that stuck out to me, Blair Thielemeier mentioned how important the financial principles that you taught were for her in her journey of being able to start her business and the work that she has done and being able to have her own personal financial plan in order, several students commented specifically on actions they took in terms of budgeting, opening up retirement accounts, other things that they did directly as an account of your teaching. So as you hear that out loud, and I know you’re a humble person by nature, but what does that mean to you in terms of the impact this work has had on people over the past 20 years? And what do you hope is the legacy of this book going forward?

Joe Baker: First of all, Nicki was very generous in her review. And I appreciate that. Well, it just gives validation, you know, when I hear students come back and they’ll repeat a story and say what they’re doing, if they paid off $200-something thousand dollars in student loan debt in four years, which one has, and when they tell me that those stories, that just validates why I did this. Financial illiteracy is — you know, you could be a pharmacist, doctor, lawyer, and still be financially illiterate. Just because you’re smart doesn’t mean — or high IQ — doesn’t mean that you know how to control your finances. So it makes me feel good, it’s the reason I do it. It’s a selfish reason because I know that I’m getting feedback and kind of confirmation of what I’m doing is the right path. So that’s what keeps me going at this. This was all — the first I think it was 10 years that I did this, I didn’t even get any pay, so it was — they came to me, the school came to me and says, ‘Hey, we want you to do this both semesters.’ I said, ‘Well, I was thinking I might not do it at all.’ They said, ‘Well, how about if we paid you?’ which wasn’t much. I said, ‘OK, I’ll do it both semesters.’ So anyway — and the way I look at it is it’s an unlimited attendance in my class. It’s tough, but if I can reach one or two people that would have not been in there if we had had a maximum size, then it’s worth it. So that’s almost like an evangelical feel to it, reaching more and more people.

Tim Ulbrich: Yeah, absolutely. And I know in talking with several of your pupils, you know, and speaking from personal experience, it’s not even just them. Obviously there’s the impact that you will have on them but also the folks that they interact with, that they rub shoulders with, the kids that they’re raising. I mean, this is one of the things we always talk about, hopefully a generational impact you can have in helping people shore up their financial plan to be able to do and achieve the things that they want to do. And ultimately, as you talk about in Baker’s Dirty Dozen Principle No. 13, to be able to have an impact on their communities, on their places of worship, on others, and to be philanthropic as they can do so once they have their own financial house in order. So I know your work has had a great influence on me. I mean that genuinely. I’m confident it’s going to do the same, it has done the same, will continue to do the same, with others. And I’m so glad that you ended up writing this because one of the beauties of a book is that this resource will live on. And it will have an impact, and people will be able to build upon this work, they’ll be able to give feedback on it, and ultimately hopefully be a conversation-starter for many in their own financial plan. So Joe, again, congratulations on the book.

Joe Baker: Thank you.

Tim Ulbrich: Excited to be a small part of this alongside of you in this journey. And again, to our listeners, head on over to BakersDirtyDozen.com. Through November 7, you can use the coupon code BAKER for 15% off. And as always, we appreciate you joining us on this week’s episode of the Your Financial Pharmacist podcast. Have a great rest of your day.

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YFP 176: How Stephanie Got $72,000 Forgiven Through TEPSLF


How Stephanie Got $72,000 Forgiven Through TEPSLF

Stephanie Hale shares her journey applying for and receiving Public Service Loan Forgiveness (PSLF).

About Today’s Guest

Stephanie Hale, Pharm.D., BCPS is a pharmacist for WellSpan Health System in south central Pennsylvania. She completed her pre-pharmacy studies at Rutgers University and the University of Maryland, Baltimore County. Stephanie then completed her Doctor of Pharmacy degree at the University of Maryland School of Pharmacy.

While enrolled at the University of Maryland School of Pharmacy, Stephanie worked as an intern for Wal-Mart Pharmacy. Upon graduation in 2008, Stephanie practiced retail pharmacy at Wal-Mart. In 2009, looking for a change, she accepted a staff pharmacist position at WellSpan Health and courageously transitioned from the comfort of retail pharmacy to the diverse world of hospital pharmacy in a Trauma Level 1 hospital. Within 2 years, Stephanie was promoted to a Clinical I Pharmacist position giving her the opportunity to participate in patient specific dosing regimens including pharmacokinetics, total parenteral nutrition, and anticoagulation. During her time at WellSpan York Hospital, Stephanie earned her BCPS certification and was a member of various committees, all while having and raising two wonderful children.

In 2019, Stephanie transferred to WellSpan Gettysburg Hospital. With her vast experience and knowledge, Stephanie immediately became an integral member of both their inpatient staff and the outpatient infusion team.

Earlier this year, Stephanie’s federal loans were discharged through the Public Service Loan Forgiveness program. Stephanie and her husband are looking to use the money that is no longer going toward those monthly payments to explore real estate investing.

Summary

When Stephanie Hale graduated pharmacy school in 2008 she had about $100,000 of federal student loans and $20,000 of private student loans. After the six month grace period, Stephanie was left feeling overwhelmed with what to do, so she consolidated the loans so she’d only have to make one payment a month.

In 2016, one of Stephanie’s colleagues that had recently graduated began talking about PSLF at work and how he was pursuing it. This caught Stephanie’s attention as she didn’t know what it was. After looking into PSLF, she realized that she worked for the right type of employer and was approaching her ten year anniversary at her hospital. She transferred her loans to Fed Loan Servicing in September 2016 and learned that the repayment plan she was in didn’t qualify for PSLF forgiveness. She needed to be in an income-driven repayment plan, however this would have increased her monthly payments significantly. She put PSLF on the back burner and circled back to it in 2018, this time discovering that TEPSLF (Temporary Expanded Public Service Loan Forgiveness) could be an option for her.

After researching TEPSLF’s requirements and with a lot of patience, perseverance, organization and diligence on her part, Stephanie was granted forgiveness for over $70,000 of federal student loans in May 2020.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Stephanie, thank you so much for taking time to come on the show.

Stephanie Hale: Hey, thank you for having me. Hopefully I’m able to help anyone who’s thinking about going through this journey.

Tim Ulbrich: Really appreciate your willingness to do that, and I think it certainly is going to be the case and excited for everyone to hear your story. And we are often asked if PSLF is a viable option and if pharmacists should even consider it given all of the news and attention that it has received. And so when I saw your comment on the YFP Facebook group about receiving forgiveness through the TEPSLF program, I knew we had to bring you on the show because I think it’s going to do exactly that — it’s going to give some more information and perhaps some will realize maybe they’re eligible for something they didn’t know they were eligible for, weren’t thinking they would meet that eligibility criteria, and it’s going to be an example for someone who has actually walked down this path and received that forgiveness. So before we dig into your PSLF journey — or I guess your TEPSLF journey, however we want to say it — I’d love to hear more about your background in pharmacy, where you went to school, and what your career story has been thus far.

Stephanie Hale: Yes, so I did my undergrad at Rutger’s University in New Jersey. I did a year there before deciding I was going to transfer to be closer to home. So I did another year of undergrad at the University of Maryland-Baltimore County. And then the following year, I started at the University of Maryland School of Pharmacy in Baltimore. So I graduated in 2008 from pharmacy school and throughout pharmacy school, I was an intern at Walmart and I figured that’s what I was going to be doing. I enjoyed it a lot. And then about a year out, I decided that I wanted to try something different. So I had called one of my location sites a local hospital, and luckily they were hiring. And so I started there September of 2009.

Tim Ulbrich: Awesome. Very good. Thank you for sharing that. And I think it’s a good segue into our discussion about the debt journey and ultimately, the forgiveness journey. So let’s talk a little bit more about student loans. You get to the point of graduating. So tell us a little bit about how much you had at that point, how you felt about the debt while you were in school, as well as while you were making that transition and that point in time what your plan and strategy looked like to ultimately pay back the student loans.

Stephanie Hale: Yeah, so while in school, I just figured hopefully I’ll graduate, I’ll have a great job that makes good money. So I will pay it back. So when I graduated, I had roughly about $100,000 in federal loans and about $20,000 in private loans. And after graduation, you know, you had about six months’ grace period. I got to looking into everything with all the paperwork they sent you. It was a little overwhelming. And so I decided at that point to consolidate my federal loans. I was like, I’m going to miss a payment if I don’t consolidate. I forget how many different lenders there were. So I did consolidate, which proved to be helpful later on.

Tim Ulbrich: Very good. And at that point, was PSLF even on your radar? And if not, when did that come into play?

Stephanie Hale: So I think PSLF was new in 2008, so it was not on my radar. So I had consolidated to a 30-year loan, decided I’m just going to pay for 30 years, and this is the way it’s going to be. At the time, I wasn’t married but I was engaged to my husband. And we were planning for a wedding, so I figured 30 years is what we could afford at the time, we were paying for an apartment at the time, so I had just had thought OK, well it’ll be 30 years, and we’ll see what happens.

Tim Ulbrich: Awesome. So looking at a long 30-year timeline at that point, obviously as you mentioned, PSLF was new, so enacted in 2007. So that was the first group, wasn’t even eligible for receiving that tax-free forgiveness until 2017. So one of the things that we have talked about on the show before is that I think for individuals such as yourself that graduated in that time period where shortly after PSLF was enacted, legislatively, you know, while that happened, there wasn’t a whole lot of good guidance around what folks should do. And I think like there was certainly much better advice that’s out there today. So many folks out there may be unaware of the options as well as whether or not they were PSLF-eligible. So when did PSLF then come on your radar?

Stephanie Hale: So I had been working at the hospital, and I think around 2016 or so, a colleague of mine was talking about it. He was newly graduated, he started working there, and he’s like, I’m going to be doing PSLF. What’s that? So I looked into it, and I was like, well, I guess it doesn’t hurt to try. So in doing that, you have to transfer your loans to FedLoan, so I did that. That was about September 2016. And I did get the denial saying my loans did not qualify. So at that point, I kind of just put it on the back burner and didn’t even think about it for awhile.

Tim Ulbrich: And when they sent you that rejection in 2016, and then you mentioned putting it on the back burner, what was the rationale for the rejection at that point in time?

Stephanie Hale: I would have had to change income-based payments, and the payments would have been a lot more than I could afford at the time. I believe it was going to be — my payments were roughly $600. And I think that they were going to go up to like $1,100 or $1,300. And we had already at that point bought a house, I had one kid, thinking about having another. So I was like, I don’t think we can do this. So at that point, I had been paying my loans for almost 8 years. And I was like, well, I’d have to start all over again and be another 10 years and by that point, I’ll have been paying 18 years. And I didn’t know if it financially made sense.

Tim Ulbrich: Sure, OK. So I want to make sure I’m summarizing correctly because I think this is such an important part of your story. At this point in time, 2016, you hear about PSLF, you obviously have been in the workforce, you’ve been working for an employer that would count as a qualifying employer, and obviously you’ve been making federal student loan payments all along the way. But you weren’t in a qualifying repayment plan. And so obviously the pieces here that we need to consider would be one, you’d have to get into a qualifying repayment plan — and we’ll talk about the logistics there with TEPSLF — but at that time, that would have meant a significant bump in payment per month, an extra $600 or $800 per month, which obviously is significant. It matters. But you did make the change in terms of FedLoan servicing as your servicing company, which would have been the loan servicing company for those that were pursuing PSLF. So that door was still open.

Stephanie Hale: Yes.

Tim Ulbrich: And then fast forward a couple years, and why did you end up coming back to this in 2018?

Stephanie Hale: So like I said, I was just going about my business and I don’t know — like I said, I saw it on Facebook or I saw it just scrolling through the news about TEPSLF. I’m like, oh, what’s this? So I started reading it, and I was like, I think I might qualify for this. And that was I want to say August of 2018. And at that point, I’d had a second kid, working full-time. So very busy. So I actually didn’t look more into it until I think it was closer to December when I actually sat down and I was like, I need to look into this and see how I can go about this. So I knew that I was coming up on 10 years with my employer and I had the correct type of loans, I knew I just didn’t have the right type of repayment plan.

Tim Ulbrich: Perfect. And insert there Temporary Expanded Public Service Loan Forgiveness. And so I want to take a few moments to do some education on the terminology for those that may be hearing some of this for the first time. So Stephanie, hang tight —

Stephanie Hale: OK.

Tim Ulbrich: — for a few moments, and we’re going to come back here to the story and learn more about the execution and ultimately what happened at the end for you. So TEPSLF is Temporary Expanded Public Service Loan Forgiveness and really is intended for exactly what we’re talking about here today. Folks that may be working for a qualifying employer, who have been making what would be qualifying payments in terms of federal student loan payments, but are often in the wrong repayment plan. And that can be for a variety of reasons. And to be fair, this isn’t extremely easy to navigate. And so I think sometimes there’s issues around consolidation or people are often in an extended or graduated repayment plan, thinking they’re making qualifying payments, but they are not. Or folks such as yourself, Stephanie, where you may be looking back and saying, oh my gosh, I am working for an employer that is really the intended audience for something like PSLF but just didn’t think of it that way from the get-go, and therefore are now trying to look retroactively to see if this is an option. And so if folks want to learn more — and we’ll talk about the details of TEPSLF here in a few moments — we also talked about it on one of the recent Ask a YFP CFP episode, Episode 036 where Karen from Coral Springs asked the question around this — really this — being under the wrong repayment plan and what that meant for the TEPSLF application. Now, one other thing I want to talk about for a moment is just a brief history and the mechanics of PSLF. Now, we’ve talked about this on the show before. Episode 018, we talked about maximizing the benefits of PSLF. Episode 078, we talked about is pursuing PSLF a waste? And that was when there was a lot of headline attention and news that came out about only 1% of folks that were successful in achieving that PSLF forgiveness. And we felt like it was an important episode to really break down the data further. And of course, we talked about PSLF in “The Pharmacists Guide to Conquering Student Loans,” which is available at PharmDLoans.com. And so I think as we look at the history of this, it’s really, really relevant here as we look at Stephanie’s timeline in terms of what played out and the information that was available to her and ultimately, having to look backwards to correct some of this. So as we talk about PSLF, this is typically loan forgiveness, the loan forgiveness strategy that gets all the press — usually, for all the wrong reasons. And I think it’s important that we look at some of the history of why that is the case. The Public Service Loan Forgiveness program, PSLF program, was created under the George W. Bush administration via the College Cost Reduction and Access Act of 2007. Now, since the program’s inception, it’s faced significant political opposition from both administrations since Bush, since President Bush. President Obama proposed a cap of $57,500 for all new borrowers in his 2015 budget proposal to Congress. And then in 2016, the PSLF program was threatened this time by the Republican party with the congressional budget resolution that saw PSLF on the chopping block for the first time for all new borrowers. And since then, PSLF has remained an endangered species as both President Trump’s budget and the Republican-backed PROSPER Act proposed the elimination of the program for borrowers after July 1, 2019. Now, the good news is that those have all been proposals and talk, and despite its rocky past and uncertain future, we believe that PSLF is one of the best payoff strategies for pharmacists paying off their student loans if they meet the qualifying criteria because of what it means in terms of tax-free forgiveness and what you are then able to do with that money that otherwise could be going towards student loans that of course you could allocate to other parts of your financial plan. Now, it certainly has considerations. It has logistics. It has details. And you have to be crossing your t’s and dotting your i’s like we’re talking about right now. But assuming that those things are happening, it can really be a great option for many pharmacists that are facing significant student loan debt and certainly can be a viable path forward. Now, quickly on the rules for PSLF: You have to work for the right type of employer. We’re talking about that here with Stephanie’s story on this episode. You have to be working for a not-for-profit employer or government agency. You have to have the right kind of loan, and that’s really where TEPSLF comes in — and we’ll talk about that as well as the connection to the repayment plan. So that loan has to be a direct consolidated loan, and if you haven’t done that and you think you’re making qualifying payments, again, TEPSLF is an option to consider. Now, you also have to be in the right repayment plan, typically an income-driven repayment plan. You have to make the right amount of payments, 120 payments. And ultimately, you have to prove it when it’s all said and done to both apply for and receive tax-free forgiveness. So Stephanie, thanks for bearing with me as we went through that. Let’s come back to your story here. You’ve identified that you’re working for a qualifying employer, obviously you haven’t been making all the full qualifying payments because you weren’t in the right repayment plan. So you start to pursue the TEPSLF option to be able to then retroactively get those payments counted. So what did you need to do at this point in time to get to today where we now are at that point of where the money has been forgiven? What did you have to do to actually take advantage of the TEPSLF program and its requirements so that you could ultimately receive that tax-free forgiveness?

Stephanie Hale: Sure. So one of the rules of TEPSLF — and I’m going to read from their website — “to be eligible for TEPSLF opportunity, the amount you paid 12 months prior to applying for TEPSLF and the last payment you made before applying for TEPSLF must have been at least as much as you would have paid under an income-driven plan.” So I kept reading that and I was like, well, I’m not making income-based payments. My payments weren’t as much as I would have been paying, so after talking to the people at FedLoan, I decided that the best thing to do was to change to an income-driven payment plan. So I went ahead and did that. I applied in December of 2018 and the payments went from $580 up to $814. And so what I decided to do — at this point, like I said, we had a house, two kids — I decided to decrease what I was putting into my Roth 403b. I figured, you know, a year wouldn’t hurt so bad, especially if I qualified for TEPSLF and got these loans forgiven. So that’s exactly what I did. And so I applied in December and my first income-driven payment in February of 2019. And at that point too, I had asked about what was my history that they had because when applying for PSLF prior, they just said that I didn’t have the correct number of payments. But they never really told me — they don’t count how many payments you actually have for TEPSLF. They just look at your income-driven payments. So mine were at 0. And so they told me that they had some missing information I think in 2013 and they said, oh, we have those in some files that need to be converted. Just give us a call back in a couple weeks. We’ll let you know. I call back in a couple weeks, and they still didn’t have that information. They said, who told you that? Well, it will take us probably six months. I put it in my planner. So this is something that I recommend is definitely document all your phone calls and everything. I put it in my planner, I called back in six months, they’re like, no, we don’t have this converted. It’s taking a lot longer, and I don’t know who told you six months. It will be about a year. Like OK. So I just kept calling back, just to make sure that they were on top of things and making sure that they knew that I was looking into it. So I went ahead and applied for PSLF in April 2019 because I was told I had to go ahead and apply because they would have needed to know that I would have made income-driven payments for a year, not that I actually had to make the income-driven payments, which at the time didn’t make sense. I’m getting information from — different information every time I call. So like what does it hurt to go ahead and apply for this PSLF? So yeah, so that is one of the things. You have to apply for PSLF and get denied before you can — they look into TEPSLF. So I got denied for the April PSLF application in June. And then at that point, I had also submitted — you have to submit an email saying that you want to be considered for TEPSLF. And I got that denial for TEPSLF in September, that September 21. So then I went ahead and applied for PSLF again September 25 because at that point, I already had 10 years with my employer. So I figured, OK, well I’ll try for the 10 years even though it hasn’t been a year of income-driven payments. But we’ll see what happens. And ultimately, I got denied for PSLF in the end of October. And then for TEPSLF, it was just a few days after that this time. And that was — the reason for that was because I needed the payments the 12 months prior to applying for TEPSLF and the last payment had to be the income-driven payment. Then I waited and applied after my 12th payment in January, and that was January 10. I got denied January 30 for PSLF. And then I got denied for TEPSLF February 27. And actually, I found out that I was denied for TEPSLF probably about a week before I actually got the letter in an email. I had been making phone calls, probably I was calling at least once a week, sometimes twice a week, just to follow up. But yeah, so the week before I actually got the official denial, they had told me you don’t qualify because you need 13 payments. So when you apply for PSLF, there’s a box that you can check stating that you don’t want forbearance while they’re going through the paperwork. So I always made sure to check that box to make sure that I was still making payments, just in case anything happened like this. And I figured I would get the money back in the end anyways if I made too many payments. So at that point, I reapplied again, this was February 29, for PSLF. And I got the denial in March 12 for PSLF. And then I got a letter stating that I was being considered for TEPSLF May 13. And ultimately, I was forgiven May 27.

Tim Ulbrich: Wow. OK. I mean, a couple of things: This is great. And I appreciate the detail because I think it’s so important here. And as you were talking, you know, things that stood out to me were No. 1, patience.

Stephanie Hale: Yes.

Tim Ulbrich: But persistence. I mean, you went through multiple denials, making multiple phone calls, and obviously you saw the value that was going to come from having it forgiven. And I think showing to them as well, like you’re not going away, right? And so you know you’re going to make sure you get this taken care of. And if you qualify, you qualify. And you need to have that recognized. So definitely patience as many, many months and some years went by but also persistence in making sure you’re calling back and you’re following up. You know, the other takeaway I had there, Stephanie, was documentation. I mean, just so you can chronicle this verbally tells me you had great documentation along the way, which of course is important. And we’ve heard that before. We’ve discussed that before on this show. And if you run into issues, the documentation is important as well as I just think for your own sanity but also being able to prove that information in previous conversations in case you run into issues. And then I think I also heard that you’re really well-versed or at least learning along the way about the requirements and making sure you had good information and you were spending time to understand the rules and trying to interpret them so that if you were calling and you think you’ve got some erroneous advice or perhaps you’re getting different answers along the way, that when you called in, you knew that information, you could follow up with the information you learned, and you could continue to be persistent, obviously because there may be interpretations along the way, depending on who you were talking to.

Stephanie Hale: Correct.

Tim Ulbrich: So great. Yeah. I’m guessing you did get that right. I heard that you got some different input along the way when you called in. Is that correct?

Stephanie Hale: Yes. So I had learned that just because someone says one thing doesn’t mean it’s actually true. So I would call, someone would tell me one thing, and then I’d call again, someone would tell me something different. So I always made those notes. And I was like, well — I wasn’t sure what to believe. But if somebody said one thing and I hadn’t done that yet, I would be like, maybe I’ll do this instead. That’s why I applied early for PSLF those couple times. Like it didn’t hurt. And actually, I do feel like applying early those couple times kind of helped because it probably helped to move them along with counting my payments because they had already done that those couple times before. I feel like my process from February to May when I got forgiven went fairly quick compared to some of the other people that I’ve heard trying to pursue this. But like I said, I think it’s because I had applied before, and they had already had that information, me being persistent and following up.

Tim Ulbrich: And how much when it was all done, so you get to May 27, if I heard you correctly, it’s forgiven and it’s forgiven tax-free. What was the actual dollar amount that was forgiven?

Stephanie Hale: So my account balance, which I think included interested, was $69,900. And then I ended up getting about $3,800 back of overpayments. But then when I’m looking at the email of the amount of loans forgiven, it’s roughly $72,000. So I don’t believe that includes any of the interest.

Tim Ulbrich: Got it. OK. So a little over $70,000. And right now, your account balance is — so $0s are showing. Is that right?

Stephanie Hale: Correct.

Tim Ulbrich: That’s awesome.

Stephanie Hale: So one of the fun things I had learned was — so there’s an app that you can have on your phone. And when you try to log into the app if you’re pursuing PSLF or TEPSLF, once your loans have been forgiven, you’ll get this big “Caution” sign saying that you can’t log into your app, it’s no longer working. So I got that that morning. I was like, oh, this is a good sign. So then I went onto the actual website on my computer and was able to see the balance was $0.

Tim Ulbrich: That is awesome.

Stephanie Hale: So I was able to find out before they actually sent me the official notice.

Tim Ulbrich: Yeah, when you no longer can get in and the “Caution” flag, it’s a good day, right?

Stephanie Hale: Yes, it was.

Tim Ulbrich: I mean, you reached the finish line. And obviously you put a lot of hard work into this. And I think that’s what’s so refreshing, Stephanie, you know, to me, as I mentioned a couple times already, it’s just your persistence in this in terms of not only the process but making sure you felt like you were really understood the things and were getting your questions answered. But also, you know, to that, I think many folks are going to hear this story and say, “I had no idea I could look backwards and consider PSLF through this TEPSLF option.” So I think we’re going to have many people that are going to listen and are now going to pursue this, and they are probably going to hit the barriers that you hit along the way. And you know, they’re going to have to knock them down and be persistent, just like you showed us here and you demonstrated in your own story. But I sense this will give many people hope in their own journey and ultimately as we talk about the bigger picture here with your financial plan, what it means when you don’t have to be putting money towards student loans because you can allocate that elsewhere into your financial plan. So I want to just quickly outline for those that are hearing this and thinking, OK, maybe I qualify for TEPSLF. There’s really four steps that you need to be thinking about. No. 1, you have to check your PSLF eligibility. And we talked about that already throughout Stephanie’s story. Are you working for the right type of employer? The right loan? And as we talked about, that’s really where this TEPSLF comes in and really where the issues are in terms of making sure you’re in the right repayment plan, right number of payments, ultimately 120. And then you’ve got to be able to prove it and apply for that tax-free forgiveness. Now No. 2, as Stephanie mentioned, you have to show that you’re ineligible for PSLF. So you have to submit your application, and you essentially have to get denied and be determined ineligible. And then you really have to be looking at meeting the TEPSLF requirements. And that’s No. 3. And Stephanie talked about this with the need to switch to income-driven repayments, the number of payments that had to be made, and the dollar amounts associated with that. And for you, as you mentioned, that meant a temporary increase in payments, a little over $200 a month, which meant knocking down some of your retirement payments temporarily because you saw the bigger picture and what could be forgiven. And then finally, No. 4 is you have to request the TEPSLF certification, and you can do that through email. There’s actually not a form. So to do that, it’s [email protected]. Again, [email protected]. And we’ll link to that in the show notes as well as some information on studentaid.gov that actually includes some draft language and examples that you can use when doing that communication via email. So Stephanie, my final question for you, now on the back end of this and you went through this long journey to get here, you know, what does this mean for you and your family and your financial plan both monetarily in terms of having more cash flow available because it’s not going toward your student loans as well as just non-monetary, what this means in terms of having this off your back?

Stephanie Hale: Well, definitely a weight off my shoulders. I’m the breadwinner, so that was just something that was taking a toll on me and just even though I’d already been paying for 12 years or so, it was just — it was so nice to not have to think about that anymore. And financially, we’ve been tossing around the idea of getting into some real estate investing. But if we don’t do that, I mean, we do have two kids, so we want to start putting away more for their college and just being able to save more and have a more comfortable retirement or even be able to retire a little bit earlier.

Tim Ulbrich: Awesome. Yeah, that’s great. I mean, I think the options that are available certainly go up, whatever that would be as a part of your financial plan, and goals when you don’t have to make those payments anymore. Any words of advice you would have for folks that maybe find themselves in a similar position as you did where you already had several years in of meeting that employment qualification or even perhaps folks that are even more in the front end of this and really looking at this to say, is this really worth it, considering all the logistics and everything that you’d have to do? What thoughts and advice do you have for them?

Stephanie Hale: Well, I definitely want to say there’s a really good Facebook group called Public Service Loan Forgiveness program support. I joined that, and they — you can ask any questions there, you can look up, you know, if you have a question, you can look up whatever you’re looking for. And somebody probably has asked that. But they were very supportive. And it definitely gave me hope because people would post whenever they got forgiven, and it actually — the funny thing is it comes in batches. It’s like they forgive a group of people at a time. So there will be no activity for awhile, and then all of a sudden within a week there’s probably, you know, I don’t know, 15-20 people posting that they were forgiven. But if you search #PSLFvictory or #TEPSLFvictory, you can see people’s stories of being forgiven. So it definitely gave me a lot of hope. And a lot of people there too talk about the Freedom of Information Act. You can request your paperwork for that. And a few have issues with any payments that were missing. Luckily, I did not have to do that. And other people also asked for the help of an ombudsman, which is somebody that’s assigned to you to help you through the process if you’re having issues. Again, I didn’t have to do that either. But those are different options that you can have, that you can use, if there’s issues with your payment history. And I was looking yesterday and it looks like there’s roughly about $600 million left with TEPSLF. They expect it to last another 2-3 years. So if it’s something that you’re considering if you’ve worked for your employer for close to the 10 years, made the 120 payments, definitely look into it now and try to get that straightened out before then because it will run out.

Tim Ulbrich: Great advice, Stephanie, encouragement. We’ll link to that Facebook group as well as other resources we’ve talked about on today’s show in our show notes that we publish. And you can find those show notes by going to YourFinancialPharmacist.com/podcast and finding this episode, Episode 176. And then we’ll have all of that information right there. Stephanie, I really appreciate you taking the time to come on the show to chronicle your TEPSLF journey. Excited to have you on officially as the first pharmacist that we have interviewed that has had their loans forgiven. We know there are others out there, and we hope and plan to feature more stories in the future. And as always, to our YFP community, if you liked what you heard on this week’s episode, please leave us a rating and review on Apple podcasts or wherever you listen to the show each and every week. And I hope you’ll join us if you haven’t already in the Your Financial Pharmacist Facebook group, over 7,000 pharmacy professionals committed to helping one another on their path towards achieving financial freedom. So thank you again all for joining, and have a great rest of your week.

 

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The Ultimate Guide to Pay Back Pharmacy School Loans

The Current Reality

*Update – For student loan considerations during COVID-19, check out this post. “I wasn’t prepared to pay back pharmacy school loans, I didn’t understand all of my options, or I don’t know how to balance student loans with other financial goals.” That’s what I hear from many pharmacists and exactly how I felt when I graduated from pharmacy school. I once bought into the illusion that my “awesome pharmacist salary” would enable me to pay back pharmacy school loans very quickly and put me in the fast lane to building wealth. Unfortunately, it didn’t exactly work out like that and I made a couple of critical mistakes that cost me hundreds of thousands of dollars! Because I didn’t know all of the payoff strategies available, I failed to identify the best option and ended up paying way more than I should have. A pharmacist paying off student loans in 2018 is a lot different than one who graduated a decade ago. Since 2009, the median pharmacy debt reported has increased about $60,000 with those attending private institutions reporting a median amount borrowed of $200,000. However, these numbers may even be underestimating the issue. Since these amounts are self-reported, they may not include undergraduate debt or capitalized interest. In addition, the rising debt loads are only part of the problem. Salaries are not keeping pace with rising debt levels and since 2012 there has been a trend with graduates facing an increasing debt to income ratio year after year. Furthermore, many companies are cutting pharmacist hours forcing many to work full-time with less pay. Pay Back Pharmacy School Loans Therefore, now more than ever you as a pharmacist have to have a solid game plan to pay back pharmacy school loans. Pharmacy schools are not currently required to teach personal finance. Some offer electives and some provide education for their graduating class, but in general, the onus is on you to become informed. Sure, everyone is required to do the mandatory federal loan “exit” counseling but that’s really insufficient and doesn’t typically provide clarity in choosing the best payoff strategy. With the multitude of student loan types, repayment plans, forgiveness programs, and refinancing and consolidation, it can be overwhelming trying to come with a plan. This post is a comprehensive guide to help you take down your loans with clarity and confidence and choose the best strategy that saves you the most money and aligns with your goals. Even if you have been paying on your loans for years, this will help confirm you’re on the right path. We will go through 5 key steps in detail but if you want the short version, you can download the quick start guide.

Step 1: Inventory Your Loans

Before jumping into the payoff strategies it’s important to know exactly how much you owe and who you owe. Unless you used a private lender or already refinanced your loans to a private lender after pharmacy school, you likely have federal loans through the Department of Education. You can access all your federal loan information through the National Student Loan Data System (NSLDS). This is the national record of all of your loans and grants during their complete life cycle and contains information on your outstanding balance, interest outstanding, interest rate, and associated servicer. This can be accessed a number of ways but the most user-friendly path is the Federal Student Loan Repayment Estimator. Logging in with your Federal Student Aid (FSA) ID will pull up all of your loan information and quickly show you your total federal loan balance and weighted interest rate. Check out the video below for a step-by-step approach to access the information.

If you have already started making payments on your federal loans, it’s a good idea to match up the information with your current servicer(s) and the NSLDS. The specific type of federal loans and the respective interest rate is really important to know as it has implications for how interest is accruing, eligibility for forgiveness programs, and deciding which loans to consolidate or refinance. The figure below summarizes the major types of federal student loans and the key points about them.
take down your loans
To confirm the balance on any private loans, go to www.annualcreditreport.com. Through this site, you are able to access a free report once per year from the three reporting agencies: Equifax, TransUnion, and Experian. Also, when doing an inventory of all your loans, don’t forget to include any balances owed to family members or friends.

Step 2: Determine Your Options

As I mentioned, one of the biggest mistakes I made with my student loans was not analyzing all of the options available. I was pretty much focused on figuring out how to pay them off as fast as possible without even considering the alternatives. Let’s review these strategies in detail.

Three Strategies to Pay Back Pharmacy School Loans

People often get student loan repayment options and payoff strategies confused. A repayment plan dictates your minimum payments over a designated term whereas a payoff strategy is your game plan for the most effective way to tackle your loans to save the most money which can be executed using a number of repayment plans. While there are many plans with federal and private lenders, tuition reimbursement, forgiveness, and non-forgiveness will be the major ways how to pay off pharmacy school loans. pharmacist paying off student loans
Tuition Reimbursement Programs
While not abundantly available, tuition repayment programs essentially provide “free” money typically from your employer or institution in exchange for working a certain period of time. Pretty awesome right? Others will require you to pay an amount toward your loans and they will match or reimburse you. The ones that tend to provide the most generous reimbursement are those offered by the federal government through the military, Veteran Health Administration, and the Department of Health. However, there are many state programs that offer assistance as well. Because the programs vary in amounts and how payments are structured, it’s important to know all the details so you determine how much to pay out of pocket in order to maximize the total benefit offered to you. Also, since many of these programs will not cover your entire student loan bill, you may have to combine one of the other payoff strategies to completely take down your loans. The following are programs currently available: Federal Veterans Health Administration – Education Debt Reduction Program Eligibility Pharmacists at facilities that have available funding and critical staffing needs. Benefit Up to $120,000 over a 5 year period Army Pharmacist Health Professions Loan Repayment Program Eligibility Pharmacists who commit to a period of service when funding is available Benefit Up to $120,000 ($40,000 per year over 3 years) Navy Health Professions Loan Repayment Program Eligibility Must be qualified for, or hold an appointment as a commissioned officer in one of the health professions and sign a written agreement to serve on active duty for a prescribed time period Benefit Offers have many variables Indian Health Service Loan Repayment Program Eligibility Two-year service commitment to practice in health facilities serving American Indian and Alaska Native communities. Opportunities are based on Indian health program facilities with the greatest staffing needs Benefit $40,000 but can extend contract annually until student loans are paid off. National Institute of Mental Health (NIH) Loan Repayment Program Eligibility Two year commitment of qualified research funded by a domestic nonprofit organization. Benefit $35,000 per year with renewal potential National Institute of Health (NIH) Loan Repayment Program Eligibility Two year commitment to conduct biomedical or behavioral research funded by a nonprofit or government institution. Benefit Up to $50,000 per year NHSC Substance Use Disorder Workforce Loan Repayment Program Eligibility Three commitment to provide substance use disorder treatment services at NHSC-approved sites. Benefit $37,500 for part-time and $75,000 for full-time State Specific Alaska – SHARP Program Eligibility Pharmacists working in underserved communities. In order to qualify, pharmacists must work full-time or half-time and commit to serving for at least three years. After that, eligible candidates may qualify for an additional three years of loan repayment assistance. Benefit Up to $35,000 per year. In some cases, if the position is hard to fill, pharmacists may be eligible for up to $47,000 per year. Arkansas – Faculty Loan Repayment Program Eligibility This program is for Health Professions Faculty from disadvantaged backgrounds who serve on the faculty of an accredited health professions college or university for 2 years. Benefit Up to $40,000 towards repayment. The government pays up to $40,000 of the participant’s student loans and provides funds to offset the tax burden. Participants should also receive matching funds from their employing educational institution. Arizona – State Loan Repayment Program Eligibility Pharmacists serving at an eligible nonprofit or designated HPSA. Funding varies depending on a variety of factors, such as HPSA score, years of service, and more. Benefit Up to $50,000 in loan repayment assistance for a two-year contract and can receive additional funding by committing to additional years of service. California – State Loan Repayment Program Eligibility Pharmacists who commit to working in a designated Health Professional Shortage Area (HPSA). It’s important to note that pharmacists working in a retail setting are not eligible for the program. In order to qualify, pharmacists must work in an approved site, such as an outpatient or ambulatory setting. Benefit Up to $50,000 for a two-year service agreement — $25,000 from the program and a $25,000 match from the provider site. Full-time pharmacists may be eligible for one-year extensions for a total of four years, which could result in an additional $60,000 maximum in loan repayment assistance. Half-time applicants are also eligible for awards. Colorado – Health Service Corps Program Eligibility Full-time clinical pharmacists working in a designated shortage area. Pharmacists must commit to three years of service and work either part-time or full-time. Benefit Up to $50,000 for full-time while part-time pharmacists are eligible for up to $25,000. Idaho – State Loan Repayment Program Eligibility Full-time pharmacists working in designated HPSAs and nonprofits. This is a matching program, so for every dollar provided by the program, the work site must also match the contribution. Benefit From $20,00 to $50,000 for serving a two-year commitment. It is possible to extend the contract for an additional two years as well. Iowa – PRIMECARRE Loan Repayment Program Eligibility Two years full-time service at a public or nonprofit private entity that serves a federally designated HPSA or four years or part-time work Benefit Up to $50,000 Kentucky – State Loan Repayment Program Eligibility Qualified candidates that work at a designated HPSA and work full-time. This is a matching program, but with a twist. For every federal dollar spent, an employer, family member, friend, or state foundation can match the contribution. Benefit Up to $80,000 and must serve a two-year commitment. Massachusetts – Loan Repayment Program Eligibility Full time pharmacists working in a public or non-profit position, located in a high need area, participate in MassHealth, and serve all patients regardless of ability to pay or source of payment. The program is a two year full-time requirement. Benefit Up to $50,000 over two years. Minnesota – Rural Pharmacist Loan Forgiveness Program Eligibility Eligible candidates are those that work in a designated rural area. Candidates must work at least 30 hours per week, for 45 weeks or more per year and commit to three years of service. Benefit Up to $26,000 per year, for a maximum of four years, totaling $96,000. Montana – State Loan Repayment Program Eligibility Must work at a National Health Service Corp (NHSC) approved site. Benefit Up to $30,000 total over a two year period. Nebraska NHSC State Loan Repayment Program Eligibility Pharmacists that work in designated HPSAs. In order to qualify, candidates must commit to at least two years of service. Benefit Between $25,000 to $50,000 per year. Nebraska Loan Repayment Program for Rural Health Professionals Eligibility Pharmacists that serve in rural communities in a designated shortage area. This is a matching program and a local entity must match the dollars you receive. There are opportunities for full-time workers and half-time workers, though benefits are reduced if working half-time. Benefit Up to $30,000 per year and must commit to three years of service. New Mexico – Health Professional Loan Repayment Program Eligibility Health professionals that serve in a designated shortage area. In order to qualify, candidates must work full-time for two years at an eligible site. Pharmacists may be eligible for the program, but funding priority is given to other healthcare professionals. Benefit The maximum award eligible candidates can receive is $25,000 each year, however, the award amount depends on a number of factors, including your student loan debt balance and the program’s available funding. North Dakota – Loan Repayment Program Eligibility In conjunction with the Department of Health, offers loan repayment assistance to registered pharmacists who work in designated shortage areas. This is a matching program where work sites must match the dollars provided. In order to qualify, candidates must commit to two years of service. Benefit up to $50,000 a year. Oregon – Partnership State Loan Repayment Program Eligibility Pharmacists who work in designated shortage areas. The program requires a two-year commitment, with the possibility of two additional one-year extensions. Benefit Full time providers may receive up to a total of 50% of their qualifying educational debt, up at a maximum of $35,000 per obligation year, for an initial two year obligation. Part time providers may receive up to a total of 50% of their qualifying educational debt, up to a maximum of $17,500 per obligation year, for an initial four year obligation. The award maximum is $100,000. The pharmacist’s practice site needs to provide 1:1 matching award funds in addition to a 10% administrative fee. Rhode Island – Health Professional Loan Repayment Program Eligibility Pharmacists who work at a qualified site in a designated shortage area. There are award options for full-time and half-time employment. Candidates must commit to two years of service, or four years of service if they are working part-time. Benefit No specific amount or maximum listed. Virginia – State Loan Repayment Program Eligibility Pharmacists who serve in a designated HPSA at a qualified site in Virginia. The program requires a dollar match from the community work site. In order to qualify, eligible candidates must commit to two years of service. Benefit Maximum award of $140,000 for a four-year commitment. Texas – Rural Communities Healthcare Investment Program Eligibility Pharmacists licensed within the past 24 months or be a licensed health professional practicing in a county with more than 500,000 people and move to practice in a qualifying community in the field. Must also provide services to clients that receive at least one form of indigent care in a qualifying community and practice there for at least 12 months. Benefit Up to $10,000 in student loan reimbursement or stipend. Washington – Health Professional Loan Repayment Program Eligibility Pharmacists who work at an eligible site. This program does require pharmacists to work at a designated HPSA. Minimum three-year service obligation. Benefit Up to $75,000 in exchange for three years of service. West Virginia – Health Sciences Service Program Eligibility Students in their final year of pharmacy school. Must commit to two years of full-time or four years of half-time practice at an eligible practice site located in West Virginia. Benefit One-time $15,000 award.
Forgiveness
If tuition reimbursement is not available, the first strategy to assess is forgiveness. You might be thinking this strategy isn’t for if you don’t work for the government or a non-profit, but what most borrowers don’t know is that you have the opportunity to have your loans forgiven regardless of who your employer is. Pique your interest? First, let me explain the Public Service Loan Forgiveness (PSLF) option and then forgiveness outside of PSLF.
Public Service Loan Forgiveness (PSLF)
This is typically the loan forgiveness strategy that gets all the press, usually for all the wrong reasons, which we’ll outline in the coming paragraphs. Let’s first take a trip down memory lane to explain how this program came to be *flashback wavy transition* The Public Service Loan Forgiveness program was created under the George W. Bush administration via the College Cost Reduction and Access Act of 2007 (CCRAA). Since the program’s inception, its faced political opposition from both administrations since Bush. President Obama proposed a cap of $57,500 for all new borrowers in his 2015 budget proposal to Congress. In 2016, the PSLF program was threatened this time by the Republican party with a Congressional budget resolution that saw PSLF on the chopping block for the first time for all new borrowers. PLSF has remained an endangered species since, as both President Trump’s budget and the Republican-backed PROSPER Act proposes the elimination of the program for borrowers after July 1, 2019. Despite its rocky past and uncertain future, the PSLF program is one of the best payoff strategies available for pharmacists paying off student loans. Without question, it is often the most beneficial to the borrower in terms of the monthly payment (it’s the lowest) or the total amount paid over the course of the program (it’s the lowest). These two factors are widely why the program is so attractive despite its poor and frustrating administration. Let’s look at an example of how impressive the math is for a pharmacist who plans on pursuing PSLF. We will make the following assumptions: single, lives within the contiguous U.S., has a student loan balance of $200,000 in Direct Unsubsidized loans with an average interest rate of 7%, and an adjusted gross income of $120,000, and 5% income growth per year (standard per repayment calculator). Compared to the 10-year Standard Repayment plan, pursuing forgiveness through REPAYE, PAYE, or IBR-New would result in only $130,657 paid, a difference of almost $150,000! Plus, the total amount paid could be even lower if the pharmacist were to maximize traditional 401(k) contributions and other options to lower adjusted gross income. Oh and that $209,343 loan balance remaining after 10 years? Forgedda bout it! It’s eliminated and no taxes to pay on that money. If you think you can stomach this gauntlet to take down your loans, there are a number of requirements to meet. Typically the cadence of the programs goes like this: you need to work for the right type of employer (typically a 501(c)(3) non-profit), with the right kind of loans, in the right repayment plan (one of the four income drive plans to be outlined soon), you need to make the right amount of payments (120 on-time payment which equates to 10 years, but does not have to be consecutive), you need to prove it (via the employment certification form) and then apply and receive tax-free forgiveness. *catch breath* Let’s break the requirements down into a little more detail. public service loan forgiveness Qualified Employment Verifying that your employer is a government organization or a 501(c)(3) non-profit organization is the first key to the whole process. You don’t want to make payments for 10 years only to find out the hospital you work for is actually for-profit. This is really important. Even though FedLoan Servicing determines your initial eligibility, the Department of Education has overturned some of these decisions after 10 years which has resulted in lawsuits by borrowers who thought they were on track to receive forgiveness. Shady right? These cases involved people who worked for a non-profit organization that was not tax exempt but was considered public service. This is really the grey area for what exactly qualifies as “public service” and you could be rolling the dice if that’s your situation. Besides having the right employer, you have to be working full-time based on how your employer defines that or 30 hours/week, whichever is greater. If you are working part-time for more than one qualifying employer, you can still meet the full-time requirement if you are working at least 30 hours per week. Qualified Loans Only federal Direct Loans are eligible for PSLF and this would be you if you’re a new borrower after July 1, 2010. If you borrowed before that time, you may have FFEL Loans. These, including Perkins loans, are technically ineligible but you can consolidate them through the federal Direct Consolidation Loan. This will unlock the eligible income-driven repayment plans and all payments moving forward would qualify. Take caution with this step, however! If you’ve been making standard 10 year or income-driven payments on any Direct Loan while working for a qualifying employer and you decide to consolidate, you’re essentially hitting the reset button on your PSLF timeline and starting your 10-year period anew. Therefore, you may have to designate specific loans to be consolidated vs. all of them. After you verify your loans are eligible or finalize the consolidation process, you want to complete the employment certification form that you and your employer will complete. Once you submit and your application is accepted, all of your loans will be combined and transferred to FedLoan Servicing, the exclusive servicer for PSLF. Some people wait to do this step after they have been in repayment for several years and technically you can do that. However, since only FedLoan Servicing will “count” your qualified payments, from an administrative and organizational perspective it makes sense to do this as soon as you can. Qualifying Monthly Payments You have to make 120 qualified payments prior to receiving forgiveness and you can’t make the process go any faster than 10 years. One key point though is that these payments do not have to be consecutive. So if you have to switch jobs from one qualifying employer to another and there is gap in employment, you can pick back up where you left off when you start working again. Qualifying payments have to be for the full amount on your bill and cannot be made more than 15 days past the due date. In addition, only payments under a qualifying repayment plan count. These include income-based repayment (IBR), income-contingent repayment (ICR), Paye-as-you-earn (PAYE), Revised-pay-as-you-earn (REPAYE), and payments under the 10 year Standard Repayment Plan. Even though the 10 year Standard Repayment plan is an option, it really does not make sense to use this option since your goal with PSLF is to pay the least amount of money over 10 years. So get moving and switch that ASAP if that is you! The plans that will result in the lowest monthly payments are REPAYE, PAYE, and IBR-New (which functions essentially the same as PAYE) since they are calculated as 10% of your discretionary income. Discretionary income is specifically your adjusted gross income minus 150% of the poverty guidelines for these plans. The repayment estimator will calculate this for you but if you want a detailed look at how to calculate discretionary income check out this post. At the time of applying for an income-driven repayment plan, you will need to document your current income. Usually, this is based on the previous year’s tax return, but if your income has changed “significantly”, you may have to provide your most up to date paystub that documents your adjusted gross income and other sources of income you are receiving (dated within past 90 days). This would obviously be beneficial if you experienced a pay cut since your last filing. But what about an increase in pay? Previously the income driven repayment form asked the question “has your income significantly increased or decreased since you filed your last federal income tax return?”. However, this has actually changed and now only asks if your pay has significantly decreased since last filing. income driven repayment plan This is a big deal especially if you are a resident or fellow transitioning from student life or from resident to first-year practitioner. Previously, you would have had to disclose if your income increased which would be true going from having zero to minimal earnings as a student to 1/3 of a typical pharmacist salary or from resident to new practitioner. However, with this change, you are going to pay substantially less during your transition years since your income is going to be based on the previous year’s earnings. Of course, you want to be truthful and accurate when filling out the form but if you are not required to disclose increases in your income then you shouldn’t. Why not take full advantage of the system in place? Incorporating spousal income into this calculation will depend on the income-driven plan and how you file your taxes. For REPAYE, spousal income will count toward AGI regardless of how you file. If you file separate income tax returns, then only your income will be counted under PAYE (and IBR-New). Initially, to qualify for PAYE you cannot have any outstanding loan balance on a Direct or FFEL Program loan when you received a Direct Loan or FFEL Program loan on or after October, 1, 2007, and you must have received a disbursement of Direct Loan on or after 10/1/11. Confusing right? If you can need more clarity on this check out this article. Besides that, for PAYE (and IBR-New), your calculated payment based on your income has to be less than what you would pay for the 10 year Standard Plan. During the 10 years you are making payments you have recertify your income annually. If your income happens to increase either because of your own efforts or spouse to the point where payments would match or exceed the 10 year Standard Plan, it is possible that you would no longer technically qualify for these plans and could be told or persuaded to change to REPAYE. The problem with this is that under REPAYE, you can actually pay MORE than the standard 10 year payment. Again, you want to pay the least amount of money as possible over 10 years so if you ever get in that situation, insist to FedLoan Servicing to remain in PAYE or IBR-New and cap your payments at whatever the 10 year standard payments would be. In other words no matter how much money you earn, you cannot be disqualified from the program or be forced into REPAYE. best student loan repayment program The best practice to confirm your qualifying payments is to submit the employment certification annually, so there are no surprises at the end of the 10-year repayment period. FedLoan will respond to your annual submissions via letter detailing the number of qualifying payments you’ve made thus far. Make sure you call them out if there are any inaccuracies. Unfortunately, this has been reported often so you want to ensure you get credit for ALL your qualifying payments. Once you have made all of your qualifying payments, you complete the Public Service Loan Forgiveness Application for Forgiveness form, cross your fingers/hold your breath as it is reviewed and receive tax-free forgiveness. Other PSLF Considerations I’ve outlined the history and the steps to get into the PSLF program and the benefits of the program, so what gives? How come borrowers aren’t flocking to and lining up to get their loans forgiven. Unfortunately, there’s been a lot of uneasiness about the program that’s completely justified. In March 2018, the Department of Education announced a new program, the Temporary Expanded Public Service Loan Forgiveness, to aid those borrowers who thought they were on the path to forgiveness but were ultimately denied when they applied after their 10 years of repayment. The reconsideration fund allocated by Congress and totaling $350M should provide relief for those borrowers who thought they took the necessary steps to achieve, but fell short for one reason or another. That demographic of people is quite large as Forbes reported that only 96 borrowers have had their loans forgiven as of June 30, 2018, equating to 1% of total applicants seeking loan forgiveness. Yikes. Aside for the mishaps of the past with this program, borrowers also have to look to the future with a measure of concern too. Usually, when we talk risk related to financial matters, it involves the risk you take with your investments, whether it be market risk or interest rate risk. However, borrowers who enroll and put their proverbial eggs in the PSLF basket take on legislative risk, which is the risk that a change in the laws could lead to a loss or adverse effects in the jurisdiction affected (i.e. ‘Merica). This program is at the whim of the President and Congress, which may not allow you to sleep easy at night. However, it is likely that any change in the program will merely affect future borrowers and not those already enrolled in the PSLF program. This is based on the fact that Congress has allocated that sizeable sum of money for those “oops” situations and the fact that the language suggesting that student loan forgiveness should go by the way of the dinosaur seems to suggest future borrowers. Lastly, many borrowers who seek this strategy often see their loans grow over their PSLF timeline although they are making qualifying payments. For that hypothetical borrower who is halfway through their PSLF timeline but has seen the balance balloon because of reduced income driven payments, would the government actually issue a legislative “sike…just kidding” for the loan forgiveness program and not grandfather that borrower in? It’s not out of the realm of possibility, but the political fallout that would ensue from many of those in public service would be a steep price to pay.
Non-PSLF Forgiveness
Many borrowers are under the impression that they have to work for a government or a non-profit in order to be granted student loan amnesty. Not so fast! Relief is out there, albeit with not as attractive terms, but forgiveness can still happen. The cadence for this program is similar to PSLF with a few differences: it doesn’t matter who you work for, you still need to have the right kind of loans, be in the right repayment plan (one of the four income drive plans to be outlined soon), make the right amount of payments (typically over 20 or 25 years depending on the type of loan), and then you can apply to receive taxable forgiveness. *catch breath x2* That doesn’t sound so different than the PSLF program aside from the term (20 or 25 years versus 10 years), but the taxable forgiveness versus the tax-free forgiveness is actually a big deal. Let me explain why. In the PSLF program if you pay for 10 years and have a balance of $100,000 when you apply for forgiveness, hakuna matata! It means no worries for that balance is forgiven! In the non-PSLF program, if you have a $100,000 balance forgiven at the end of 25 years, that $100,000 is viewed as taxable income. That means that if you’re in a 25% tax bracket, you’ll owe an additional $25,000 in taxes in the year following when you received forgiveness. Often referred to as a “tax bomb”, it’s something that non-PSLF forgiveness borrowers need to account for, typically by saving or investing concurrently to paying off your loans. Although the length of repayment and tax bomb can make this strategy unattractive to some, there are some situations where it can make a lot of sense. Typically, this strategy is best suited for those who are not employed by a non-profit and have a high debt-to-income ratio such as 2:1 or greater. What does this mean? If your total loan balance is $275,000 and your making $120,000, your debt-income ratio is 2.3:1. Depending on your cost of living, liabilities, and other and financial responsibilities, it could be very difficult to make non-income driven payments through the standard plan or even the others. Let’s look at how this plays out using the DoE Repayment Estimator. To make things easy we will assume the pharmacist is single, all loans are unsubsidized and qualify for PAYE and IBR-New, and the average interest rate is 7%. refinance student loans You can see that if this person were to extend payments out 25 years using the extended fixed plan, there would be a $1,944 payment and a total amount paid of $583,093. However, considering non-PSLF forgiveness using PAYE or IBR-New, payments would start $848 and increase to $2,289 (using a 5% increase in income/year per calculator assumption) and the total paid would only be $350,821. However, there would be $309,179 forgiven that is treated as taxable income. If we continue with the assumption of a 25% tax bracket, there would a tax bill of around $77,000. So even with the tax bomb, there are definitely some advantages here: 1. The total amount paid over 25 years will be much less even with considering the additional tax bill (by over $100,000). 2. For many of the years during repayment, the monthly payments will be significantly lower which allows more disposable income for retirement contributions and other financial goals. 3. The tax bill of $77,000 is in future value which is much less than it is today Therefore, this pharmacist should at least consider non-PSLF forgiveness as a viable strategy. The debate for using this strategy can also get interesting if refinancing is on the table. Depending on how low you can get your rate, you would also want to consider this vs. non-PSLF forgiveness. public service loan forgiveness
Non-forgiveness
Outside of tuition reimbursement and forgiveness programs, what’s left is basically paying off pharmacy student loans all on your own. There’s no set timeline or years you have to wait. You determine the time to pay off. You could pay off the balance today if you have the cash or extend payments as long as possible (generally up to 30 years). You make it happen when it’s best for you. Although your monthly payments will be dictated based on the repayment plan you’re in, you are not bound to this and can always accelerate and pay more if you want to. If you want to see how extra payments or a lump sum payment affect your savings or time to payoff you check out our early payoff calculator. Through this strategy, you can either pay off your loans through the federal loan program using one of the many repayment plans (if you still have federal loans) or refinance student loans to a private lender. paying off pharmacy student loans
Federal Loan Program
If you’re like most pharmacists, you probably took out federal student loans to fund pharmacy school. If your grace period is up for you or you have already started making payments, then you will have one or more of the federal servicers handling your account. These include Nelnet, Great Lakes Education Loan Services Inc, Navient, FedLoan Servicing, MOHELA, HESC/EdFinancial, Cornerstone, GraniteState, and OSLA. Since it is possible to have multiple servicers, you may actually be making multiple monthly payments to different servicers each month. If you’re in this situation, you could use a Direct Consolidation Loan to combine all of these loans into one and then make one monthly payment to one lender. This will take the weighted interest rate of all of your loans but not lower the overall interest rate as refinancing could. It really just makes things more convenient. Repayment Plans The default loan repayment plan is the standard 10 year plan where you make the same monthly payments over ten years. It’s the most aggressive of all the repayment plans and you will pay less total interest than other plans. Depending on your loan balance, household income, and other financial priorities, this could be tough to make it work. There are several other repayment plans available with some having eligibility based on the type of loan you have and income. The monthly payments under the income-driven plans are determined based on your previous year’s discretionary income as mentioned above. Advantages of the Federal Loan System Keeping your loans in the federal system will give you some protection and safeguards that are not always available through private lenders. If you die or become permanently disabled, your loans will be discharged without any tax bill on that amount. In addition, if you’re facing a financial hardship, want to go back to school, or have circumstances where it could be tough to make payments, you can request deferment or forbearance which would result in a temporary stop in making payments. The other advantage is the ability to make income-driven payments if needed which generally is not available through private lenders. Lastly, all federal loans have fixed interest rates so your monthly payments will not change unless you are in an income-driven plan or one of the graduated plans.
Refinance Student Loans
Advantages of Refinancing *Disclaimer – Due to recent changes to federally held student loans secondary to the COVID-19 crisis, we are recommending those with Direct Federal Loans eligible for the temporary waiver of payments and interest through December 31, 2022, carefully review their situation prior to refinancing as these benefits are not available through private lenders. The main downside to keeping your loans in the federal system is that you will often pay more in interest given most unsubsidized graduate/professional loans are 6-8%. When you refinance student loans, you essentially reorganize or change the terms of an existing loan(s). These changes include the term over which you pay back, the interest rate, type of interest rate, or a combination of those. Even though interest rates, in general, are rising, you can often get more competitive interest rates through private lenders. Consider a pharmacist with $200,000 in student loans with a 6.8% overall interest rate. Under the standard 10-year plan, the total amount paid would be $276,192. If the interest rate was chopped to 4%, the total paid would be $242,988, a savings of over $33,000. The total savings will vary based on the loan balance, how fast it’s paid off, and the change in interest rate. If you want to see your potential savings, check out our refinance calculator. You may be thinking “Wow, I could be saving a ton if refinance student loans.” But what’s the catch?” Refinancing is not without some drawbacks and it’s very important to know what you’re giving up if you make the move. First, once you refinance, you automatically become ineligible for any of the forgiveness programs. In addition, most private lenders do not offer income-driven plans, so you will lose the flexibility to change your monthly payments and could face a problem if you experience a sudden change in your income. Furthermore, the option to put your loans in deferment or forbearance may not be available either. Also, not all lenders will forgive your loans if you die or become permanently disabled. So if you do decide to go this route you will want to know what their policy is on this. Regardless, most of the time you should have adequate life and disability insurance policies in place if these events were to occur. disability insurance for pharmacists Goals of Refinancing Your main goal of refinancing should be to get a lower interest rate so that you save more money over time. You can pick and choose which loans you want to refinance and if you have some that are already low, you would obviously want to leave those alone. Beyond that, it is important that you find a reputable lender. Unfortunately, there are many scams and frauds out there and you want to have your guard up. Nerd Wallet has a watchlist of businesses that have been reported for criminal activity or who have filed bankruptcy or have tax issues. You can also check out the Better Business Bureau to review ratings and reviews of prospective lenders. Besides choosing a reputable lender to refinance with, you want to be sure there is no origination fee for the service. Remember, companies are eager for your business and are willing to pay you. Also, there should be no prepayment penalty. If you decide you want to pay off your loan faster than the term, there should be no additional fees. Another potential goal of refinancing could be to lower your monthly payment. Since your total balance will not change, if you keep the same term (e.g. 10 years) but lower the interest rate, your payments will go down since a greater percentage of the payment will go toward the principal and less to interest. However, if you’re really trying to accelerate your payoff, your minimum payments could actually be higher than what they are currently. This would occur if you are reducing the term such as 10 to 5 years. Although you may argue that you could have a longer repayment term and make extra payments, some like being forced to make higher payments as a way to prevent overspending and stay disciplined. Besides lowering your interest rate and finding a reputable lender, another goal for you should be to get some cash. Because many companies are eager for your business, they are offering a welcome bonus for being a new customer. Now, of course, they will be making money as you pay off your loans in the form of interest but why not take advantage of this perk. Here’s the best part as well. There is really no limit to how many times you refinance. You can refinance your loans multiple times and get cash bonuses from more than one company. My wife and I actually made $2,500 in a year doing this and were able to get a lower rate each time. If you do this very frequently, you may see a reduction in your credit score since every time a full application is submitted, there is a hard pull. YFP has partnered with multiple student loan refinance companies in order to get you a nice bonus of up to $850 and sometimes more if there is a special promotion running. Yes, we get a referral fee when you refinance through our link, but we have shifted the majority of the payout to you.

Current Student Loan Refinance Offers

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[wptb id="15454" not found ] Types of Interest Rates As mentioned above, all federal loans have fixed interest rates. That is not the case for refinanced loans. Generally, like home mortgages, they come in two flavors: fixed and variable. Fixed interest rates stay the same throughout the term and result in the same minimum monthly payment until it’s paid off. Variable interest rates tend to start out low, many times lower than fixed but can change depending on the Federal Reserve and LIBOR. There is usually a max or capped interest rate and specific frequency in which it could change. Although variable rates can be very attractive, depending on the fluctuation, it could cost you thousands in interest. So if you decide to go this route, you have to be comfortable with the risk of rates climbing and increasing your monthly payment. Besides fixed and variable, you may also encounter hybrid interest rates. In general, these are rates that stay fixed for a certain number of years and then changes to variable. Typical Requirements to Refinance Private lenders will not refinance student loans for anyone. You will be required to have a minimum credit score (usually at least 650), lending amount, proof of a certain level of income, and potentially a certain debt to income ratio. This will vary from lender to lender and not only will these items determine your eligibility, but it will also impact your quoted rate. Getting Multiple Quotes You probably have received mail or emails from companies encouraging you to refinance with them. Even though you may be familiar with some brands or heard of good experiences about a particular one from friends and family, be sure you get multiple quotes to find the best deal. When you are shopping around to find the best rate, companies will run a soft check of your credit to give you an accurate quote. This will not affect your credit score but if you proceed to a full application, then you could see a very minor drop. When you receive quotes, this will usually be reported as fixed or variable along with the respective payment terms. Most companies have terms of 5,7,10,15, and 20 years and typically, the shorter the term, the better the rate.

Step 3: Do the Math

Even if you think there’s a clear winner for the payoff strategy that’s best for you it’s important to get crystal clear on the numbers. Knowing the projected total amount paid (including interest) for all of the strategies available will help you get clarity on which option will save you the most money. The Repayment Estimator at studentaid.gov will help you determine the cost for the federal repayment plans. To determine your savings and new projected payments from refinancing check out our refinance calculator. Besides knowing your options and the total amount paid, you have to analyze how the monthly payments would fit into your budget. If you are too aggressive it may put you in a tough position and may limit your ability to contribute to your other financial goals.

Step 4: Evaluate Factors Beyond the Math

It can be easy to simply look at the numbers, find the strategy and repayment plan that costs you the least over time, and call it day. Although that can work and the math itself will likely hold the most weight, there are some things to consider beyond the numbers. Your emotions and attitude toward your loans can have a big impact on your payoff strategy. If you are someone who is really anxious and has difficulty sleeping knowing you’re still in debt, you may feel inclined to pay it off as fast as you can rather than waiting the time for a forgiveness program. Mathematically, it may not even make sense to do this but it does give you more control and could make you feel a lot better about your situation. Now if the potential savings with a forgiveness program is overwhelming then you may just need a coach or a financial planner to help you along the way. When you choose and stick with a payoff strategy there will always be trade-offs or an opportunity cost. For example, if you choose a payoff strategy that results in a very high monthly payment, you will not able to put as much money toward investing, home buying, entertainment, etc. Depending on your projected time to payoff and years left working, you may not be willing to deeply sacrifice some of your other financial goals. With tuition reimbursement programs in addition to the Public Service Loan Forgiveness program, your career options will be more limited to fully reap the benefits of these programs. Since tuition reimbursement is mostly based on years of service for a particular company or organization, you have to be willing to stay employed there for the required time to realize the maximum benefit. Similarly, with PSLF you are essentially locked into working for a government or nonprofit organization for 10 years. If you have other career aspirations or plans on the table during this decade, you will have to weigh that against tax-free forgiven loan balance.

Step 5: Determine Your Payoff Strategy and Optimize

Ok, if you have read everything up to this point, first off congratulations. That was a ton of material! By now you should have considered the options available to you, figured out the math, and weighed in the other considerations putting you in a position to choose your payoff strategy for the first time or reorganize one you have already had in place. Because everyone has a unique situation with different loan balances, goals, and attitudes, there’s no way to say that one strategy is the best for all. However, I do think there are some truths that are going to stand strong the majority of the time. First, if you have access to a tuition reimbursement/repayment program, take it! This is free money! Most of these programs are 2-5 years and depending on the specific one, it could knock out all or a huge chunk of your debt. If you’re not fortunate enough to get into one of these programs or you have maxed out that benefit, most pharmacists should either choose PSLF or the non-forgiveness route via refinancing. However, if you have a high debt:income ratio and are not eligible for PSLF, you should also strongly consider non-PSLF forgiveness. Below is a flowchart summary of how to navigate the different strategies. pharmacists student loan forgiveness guide If you have the typical pharmacist student loan balance, it’s really hard to argue against PSLF. The math is not even close. You will pay thousands less than any other strategy. But not only that, you have the opportunity to optimize this strategy and be on the fast lane to building some serious wealth. Since your monthly payments through the program are dependent on your discretionary income and therefore adjusted gross income, there are ways you can lower payments while simultaneously investing aggressively. The key ways to do this will be maxing out traditional 401(k) contributions and HSA (if available to you). It’s possible to also count traditional IRA contributions. However, because the phase-out for this is a MAGI of $74,000 for single, and $123,000 for married filing jointly if you are covered by an employer-sponsored plan, most pharmacists will not be eligible to get the deduction. For more information on how to maximize forgiveness, check out this podcast episode. Now if PSLF is off the table, either because you don’t meet the qualifications or you don’t want to wait 10 years and rely on the government, refinancing is a strong option. Refinancing student loans after pharmacy school should be done as you can if it makes sense so you don’t pay any unnecessary interest.

Considerations During Pharmacy Residency or Fellowship

Doing a pharmacy residency is a great way to further your skills and knowledge and can unlock some great job opportunities. However, for 1-2 years, depending on your path, it can be difficult just trying to pay bills and survive let alone fight through student loans with only 1/3 of a typical pharmacist salary. Since the grace period for student loans will usually end midway through your PGY1 experience, you will have to make some decisions at that point. If you do nothing, you will be put in the 10-year standard repayment plan and unless you have significant side income or a working significant other, that payment is not going to be feasible if you have a typical loan balance. One of the biggest mistakes that I see residents make is putting their loans in deferment or forbearance. On the surface, this doesn’t seem like that big of an issue and will allow you to stop making payments during your pharmacy residency. However, interest will continue to accrue and there are much better options! First, you definitely want to keep PSLF in mind and if your residency program is a qualifying employer and you plan on continuing to work there or another qualifying employer, you want to make sure you start the process ASAP. One of the huge benefits of doing a pharmacy residency and pursuing PSLF is that for 1-2 years you could be making very minimal student loan payments. Think about it. If you made little to no money during your last year of pharmacy school, you could be making $0 qualifying payments or very little during your first year of residency based on your current salary. If you do a second year of residency, your payments will again likely be very low since it’s based on that salary. As I mentioned earlier, IBR, ICR, REPAYE, and PAYE are all qualifying repayment plans for PSLF but what is the best one for pharmacy residency? While most of these are based on 10% of your discretionary income except ICR, REPAYE has some unique features. For all Direct Unsubsidized loans, the government will pay 50% of the interest that accrues every month if your loan payment is less than the amount of the monthly interest. So let’s assume you have $160,000 in student loans at 7% interest. $933 in interest will accrue every month as soon as the grace period ends. If your payment is $0 which very well could be if you had little to no income in your last year of pharmacy school, the amount of interest that would accrue would only be $466. Plus, that $0 payment would still count as a qualifying payment toward PSLF. pharmacy residency Even if you don’t continue working for a qualifying employer post-residency and won’t be pursuing PSLF, REPAYE would help reduce the accumulated interest during your years of training. Because the different repayment plans have different rules regarding how spousal income is incorporated you definitely want to also keep that in mind when choosing the best repayment plan during residency. Refinancing is not likely going to be an option during residency unless you have substantial side income since your debt to income ratio would be too high to get approved and it could be difficult making the monthly payments even if the term is extended to 15 or 20 years. Even if you are enrolled in an income-driven plan during residency, you could technically make “extra” payments if you wanted. However, this would not make sense if there is a possibility of going for PSLF since your goal is to pay the least amount of money possible. If you are pursuing PSLF and find you have a little disposable income each month, instead of paying extra on loans consider contributing to your 401(k) if available, IRA, or HSA.

Conclusion

The average student loan debt to income ratio for new pharmacists has increased significantly in the past decade. This has resulted in pharmacists being in debt longer and can significantly impact the ability to save and invest and put delay other financial goals and life events. There are a number of ways to tackle pharmacy student loans and choosing the wrong strategy could cost you thousands. It’s important to calculate the total amount paid and determine the monthly payments to get a clear picture of your options. Also, you should consider the factors in play beyond the math so that you can choose a plan that most closely aligns with your goals. If you still have questions or are unsure about what to do with your loans, you can always reach out to us and schedule a 1-on-1 consult. We will develop a customized plan that considers multiple scenarios and helps you determine how to save the most money. It will also include any tax implications that may be in play with forgiveness programs.