There are two main strategies to pay back pharmacy school loans. The one you use depends entirely on where you work. The first strategy is using the the Public Service Loan Forgiveness program (PSLF) with Pay As You Earn (PAYE) or Revised Pay As You Earn (REPAYE) at a not for profit hospital or community health center. The second strategy is refinancing your loans with private lender if you work at a private sector employer such as CVS or Walgreens. If you’re not using one of these two strategies to pay back pharmacy school loans, you’re probably paying too much.
The Not for Profit Pharmacy School Loan Forgiveness Route
This path allow you to qualify for tax free loan forgiveness after 10 years. One of my friends from college went to pharmacy school and had worked at a community health center for the past three years. He mentioned that he used the Standard 10 Year repayment plan because he wanted to pay back everything in a reasonable amount of time.
Right away I knew he had better options. If you’re paying the 10 year Standard monthly payment on over $100,000 in pharmacy school loans, then at the very least private refinancing is something you should consider. However, in his case he worked at a not for profit employer. Luckily, the 10 year standard plan counts towards the PSLF program, along with all the various income driven repayment options like REPAYE, PAYE, and IBR.
He worked full time at this not for profit facility, and therefore qualified for PSLF. Since he used the Standard 10 year plan instead of something like Extended or Graduated, he could count the three years of payments towards the 10 needed for loan forgiveness. The first thing we did was have him apply with the PSLF employment certification form.
Then, we needed to reduce his payments so he’d get some major loan forgiveness. Otherwise, he would just pay everything off. Using REPAYE, we dropped his monthly payment down to about $600 a month instead of the $1500 a month he had been paying. Instead, he’ll put this money into a retirement plan and build his savings. In total, he saved over $100,000 simply by signing up for a loan forgiveness program he had no idea he was eligible for.
In short, if you work at a not for profit employer and want to pay back pharmacy school loans the best way possible, use income driven repayment and sign up for PSLF.
Example: Shawn the Not for Profit Hospital Pharmacist
To show why PSLF is such a powerful option, we’ll look at an example. Shawn works at a not for profit hospital making $95,000 a year. He expects that will grow with inflation. He has $150,000 of pharmacy school loans at a 7% interest rate and started repaying it in 2017. Here’s the cost of various payback strategies.
Clearly, PSLF wins by a long shot. The next cheapest option is refinancing, and that’s $102,000 more expensive. Shawn would use the REPAYE program to minimize his payments while filing the PSLF employment certification form. In 10 years, the remaining balance would go away tax free courtesy of the federal government.
That $102,000 is after tax income, meaning it’s actually worth about $15,000 per year in additional salary. Hence, Shawn can change his $95,000 salary into a $110,000 salary. He simply needs to optimize the payback of his pharmacy school loans. If he used the Standard 10 Year plan instead, all he would do is cost himself money by paying back the pharmacy school loans in full before he would receive any forgiveness.
The Private Sector Refinancing Path
Say you go to work for one of the national pharmacy chains like CVS or Walgreens. You won’t qualify for tax-free loan forgiveness. In fact, most pharmacists will not even qualify for taxable private sector loan forgiveness. The reason is because pharmacists in general have reasonable debt to income ratios and government programs require 20-25 years of payments before forgiveness. Then you owe taxes on the remaining balance.
However, pharmacists’ income is high enough that they’ll usually repay everything before being able to take advantage of these programs. Hence, many pharmacists pay the standard monthly amount until their loans are gone. If that’s you, you might save a lot of money by refinancing. Maybe you’ll even repay your loans in two years like Paul from thepharmacistblog.com did.
Example: Catherine the Private Sector Pharmacist
Consider this example to see what I’m talking about. Assume Catherine just graduated and starts to pay back pharmacy school loans in 2017. She makes $120,000 a year working lots of hours at a major national pharmacy chain. She also has $150,000 of pharmacy school debt at a 7%. I’m assuming her income increases with inflation and that she could refinance at a 4.7% fixed interest rate with a 10 year term. Here’s the cost of various options based on my simulation tool that I built.
Private refinancing isn’t just cheaper, it’s a lot cheaper! Compare it to the Standard 10 Year plan that many responsible pharmacists in her situation would choose by default. She could save about $23,000 of after tax income just by refinancing. If she wanted to pay back her loans faster, she could choose a shorter loan term and save even more in interest.
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Thanks for detailed breakdown! Is it possible to use a hybrid approach of refinancing the student debt right after graduating (say 7% debt refinanced to 4.7%), then apply for the non-for-profit loan forgiveness program?
Ideally, this would lower the monthly interest accrued year to year while waiting for the loan forgiveness program to kick in. Is this possible?
Not for the government programs. You must keep those in federal loan form. There are some smaller programs that will allow this but it’s a bit dangerous to do without reading the fine print.
A friend of mine had discount because she was married. They divorced and she lost her discount. Now single and paying 1600.00 per month. Just around 180,000 to go. Will a credit union work with her , or would she need to a private lender?
If she has private loans then her only option would be to refinance again, unless the ex is a cosigner on the loan.
Hi Travis,
I just discovered your blog and I’m very impressed with the content. I have a question about my loans.
I graduated from pharmacy school last year and have $40k in federal student loans consolidated at 5.6% interest. (Also $30k“interest-free” loan from my parents but we won’t worry about that right now!) I am completing a residency and will be working completely in the private sector due to the nature of my specialty. My plan is to pay off my loan aggressively in the first 1-2 years after residency. Your post recommends refinancing for private sector jobs. However, I’ve always been told to not refinance so I don’t lose the flexibility from federal loans in case I lose my job. What would you suggest? Thanks!
Well probably getting it on REPAYE and making extra payments just in case you get some subsidy from that plan. But honestly I don’t think the protections are a big deal with 50k of debt given that you’ll make double that at some point. It’s not going to make or break you either way so if it was me I would refi just to pay less in interest.
Hi Travis,
I’m currently in pharmacy school and i will be a 2nd year in august. I have $171,340 in loans right now, $40,000 is under graduate loans. All of this is federal loans and I have an IBR and in-school deferment so I’m paying nothing until 2033 since i have no income right now. I wanted to know what should be my plan to repay this when i graduate in 2022? I was thinking of working with the government or a Walmart or Costco pharmacy but definitely not retail or hospital since I’m not doing residency.
Very likely an income driven forgiveness option. We’d be happy to help when you graduate. Right now I’d try and get the degree. That said, you just want to focus on getting a job you’ll like at an employer you respect. We can easily figure out the loan math as long as the first two things are figured out.