Hello,

I'm coming out of residency and will have a job offer in PA with a salary of about 190K. I'm a single woman and don't plan to buy a house. I have huge medical school loans debt (~230K now with the interest) that are all private (same company) and all cosigned (same angel). My plan had been to consolidate when I approach the end of residency but many companies are not consolidating because of the economy. So right now, I can't get the cosigner off. My priority is to pay off the loans ASAP. I did make some payments during residency (~30K to date) but obviously that hasn't done much. I don't have any other debt, and I'm quite frugal aside from this medical school investment, so I'm prepared to live way below my means for the next few years (4-6yrs) to get rid of this burden.

I just want to know how taxes will prevent me from meeting this goal. I really don't want to buy a house for the potential tax credits I keep hearing about. I simply don't think I have the resources, and I'm not planning to stay in this community for life. I do plan to decrease by taxable income by contributing to a 403b and perhaps a 457 (i'm not planning to be in this job forever) as I've only saved ~30K (roth,stocks, savings)so far during residency and I'm about to enter my 30s. Am I setting myself up to be hit by the AMT or other major taxes?

Thank you

Sounds like you are really planning ahead.

I agree that it might not make sense to purchase a home if you aren't sure how long you will be living where you are currently living. We've had a lot of clients who made a lot of money earlier this decade even though they only owned their home for a few years. More recently, however, we have many clients who had to move from Boston who were stuck selling a home for a loss, or renting it out because they can't even sell it.

Ultimately, once you know where you will be living for a long period of time, you definitely want to own where you live. Home ownership is a great tax shelter and an important part of a solid financial plan.

That being said, maxing out your contributions to your employer's 403b plan is the only other major tax break available to you. At $190k of salary, you'll save 33 cents in federal taxes for each dollar you contribute. Since you need every dollar to pay down your student loan debt, I don't think you are in a position to opt for the Roth version of the 403b plan, since you'll be giving up a current year tax break.

For your student loans, I think you need to take a look at each loan, and put together a list that shows the interest rate of each loan, and whether the loan has been cosigned. You then probably want to begin to knock off the loans one at a time - starting with the cosigned ones at the highest rates. Keep paying the minimum for all the other loans while you pay any available money towards the one loan you have targeted to pay off.

I'm not sure you need to pay off all $190k of loans within 5 years. Maybe just get rid of the cosigned loans and the loans with the higher interest rates, and leave yourself with a couple of loans with a low interest rate and an affordable monthly payment.

My wife Susan Schwartz can help you formulate a plan. Feel free to give her a call at 800-471-0045 if you'd like her assistance. Susan is a CFP who is not licensed to sell any products. So all she can offer is her objective advice for a reasonable hourly fee.

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