Methodology & Assumptions

This document explains how the Pay or PSLF calculator works and the assumptions behind each calculation.

Core Comparison Metric: Net Present Value (NPV)

All strategies are compared using Net Present Value at a user-configurable discount rate (default 5%). NPV accounts for the time value of money—a dollar paid 10 years from now is worth less than a dollar paid today.

Why NPV instead of total paid? Because forgiveness strategies involve paying less now but potentially paying taxes later. A simple total ignores when payments occur. NPV lets us fairly compare "pay $200k over 10 years" vs "pay $80k over 10 years then pay $60k in taxes in year 20."

IDR Payment Calculations

Income-Driven Repayment (IDR) payments are calculated as:

Plan Parameters

SAVE Note: The SAVE plan is currently enjoined by litigation. When enabled, we model its interest subsidy (government covers unpaid interest) which prevents negative amortization.

Married Filing Status

For married borrowers:

• MFJ (Married Filing Jointly): Combined spousal income used for payment calculation
• MFS (Married Filing Separately): Only borrower's income used, but higher tax rate applies

The calculator compares the total cost (loan payment + tax increase) of each strategy. MFS often wins when the spouse is a high earner.

PSLF (Public Service Loan Forgiveness)

• Requires 120 qualifying payments at a PSLF-eligible employer
• Forgiveness is tax-free (unlike IDR forgiveness)
• Uses an underlying IDR plan for payment calculation (we default to PAYE)
• Residency and fellowship years count if at a 501(c)(3) hospital

PSLF Confidence: We let users input their belief that PSLF will continue to exist and function. This affects recommendation confidence but not NPV calculation. Use this to express uncertainty about program continuation.

Refinancing

Standard amortization formula:

Default assumptions:

• 10-year term
• 5.5% interest rate (adjust based on your expected rate)
• No forgiveness, no federal protections

Aggressive Payoff Model

The "live like a resident" strategy models:

1. Training years: Interest-only payments (balance stays flat)
2. Aggressive years: All income above living expenses goes to loans
   Monthly Payment = (Attending_Salary × (1 - Tax_Rate) - Living_Expenses) / 12
3. Standard period: If balance remains, standard 10-year amortization

We assume a 30% effective tax rate for attending-level income. This is a simplification—actual rates vary by state and deductions.

Income Projections

Training Salaries (2024 National Averages)

Attending Salaries

We use median specialty salaries from the Medscape Physician Compensation Report (2024) and Doximity. Examples:

Income is projected to grow at 3% annually (adjustable via discount rate assumptions).

Tax on Forgiveness

For IDR forgiveness (not PSLF), the forgiven amount is taxed as ordinary income. We estimate:

1. Federal tax at marginal rate based on projected income + forgiveness
2. State tax at top marginal rate (simplified)

This is a significant factor. For example, $300k forgiven at ~35% marginal rate = ~$105k tax bill.

Key Heuristic: Debt-to-Income Ratio

General guidance:

• DTI < 0.5: Refinancing often wins
• DTI 0.5 - 1.5: Depends on PSLF eligibility and preferences
• DTI > 1.5: Forgiveness strategies almost always win

Limitations & Caveats

• Simplified taxes: We don't model all deductions, credits, or state-specific rules
• Income uncertainty: Actual salaries vary by location, employer, and practice type
• Policy risk: IDR and PSLF rules could change
• No NHSC/Military: We don't model loan repayment assistance programs
• No employer contributions: Some employers offer student loan benefits
• Single borrower: We don't model spousal consolidation (generally inadvisable anyway)

Data Sources

Privacy

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