Which Student Loan Repayment Plan is Best for the Average Travel Therapist?

August 27, 2023August 25, 2023 ~ Travel Therapy Mentor ~ Leave a comment

I’ve been writing and talking about student loans a lot more lately now that it looks like they’re finally going to go back into repayment in September 2023. Most people have thought very little about their student loans for the past 3.5 years while payments and interest have been paused. Now that repayment is about the start again, everyone is trying to determine the best plan for their own student loans, especially with recent changes.

The big change that I wrote about recently is the introduction of the SAVE (Saving on a Valuable Education) plan, which is going to be taking the place of REPAYE (Revised Pay as You Earn). I’d long been an advocate of the REPAYE plan for healthcare travelers, so now that SAVE is taking its place, many travelers have been asking if they should switch to SAVE, or if PAYE (Pay as You Earn) or potentially even the standard 10 year repayment plan would be best for them.

There are many pros of the new SAVE plan over REPAYE, but also a few cons as well. If you’re unfamiliar with the differences, then check out this article to see what all is changing. You can also check out this video we made discussing the new changes.

Some of the questions that we’ve gotten after putting out the above article and video about the new SAVE plan caused me to sit down with an excel spreadsheet to model out some scenarios to determine what is the best choice for the average travel therapist. The conclusion from the article and video were that basically the best choice would depend on your situation, especially what you chose to do after traveling, but that doesn’t really help people practically speaking. I wanted to go more in depth with some numbers and charts to give people a look at what plan might be best for the average traveler, along with the considerations that would impact the choice.

Check out the hypothetical scenario and the results below, which should help you determine the right student loan repayment option for your own situation.

The Average Travel Therapist Scenario

We’ve interacted with several thousand travel therapists over the years and have seen a variety of different situations.

Some travelers travel for only a contract or two and then settle down. Maybe because they found a facility or city they loved and couldn’t leave, maybe because they found their soulmate and decided to stay, or maybe because they decided travel wasn’t a good fit for them so they went back home to find a permanent job.

Some travelers, like us, start traveling and then can’t stop traveling. Either because of the higher pay, the adventure, the freedom, and/or the flexibility, they end up doing travel therapy for 5+ years before settling down somewhere. Some even choose to do a version of semi-retirement and continue to travel indefinitely.

These situations are outliers though. The average traveler travels for 2-3 years before settling down into a permanent position. I wanted this scenario to be representative of the majority of travel therapists to help as many people as possible. So, for the hypothetical scenario below, I chose to assume that this travel therapist graduates from school, travels for three years, then settles down into a permanent position where they receive normal raises over the course of their career.

Here are all of the details:

Single individual with no spouse or children
Travel therapist for 3 years after graduation
- Working 48 weeks per year as a traveler and making $25/hour as their taxable wage
- $15,000/year contributed to 401k for retirement
Permanent job starting after year 3 with a beginning salary of $75,000/year
- 3% annual raises on permanent job salary
- $15,000/year contributed to 401k for retirement
$140,000 in federal student loan debt at graduation, all from grad school, with no private student loans
- 6% average student loan interest rate
The Federal Poverty Line (used to determine payment amounts on SAVE and PAYE) continues to increase at 2.4% per year, which is the average over the last 10 years

The traveler wants to decide between SAVE, PAYE, and standard 10 year repayment for their student loans, with the goal of paying the lowest amount over time.

First, let’s look at what this traveler’s annual taxable income, Adjusted Gross Income (AGI) after 401k contribution, and the federal poverty line will look like over time, to get an idea of how those variables change throughout the repayment period.

Annual taxable income and AGI stay steady for the first few years while traveling before jumping up due to the higher (taxable) pay at the permanent job. (Remember, as travelers our taxable hourly pay is lower than at most perm jobs, and this is what is used to determine student loan repayment, while stipends are not accounted for). After year three, total income and AGI after 401k contribution both rise in tandem at a rate of 3% (assuming 3% raises each year), and assuming the 401k contribution of $15,000/year stays constant. At year 25, annual income ends just below $140,000/year. The federal poverty line increases at the recent average rate of 2.4% starting at $14,580 (the amount for 2023) and ending at just under $26,000 after 25 years.

Payments Over Time

Next, let’s look at how this traveler’s payment would change over time on each of the repayment plans.

On the standard 10 year repayment plan, the payment amount remains constant at $18,648/year ($1,554/month) for the full 10 year term.

The PAYE plan would start with start with a low payment while traveling (under $100/month) before jumping to $3,652/year when beginning the permanent job after year four. This payment would gradually grow over time to $7,103/year ($592/month) in year 20 when the remaining loan balance is forgiven.

The SAVE plan would start with a $0/month payment while traveling (due to the low taxable income) and then jump to $2,478/year ($206/month) when beginning the permanent job after year four. This payment would gradually grow over time to $6,656/year ($555/month) in year 25 when the remaining loan balance is forgiven.

An important thing to point out here is that even though the repayment term on SAVE is five years longer than PAYE, the ending payment amount (and all the payments along the way) on SAVE is lower than the ending payment amount on PAYE due to the difference in how discretionary income is calculated. PAYE bases payments on 10% of the amount over 150% of the poverty line whereas SAVE bases payments for grad school loans on 10% of the amount over 225% of the poverty line. In practice, this leads to lower monthly payments on SAVE than on PAYE for any given income level. You can also see on the graph how the rate of change for payment increases over time is slower on SAVE than PAYE due to this difference.

Increases in Interest on Loans Over Time

Now that we know what the payments would look like over time, let’s compare the interest accumulation on SAVE vs. PAYE.

Here is where you can see where the new SAVE plan shines. Even though payments are lower on SAVE throughout the repayment term, no interest accumulates on the loans at all, no matter how low the payment is each month. The accumulated interest is automatically subsidized each month, which means the loan balance never grows.

On the PAYE plan, interest accumulates more quickly the first three years due to payments being lower while traveling. After year three, the accumulated interest slows down each year since payments are now covering a larger portion of the interest each month, making the loan balance grow more slowly. On PAYE, capitalized interest is capped at 10% of the original loan balance, so no more interest is capitalized after year two, but the interest continues to accumulate on the loans throughout the full term, which will become important at the time of loan forgiveness.

It’s interesting to note that at no point during the repayment term on either of these plans does the monthly payment get high enough to exceed the amount of interest accumulating each month.

The standard 10 year plan isn’t included here since the payment is a fixed amount each month and the loan is paid in full at the end of the 10 year term.

Ending Balance at Time of Student Loan Forgiveness

Now that we know how much interest accumulates each year on SAVE and PAYE, let’s look at what the ending balance will be for each of the different plans at the end of the respective loan period.

The standard 10 year plan would have no remaining balance after year 10. The balance on SAVE would still be the original principal amount of $140,000 at the end of the 25 year term, due to no interest accumulating on the loans over the full repayment term. PAYE would end with a balance of a little over $231,000 since the loan balance gradually grew over time as interest accumulated each month.

Taxes Owed on Forgiven Student Loan Debt

Now that we can see the ending balances for each plan, let’s take a look at how much would be owed in taxes on the forgiven amount at the end of the loan terms.

Currently, taxes are owed on any student loan debt that is forgiven outside of the Public Service Loan Forgiveness (PSLF) program. I believe there’s a fairly high probability that this will change over time, but for now, it’s prudent to plan to pay taxes on any forgiven student loans on the PAYE or SAVE plan.

There’s no way to know exactly how much will be due in taxes, because tax rates and standard deduction amounts change each year, but we can estimate. I think that a realistic estimate is 35% of the forgiven amount for this individual working a full time permanent job at the time of loan forgiveness.

Assuming a 35% tax rate on the forgiven amount, $49,000 would be owed on SAVE, while just under $81,000 would be owed on PAYE. This is a sizable difference between the plans.

No taxes would be owed on the standard 10 year repayment plan since no student debt would be forgiven.

Total Paid Over Time

Now let’s look at the most important part of this hypothetical scenario: how much is paid in total over the life of the loans.

Despite SAVE having the longest repayment term, it would result in the lowest amount paid in total by nearly $30,000!

The total payments over time between SAVE and PAYE were pretty close, but the big difference was the taxes owed at the end of the repayment term, which is due to the very generous SAVE monthly interest subsidy. Not having your loan balance accumulate interest over time is a really big deal.

The standard 10 year repayment plan would be by far the worst choice in this scenario. Not only would this individual pay $42,000 more than on SAVE and $13,000 more than on PAYE, but it would also be paid over a much shorter time frame. This is important due to the effects of inflation over time. $1 paid at year 10 is worth significantly more than $1 paid at year 20 or year 25. A dollar lost over 40% of it’s purchasing power in the last 15 years, to illustrate how significant the effects of inflation can be over time. For that reason, the standard 10 year repayment plan is actually even worse than it looks on this chart in inflation adjusted terms.

Considerations

In this hypothetical scenario for an average travel therapist, SAVE comes out significantly ahead of both PAYE and the standard 10 year repayment plan in terms of total amount of money paid.

Although I think this scenario is fairly close to the average traveler situation, of course everyone’s situation will be different in reality. For that reason, I want to now discuss how changes in various factors would change the outcome.

As income increases, PAYE and the standard 10 year repayment plan start to become a better choice. Assuming all variables above stay the same, but starting income at the permanent job increases to $95,000/year with the same 3% annual raises, all three of the repayment plans are actually pretty equal in how much would be paid over time when adjusted for inflation.
On the other hand, lower incomes heavily favor SAVE over the other two plans. This could also come into play for those that plan to switch to part time or PRN work at some point in their career, which means a lower income and favors choosing SAVE.
The higher your student loan balance, the more the numbers favor SAVE. The lower your student loan balance, the more PAYE and the standard 10 year plan begin to be a better option.
Higher interest rates favor SAVE. Lower interest rates favor PAYE and standard 10 year.
Higher retirement account contributions favor SAVE due to the lower AGI. Lower retirement account contributions favor PAYE and standard 10 year.
Getting married and/or having kids heavily favors SAVE. To illustrate this, let’s say that at the end of year 3, you get married (filing separately) and have twins. With all of the above variables staying the same, SAVE now would come out nearly $100,000 ahead of PAYE and $140,000 ahead of the standard 10 year repayment plan. This is due to how discretionary income is calculated on the plans as I mentioned above.
Traveling longer before settling into a permanent job favors SAVE; whereas, traveling for a shorter period before settling down begins to favor PAYE and the standard 10 year repayment plan.
There are also some situations where a traveler who thinks they’ll earn a very high income (well over $100k) once they settle down would be best off taking a mixed approach of SAVE while traveling to take advantage of the low payments and interest subsidy, and then paying off their loans ASAP once they stop traveling.

Taking a look at these variables, you can choose which options may more closely align with your actual situation. Then, try to determine which plan would be most favorable for you.

Conclusion

I hope that this article will give you some insight into how to plan for your own student loan repayment. Based on the numbers, it seems that most healthcare travelers will be in the best shape over the long term on SAVE, but there are a lot of variables to consider.

If you’re a traveler who plans to settle down into a normal paying perm job after a few years and have a family while saving for retirement, then it’s hard to make a case against SAVE.

If you’re a traveler who plans to stop traveling, start a business, earn a lot of money, and never have kids, then SAVE won’t be as beneficial.

If you’re a traveler who plans to travel for a long time while saving heavily, then only work part time/PRN when eventually settling down and having kids, then SAVE is a no brainer.

If you’re a traveler with a low student loan balance, then SAVE might not make sense and paying off the loans ASAP may be prudent.

Some people are very debt adverse, and even if it makes more sense mathematically to go on an IDR plan, they’d prefer to just get rid of their debt, and that’s understandable as well. Student loan debt repayment is basically a “choose your own adventure” where a lot of variables and psychological factors come into play. There’s no one size fits all answer for everyone, and sometimes even the best mathematical choice won’t be the right choice for you based on your life circumstances. But, assessing all your options and being well informed is vital.

If you aren’t sure what’s the best choice for you or want to double check your decision, I’d recommend creating an account at FitBux where they can help you assess your personal financial situation.

If you have questions about travel therapy or student loan repayment options for travel therapists, feel free to send us a message. We also have additional resources you can check out below!

If you’re interested in getting started as a travel therapist, check out our free Travel Therapy 101 Series and get connected with the best recruiters by filling out our Recruiter Recommendation form.

Written by Jared Casazza, PT, DPT – Jared has been a traveling physical therapist since 2015. He has become an expert in the field of travel healthcare through his experience, research, and networking over nearly a decade.

Is Contributing to a Company 401k Worth it as a Travel Therapist?

December 10, 2018 ~ Travel Therapy Mentor ~ 7 Comments

Written by: Jared Casazza, PT, DPT

What Makes Travel Therapy Different?

Travel therapists are in a unique position with respect to 401k accounts. When working with most travel healthcare companies, therapists will be eligible to contribute to the company sponsored 401k plan. The 401k benefit eligibility will vary company to company, but most companies provide it in some form. However, since many travelers switch between travel companies pretty frequently, it is a common concern whether contributing to the company 401k plan makes sense for them, or if it would just be additional hassle. Unsurprisingly, since most of my articles on FifthWheelPT are finance related, this is definitely one of the top five most common questions I get asked by current and prospective travelers. In addition to wanting to know if using the 401k plan is worth the hassle if switching between companies, I often hear that there is concern about what happens with account once the individual leaves the company or stops contributing to the account.

I hope to shed some light on my thoughts about 401k plans for travelers in this post, but I do not intend this to be specific advice for any of you. This is just what I’ve done and what works for me, but everyone’s situation is different, so be sure to do your own research on the topic as well.

What is a 401k?

First let’s cover the basics of what a traditional 401k plan is and why one would choose to contribute to it in the first place. Most travel companies don’t offer a Roth 401k option, so we can skip over that for now, but if you’re interested in my thoughts on Roth vs. Traditional accounts, you can check that out here.

A traditional 401k is a retirement account that is offered by an employer and allows the employee to contribute pre-tax money to the account from each pay check. The amount contributed is up to the employee, but it is usually based on a percentage of the employee’s taxable income. Since the money isn’t taxed when it’s contributed, it’s able to grow in the account tax free for however long it remains in the account. When withdrawals are made (usually in retirement), the money withdrawn each year is then taxed along with any other earnings (social security, investment income, rental income, etc.). The big benefit of this account is that it allows you to contribute money while working and earning a lot, therefore in a higher tax bracket, and instead paying taxes on the money in retirement while (hopefully) in a lower tax bracket. The money also grows more quickly in a 401k than in a regular investment (brokerage) account since the amount that would have been taxed is compounded. The maximum that an individual is able to contribute to a 401k in 2018 is $18,500, and for 2019 it will be $19,000. Taking advantage of the tax benefits of a traditional 401k (and additionally, a traditional IRA) is a huge part of what has allowed me to semi-retire and travel around this world this year after only three years of full time work as a travel therapist.

401k Employer Match

A 401k sometimes has the added benefit of employer matching. The amount that is matched, if any at all, is determined by the employer and will usually be somewhere between 3%-6% of the employee’s taxable income. The employer can also include a contingency that it is only matched if the employee contributes a certain amount as well. This is the employer’s way of helping the employee have a more secure retirement by contributing to their retirement account. In many companies, the employer match took the place of a pension that used to be standard but has now disappeared in most public sector jobs. An employer match is in no way equal to a pension since the benefit is comparatively small, but any extra money toward retirement is a great thing!

The employer match is great if the company offers one, but for the majority of travelers this will be a moot point. Most travel companies offer a 401k with some sort of employer match, BUT they have a vesting schedule. The vesting schedule determines how much of the employer match you get to keep if you leave the company early, which makes this an incentive for the employee to stay with that employer. Many of the companies require that you have to work between 3-5 years with the company to keep all of the employer match. Some plans will have a tiered vesting schedule: something along the lines of at one year you keep 20% of the matched amount, at two years you keep 40%, etc. However others have a “cliff” vesting schedule: something like if you work three years or more you keep all of the matched amount, but if you leave before three years you don’t keep any of the amount that has been matched. Basically, the 401k employer match is great, but unfortunately it won’t apply to travelers that switch between companies often or that don’t plan to work three years or more as a traveler. In that case, an individual retirement account could make more sense and involve less hassle for the traveler.

Traditional Individual Retirement Account

A traditional IRA (Individual Retirement Account) is another option which has the same benefits as a traditional 401k, and doesn’t require an employer to utilize, and one other big difference, the contribution maximum. A traditional IRA allows a maximum contribution of only $5,500 for 2018 and $6,000 for 2019. If you’re a big saver like me and plan to reach financial independence as quickly as possible and maybe even retire early, then that’s a relatively small maximum each year.

If you plan to switch companies often, and therefore won’t benefit from the employer match, and don’t plan on putting $6,000 or more toward your retirement account each year, then foregoing the 401k and choosing an IRA instead could be the best choice. An IRA does have the added benefit of more flexibility between investment choices. With a 401k, the investment choices are usually limited to 10-20 options chosen by the company, whereas with an IRA the investment options are essentially limitless.

Utilizing a 401k and an IRA

For those, like me, that plan to put more than $6,000 toward retirement each year, then contributing to a 401k account in addition to an IRA will likely be necessary even if the individual won’t benefit from the employer match.

Luckily, having a 401k and an IRA is pretty easy, even if you switch travel companies often. (Keep reading below to learn more about that process if switching companies.) I’ve switched between companies on a few different occasions and have always taken advantage of a 401k account if offered, while also contributing the maximum amount to both the 401k and an IRA.

There are income limits where the benefit of an IRA (the tax savings) starts to diminish if the individual is also contributing to a 401k, but the limit is higher than most traveler therapists will make at $63,000 of adjusted gross income (tax free stipends are not factored into this number).

In my opinion, if you plan to save more than $6,000 toward retirement each year, then it makes the most sense to me to contribute the maximum to an IRA, and then any additional money you wish to save would be invested in the 401k. This is assuming that you wouldn’t benefit from the employer match, but if you would, then it would be foolish to pass up that match.

Here is the general order of operations that I have used and that I think makes the most sense:

401k contributions up to the amount to get the full employer match (if applicable)
IRA contributions up to the maximum ($6,000 for 2019)
401k contributions up to the maximum ($19,000 for 2019)
After tax investments (brokerage account, real estate, etc.)

If your company doesn’t offer an employer match on the 401k or if you won’t be able to benefit from it due to the vesting schedule of the company, then skip #1.

What Happens to the Money and 401k Account When Switching Companies?

Let’s say that you follow the order of operations above and stay with the same company for your first year as a travel therapist, but then get a better offer from a different company and decide to switch. You knew that you would probably be changing companies eventually, either for a better paying job or a job that your company may not have, so you assumed you wouldn’t benefit from the employer match. You maxed out your traditional IRA and contributed an extra $10,000 to your 401k. Great job!

Now, since the IRA isn’t associated with the employer, it isn’t affected at all by switching companies. That account belongs to you only. But the 401k is affected by switching companies, so you’ve got a decision to make.

Here are your options:

You can have the money paid out to you.
- This is almost never a good idea since you will not only pay taxes on the money, but also penalties!
You can keep the money in the 401k account of the employer
- This will occasionally involve additional fees since you no longer work for them.
You can roll the 401k over from your previous employer’s 401k account to your new employer’s 401k account.
- This could also be a hassle if you don’t plan to stay with the next company very long.
You can roll over the 401k into your already existing traditional IRA account.
- In most cases, and what I’ve always chosen to do. It makes sense to roll the 401k balance over into your traditional IRA. This gives you the increased flexibility with investment options mentioned above, which usually means lower fees on the investments as well which is a wonderful thing. The account is also yours and not associated with any employer, so you don’t have to worry about moving it around again at a later time. And the accounts work the same way with taxes, and you won’t have to pay penalties.

401k Rollover to Traditional IRA

By rolling the money over into your traditional IRA account, you have essentially contributed the full $16,000 (investment in the IRA to the maximum plus the investment in the prior 401k plan that is now rolled over) to your traditional IRA. This is an easy way to effectively contribute more than the maximum amount to an IRA when switching companies. This simplifies your finances (less accounts to keep track of) and gives you more investment options which are both great things. The rollover process is very simple and can be repeated every time you leave an employer and have a 401k balance with them. I have rolled my 401k balance into a traditional IRA several times and it has never taken more than 30 minutes.

For those travel therapists that are saving a significant amount toward retirement each year, I think that this is the best option with all things considered. I max out my IRA, contribute as much as possible to my 401k, and then roll the 401k into the IRA each time I leave a travel company to give myself the most investment options and to keep my financial life as simple as possible, while still contributing over $20,000/year to the accounts that wouldn’t be possible with a traditional IRA alone.

If you do this as well then you’ll want to make sure that it is a direct rollover. More information on the different types of rollover can be found here.

Conclusion

I know that for those of you that aren’t very familiar with saving and investing, this can all sound intimidating, but it really isn’t very difficult and takes minimal time to figure out and implement.

For those travel therapists that don’t plan to save more than $6,000 toward retirement each year, then just foregoing the 401k and choosing an IRA instead is the most simple option. For those that want to save more than $6,000 per year and also switch companies often, it’s worth the extra effort to contribute to the company’s 401k plan once you’ve maxed out your IRA for the year and roll that 401k over each time you leave a company. Once you’ve done it once it’s a piece of cake and will take you no time.

Above all else, make sure that you’re saving for retirement in some capacity no matter what account(s) you choose to utilize!

Remember to do your own due diligence before implementing anything that I talk about, since this is not intended to be specific advice for you. Thanks for reading and I hope that this post helped to clarify things for you.

If you have any questions about this post or anything else travel therapy related then contact us and we’ll do our best to help you out. If you need assistance finding a good travel therapy company or recruiter then reach out to us and we can help you there as well.

How do you currently handle your retirement accounts as a travel therapist? Let us know in the comments!

Tag: student debt