Downside of maxing out loans?

[applicant2017]

Current M1.

I will be graduating a very expensive medical school with atleast 270k in debt (just origination principal, haven't even started putting in interest). However, I could live a much better/comfortable life currently if I took out the max loans of $370k (again, not counting interest).

I am looking at a 5+1 residency, and hoping to work in academia. But of course, plans change as life changes.

I did some prelim calculations on using the PAYE/PSLF program, and it seems my monthly payments don't change much beyond 220k. So in essence if I am banking on PSLF to pay my loans off - it doesn't seem to matter how much I borrow once I hit the 220k mark.

Before I pull the trigger, the question is if anyone else did similar calculations, and whether there is some downside I am not foreseeing to maxing out my loan allowance?

Thanks

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[dpmd]

Current M1.

I will be graduating a very expensive medical school with atleast 270k in debt (just origination principal, haven't even started putting in interest). However, I could live a much better/comfortable life currently if I took out the max loans of $370k (again, not counting interest).

I am looking at a 5+1 residency, and hoping to work in academia. But of course, plans change as life changes.

I did some prelim calculations on using the PAYE/PSLF program, and it seems my monthly payments don't change much beyond 220k. So in essence if I am banking on PSLF to pay my loans off - it doesn't seem to matter how much I borrow once I hit the 220k mark.

Before I pull the trigger, the question is if anyone else did similar calculations, and whether there is some downside I am not foreseeing to maxing out my loan allowance?

Thanks

You mean beside the obvious increased amount of debt which you could end up stuck with if pslf gets phased out for some folks, or if your desired job doesn't qualify. Also being stuck looking for pslf qualifying jobs ends up limiting your options (and probably your pay). Also, lifestyle creep is a real concern. If you live large now you might find yourself wanting to live larger in residency then even larger as an attending and you might end up with mortgages and consumer debt that leaves you living practically paycheck to paycheck.

 

[TMP-SMX]

Attempting to live comfortably with loans changes rapidly when life happens as a resident. Live as cheaply as possible not only because of uncertainlty but also because you'll feel better at the end of the day not feeling like you were subsidized by someone else's dime. While PSLF is likely going to happen there's no 100% guarantee. Your loans where your master promissory note spells out the program might legally be protected but congress can decide not to fund PSLF at any time. Full disclosure: I'm 3 years out from PSLF payout but I lived at home for more than half of medical school and went to a less expensive state school.

 

[mvenus929]

You really should not bank on PSLF being around, for any number of reasons. The master promissary note is vague about the conditions and those could easily be changed, or as TMP said, it could simply not be funded (there was a program that gave loan forgiveness to those pursuing pediatric subspecialties... no one actually got loans forgiven because the program was never funded).

It’s okay to take some extra loans out so you live in a safe place and can eat a healthy diet and do things to relieve stress. But you should still try to minimize the amount of loans you take out.

 

[IlDestriero]

I just saw an article that 99% of PSLF applications for forgiveness were denied. Let that sink in. The other unfortunate reality is that this plan was never designed to be a safety net for professional people earning >5x the average family income. Low hanging fruit is very easy to cut, and nobody cares about the cries of people earning more in a month than they take home in a year. Not to mention the government is in greater debt every second of the day.

 

[TMP-SMX]

I just saw an article that 99% of PSLF applications for forgiveness were denied. Let that sink in. The other unfortunate reality is that this plan was never designed to be a safety net for professional people earning >5x the average family income. Low hanging fruit is very easy to cut, and nobody cares about the cries of people earning more in a month than they take home in a year. Not to mention the government is in greater debt every second of the day.

That's because people believed incorrect advice from Fedloans and made themselves ineligible in many cases. Also they are extremely behind on payment counts. I think PSLF will continue as it is for current borrowers. Caps of forgiveness or other restrictions will likely be coming. I don't think people should be able to max out their loans at a private school and get the same amount of forgiveness. In the end, many getting forgiveness now are breaking about even on the original principal borrowed (it's basically interest being waived tax free).

 

[dpmd]

I just saw an article that 99% of PSLF applications for forgiveness were denied. Let that sink in. The other unfortunate reality is that this plan was never designed to be a safety net for professional people earning >5x the average family income. Low hanging fruit is very easy to cut, and nobody cares about the cries of people earning more in a month than they take home in a year. Not to mention the government is in greater debt every second of the day.

Big chunk of folks with loans originated other than direct loans didn't realize their loans needed to be consolidated with direct loan servicer to qualify. Won't be an issue with current originated loans. But I am sure when enough "rich doctors" get forgiveness the public will turn against them and the criteria will change. I know my master promissory note says nothing about pslf but maybe current folks do have a clause in theirs.

 

[TMP-SMX]

My MPN certainly does discuss PSLF

 

[dpmd]

"May be canceled" is a lot different than "will be canceled". Just saying.

 

[TMP-SMX]

"May be canceled" is a lot different than "will be canceled". Just saying.

You have to request forgiveness so it doesn't have to be (can't say will). Congress would need to vote to stop funding on the program. There's not many things congress can agree on. I'd say congress should amend the program to set limits but people who are in the program now are certainly more likely than not to get forgiveness as planned.

 

[dpmd]

You have to request forgiveness so it doesn't have to be (can't say will). Congress would need to vote to stop funding on the program. There's not many things congress can agree on. I'd say congress should amend the program to set limits but people who are in the program now are certainly more likely than not to get forgiveness as planned.

I am just saying I wouldn't increase my loans to live it up in school because of relying on it.

 

[TMP-SMX]

I am just saying I wouldn't increase my loans to live it up in school because of relying on it.

No-one has. That would be a bad idea.

 

[dpmd]

No-one has. That would be a bad idea.

That is essentially what the OP is talking about.

 

[dpmd]

If you are able to contain yourself and not spend all the money you have coming in but put it away in a smart way (gain return on it), then you might be maxing out. If not, dont even think about maxing out your loans!

Between the origination fee and the interest rate, borrowing student loans in order to invest is unlikely to be profitable (though I admit I haven't run the numbers using the possibility of pslf).

 

[TMP-SMX]

That is essentially what the OP is talking about.

You are right I glazed over this sentence in the OP: "However, I could live a much better/comfortable life currently if I took out the max loans of $370k (again, not counting interest)."

Don't do it. Live cheaply. I lived at home for two years with parents and still took out 180k at a public med school.

 

[BC_89]

This caught my glance when PSLF was mentioned.

I 100% echo with others in not maximizing your student loans with the reliability of (and even thought) of PSLF.

I’ve had past soldiers in the uniformed services who are/have been with Fed Loan Services who constantly try to look for loopholes of non-qualifying months of these individuals while in the uniformed services (people who went to high cost undergrad schools and obtained degrees). Their plan is simple:

Put 4 years worth of qualifying months in the uniformed services (of the 10 yrs), ride the GI Bill to pay for med school (most stationed in TX claimed residency for cheaper tuition rates) without consolidation if new loans arrive, put themselves back on qualifying payments as residents getting closer to 120 months of 50 - 75k of loans from undergrad (still accruing interest), and work with a qualifying job to ride out the rest.

Don’t do what they do and just live as cheaply as possible. You’ll thank yourself for it

 

[FlowRate]

Between the origination fee and the interest rate, borrowing student loans in order to invest is unlikely to be profitable (though I admit I haven't run the numbers using the possibility of pslf).

Pretty sure but not positive that government loans have clauses about not doing this anyway.

Don't do it. Live cheaply. I lived at home for two years with parents and still took out 180k at a public med school.

Wow, expensive public school.

 

[TMP-SMX]

Pretty sure but not positive that government loans have clauses about not doing this anyway.

Wow, expensive public school.

Pretty average debt level by the end of medical school back then (I think the 180+ was after capitalization of interest entering repayment). It may have been around 170k before interest.

 

[FlowRate]

Pretty average debt level by the end of medical school back then (I think the 180+ was after capitalization of interest entering repayment). It may have been around 170k before interest.

Huh, for some reason I thought public schools were a little cheaper but I guess ~30k living expenses + 15k tuition gets you to 180k pretty easily. Wait, but you said you lived at home for two years, which is why I was surprised at the number--did your parents charge you for rent and food and everything?

 

[TMP-SMX]

Huh, for some reason I thought public schools were a little cheaper but I guess ~30k living expenses + 15k tuition gets you to 180k pretty easily. Wait, but you said you lived at home for two years, which is why I was surprised at the number--did your parents charge you for rent and food and everything?

No. I took extra the final year for applications, moving, and I had a child. Wife was also not working at the time.

 

[751866]

Pretty sure but not positive that government loans have clauses about not doing this anyway.

It's not allowed. You'd have to be a ***** to take a med school loan to invest in something with a non-guaranteed rate of return over a relatively shorter horizon.

 

[NITRAS]

... Congress would need to vote to stop funding on the program. There's not many things congress can agree on. I'd say congress should amend the program to set limits but people who are in the program now are certainly more likely than not to get forgiveness as planned.

I may be just cynical but the Democrats use "rich people" as scapegoats, and Republicans don't like handouts. An academic physician who makes $250k a year is rich people to most Americans and the vast majority of people won't agree with giving them two or three hundred thousands dollars. The OP is looking at least 13 years into the future. I think this is easy fruit for them.

I may be cynical, but I think depending on the Federal government is inherently a bad idea.

 

[FlowRate]

I may be just cynical but the Democrats use "rich people" as scapegoats, and Republicans don't like handouts. An academic physician who makes $250k a year is rich people to most Americans and the vast majority of people won't agree with giving them two or three hundred thousands dollars. The OP is looking at least 13 years into the future. I think this is easy fruit for them.

I may be cynical, but I think depending on the Federal government is inherently a bad idea.

Somehow I didn't realize that REPAYE limits payments to 10% of discretionary income. I guess there are a number of people who could bank on PSLF to be net beneficial, if their federal loans are in the >$200k range. This website has several great student-loan related calculators, including for PSLF.