Federal loans vs family loans & loan repayment programs

[lemmonhead]

Hi all-

So I will be starting medical school this fall. TBH however, the finances of the whole ordeal are really killing my spirit about the whole thing. I am looking for some advice from medical students who have applied to or are familiar with the loan repayment programs.

A bit of background... I am in a fortunate position where my family has offered to lend me the money I will need for medical school at a very reasonable interest rate. While this seems like an ideal situation I have no idea what specialty I am going to end up in. If I end up in a PC specialty I would hate to be ineligible for any loan repayment programs that may be available to those docs.

Questions:
-Are most repayment programs capped at a certain amount? If so, what is this range?
-What are the most common repayment programs outside of NHSC and the military?
-How competitive are these programs?
-Does one receive a market rate salary in addition to the loan repayment options?
-Is anyone familiar with what kind of bonuses/loan repayment options private practices offer?
-Am I shooting myself in the foot by taking this offer from my parents?

All constructive feedback is welcome.

Thanks!

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[Cytarabine]

To my knowledge, the big 3 federal loan forgiveness programs are PSLF, IBR, and PAYE. IBR and PAYE you pay a percentage of your income dependent on your salary and after a set number of years (25 and 20 respectively) the loans are forgiven with the forgiven debt being counted as taxable income the year of forgiveness. PSLF requires you work in a 503c or governmental institution and make 120 monthly payments (that can be at the IBR/PAYE level). Following your 120th eligible payment, your loans are forgiven and the forgiven amount is not considered taxable income. There's no cap on forgiven debt for any of these currently. They are salary independent though your minimum monthly payment, dependent on your income, may make certain options unwise. To what extent these forgiveness options will be existent unchanged for physicians down the line, particularly PSLF, isn't clear. I would not want to count on PSLF at your stage however.

There are also employment contracts that may offer loan repayment as an incentive of employment, but these are obviously employer dependent.

Alternatively, you can refinance your loans at a lower interest rate with a private lender. However, if you do so, you won't be eligible for federal forgiveness programs.

If I was in your shoes, I would be hesitant to take such a large loan out from your family. That's a different situation from having your family pay for your schooling, and I wouldn't want such a large amount of money to be a factor in the relationship between my family and me.

I'm fairly sure that information is right but do your research

 

[lemmonhead]

To my knowledge, the big 3 federal loan forgiveness programs are PSLF, IBR, and PAYE. IBR and PAYE you pay a percentage of your income dependent on your salary and after a set number of years (25 and 20 respectively) the loans are forgiven with the forgiven debt being counted as taxable income the year of forgiveness. PSLF requires you work in a 503c or governmental institution and make 120 monthly payments (that can be at the IBR/PAYE level). Following your 120th eligible payment, your loans are forgiven and the forgiven amount is not considered taxable income. There's no cap on forgiven debt for any of these currently. They are salary independent though your minimum monthly payment, dependent on your income, may make certain options unwise. To what extent these forgiveness options will be existent unchanged for physicians down the line, particularly PSLF, isn't clear. I would not want to count on PSLF at your stage however.

There are also employment contracts that may offer loan repayment as an incentive of employment, but these are obviously employer dependent.

Alternatively, you can refinance your loans at a lower interest rate with a private lender. However, if you do so, you won't be eligible for federal forgiveness programs.

If I was in your shoes, I would be hesitant to take such a large loan out from your family. That's a different situation from having your family pay for your schooling, and I wouldn't want such a large amount of money to be a factor in the relationship between my family and me.

I'm fairly sure that information is right but do your research

Thank you for your input. I really appreciate it. Regarding the situation with my family, I will be taking out disability and life insurance should something catastrophic happen. That said, taking out a loan from my family will save me well over $100k in interest. They are also in a position that they will not be in dire straits without the money.

Definitely have a lot to think about.

 

[Cytarabine]

Should also add there's REPAYE where a portion of your interest is paid for dependent on your income, and you pay 10% of discretionary as a minimum payment as opposed to 15% with old IBR. 10% of discretionary also applies to new IBR and PAYE

 

[Redtwogreen]

Hi all-

So I will be starting medical school this fall. TBH however, the finances of the whole ordeal are really killing my spirit about the whole thing. I am looking for some advice from medical students who have applied to or are familiar with the loan repayment programs.

A bit of background... I am in a fortunate position where my family has offered to lend me the money I will need for medical school at a very reasonable interest rate. While this seems like an ideal situation I have no idea what specialty I am going to end up in. If I end up in a PC specialty I would hate to be ineligible for any loan repayment programs that may be available to those docs.

Questions:
-Are most repayment programs capped at a certain amount? If so, what is this range?
-What are the most common repayment programs outside of NHSC and the military?
-How competitive are these programs?
-Does one receive a market rate salary in addition to the loan repayment options?
-Is anyone familiar with what kind of bonuses/loan repayment options private practices offer?
-Am I shooting myself in the foot by taking this offer from my parents?

All constructive feedback is welcome.

Thanks!

Depending on the relationship you have with your family, that seems like a no brainer to take their loan if it will save you $100k in interest. Any of the federal IBR plans will offer you low monthly payments while you are in residency, but you are still accruing interest. You aren't really missing out on anything great with the federal loan repayment programs. The advice we have received over and over and over again is to sign up for REPAYE (thats what we are signed up with for now) and then in about a year we will refinance with private loans at a better interest rate and pay off our balance on our own. We blog a lot about this over at www.redtwogreen.com and if you haven't come across this chart from White Coat Investor, it is super helpful. http://whitecoatinvestor.com/what-should-i-do-with-my-student-loans hope that helps!

 

[SurfingDoctor]

-Are most repayment programs capped at a certain amount? If so, what is this range?
-What are the most common repayment programs outside of NHSC and the military?
-How competitive are these programs?

Some states used to have state-funded loan repayment plans for those who served in underserved areas, which was not hard to be eligible for. Many hospitals are located in low SE area and thus take care of underserved populations. I remember a colleague of mine who got this and worked at a large academic center. Though I admit, I'm not sure it is still in existence (this was like 7 years ago). http://nhsc.hrsa.gov/loanrepayment/stateloanrepaymentprogram/

There is the NIH loan repayment program, but you have to have a research commitment of at least 2 years and they are competitive. There is a maximal amount of repayment (I don't remember the cap, $35K/year). It used to be higher and paid back a substantial portion of my loans, but that was before sequestration. https://www.lrp.nih.gov/

I'm sure there are other programs (like the FAP, STAP military ones you mentioned) but I'm not personally familiar with those.

 

[deleted480308]

Don't do business with family on that scale. bad mojo

 

[Stagg737]

2 things before you take out loans from family. First, if there is any animosity towards family or any kind of financial struggles they would have to undertake to loan you this money, don't do it. If they've got enough money sitting around where potentially not being repaid wouldn't be the end of the world, then I'd consider it. Otherwise go with gov loans. Second, if you do decide to borrow from your family, get together and write a legal contract for how much you're borrowing, what happens if you need more (emergency pops up, need more money for tests, need money for 4th year interviews, etc.), the exact dates/points when you have to start repaying, how much you will have to repay at those points, and what will happen if for some reason you can't make payments or can't pay back at all (like if you died or got too injured/sick to work).

I'd say that for most people, taking out loans from family is just a terrible idea. There are a few people that can make it work without excessive strain on either party, but even if you're in that small minority, you should lay down every ground rule or situation you can think of before borrowing money from them. Even then, there will probably be plenty of added stress from them looking over your shoulder and feeling extra pressure of "what if" things don't work out.

 

[RangerBob]

2 things before you take out loans from family. First, if there is any animosity towards family or any kind of financial struggles they would have to undertake to loan you this money, don't do it. If they've got enough money sitting around where potentially not being repaid wouldn't be the end of the world, then I'd consider it. Otherwise go with gov loans. Second, if you do decide to borrow from your family, get together and write a legal contract for how much you're borrowing, what happens if you need more (emergency pops up, need more money for tests, need money for 4th year interviews, etc.), the exact dates/points when you have to start repaying, how much you will have to repay at those points, and what will happen if for some reason you can't make payments or can't pay back at all (like if you died or got too injured/sick to work).

I'd say that for most people, taking out loans from family is just a terrible idea. There are a few people that can make it work without excessive strain on either party, but even if you're in that small minority, you should lay down every ground rule or situation you can think of before borrowing money from them. Even then, there will probably be plenty of added stress from them looking over your shoulder and feeling extra pressure of "what if" things don't work out.

I second this.

If the OP goes the route of a family loan, make sure that your family directly pays for tuition/etc. Otherwise they will have to pay gift taxes on anything over roughly $15k. (Each parent can give you that amount each year without paying taxes on it, so that should cover living expenses).

In addition, if they are paying your tuition, then can claim the college expense credits/deductions.