How often do hospitals pay for student loans?

[FuturaDocta]

My mom was telling me that some residents were getting all their loans payed for by the hospitals and I was excited but I don't know what the chances are of me being one of those lucky people. Does anyone want to shine some light and let me in on your experience? How do you know which hospitals will pay for your debt? And what are the circumstances? Thanks!

---

Members don't see this ad.

 

[MedMan25]

I've never heard of a hospital paying student loans for residents (not saying this doesn't exist, it just isn't very common if it does exist). There are several hospitals/employers out there that offer to pay student loans as part of their benefits package to attending physicians though. How much they will pay towards your student loans really varies. I know the VA offers up to something around $7000 a year in student loan repayments. The HRSA offers $170K in loan repayment to primary care docs for 5 years of service in a shortage area. Many hospitals/employers offer nothing in terms of loan repayment so it all just depends.

Keep in mind though, what employers are going to be offering to doctors 10 years from now when you're looking for a job is almost impossible to predict.

 

[Monsterdaddy]

83% of hospitals are public or 503(c) which means in 10 years your loans may be forgiven under the Public Service Loan Forgiveness program.

 

[MedMan25]

83% of hospitals are public or 503(c) which means in 10 years your loans may be forgiven under the Public Service Loan Forgiveness program.

Since loan forgiveness under the PSLF program is contingent upon being eligible for the income based repayment plan, it is not a wise decision for just anyone. In my opinion, the only people who benefit from the PSLF are those who:

1. Have enormous amounts of debt
2. Are entering a residency program 7-8+ years
3. Are ok with making less than what you would normally be making when you enter practice

I don't think it's a good idea for someone with a modest amount of debt who is entering a residency of average length. For example, someone who owes $200K in student loans at graduation who is planning on a 5 year surgery residency is likely not going to benefit from PSLF. Assuming the minimum payment is made during residency, the loan balance would likely accumulate to roughly $260K by the end of the 5 years. In order to stay on the IBR plan you would need to make roughly less than $260K. In 5 years from now, taking inflation into account you'd have to take a pay cut of at least $100K/year to stay eligible for PSLF. Unless you are interested in public service, you could have used that $100K to pay your loans off and be debt free 2 years earlier.

Even for someone entering primary care, unless you have loans that far exceed what you think you might be making in 7 or 8 years, it isn't worth it. Considering annual inflation is usually around 3.5% per year, with a loan balance of $200K, it's likely that several years down the road you'll be taking bigger and bigger pay cuts every year just to stay eligible for IBR.

 

[DrBowtie]

83% of hospitals are public or 503(c) which means in 10 years your loans may be forgiven under the Public Service Loan Forgiveness program.

Doesn't count unless you are an actual employee, not a contracted private practice. That eliminates many of those hospitals.

I do know of some residents getting stipends/loan money once they sign a contract. Usually these deals are in less desirable places.

 

[Johnny_D]

Since loan forgiveness under the PSLF program is contingent upon being eligible for the income based repayment plan, it is not a wise decision for just anyone. In my opinion, the only people who benefit from the PSLF are those who:

1. Have enormous amounts of debt
2. Are entering a residency program 7-8+ years
3. Are ok with making less than what you would normally be making when you enter practice

I don't think it's a good idea for someone with a modest amount of debt who is entering a residency of average length. For example, someone who owes $200K in student loans at graduation who is planning on a 5 year surgery residency is likely not going to benefit from PSLF. Assuming the minimum payment is made during residency, the loan balance would likely accumulate to roughly $260K by the end of the 5 years. In order to stay on the IBR plan you would need to make roughly less than $260K. In 5 years from now, taking inflation into account you'd have to take a pay cut of at least $100K/year to stay eligible for PSLF. Unless you are interested in public service, you could have used that $100K to pay your loans off and be debt free 2 years earlier.

Even for someone entering primary care, unless you have loans that far exceed what you think you might be making in 7 or 8 years, it isn't worth it. Considering annual inflation is usually around 3.5% per year, with a loan balance of $200K, it's likely that several years down the road you'll be taking bigger and bigger pay cuts every year just to stay eligible for IBR.

This program makes more sense for those who want to stay in academic medicine. While it is true that those with high loan balances will benefit more, don't overestimate what you will make at a non-profit such as a teaching institution. For instance, if you wanted to go into heme/onc, you are talking six years of residency. That's six years of the ten total needed for the program. If you then stay in academic medicine, you won't make much more than $180,000 per year. Private practice is a different story. Many students, including myself, have loan balances that far exceed this, especially when you include accrued interest. Your best bet is to contact the direct loan program and ask them.

Also note, you don't have to be in a needy area to qualify for this.

 

[Monsterdaddy]

Since loan forgiveness under the PSLF program is contingent upon being eligible for the income based repayment plan, it is not a wise decision for just anyone.

That is incorrect. You are eligible for PSLF by making payments under: 1) IBR; 2) ICR; and 3) the standard 10 yr repayment plan. While it is true that making 120 standard 10 yr repayments leave nothing to be forgiven after ten years, you will have something left to be forgiven if any of the payments are under IBR or ICR.

Therefore, no matter how much you earn, the maximum payment would still be capped at the standard 10 yr repayment plan. So after a 4 year residency and assuming you make enough to max out your payment, in another 6 years PSLF will still forgive a significant portion of your loans.

And yes, you do need to be employed by a public or 503(c) organization full-time to qualify for PSLF.

 

[MedMan25]

That is incorrect. You are eligible for PSLF by making payments under: 1) IBR; 2) ICR; and 3) the standard 10 yr repayment plan. While it is true that making 120 standard 10 yr repayments leave nothing to be forgiven after ten years, you will have something left to be forgiven if any of the payments are under IBR or ICR.

Therefore, no matter how much you earn, the maximum payment would still be capped at the standard 10 yr repayment plan. So after a 4 year residency and assuming you make enough to max out your payment, in another 6 years PSLF will still forgive a significant portion of your loans.

And yes, you do need to be employed by a public or 503(c) organization full-time to qualify for PSLF.

True, but the only problem is if you're banking on having your loans forgiven under the PSLF then it's assumed that you'd be making the minimum payment under the IBR during residency and your total debt will quickly balloon during this period. Once you finish residency your debt burden will be to a point where it will only take a few years of making payments at the standard rate for you to have paid close to what you would have without the PSLF if your salary is anywhere near decent. This effectively forces you to find a lower paying job when you finish residency to stay eligible for the IBR plan. Again, PSLF only works out if you have a very large debt burden to start with, are doing a long residency, or plan on working in academia or some other setting where you'd be making less than what you could make otherwise.

 

[Monsterdaddy]

True, but the only problem is if you're banking on having your loans forgiven under the PSLF then it's assumed that you'd be making the minimum payment under the IBR during residency and your total debt will quickly balloon during this period. Once you finish residency your debt burden will be to a point where it will only take a few years of making payments at the standard rate for you to have paid close to what you would have without the PSLF if your salary is anywhere near decent. This effectively forces you to find a lower paying job when you finish residency to stay eligible for the IBR plan. Again, PSLF only works out if you have a very large debt burden to start with, are doing a long residency, or plan on working in academia or some other setting where you'd be making less than what you could make otherwise.

Let's use some real numbers to illustrate my point.

If you took out $200K in med school loans over 4 years by the time you graduate the balance will increase to about $240K.

Under a standard repayment plan you would pay about $35K per year and in ten years the loans would be paid off for total payments of $350K. That possible even under most resident's salaries.

But suppose you go under IBR for the FOUR years of residency. Stafford subsized loan interest is waived for 3 years under IBR. Assuming a $60K/year salary, a single person would pay $6.5K per year for FIVE years. (Remember IBR is based on last year's tax return, you get one extra year of low IBR payments.)

So the loan balances would grow about $290K. Now assume at the end of residency you suddenly make about $300K per year so you now make the max payment of $42.5K per year (vs. the $35K per year previously.) In just FIVE more years the loans are forgiven and you would have made a total of $255K in loan payments.

That's almost $100K in total savings -- after taxes!

Plus there are plenty of life events and financial strategies to reduce your IBR payment. Life events such as getting married or having children lower annual payments by $842 per year per dependent. Maxing out a 401(k) will reduce annual payments by $2,475.

Say you start residency and are married with 2 kids and max your 401(k). IBR payments are now only $1.5K per year, total payments are now only $230K, a $120K savings! And now you would need to make $330K per year to get kicked out of IBR.

Now if you take into account the time value of money, well that makes IBR/PSLF an even bigger winner. Plus not everyone can bank on making that much money right after residency. And for folks with family or other financial commitment, going under IBR may be their only option beside forbearance/deferment. And if they are eligible for PSLF, IBR is far better than forbearance/deferment.

PSLF will never force anyone into a lower payment job to benefit from loan forgiveness. It only limits full-time employment to public and 501(c) entities.

 

[dillydally]

This has all been extremely helpful to me. I might end up at the University of Maryland next year, and I'm married with a kid and another on the way. As far as I can tell, IBR is a clear winner IF you can start the 10 year plan during your residency.

The question is, then, can you really start during your residency?

I was looking at another thread, and it wasn't at all unanimous that this was the case.

http://forums.studentdoctor.net/showthread.php?t=598645

 

[dillydally]

To help answer my own question, the AAMC has a pdf that definitely says residency counts towards the 10 year PSLF.

 

[dillydally]

This one also says that many residency programs qualify.

 

[Spin]

That is incorrect. You are eligible for PSLF by making payments under: 1) IBR; 2) ICR; and 3) the standard 10 yr repayment plan. While it is true that making 120 standard 10 yr repayments leave nothing to be forgiven after ten years, you will have something left to be forgiven if any of the payments are under IBR or ICR.

Therefore, no matter how much you earn, the maximum payment would still be capped at the standard 10 yr repayment plan. So after a 4 year residency and assuming you make enough to max out your payment, in another 6 years PSLF will still forgive a significant portion of your loans.

And yes, you do need to be employed by a public or 503(c) organization full-time to qualify for PSLF.

Let's use some real numbers to illustrate my point.

If you took out $200K in med school loans over 4 years by the time you graduate the balance will increase to about $240K.

Under a standard repayment plan you would pay about $35K per year and in ten years the loans would be paid off for total payments of $350K. That possible even under most resident's salaries.

But suppose you go under IBR for the FOUR years of residency. Stafford subsized loan interest is waived for 3 years under IBR. Assuming a $60K/year salary, a single person would pay $6.5K per year for FIVE years. (Remember IBR is based on last year's tax return, you get one extra year of low IBR payments.)

So the loan balances would grow about $290K. Now assume at the end of residency you suddenly make about $300K per year so you now make the max payment of $42.5K per year (vs. the $35K per year previously.) In just FIVE more years the loans are forgiven and you would have made a total of $255K in loan payments.

That's almost $100K in total savings -- after taxes!

Plus there are plenty of life events and financial strategies to reduce your IBR payment. Life events such as getting married or having children lower annual payments by $842 per year per dependent. Maxing out a 401(k) will reduce annual payments by $2,475.

Say you start residency and are married with 2 kids and max your 401(k). IBR payments are now only $1.5K per year, total payments are now only $230K, a $120K savings! And now you would need to make $330K per year to get kicked out of IBR.

Now if you take into account the time value of money, well that makes IBR/PSLF an even bigger winner. Plus not everyone can bank on making that much money right after residency. And for folks with family or other financial commitment, going under IBR may be their only option beside forbearance/deferment. And if they are eligible for PSLF, IBR is far better than forbearance/deferment.

PSLF will never force anyone into a lower payment job to benefit from loan forgiveness. It only limits full-time employment to public and 501(c) entities.

What's all this about maximum payments? I've heard that some lenders make you draw out your repayment plan so you accrue more interest... is that what's going on here? I heard that government loans don't pull that ****, but now I'm worried because it sounds like it varies based on the repayment plan. If I make enough money to pay off my debt within 7 years, I won't want to be forced to draw the process out any longer than that.

Please forgive my ignorance; I'm pretty new to all this financial stuff.

 

[OnTheOtherHand]

I have also heard that Kaiser Permanente offers $60,000 in loan repayment.