Is IBR the best option for 300k debt doctor?

[blueb7]

Hi, I am an upcoming MS1 DO school that would get me ~300k in loans.

I was just contemplating on my options, and seems that doing IBR is the way to go.
paying IBR amount during residency, start paying more after I start to earn 6-figure,
and hopefully pay all or most of the loans to avoid forgivageddon..

Question is, why would people choose NOT to do IBR? Are there benefits to paying standard/extended payments/other options? Are there disadvantages to pay monthly payments more than monthly IBR payment? I mean, if I can choose to pay low monthly payment while having the power to pay more monthly payment if I choose to, why not go for that? Am I missing something here?

thanks for all the info in advance.

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[DOctorJay]

300k in loans from med school?!?! Don't go. Please rethink this decision. Seriously.

 

[Perrotfish]

Question is, why would people choose NOT to do IBR? Are there benefits to paying standard/extended payments/other options? Are there disadvantages to pay monthly payments more than monthly IBR payment? I mean, if I can choose to pay low monthly payment while having the power to pay more monthly payment if I choose to, why not go for that? Am I missing something here?

You are not missing anything if that's what you mean by IBR. However when most people say they are doing IBR, they mean paying exactly the IBR amount. Which, with 300k/year on a resident's salary, means letting your loans grow. Also when most people say they are not doing IBR they generally mean they have opted for forbearance, where they pay nothing on their loans through residency and let the loans grow exponentially. Very few residents that I know are paying more than IBR.

300k in loans from med school?!?! Don't go. Please rethink this decision. Seriously.

1) The average cost of attendance at a private school is 280K. You're telling half the students in the nation not to go.

2) The average lifetime earnings from this career is nearly 7 million, with many professions approaching 15 million in lifetime earnings (gas, ER, surgery). 300K in loans at 7.5% interest, with a 20 year repayment plan an no forgiveness, costs you less than 2 million of those lifetime earnings. The average lifetime earnings of a college grad who goes straight into the workforce is less than 3 million. Even with the loans medical school is still the clear winner.

 

[DOctorJay]

Yup I'm saying that exactly. Wise up to what's happening with healthcare or be a slave to your loans.

 

[blueb7]

Thanks Perrotfish!
I feel more informed now. I would probably try to pay more than IBR amount if possible... but I understand saving up money during residency is a hard thing to do.
& I assume you paid way less than I did, DOctorJay. The tuition just had to rise up so steeply in the last few years..

 

[Postictal Raiden]

You are not missing anything if that's what you mean by IBR. However when most people say they are doing IBR, they mean paying exactly the IBR amount. Which, with 300k/year on a resident's salary, means letting your loans grow. Also when most people say they are not doing IBR they generally mean they have opted for forbearance, where they pay nothing on their loans through residency and let the loans grow exponentially. Very few residents that I know are paying more than IBR.


1) The average cost of attendance at a private school is 280K. You're telling half the students in the nation not to go.

2) The average lifetime earnings from this career is nearly 7 million, with many professions approaching 15 million in lifetime earnings (gas, ER, surgery). 300K in loans at 7.5% interest, with a 20 year repayment plan an no forgiveness, costs you less than 2 million of those lifetime earnings. The average lifetime earnings of a college grad who goes straight into the workforce is less than 3 million. Even with the loans medical school is still the clear winner.

Even if we assume that the loan grows to 400K after 5 year residency, the total repaid amount after a 20-year plan at 7.5% would be just below 800K, significantly less than 2 million.

 

[Perrotfish]

Even if we assume that the loan grows to 400K after 5 year residency, the total repaid amount after a 20-year plan at 7.5% would be just below 800K, significantly less than 2 million.

The amount paid is after tax, your lifetime earnings are pretax. Depending on where you live that 800K of payments is anywhere from 1.1 to 1.4M. in lost earnings

 

[DOctorJay]

What type of income level are you guys anticipating once you finally start getting paid?

 

[darkjedi]

What type of income level are you guys anticipating once you finally start getting paid?

Perretfish made excellent points about loans vs lifetime income. What is the issue here?

 

[Postictal Raiden]

The amount paid is after tax, your lifetime earnings are pretax. Depending on where you live that 800K of payments is anywhere from 1.1 to 1.4M. in lost earnings

I see. Thank you for this clarification.

 

[DOctorJay]

No issue. I'm a new attending and watching my specialty get decimated with cuts. Just want you guys to understand what you're signing up for. No other industry gets cut the way we do every single year while overhead rises.

Sorry to come off harsh.

 

[Mac or Miller]

Sorry to break up the doomsayer hijack...

In my experience, the main reason residents don't participate in IBR is because they choose to forbear. They either have families that need to eat, they live in an expensive city, or they simply believe that they will be rich later and paying on the loans during residency is not a priority.

IBR is actually a pretty sound decision because it confers some benefits like unpaid subsidized forgiveness, student loan interest deduction, and PSLF eligibility.

 

[RangerBob]

I would do IBR in residency, if for no other reason, because interest doesn't capitalize as long as you're in the program. Unfortunately the interest accrued during medical school will capitalize when you start repayment (6 months after graduation), but then after that it doesn't capitalize as long as you stay in IBR (meaning you have to make sure to apply on time every year). With 300k in debt, you can probably stay in IBR even when you're an attending. That, as well as paying the difference (when you're an attending) between the IBR amount and the 10, 15, or 20-year monthly payment towards your highest interest loans (GradPlus) would probably save you quite a bit over the life of the loan.

DoctorJay does have a point. I'm just starting repayment and have a pretty hefty loan burden between undergrad and medical school. I'll be OK, but I won't be living a "doctor lifestyle." I will, however, have a stable and rewarding job. But once you take into account taxes, loan repayments, retirement savings (we need to save more since we're starting later), it doesn't leave a whole lot left over.

To get an idea of how much you'll be repaying, google "student loan repayment calculator" to calculate your monthly payments based on paying off the loans in 10, 15, and 20 years. Don't forget to add about 40-50k in interest that will accrue while in medical school. Then go to paycheckcity.com to calculate your take-home pay after taxes. Keep in mind, things are in flux, and salaries may go down. They could always go up too--stranger things have happened.

Personally, I would not count on loan forgiveness--the odds of that being around for high earners such as physicians is pretty low. It's possible, yes, but I don't think it's worth banking on considering how much you'll be in the whole if it goes away (not to mention all the taxes you'd owe on the forgiven part of the loan). I do think it's worth hedging your bets (pay more than the minimum IBR payment, but less than the 10 or 20-year repayment amount) if you can do PSLF. However, in the OP's case, they should know if PSLF will still be around by the time they finish medical school. But only take out loans with the assumption that you'll be repaying back every dime.

 

[blueb7]

Yeah, PSLF sounds like a program that I can't really rely on, I would probably do the exact same thing as you mentioned, and see how things turn out.
Thank you for the websites -I ran sample numbers on both sites and it's pretty interesting... scary monthly payments but income is good, too. I won't complaint.

 

[PlumbLine]

. Nvm I read something out of context.

 

[QualityProcess]

what kinds of ways are there to pay down interest while in medical school, besides getting a part-time job? as a med student with loans it doesn't sound like there's much you can do to help your financial future besides 1. being frugal and 2. doing whatever you can to avoid capitalization

 

[RangerBob]

what kinds of ways are there to pay down interest while in medical school, besides getting a part-time job? as a med student with loans it doesn't sound like there's much you can do to help your financial future besides 1. being frugal and 2. doing whatever you can to avoid capitalization

The only way to avoid capitalization, that I'm aware of, is to pay it off. And even then, it makes more sense to either just not borrow the money in the first place, as you allude to, or if you do have an income, it's better to spend that extra cash on the higher interest (GradPlus) interest and principle rather than just all the interest prior to capitalization (since some loans will be at lower rates).

Just remember that all federal loan interest will capitalize at the end of your grace period, when you start repayment. Which sucks, because if you go to a private school like I did, you rack up a fair amount of interest, which now has been capitalized and is gathering interest at 6.8-8.5%. But then, if you go into IBR or PAYE, you interest won't capitalize again until you leave the program, which could be a very big benefit, especially if you're training in a longer residency program. I think that alone is enough reason to make payments in residency towards IBR/PAYE.

Plus, if you have subsidized loans, the government will pay the unpaid interest for three years on those loans. I maxed out on the subsidized stafford loans and I believe that will save me approx 5-6k over my residency (exact amount will depend on how big your monthly payment is). Which is nothing compared to how much I save by my interest not capitalizing. If you just spend the $300-$550/month (doable on just about any resident salary unless you have a family in NYC, for example) then you really save yourself quite a bit of money in the end.

Obviously that's more relevant to people who borrowed a lot (private schools), but even those who didn't could probably still benefit.

 

[EMDO2018]

Im counting on IBR plus PSLF. If I go to a private DO school I will be 3ook. If I get in MD I will be a 230k .

 

[QualityProcess]

it makes more sense to either just not borrow the money in the first place, as you allude to, or if you do have an income, it's better to spend that extra cash on the higher interest (GradPlus) interest and principle rather than just all the interest prior to capitalization (since some loans will be at lower rates).

I'm private school too. I was afraid of running into unexpected expenses, so I basically maxed out in M1 year with the plan of being frugal and tracking every penny, taking the loss, and using the information gleaned re: my spending habits and the surplus from first year to be very precise about borrowing in the remaining years. The trouble comes in estimating additional costs associated with boards, minor traveling for rotations and interviews, etc. Lots of reading to do...

 

[sazerac]

One thing to keep in mind with income based repayment plans is that you are extremely unlikely to ever pay off the loan, before forgiveness kicks in.

For instance the PAYE program only requires you to pay 10% of the first 20 years of your career, and then the loan is forgiven. You are likely to earn about 4 million dollars in that timeframe. So the most you will spend on the loan, prior to forgiveness, is about $400,000 no matter how large the loan.

There may be a tax hit when the loan is forgiven, but it is difficult to predict tax law 20 years into the future, and you would still likely save $.

 

[deleted498041]

The only way to avoid capitalization, that I'm aware of, is to pay it off. And even then, it makes more sense to either just not borrow the money in the first place, as you allude to, or if you do have an income, it's better to spend that extra cash on the higher interest (GradPlus) interest and principle rather than just all the interest prior to capitalization (since some loans will be at lower rates).

Just remember that all federal loan interest will capitalize at the end of your grace period, when you start repayment. Which sucks, because if you go to a private school like I did, you rack up a fair amount of interest, which now has been capitalized and is gathering interest at 6.8-8.5%. But then, if you go into IBR or PAYE, you interest won't capitalize again until you leave the program, which could be a very big benefit, especially if you're training in a longer residency program. I think that alone is enough reason to make payments in residency towards IBR/PAYE.

Plus, if you have subsidized loans, the government will pay the unpaid interest for three years on those loans. I maxed out on the subsidized stafford loans and I believe that will save me approx 5-6k over my residency (exact amount will depend on how big your monthly payment is). Which is nothing compared to how much I save by my interest not capitalizing. If you just spend the $300-$550/month (doable on just about any resident salary unless you have a family in NYC, for example) then you really save yourself quite a bit of money in the end.

Obviously that's more relevant to people who borrowed a lot (private schools), but even those who didn't could probably still benefit.

I'm a vet student, but I'm in a similar boat to most of you. Will probably graduate with about $300,000 in loans and I'm planning on doing IBR. I did what a poster above said and took the full amount offered ($73,000) my first year and tracked my expenses very closely so that I could plan a more tight budget in the future. Having some conversations with my parents, who are much more worldly when it comes to finances brought up some questions, and you hit some of them with your post.

Are you saying my interest doesn't capitalize at a regular rate, and only capitalizes when my repayment period actually starts? That is to say, I have all these loans for four years of school but they don't capitalize until 6 mos after I finish VM4? I have GradPlus and Stafford if that makes a difference.
I took out so much to plan my budget later on but talking with my parents brought up the question: should I take the full amount every year if I'm planning on qualifying for PAYE, and won't be paying back the full amount anyway? When I graduate, my intern year will pay me about $25,000 a year and my resident years will only give me an extra $5,000 if I'm really lucky, so I wouldn't be able to pay my loans without IBR or PAYE.
How do they calculate the taxed amount at the end of the 20 years of PAYE? I was led to believe that it's the income tax according to the amount left on your loans -- so if you had $250,000 left and income tax is 7%, you'd pay a lump sum of $17,500 by the end of it.

 

[RangerBob]

I'm a vet student, but I'm in a similar boat to most of you. Will probably graduate with about $300,000 in loans and I'm planning on doing IBR. I did what a poster above said and took the full amount offered ($73,000) my first year and tracked my expenses very closely so that I could plan a more tight budget in the future. Having some conversations with my parents, who are much more worldly when it comes to finances brought up some questions, and you hit some of them with your post.

Are you saying my interest doesn't capitalize at a regular rate, and only capitalizes when my repayment period actually starts? That is to say, I have all these loans for four years of school but they don't capitalize until 6 mos after I finish VM4? I have GradPlus and Stafford if that makes a difference.
I took out so much to plan my budget later on but talking with my parents brought up the question: should I take the full amount every year if I'm planning on qualifying for PAYE, and won't be paying back the full amount anyway? When I graduate, my intern year will pay me about $25,000 a year and my resident years will only give me an extra $5,000 if I'm really lucky, so I wouldn't be able to pay my loans without IBR or PAYE.
How do they calculate the taxed amount at the end of the 20 years of PAYE? I was led to believe that it's the income tax according to the amount left on your loans -- so if you had $250,000 left and income tax is 7%, you'd pay a lump sum of $17,500 by the end of it.

Correct--while you're in school your interest on federal (and most private) loans doesn't capitalize. It capitalizes upon the start of repayment (generally six months after graduation), and then I think it capitalizes quarterly (perhaps yearly) after that while in repayment. If you enter IBR or PAYE, the interest doesn't capitalize again until you leave IBR or PAYE. Which is a huge benefit for those programs if you will be spending a couple years in residency making minimal (IBR/PAYE) payments that don't cover all the interest that accrues.

As far as how much gets taxed, I'm not positive, but I believe that the money forgiven is considered income, so if you have $250,000, assume you'll be paying taxes at the highest tax bracket, probably close to 30% in total. I think you have to pay state and federal taxes, as well as social security and medicare (FICA). I'm not 100% sure though. I read somewhere else on this board that the government takes your assets into consideration. If that's the case, it's probably worth talking to a tax lawyer at some point if you plan to benefit from forgiveness through IBR or PAYE.

Once again, I am not positive about how IBR/PAYE forgiveness gets taxed, because honestly I want my loans paid off within 20 years. I think it's too big a risk to assume those programs will still be around (despite me thinking there's a fair chance they will be). That would just be way too much interest building up over 20 or 25 years, and if the programs did disappear, or the amount forgiven was limited, then I'd really be in the hole.

With all that said, I would only borrow what you need, with the assumption that you'll be paying back every penny yourself. Assume loan forgiveness won't be around, because there's a fair chance it won't be. Honestly, I don't think anyone should take out loans with the idea that they will get them forgiven. My wife and I owe quite a bit, and if she stops working when we have kids, all that loan payback falls on me. My repayment burden will be extremely high in that "worst case scenario", (have kids, wife stops working and never goes back) but it's doable when I run the numbers. I'm doing IBR while in residency, and as then paying as much additional income as we can towards our highest interest private loans (ironically they're at rates much lower than the federal loans, but then if PSLF sticks around, I'd hate to have spent my money paying off money that could get forgiven...)

Hopefully these forgiveness programs will still be around for you (and me) to benefit from, but no one knows for sure. So borrow as little as you can, and you'll be very thankful for it once you begin repayment. I really wish I could talk to my younger self--I thought I understood the magnitude of how much I was borrowing and how much I'd owe when I started my post-bac and then medical school, but I didn't fully understand until I finished school and started repayment.

 

[Postictal Raiden]

Correct--while you're in school your interest on federal (and most private) loans doesn't capitalize. It capitalizes upon the start of repayment (generally six months after graduation), and then I think it capitalizes quarterly (perhaps yearly) after that while in repayment. If you enter IBR or PAYE, the interest doesn't capitalize again until you leave IBR or PAYE. Which is a huge benefit for those programs if you will be spending a couple years in residency making minimal (IBR/PAYE) payments that don't cover all the interest that accrues.

As far as how much gets taxed, I'm not positive, but I believe that the money forgiven is considered income, so if you have $250,000, assume you'll be paying taxes at the highest tax bracket, probably close to 30% in total. I think you have to pay state and federal taxes, as well as social security and medicare (FICA). I'm not 100% sure though. I read somewhere else on this board that the government takes your assets into consideration. If that's the case, it's probably worth talking to a tax lawyer at some point if you plan to benefit from forgiveness through IBR or PAYE.

Once again, I am not positive about how IBR/PAYE forgiveness gets taxed, because honestly I want my loans paid off within 20 years. I think it's too big a risk to assume those programs will still be around (despite me thinking there's a fair chance they will be). That would just be way too much interest building up over 20 or 25 years, and if the programs did disappear, or the amount forgiven was limited, then I'd really be in the hole.

With all that said, I would only borrow what you need, with the assumption that you'll be paying back every penny yourself. Assume loan forgiveness won't be around, because there's a fair chance it won't be. Honestly, I don't think anyone should take out loans with the idea that they will get them forgiven. My wife and I owe quite a bit, and if she stops working when we have kids, all that loan payback falls on me. My repayment burden will be extremely high in that "worst case scenario", (have kids, wife stops working and never goes back) but it's doable when I run the numbers. I'm doing IBR while in residency, and as then paying as much additional income as we can towards our highest interest private loans (ironically they're at rates much lower than the federal loans, but then if PSLF sticks around, I'd hate to have spent my money paying off money that could get forgiven...)

Hopefully these forgiveness programs will still be around for you (and me) to benefit from, but no one knows for sure. So borrow as little as you can, and you'll be very thankful for it once you begin repayment. I really wish I could talk to my younger self--I thought I understood the magnitude of how much I was borrowing and how much I'd owe when I started my post-bac and then medical school, but I didn't fully understand until I finished school and started repayment.

What would it be wiser to do, play around with the repayment calculator to figure out the monthly payment amount one needs to make in order to payoff the entire debt within 20 years or make the minimum PAYE monthly payments and place the leftover amount in a saving account, ready for the tax bomb?

To put it in numbers, assume one finishes med school with a debt of 400K and enter a 6-year postgraduate training. After finishing residency, that person's get an attending job that pays 300K. According to PAYE, the amount of monthly repayment amount would be $2250, which barely covers the interests. In order to payoff the entire 400K debt within the remaining 14 years (20 years repayment - 6 years residency), one needs to make a monthly payment of $3720.

So, do you think it is better to pay 3720 a month for 14 years post residency, or pay 2250 and put 1420 in a savings account (will be ~240K after 14 years WITHOUT interests) to take care of the taxes?

 

[deleted498041]

Correct--while you're in school your interest on federal (and most private) loans doesn't capitalize. It capitalizes upon the start of repayment (generally six months after graduation), and then I think it capitalizes quarterly (perhaps yearly) after that while in repayment. If you enter IBR or PAYE, the interest doesn't capitalize again until you leave IBR or PAYE. Which is a huge benefit for those programs if you will be spending a couple years in residency making minimal (IBR/PAYE) payments that don't cover all the interest that accrues.

As far as how much gets taxed, I'm not positive, but I believe that the money forgiven is considered income, so if you have $250,000, assume you'll be paying taxes at the highest tax bracket, probably close to 30% in total. I think you have to pay state and federal taxes, as well as social security and medicare (FICA). I'm not 100% sure though. I read somewhere else on this board that the government takes your assets into consideration. If that's the case, it's probably worth talking to a tax lawyer at some point if you plan to benefit from forgiveness through IBR or PAYE.

Once again, I am not positive about how IBR/PAYE forgiveness gets taxed, because honestly I want my loans paid off within 20 years. I think it's too big a risk to assume those programs will still be around (despite me thinking there's a fair chance they will be). That would just be way too much interest building up over 20 or 25 years, and if the programs did disappear, or the amount forgiven was limited, then I'd really be in the hole.

With all that said, I would only borrow what you need, with the assumption that you'll be paying back every penny yourself. Assume loan forgiveness won't be around, because there's a fair chance it won't be. Honestly, I don't think anyone should take out loans with the idea that they will get them forgiven. My wife and I owe quite a bit, and if she stops working when we have kids, all that loan payback falls on me. My repayment burden will be extremely high in that "worst case scenario", (have kids, wife stops working and never goes back) but it's doable when I run the numbers. I'm doing IBR while in residency, and as then paying as much additional income as we can towards our highest interest private loans (ironically they're at rates much lower than the federal loans, but then if PSLF sticks around, I'd hate to have spent my money paying off money that could get forgiven...)

Hopefully these forgiveness programs will still be around for you (and me) to benefit from, but no one knows for sure. So borrow as little as you can, and you'll be very thankful for it once you begin repayment. I really wish I could talk to my younger self--I thought I understood the magnitude of how much I was borrowing and how much I'd owe when I started my post-bac and then medical school, but I didn't fully understand until I finished school and started repayment.

Thanks for the reply! I thought heavily about the loans when I took them out, and I looked into a lot of repayment plans before I even signed on to go to my school. I don't have any private loans (don't need them) and I don't have any loans from undergrad which helps significantly.
The main concerns I came across were whether or not I should pay off any money now. If I pay within the first 120 days of a disbursement, I can have it apply to the principal, and after that it'll apply to the interest. My confusion was should I pay off the principal? The interest? None of the above? What I'm hoping to do is take out the minimum amount of loans that I need, not get married and not buy a house or have kids for quite awhile and minimize any information that would increase my tax bracket for as long as possible.
Do you think it's too early, as a first year, for me to find and talk to a tax lawyer? I'm trying, like I'm sure most people are, to game the system as much as possible. I'm 20 years old, I have no spousal support, parental help, or funds saved up so everything I'm spending is coming from loans. I pay for as much as I can with a credit card that gives me cashback and rewards that I can use to buy other necessities like food, and I increased my savings account to make that $.01 interest to a couple more pennies. I shop at Costco and try to buy things in bulk and freeze them when I can. I take 10 minute showers. I feel as though a tax lawyer could help me avoid disaster, so to speak.

 

[deleted498041]

What would it be wiser to do, play around with the repayment calculator to figure out the monthly payment amount one needs to make in order to payoff the entire debt within 20 years or make the minimum PAYE monthly payments and place the leftover amount in a saving account, ready for the tax bomb?

To put it in numbers, assume one finishes med school with a debt of 400K and enter a 6-year postgraduate training. After finishing residency, that person's get an attending job that pays 300K. According to PAYE, the amount of monthly repayment amount would be $2250, which barely covers the interests. In order to payoff the entire 400K debt within the remaining 14 years (20 years repayment - 6 years residency), one needs to make a monthly payment of $3720.

So, do you think it is better to pay 3720 a month for 14 years post residency, or pay 2250 and put 1420 in a savings account (will be ~240K after 14 years WITHOUT interests) to take care of the taxes?

That's what I was wondering too. Should I pay the minimum infinitely and set aside almost all my extra money in a savings account for that bomb at the end? I haven't found a definitive answer.

 

[RangerBob]

What would it be wiser to do, play around with the repayment calculator to figure out the monthly payment amount one needs to make in order to payoff the entire debt within 20 years or make the minimum PAYE monthly payments and place the leftover amount in a saving account, ready for the tax bomb?

To put it in numbers, assume one finishes med school with a debt of 400K and enter a 6-year postgraduate training. After finishing residency, that person's get an attending job that pays 300K. According to PAYE, the amount of monthly repayment amount would be $2250, which barely covers the interests. In order to payoff the entire 400K debt within the remaining 14 years (20 years repayment - 6 years residency), one needs to make a monthly payment of $3720.

So, do you think it is better to pay 3720 a month for 14 years post residency, or pay 2250 and put 1420 in a savings account (will be ~240K after 14 years WITHOUT interests) to take care of the taxes?

I'm not sure--I guess part of it would depend on how much of a gambler you are that the forgiveness will be around. I know there was a bill being proposed to get rid of the "tax bomb," so it's also always possible things could actually get better, but given the state of our economy, I don't know how likely that is. I don't trust the government enough to put my faith in loan forgiveness 20 years out because as you point out, you may barely be covering all the interest--so if forgiveness disappears you still have ~400k to repay, and now you're 20 years out of medical school. It's tough because if there were a contract you could sign and you KNEW the forgiveness, in it's current state, would be around, then you could plan for it and the tax bomb, and then your idea would probably be the best way to go. (Note: I do believe IBR and PAYE are written into the master promissory notes of our loans--but I'm not sure if the forgiveness part is, and I think the government might still make changes to the program, limit how much is forgiven, etc. Here's where a tax lawyer could be beneficial at some point)

I'm a much bigger fan of PSLF. The nice thing with it is you will know around 2017/2018 whether it'll be sticking around, since the first people eligible for forgiveness through it will be applying for loan forgiveness in 2017 (right when I will finish residency). So we'll have a good idea if anything will change with it. With a 6 year residency (assuming it's at a non-profit program--there are a number of residencies sponsored by hospitals/academic centers that are for-profit) you'd only need to work another 4 (actually 4.5 taking your grace period into consideration) years in a non-profit/federal agency to get everything forgiven, tax-free. But you could take a salary hit, so you'd have to determine if it'd be worth it. But what I find nice about it is you're now only taking a gamble for 4 years. That's short enough that if you make the minimum payments you don't get totally screwed if the program does go belly-over.

Personally, if I started making 300k right after finishing residency (for PM&R, I'm probably looking at something closer to 180k), I'd pay down the loans as quick as possible. A salary of 300k should leave you with at least 200K after taxes. I would live either like a resident or just slightly better for at least 2-3 years, perhaps paying back 150K the first year (rent a place that year, get to know the local neighborhoods if you're new to the area so you can be a more knowledgeable and "predatory" home buyer), then 100k per year after that. That'd get those loans paid off pretty quickly, and I think 100k after taxes is enough to live very, very comfortably. If you have a working spouse, you could pay even more. My dad, and probably most people's dad's on these boards, always likes to say that 1) it's always easier to be poor while you're young, and 2) you have the most fun while you're young and poor. Granted, I suppose we're not that young at the end of residency. But if you're single when you become an attending, you could even put all but 30k towards your loans and still be "comfortable enough" (and if unexpected expenses come up, you could just pay a little less extra towards your loans). It just depends how much up-front sacrifice you (and your family if you have one) is willing to make.

But that's just my opinion--I want to get rid of my debt ASAP.

 

[RangerBob]

Thanks for the reply! I thought heavily about the loans when I took them out, and I looked into a lot of repayment plans before I even signed on to go to my school. I don't have any private loans (don't need them) and I don't have any loans from undergrad which helps significantly.
The main concerns I came across were whether or not I should pay off any money now. If I pay within the first 120 days of a disbursement, I can have it apply to the principal, and after that it'll apply to the interest. My confusion was should I pay off the principal? The interest? None of the above? What I'm hoping to do is take out the minimum amount of loans that I need, not get married and not buy a house or have kids for quite awhile and minimize any information that would increase my tax bracket for as long as possible.

Do you think it's too early, as a first year, for me to find and talk to a tax lawyer? I'm trying, like I'm sure most people are, to game the system as much as possible. I'm 20 years old, I have no spousal support, parental help, or funds saved up so everything I'm spending is coming from loans. I pay for as much as I can with a credit card that gives me cashback and rewards that I can use to buy other necessities like food, and I increased my savings account to make that $.01 interest to a couple more pennies. I shop at Costco and try to buy things in bulk and freeze them when I can. I take 10 minute showers. I feel as though a tax lawyer could help me avoid disaster, so to speak.

If you have extra money you don't need right now (and it's always nice to have something aside for a rainy day), then I guess it makes more sense to pay down the principle. There's probably little-to-no interest to pay off anyway, but paying off the principle will prevent interest accruing, so that'll save you more money.

I think it's probably too early to start thinking about getting a tax lawyer. I'm sure they're not cheap, so I thought they'd be more beneficial when you finish your residency and start making your full working salary. Then they could help you set up trusts or anything else (like putting assets in your spouse's name and filing taxes separately, etc.) if needed in case the government will look at all your assets when determining how much to tax you during the forgiveness year. Obviously hiring a tax professional to do your taxes when you finish residency could come in really handy too--but I'd hire one who can show you want to do and help you learn to do taxes on your own so you won't need them after a few years.

If you and others on this thread haven't already taken a look, I'd recommend reading through whitecoatinvestor.com. There's a ton of helpful advice there, and is something I always recommend to any medical student I run into. One particularly helpful article on loan forgiveness (specifically PSLF) is http://whitecoatinvestor.com/how-much-can-you-get-forgiven-via-pslf/. The blog should be pretty applicable to vet students as well. Understanding finance better could save us all a lot of money.

 

[deleted498041]

If you have extra money you don't need right now (and it's always nice to have something aside for a rainy day), then I guess it makes more sense to pay down the principle. There's probably little-to-no interest to pay off anyway, but paying off the principle will prevent interest accruing, so that'll save you more money.

I think it's probably too early to start thinking about getting a tax lawyer. I'm sure they're not cheap, so I thought they'd be more beneficial when you finish your residency and start making your full working salary. Then they could help you set up trusts or anything else (like putting assets in your spouse's name and filing taxes separately, etc.) if needed in case the government will look at all your assets when determining how much to tax you during the forgiveness year. Obviously hiring a tax professional to do your taxes when you finish residency could come in really handy too--but I'd hire one who can show you want to do and help you learn to do taxes on your own so you won't need them after a few years.

If you and others on this thread haven't already taken a look, I'd recommend reading through whitecoatinvestor.com. There's a ton of helpful advice there, and is something I always recommend to any medical student I run into. One particularly helpful article on loan forgiveness (specifically PSLF) is http://whitecoatinvestor.com/how-much-can-you-get-forgiven-via-pslf/. The blog should be pretty applicable to vet students as well. Understanding finance better could save us all a lot of money.

Thanks for all your help! Unfortunately for me, personally, PSLF is not an option. If I wanted to go that route, I'd have to track and have a heavier focus in entirely different species than I really want to go into (small animal vs. large animal).
My interest after my first semester was about $1000, give or take some change, and I was under the impression that it capitalized annually, so I was pretty concerned. Since that's not the case, there's a little less cause for worry!

 

[deleted498041]

I see. Thank you for this clarification.

Just saw your signature -- congrats on getting into WesternU! I love this school

 

[Postictal Raiden]

Just saw your signature -- congrats on getting into WesternU! I love this school

Thank you. Perhaps I'll see you there when I start school this upcoming fall.

 

[LaughingMan]

Perretfish made excellent points about loans vs lifetime income. What is the issue here?

You have extensive background in this field--can you elaborate a bit on the issue from your perspective? Would you take out full CoA and play with IBR?


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Also I agree with RangerBob on not trusting the feds 20 years out. Big Bro govt is making a killing off student loan interest and targeting the "rich" doctors/residency wouldn't be an unpopular thing. When big bro gets addicted to that sweet sweet interest cash--I would predict (based off my little knowledge) that they will start playing games with some of these programs.

 

[darkjedi]

You have extensive background in this field--can you elaborate a bit on the issue from your perspective? Would you take out full CoA and play with IBR?

If you can afford IBR, you should definitely do it. You can dismiss a decent chunk of your loans as long as you continue making IBR payments through residency.

From a financial perspective, it still makes sense to take out loans for 200-300k if you are expecting to earn 5-10m over the course of your life. Repayment of 300k worth of loans over 10 years will be a maximum of ~400k. The more years of residency you have, the more of your loans will just be forgiven. If you do something ridiculous like 9 years of residency and fellowship, you could possibly get away with only paying $200k of your total loans. To 'rethink' medschool because of 300k of loans is a ridiculous proposition from a financial standpoint.

 

[DOctorJay]

It isn't if your salary keeps getting whittled down and eventually you're making $100k per year. Luckily I'm not in that situation but I know people who are.

 

[wjs010]

is it a crazy idea that I will be relying on my wife's Physical therapist salary to help us out whenever I'm just out of med school? I'll try to moonlight alot as a resident, but when I become an attending, I plan on slaving away and getting completely rid of my loan debts within a few years...it will probably be 300k. I just see this as a must do.

 

[miss x]

N/a

 

[Zagaza]

IBR + Public loan forgiveness is the ideal way to go once you are done with residency you can pay as much as you like.I actually believe alot of people do IBR contrary to what you have heard.It just makes it easier.