Loan repayment immediately after residency

[NYyanx28]

Has anyone ever heard of paying off all of your medical school loans your three years following residency completion? I was thinking, if you just pretended you were a resident for an extra two or three years (salary wise), you could hypothetically pay off all of your debt incurred the previous 7-8 years. Granted your first few years as a true doctor you would take home crap money, you can save yourself all of the future interest which would have normally accrued due to your delayed payments.

Also, I'm trying to make an excel spreadsheet of all of my finances for medical school. Does anyone know an ideal interest rate that I can just plug in? Obviously there are so many variables, but just a ballpark would be great!

---

Members don't see this ad.

 

[IceMan0824]

Has anyone ever heard of paying off all of your medical school loans your three years following residency completion? I was thinking, if you just pretended you were a resident for an extra two or three years (salary wise), you could hypothetically pay off all of your debt incurred the previous 7-8 years. Granted your first few years as a true doctor you would take home crap money, you can save yourself all of the future interest which would have normally accrued do to your delayed payments.

Also, I'm trying to make an excel spreadsheet of all of my finances for medical school. Does anyone know an ideal interest rate that I can just plug in? Obviously there are so many variables, but just a ballpark would be great!

Interesting.........

 

[alwaysaangel]

Has anyone ever heard of paying off all of your medical school loans your three years following residency completion? I was thinking, if you just pretended you were a resident for an extra two or three years (salary wise), you could hypothetically pay off all of your debt incurred the previous 7-8 years. Granted your first few years as a true doctor you would take home crap money, you can save yourself all of the future interest which would have normally accrued due to your delayed payments.

Also, I'm trying to make an excel spreadsheet of all of my finances for medical school. Does anyone know an ideal interest rate that I can just plug in? Obviously there are so many variables, but just a ballpark would be great!

Yeah, I'm planning on living off my husband during my residency and using my residency paycheck to pay off my loans. I should be able to do it in residency + 1 year of practice

The best interest rate would be 6.8%, thats what federal loans are at. Keep in mind that if you defer all 4 years of med school + residency your interest will be added to the principle quarterly, so take that into account when making your spreadsheet

If you are going to need more than just federal loans, you'll need to make that rate higher - but how much higher depends on your credit history.

This site: http://www.finaid.org/loans/studentloandiscounts.phtml explains loan discounts that you will get from banks at certain marks into repayment (if you're repaying early go with ones that have immediate or early drops in interest (like B of A has 1% at 12 months, and 1% more at 24 months and 36 months)

The rest of that site is pretty good too, it has calculators that can estimate all sorts of repayment plans and interest accumulations.

 

[sirus_virus]

Has anyone ever heard of paying off all of your medical school loans your three years following residency completion? I was thinking, if you just pretended you were a resident for an extra two or three years (salary wise), you could hypothetically pay off all of your debt incurred the previous 7-8 years. Granted your first few years as a true doctor you would take home crap money, you can save yourself all of the future interest which would have normally accrued due to your delayed payments.

Also, I'm trying to make an excel spreadsheet of all of my finances for medical school. Does anyone know an ideal interest rate that I can just plug in? Obviously there are so many variables, but just a ballpark would be great!

Good plan, if you have the money.

 

[NYyanx28]

Yeah, I'm planning on living off my husband during my residency and using my residency paycheck to pay off my loans. I should be able to do it in residency + 1 year of practice

The best interest rate would be 6.8%, thats what federal loans are at. Keep in mind that if you defer all 4 years of med school + residency your interest will be added to the principle quarterly, so take that into account when making your spreadsheet

If you are going to need more than just federal loans, you'll need to make that rate higher - but how much higher depends on your credit history.

This site: http://www.finaid.org/loans/studentloandiscounts.phtml explains loan discounts that you will get from banks at certain marks into repayment (if you're repaying early go with ones that have immediate or early drops in interest (like B of A has 1% at 12 months, and 1% more at 24 months and 36 months)

The rest of that site is pretty good too, it has calculators that can estimate all sorts of repayment plans and interest accumulations.

Wow thanks for the help. Also, this may sound like a stupid question but when you say 6.8% interest... does that mean if I take out a 10,000 loan, that I owe 10,680 after the first year? What do you mean by quarterly?

 

[sirus_virus]

Wow thanks for the help. Also, this may sound like a stupid question but when you say 6.8% interest... does that mean if I take out a 10,000 loan, that I owe 10,680 after the first year? What do you mean by quarterly?

yes

 

[Haemulon]

Interesting.........

 

[alwaysaangel]

Wow thanks for the help. Also, this may sound like a stupid question but when you say 6.8% interest... does that mean if I take out a 10,000 loan, that I owe 10,680 after the first year? What do you mean by quarterly?

I'm not absolutely positive about this but I believe interest is annual (so yes 680 more on 10k after one year). But if you are defering they calculate the interest due every 3 months and add that to your principle balance: which means the next three months they'll be calculating interest on the 10K + the interest they added.

 

[JohnMadden]

Student loan interest in not compounded. They use the simple daily interest accrual method.

If you take a loan out for $10,000, it will accrue $680 in interest each year. However, most people take out their loans by the semester, so you have to account for this. If you take 10,000 in August and another in January, then your total loan balance will be 20,000 and the accrued interest for the first year would be:

10,000 x 6.8% + 10,000 x 6.8 % x (7/12)

The only thing that sucks is the interest will be capitalized when you enter repayment, unless you have a significant amount of cash to pay of the interest. You should NEVER pay interest as you go, because it can only be capitalized before entering repayment. You would do better by putting the money that you would use to pay interest into a money market, or CD until right before capitalization.

That being said, I think it's wonderful that we can borrow from the government at 6.8% interest using simple interest accrual. It's still some of the cheapest money around. You cannot that type of rate in the market.

 

[JohnMadden]

I'm not absolutely positive about this but I believe interest is annual (so yes 680 more on 10k after one year). But if you are defering they calculate the interest due every 3 months and add that to your principle balance: which means the next three months they'll be calculating interest on the 10K + the interest they added.

Angel,

This is a misconception. Please see my comments above. They only calculate interest on the loan principal while you're in school.

 

[alwaysaangel]

Angel,

This is a misconception. Please see my comments above. They only calculate interest on the loan principal while you're in school.

But what do you mean about capilatized when you enter repayment?

Every website I look at says this:

An unsubsidized loan is not awarded on the basis of need. You’ll be charged interest from the time the loan is disbursed until it’s paid in full. If you allow the interest to accrue (accumulate) while you’re in school or during other periods of nonpayment, it will be capitalized—that is, the interest will be added to the principal amount of your loan, and additional interest will be based on that higher amount.

NOTE: If your interest is capitalized, it will increase the amount you have to repay. You can choose to pay the interest as it accumulates; if so, you’ll repay less in the long run.

So thats just saying that the interest will be capitalized once you enter repayment? And not until then?

So we're just adding interest based on the original principle and when I enter repayment only then do they throw all that accumulated interest into my principle?

 

[Sol Rosenberg]

Wow thanks for the help. Also, this may sound like a stupid question but when you say 6.8% interest... does that mean if I take out a 10,000 loan, that I owe 10,680 after the first year? What do you mean by quarterly?

Quarterly means that even though the interest rate is 6.8% per year, it is COMPOUNDED quarterly, resulting in an higher effective annual interest rate (because of interest being compounded on interest.) That is, every quarter, 6.8%/4 of interest is added to your account. So, your balance = Original Principal * (1+(0.068/4))^(4*Y) where Y = number of years.

For example, on a 1,000 loan, the balance during the 1st year:

After 0 quarters: $1000
After 1 quarter: $1017 = 1000*(1+(.068/4))
After 2 quarters: $1034 = 1000*(1+(.068/4))^2
After 3 quarters: $1052 = 1000*(1+(.068/4))^3
After 4 quarters: $1070 = 1000*(1+(.068/4))^4

Note that $1070 > $1068 (what you would be paying if the interest were compounded yearly)

The PMT function in Excel will be your friend when playing around with how much you need to pay to pay off a loan in a given period of time.

EDIT: I was just answering your question about what compounded meant. I see someone else posted saying that student loan interest is not compounded, but capitalized once instead. I'm not terribly familiar with this yet, so I'll defer to more knowledgeable people about this.

 

[lilnoelle]

The only thing that sucks is the interest will be capitalized when you enter repayment, unless you have a significant amount of cash to pay of the interest. You should NEVER pay interest as you go, because it can only be capitalized before entering repayment. You would do better by putting the money that you would use to pay interest into a money market, or CD until right before capitalization.

This is the first I've heard of this. Where did you get this information?

 

[Ross434]

This is the first I've heard of this. Where did you get this information?

Who are you to question John Madden!?

 

[KaraKiz]

To the OP:

I used to work in an ER and a doctor gave me this advice:

"Dont do what Dr. X (mutual colleague) did and live like a pauper so you can pay off your debt in 3 or 4 years. His wife always resented him for it. Now he's divorced. I'm not saying thats why, but just take your time, live comfortably, and take a few extra years to pay it off. Its not that important in the long run. You make a lot of money as a doctor, and a few extra years of low-rate interest isnt worth living 3 years like that for."

Then again, Dr. X's wife was not employed, unlike alwaysangels case, where she can pay off her debt with her paycheck and have her husband cover living expenses. (BTW - sounds like a very sweet deal)

It can be done. You just have to decide what's important to you and to your SO/kids if that's the case.

 

[JohnMadden]

Capitalization is when they add all the accumulated interest to the principal. They take this new "principle" and determine what your monthly payments will be.

Simple example:
You take out 10,000 in loans each August for 4 years.

You will accumulate this much interest at the end of each year
Year 1 = 680
Year 2 = 680 x 2
Year 3 = 680 x 3
Year 4 = 680 x 4
Total = 6800

If you have 6800 lying around, you can pay that amount before repayment starts, and you AVOID capitalization. However, most people have thiis amount capitalized, ie added to the principle. Therefore the new loan has a principle of 46,800 (40,000 + 6800). They use this amount along with a repayment period to determine your monthly payment.

If you avoid capitalization, your monthly payment would be $305 per month, assuming the same interest rate (6.8%) and a 20 year repayment period.

If you capitalize the interest, your monthly payment would be $357 per month for 20 years.

 

[alwaysaangel]

Then again, Dr. X's wife was not employed, unlike alwaysangels case, where she can pay off her debt with her paycheck and have her husband cover living expenses. (BTW - sounds like a very sweet deal)

Yeah, gotta <3 him. The first time I mentioned the idea he totally jumped on board. Granted, we'll see how we feel in 4 years, and if there are any surprises along the way it might change. But we are both very nervous about debt and try to get rid of it.

 

[lilnoelle]

To the OP:

I used to work in an ER and a doctor gave me this advice:

"Dont do what Dr. X (mutual colleague) did and live like a pauper so you can pay off your debt in 3 or 4 years. His wife always resented him for it. Now he's divorced. I'm not saying thats why, but just take your time, live comfortably, and take a few extra years to pay it off. Its not that important in the long run. You make a lot of money as a doctor, and a few extra years of low-rate interest isnt worth living 3 years like that for."

Then again, Dr. X's wife was not employed, unlike alwaysangels case, where she can pay off her debt with her paycheck and have her husband cover living expenses. (BTW - sounds like a very sweet deal)

It can be done. You just have to decide what's important to you and to your SO/kids if that's the case.

I think Dr. X's wife is ridiculous. Just a personal opinion. I don't plan on living like a pauper, but I also don't plan to live better than I do right now right after residency. I plan on staying in the same house, same car, etc for as long as I can stand it, pay off as much loans as possible, and THEN move up. Just because I have an MD after my name doesn't mean I have to have an expensive car, house, etc.

edit: obviously I don't know what Dr X and his wife's situation was... he could have been counting the change in her purse or getting mad at her when she bought groceries,etc, which would likely cause resentment, but if it was just a matter of her resenting him because they had to wait 5-10 years to have a BMW and to live in the suburbs with a big screen plasma TV and a home theatre in the basement, then I think she's ridiculous.

 

[Towelie]

If you have kids, this plan would be impossible. Given that you're married--do you really want to wait that long to have kids?

 

[KaraKiz]

If you have kids, this plan would be impossible. Given that you're married--do you really want to wait that long to have kids?

Im planning on having kids by then. I'll probably try to pay off as much as I can (i.e. at least a little more than the minimum payments). I can't believe I will still have u-grad loans to pay off then too... ugh...

 

[lilnoelle]

If you have kids, this plan would be impossible. Given that you're married--do you really want to wait that long to have kids?

Depends on how much money the hubby makes... I have kids and though I don't plan on paying off my loans during residency (hopefully I won't have to defer on them) I do plan on paying them off as soon as possible afterwards. Now, as mentioned earlier, I don't plan on living as a pauper. I'll live comfortably.... but I think people's definitions of living comfortably differ. I live comfortably now. I should be able to maintain my current living status when I'm out of residency and pay most of my loans off in something like 5 years. At that point, I may decide to "move up" and pay the rest off at a slower rate, but I want to get as much out of the way as fast as possible so I don't acquire as much interest.

 

[Cirrus83]

It'll depend on how the financial situation is in the US when we start working. If you can beat your interest in some sort of investment vehicle (after figuring out taxes) it wouldn't be such a big deal to keep your loans for a long time. You have to also consider that the interest on student loans may be deductible, so there'd be a lot of factors to consider.

Anyways, I wouldn't stress about it now lol.

Obviously holding all your loans might not appeal to the more risk averse people though, and trying to beat 6.8% is fairly hard (after taxes, although I suppose the tax deductibility of the interest might help make it easier). But still, too many factors to just make a clear recommendation now.

Oh, and seriously, it really wouldn't be a huge deal to live a little nicer and just pay off the loans slowly. Not saying that you should run out and buy a ferrari or anything, but it wouldn't really matter in the long run even if you bought some car instead of paying off your loans more quickly.

 

[lilnoelle]

Oh, and seriously, it really wouldn't be a huge deal to live a little nicer and just pay off the loans slowly. Not saying that you should run out and buy a ferrari or anything, but it wouldn't really matter in the long run even if you bought some car instead of paying off your loans more quickly.

Yeah, I think it depends on how you handle it. I.e. I get out of residency and am making ~$200K as an anesthesiologist (taking some liberty here, obviously). If I want, I can buy quite a few things for cash that would make life more fun. I could put in new windows in my house for instance and put in wood floors. I can buy a nice TV and some new furniture (provided I buy my type of furniture vs what is found in hollywood penthouses.) I can do all of this with cash, it will be paid off, and will take a certain amount out of what I can use to pay off my loans.... for that month. But the temptation is to go nuts and buy a bunch of things and put them on payment plans that have to be figured into your monthly living expenses. I.e. two nice cars (one for me, one for hubby), a truck, a nice house, plus the furniture, etc. In that situation, I'm gonna have a hard time paying extra on my loans where in the first scenerio, instead of putting $70K into my student loans that year, I'll put in $50K.

 

[IceMan0824]

I was going to say something, but I got enough 'foot in mouth' disease today.

Better to let the wise ones speaks

I also didn't know that John Madden looked a lot like Reggie Bush.

 

[JohnMadden]

Reggie is going to be the cover athlete in the near future...

 

[Jejton]

The only thing that sucks is the interest will be capitalized when you enter repayment, unless you have a significant amount of cash to pay of the interest. You should NEVER pay interest as you go, because it can only be capitalized before entering repayment. You would do better by putting the money that you would use to pay interest into a money market, or CD until right before capitalization.

Can you explain this furhter? What does it mean for interest to be capitalized?

 

[dpmd]

The interest that accrues on your loans while in school get added to your principal on the date your grace period ends. If you plan to pay all or some of it before this happens, be careful. Your grace period end date is not the same as your first loan payment due date. If you wait too long you can miss it. Another thing to be careful of if you happen to be making extra payments towards principal, make sure they are being applied correctly. I made extra payments that I had meant to be applied to the principal of my unsubsidized loans, that way I could still benefit from any deferment periods that might come up in the future (this was before and during med school). I didn't check and they ended up applying them to both. I ended up paying several hundred dollars extra in interest because of this, and because I didn't notice it until after I had consolidated some of my loans (the lower interest rate ones-I had calculated it would work out best to separate out my low interest vs high interest loans) they said "too bad". I agree that if you have some extra money you would like to put towards interest you should keep it in an interest bearing account, then pay it off right before it gets capitalized. Has anyone done the calculations to see what you should do if you have not only enough for interest, but for some of the principal? I paid off some of my principal (in addition to the interest) early because I figured then it would accumulate less interest, but I didn't really sit down and calculate it. Of course, if you have no income during school or before med school I guess it wouldn't matter.

 

[BuckerPark]

So these ideas are all great...but predicated on the certainty that nobody will do a fellowship after residency? Sure...fellows make more than residents, but I don't think it's the "cash cow" being an attending is. Tack on a few more years to that plan if you intend to go a little further after residency.

 

[notdeadyet]

"Dont do what Dr. X (mutual colleague) did and live like a pauper so you can pay off your debt in 3 or 4 years. His wife always resented him for it. Now he's divorced. I'm not saying thats why, but just take your time, live comfortably, and take a few extra years to pay it off. Its not that important in the long run. You make a lot of money as a doctor, and a few extra years of low-rate interest isnt worth living 3 years like that for."

Good advice. The real irony is that by working so hard, ex-Mrs. X now can get half his paycheck but has no debt she's responsible for. Score!

Sorry. Long day at the office...

 

[alwaysaangel]

So these ideas are all great...but predicated on the certainty that nobody will do a fellowship after residency? Sure...fellows make more than residents, but I don't think it's the "cash cow" being an attending is. Tack on a few more years to that plan if you intend to go a little further after residency.

Yeah I have no intention of doing a fellowship. I prefer doing something fairly general and varied and I've already been in school long enough.

While I am realistic about how my choices for specialty will change in med school I cannot imagine anything that would make me suddenly decide to do a fellowship.

Yuck.

 

[45408]

mmmm, I can't wait until I get to pay off these loans

 

[dannylee718]

Reggie is going to be the cover athlete in the near future...

lets hope he doesn't get hurt doing another somersault into the end zone.

 

[DoctorPardi]

Moved to the Financial Aid forum

 

[Polypeptide]

Has anyone ever heard of paying off all of your medical school loans your three years following residency completion? I was thinking, if you just pretended you were a resident for an extra two or three years (salary wise), you could hypothetically pay off all of your debt incurred the previous 7-8 years. Granted your first few years as a true doctor you would take home crap money, you can save yourself all of the future interest which would have normally accrued due to your delayed payments.

Also, I'm trying to make an excel spreadsheet of all of my finances for medical school. Does anyone know an ideal interest rate that I can just plug in? Obviously there are so many variables, but just a ballpark would be great!

That's my plan too! I can live like a poor student/resident for a few extra years in order to save huge amounts of interest $$.

 

[Miami_med]

If you have kids, this plan would be impossible. Given that you're married--do you really want to wait that long to have kids?

I don't know, I have kids and this is exactly my plan. The average family of 4.2 (I love averages) survives on $46k/year. Living on $50k as an attending for a couple of years and sticking an extra $50-100k (depends on actual attending income obviously) to the loans should be totally realistic and doable.

 

[alwaysaangel]

I don't know, I have kids and this is exactly my plan. The average family of 4.2 (I love averages) survives on $46k/year. Living on $50k as an attending for a couple of years and sticking an extra $50-100k (depends on actual attending income obviously) to the loans should be totally realistic and doable.

Definitely true! Living on 46k/year for a couple years would be completely doable even with kids. It might not be fun. But you won't be anywhere near starving.