Paying back Loans as a Surgeon

[45408]

Also, deferring your student loans due to financial hardship will not touch your credit score because you'll still be "current." Not paying your mortgage would ruin your ability to get your life back together (you need good credit for most everything).

Once you're an attending, you can defer on your loans if you lose your job? This is news to me.

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[dpmd]

There is an unemployment deferment, but it requires that you are unable to get a job in any field at any wage, so I think it would be a hard sell to try to apply as a physician. The economic hardship deferment only applies if you work full time and still don't make much. Also unlikely for a physician.

You would probably be able to forbear though, and that would still keep your credit from being torched.

 

[ACSurgeon]

Once you're an attending, you can defer on your loans if you lose your job? This is news to me.

There is an unemployment deferment, but it requires that you are unable to get a job in any field at any wage, so I think it would be a hard sell to try to apply as a physician. The economic hardship deferment only applies if you work full time and still don't make much. Also unlikely for a physician.

You would probably be able to forbear though, and that would still keep your credit from being torched.

That's what I meant. I also assumed TheProwler meant for some reason you couldn't work as a physician, and your finances were going to hell.

 

[dr.evil]

Interest rate on my student loans is 2.5%. Mortgage is 5.75%. Mortgage goes first. I'll take my chances to get rid of the higher interest rates first. I'll pray that I hang on to my job for the next 4 years. If I die, my student loans go away, my mortgage doesn't. I'll leave my family debt free. That's a good plan for me.

 

[ACSurgeon]

Interest rate on my student loans is 2.5%. Mortgage is 5.75%. Mortgage goes first. I'll take my chances to get rid of the higher interest rates first. I'll pray that I hang on to my job for the next 4 years. If I die, my student loans go away, my mortgage doesn't. I'll leave my family debt free. That's a good plan for me.

It's funny how we all have our worst case scenarios...

 

[45408]

Thanks for the update. Postponing capitalization until the last change in status (going into repayment when you finish) is an important detail.

Final update (for this year anyway): I called my loan servicer and extended my forbearance for a year. Even though I didn't do the initial forbearance until October 2010, which was shortly before my grace period expired, and it was supposed to be for a year, they somehow set it up to expire at the end of June 2011.

Either way, I renewed the forbearance prior to its expiration, and the interest will not capitalize at this time. When my loan enters repayment (by not renewing the forbearance, either accidentally or at the end of training), the interest will all capitalize then. However, by delaying capitalization until the end of residency, it won't have been compounded during these five years. My rough math shows that this is around a $15,000 difference!

Don't forget to renew your forbearance! Your lender may be different, so read carefully.

 

[treehorsio]

Want to let the PGY1-2s at academic programs know about a great opportunity I was lucky enough to be able to take advantage of: the NIH Loan Repayment Program. If you can commit to spending two years doing full-time clinical research (i.e. perfectly suited to programs with 2 years required research, best if after PGY3 for this program), they'll give you $35,000 loan repayment each year! So I'm $70,000 LESS in the hole. You can debate about, yes, but you delay getting a salary for two years, blah blah, but the point isn't that you should do this in order to get rid of your loans...you should do this if you have ALREADY decided to do research. FYI, it's not limited to residents.

 

[Guile]

I made my first payment in February I think. I did a month of non-capitalizing forbearance while they got my second IBR application processed (it was a one-time courtesy they will provide if you ask for it if you are doing multiple consolidations). When I was getting IBR set up in ?October? or so, I provided them with an estimate of my 2010 income which amounted to half my intern salary. The key is to provided them with the alternative statement of income option. Initially they tried to do my payment based on my intern year income but since its only 2010 that they base the payment on that is the wrong calculation.

Yes, it will definitely go up next year (I'll let you know what my new payment is when I know). But still, by my calculations (or rather those shown to me with trackable math by the company I used to go through the consolidation process), I'll save a little over $3k in 2011 doing IBR rather than forebearance when you consider federal interest subsidies and my measely $50/month payment.

Do you remember how you completed your original consolidation application? I'm in the middle of it now, and it asks for your current income. Well I didn't want to get hit with the full IBR payment, and I just started residency so I haven't even gotten a full paycheck yet, so I put in last year's income information (not much since I was in school). I was told the payment will be calculated on the previous year's tax return anyway and would be reassessed every year (so starting in January it will be 2011 income, half of intern salary, etc).

 

[LucidSplash]

Do you remember how you completed your original consolidation application? I'm in the middle of it now, and it asks for your current income. Well I didn't want to get hit with the full IBR payment, and I just started residency so I haven't even gotten a full paycheck yet, so I put in last year's income information (not much since I was in school). I was told the payment will be calculated on the previous year's tax return anyway and would be reassessed every year (so starting in January it will be 2011 income, half of intern salary, etc).

I sent in a separate letter that stated my "Adjusted Gross Income Estimate." The company I used to help me do this provided the template and I just filled it out and sent it in. Be wary, as I had to argue with the loan people a bit to get them to accept this but it IS an allowed way to state your income the first year (rather than providing the pay stubs, etc). The rejected the letter the first time because it did not include my current employer's info and I had to resubmit it. I think in the end I faxed it in to some number provided on the original paperwork and I had to fax it in more than once because they lost it/didn't get it the first time. Basically, be diligent and follow up. I made up an SDN friendly version of the letter and attached it here as a word document. See how this works for you.

 

[Guile]

I sent in a separate letter that stated my "Adjusted Gross Income Estimate." The company I used to help me do this provided the template and I just filled it out and sent it in. Be wary, as I had to argue with the loan people a bit to get them to accept this but it IS an allowed way to state your income the first year (rather than providing the pay stubs, etc). The rejected the letter the first time because it did not include my current employer's info and I had to resubmit it. I think in the end I faxed it in to some number provided on the original paperwork and I had to fax it in more than once because they lost it/didn't get it the first time. Basically, be diligent and follow up. I made up an SDN friendly version of the letter and attached it here as a word document. See how this works for you.

Thanks a lot. You completed yours in February right? I'm trying to figure out how they calculate your payment because I was under the impression that it would be based on 2010 tax year income which would have been minimal for me, and I completed the online application as such but when you print out the paperwork at the end that you have to mail in it definitely says "current" income. Well if I give them my current income will they extrapolate that to an IBR based on my current annual income? How often is the IBR amount updated? What's the process? There's not much info on this on the website. Also, a lot of residents haven't even gotten their first paycheck yet so many filling out this paperwork might not even know their current income (after tax) and could put 0 as their income.

Anyone else fill out the consolidation paperwork as an intern? How did you handle it?

 

[LucidSplash]

Thanks a lot. You completed yours in February right? I'm trying to figure out how they calculate your payment because I was under the impression that it would be based on 2010 tax year income which would have been minimal for me, and I completed the online application as such but when you print out the paperwork at the end that you have to mail in it definitely says "current" income. Well if I give them my current income will they extrapolate that to an IBR based on my current annual income? How often is the IBR amount updated? What's the process? There's not much info on this on the website. Also, a lot of residents haven't even gotten their first paycheck yet so many filling out this paperwork might not even know their current income (after tax) and could put 0 as their income.

Anyone else fill out the consolidation paperwork as an intern? How did you handle it?

This particular part was done way before February - I filed all the paperwork during 2010. I made my first payment in February 2011. How do they calculate it? Hell if I know. But I used that template and used my 2010 resident salary (income for 2010); MY AGI was somewhere around 20k. My payment is ~$50/month right now and I have yet to be asked to send in my tax returns from last year to update the payment amount. The company I used to do the leg work (and to conference in on the many phone calls it took to get Direct Loans to do everything right) told me NOT to send in my residency paystub and to use the template instead because otherwise they would calculate my payment based on my intern year income rather than my 2010 income. They were right, as they tried to do this before acknowledging that the template was a separate and acceptable way to do it.

As far as not receiving your first paycheck yet, you should know your "intern year salary" and can calculate your 2010 income from that (ie 50%). You don't need to know the "after tax" amount because the calculations are based on your GROSS income.

 

[Guile]

This particular part was done way before February - I filed all the paperwork during 2010. I made my first payment in February 2011. How do they calculate it? Hell if I know. But I used that template and used my 2010 resident salary (income for 2010); MY AGI was somewhere around 20k. My payment is ~$50/month right now and I have yet to be asked to send in my tax returns from last year to update the payment amount. The company I used to do the leg work (and to conference in on the many phone calls it took to get Direct Loans to do everything right) told me NOT to send in my residency paystub and to use the template instead because otherwise they would calculate my payment based on my intern year income rather than my 2010 income. They were right, as they tried to do this before acknowledging that the template was a separate and acceptable way to do it.

As far as not receiving your first paycheck yet, you should know your "intern year salary" and can calculate your 2010 income from that (ie 50%). You don't need to know the "after tax" amount because the calculations are based on your GROSS income.

Thanks again for that template. I think I'll use that for the AGI to get a lower payment based on half of my resident salary. I hope I don't have to go back and forth too many times with them since they say they want "proof" of income. Rather avoid that if I can.

I think the reason you haven't had a change in payment is because you just started in February. We have to sign a release form so they can get our tax returns from the IRS. You'll probably have an updated payment in early 2012.

 

[mtwop]

I'm currently a 2nd yr student considering this program. So here is my story...I plan on going into a general surgery residency with fellowship (yes I know that many things can change but let's just go with it). Theoretically, if I maximized my loans and saved every penny that I could to save about 12K per year during school, couldn't I just use this saved money to pay back my IBR payments each month throughout residency (about 500 per month based on IBR calculator)? This would mean that I would actually only start paying any money back until after 5 years of residency, and would only pay 5 years total due to the loan forgiveness after 120 consecutive payments. Sorry for the long post, but I learned a great deal from reading the above posts and links. Thanks for taking the time if you are still reading!

 

[Guile]

I'm currently a 2nd yr student considering this program. So here is my story...I plan on going into a general surgery residency with fellowship (yes I know that many things can change but let's just go with it). Theoretically, if I maximized my loans and saved every penny that I could to save about 12K per year during school, couldn't I just use this saved money to pay back my IBR payments each month throughout residency (about 500 per month based on IBR calculator)? This would mean that I would actually only start paying any money back until after 5 years of residency, and would only pay 5 years total due to the loan forgiveness after 120 consecutive payments. Sorry for the long post, but I learned a great deal from reading the above posts and links. Thanks for taking the time if you are still reading!

Let's say that you don't do loan forgiveness because you want to do private practice or the program disappears. Now you're out quite a bit of money on interest on that loan. I don't recommend it. That's a lot more in loans.

 

[DoctwoB]

Let's say that you don't do loan forgiveness because you want to do private practice or the program disappears. Now you're out quite a bit of money on interest on that loan. I don't recommend it. That's a lot more in loans.

Well after 5-7 years of gensurg and 2 years of fellowship, he could be as little as 1 year away from complete loan discharge. If he works at a non-profit hospital for 1 year after that, then he's loan free.

My worry is that IBR is a new program that no-one has successfully completed yet. It's entirely possible that it will get the axe before we can get our loans discharged, in which case you will have been making small payments and the principal will get much larger during residency.

 

[LucidSplash]

Well after 5-7 years of gensurg and 2 years of fellowship, he could be as little as 1 year away from complete loan discharge. If he works at a non-profit hospital for 1 year after that, then he's loan free.

My worry is that IBR is a new program that no-one has successfully completed yet. It's entirely possible that it will get the axe before we can get our loans discharged, in which case you will have been making small payments and the principal will get much larger during residency.

Well, if you want to make bigger payments and have the financial resources to do so, then by all means make bigger payments; even while in IBR, there's nothing that says you can't make extra or larger payments. The whole point is that few residents can actually afford to make their actual loan payments while in residency.

 

[LucidSplash]

I'm currently a 2nd yr student considering this program. So here is my story...I plan on going into a general surgery residency with fellowship (yes I know that many things can change but let's just go with it). Theoretically, if I maximized my loans and saved every penny that I could to save about 12K per year during school, couldn't I just use this saved money to pay back my IBR payments each month throughout residency (about 500 per month based on IBR calculator)? This would mean that I would actually only start paying any money back until after 5 years of residency, and would only pay 5 years total due to the loan forgiveness after 120 consecutive payments. Sorry for the long post, but I learned a great deal from reading the above posts and links. Thanks for taking the time if you are still reading!

I guess I'm a little confused about what this would accomplish. Maxing your loans and saving that 12k is still gives you loans that are accruing interest during medical school. Really, if you can live without that 12k, you're better off just not taking out that amount in unsub loans. Unless you have a working spouse, it unlikely your IBR payment will be $500/month for the first few years at least. Mine is ~$50/month right now.

 

[mtwop]

So if I took out the maximum amount of loans and saved 12K per year in a savings account, I would have about 50K that I could use to start paying the loans back using IBR. The whole point of this would be that IBR is based on income, and not on the amount of loans that you have. So even if I had a million dollars in loans, my loan payment would still be the same, so it makes sense to take out as much loan money as possible and save it/put it towards the loan payments during my first year of residency. This maximizes the amount that would be forgiven, while also maximizing the amount in my pocket. Does this make more sense now?

 

[Guile]

So if I took out the maximum amount of loans and saved 12K per year in a savings account, I would have about 50K that I could use to start paying the loans back using IBR. The whole point of this would be that IBR is based on income, and not on the amount of loans that you have. So even if I had a million dollars in loans, my loan payment would still be the same, so it makes sense to take out as much loan money as possible and save it/put it towards the loan payments during my first year of residency. This maximizes the amount that would be forgiven, while also maximizing the amount in my pocket. Does this make more sense now?

Well after 5-7 years of gensurg and 2 years of fellowship, he could be as little as 1 year away from complete loan discharge. If he works at a non-profit hospital for 1 year after that, then he's loan free.

My worry is that IBR is a new program that no-one has successfully completed yet. It's entirely possible that it will get the axe before we can get our loans discharged, in which case you will have been making small payments and the principal will get much larger during residency.

My understanding of this plan is that it is a calculated risk. Yes, you'll be more in debt and will earn more interest on that debt, but if all goes through with the plan, you will pay virtually nothing for your medical school education. And you can also keep the interest the money accrues while you wait to pay it off. (Because with your plan, the least you pay off the better.)

The only problem is if the program goes away. It could easily get cut, because the first people eligible won't be around for 8 years. So it could get cut before anyone gets paid, or it could also get cut after the first one or two groups gets paid and it's way more expensive that they had calculated (like all government programs). That cut would be right before those of us going into practice would be eligible. Yay.

One thing to bear in mind: don't ever plan to go into this program with the goal of getting paid. For just about everyone's debt they will make well more their first year out in private practice versus academics that they could write a check and pay off the balance and still afford a brand new BMW, and still yet make more than the academician. Only do it because you love the game.

 

[mtwop]

My understanding of this plan is that it is a calculated risk. Yes, you'll be more in debt and will earn more interest on that debt, but if all goes through with the plan, you will pay virtually nothing for your medical school education. And you can also keep the interest the money accrues while you wait to pay it off. (Because with your plan, the least you pay off the better.)

The only problem is if the program goes away. It could easily get cut, because the first people eligible won't be around for 8 years. So it could get cut before anyone gets paid, or it could also get cut after the first one or two groups gets paid and it's way more expensive that they had calculated (like all government programs). That cut would be right before those of us going into practice would be eligible. Yay.

One thing to bear in mind: don't ever plan to go into this program with the goal of getting paid. For just about everyone's debt they will make well more their first year out in private practice versus academics that they could write a check and pay off the balance and still afford a brand new BMW, and still yet make more than the academician. Only do it because you love the game.

Exactly, it is a huge risk but I feel that the possible benefit is worth it. I will be coming out of school with just under 300K in debt even if I didn't take out the extra money. If I paid it off in 10 years using the standard repayment method I would pay more than 500 K (principal plus the interest during the entire loan period). However, with this program I would pay under 200 K (based off of 10% of my predicted pay for those 10 years). Also, a large amount of hospitals that are not University or Academic hospitals fall under the 501 category as being non-profit and will be eligible for me to practice at during those years post residency. I can't imagine it would be legal for somebody to invest this loan money (even if it were something guaranteed like a CD), but does anyone know for sure about this? This way, even if the program did get cut, I would minimize the interest I would have to pay back on the extra money I've taken out. I appreciate all the advice and discussion. Thanks

 

[desice]

Exactly, it is a huge risk but I feel that the possible benefit is worth it. I will be coming out of school with just under 300K in debt even if I didn't take out the extra money. If I paid it off in 10 years using the standard repayment method I would pay more than 500 K (principal plus the interest during the entire loan period). However, with this program I would pay under 200 K (based off of 10% of my predicted pay for those 10 years). Also, a large amount of hospitals that are not University or Academic hospitals fall under the 501 category as being non-profit and will be eligible for me to practice at during those years post residency. I can't imagine it would be legal for somebody to invest this loan money (even if it were something guaranteed like a CD), but does anyone know for sure about this? This way, even if the program did get cut, I would minimize the interest I would have to pay back on the extra money I've taken out. I appreciate all the advice and discussion. Thanks

sorry if i sound misinformed. i'm still trying to learn all the different methods of paying back loans.

i understand how the 9 years of training + 1 year in academics theoretically will put you in PSLF after 10 years of IBR payments. but what if (for example) you do 5 years of training + 5 years in academics? you could technically still qualify for PSLF after 10 total years, but you would be paying a lot more in those last 5 years. would you end up paying off your loans before the 10 years anyway? in which case it wasn't really worth it to go into IBR and PSLF?

 

[Guile]

Exactly, it is a huge risk but I feel that the possible benefit is worth it. I will be coming out of school with just under 300K in debt even if I didn't take out the extra money. If I paid it off in 10 years using the standard repayment method I would pay more than 500 K (principal plus the interest during the entire loan period). However, with this program I would pay under 200 K (based off of 10% of my predicted pay for those 10 years). Also, a large amount of hospitals that are not University or Academic hospitals fall under the 501 category as being non-profit and will be eligible for me to practice at during those years post residency. I can't imagine it would be legal for somebody to invest this loan money (even if it were something guaranteed like a CD), but does anyone know for sure about this? This way, even if the program did get cut, I would minimize the interest I would have to pay back on the extra money I've taken out. I appreciate all the advice and discussion. Thanks

Yes, it's legal to invest the loan money. What you do with it once you get it is up to you.

Are you sure about that 10% figure? I think it has to do with how much of your income is above the poverty line. At a certain point you just go into standard repayment, even though you are in IBR, because your income is so high.

Good luck. I still think it is very risky but I think legally there is no reason you can't, but morally I think it's questionable.

 

[Guile]

sorry if i sound misinformed. i'm still trying to learn all the different methods of paying back loans.

i understand how the 9 years of training + 1 year in academics theoretically will put you in PSLF after 10 years of IBR payments. but what if (for example) you do 5 years of training + 5 years in academics? you could technically still qualify for PSLF after 10 total years, but you would be paying a lot more in those last 5 years. would you end up paying off your loans before the 10 years anyway? in which case it wasn't really worth it to go into IBR and PSLF?

Unless you don't have much in loans, you're not going to pay off your loans in 5 years of full repayment. The highest your IBR can go up to is standard repayment which is a 10 year amortization. So unless you made extra payments then it's impossible to pay it off in less than 5 years. Also, there's no such thing as "worth it" with IBR. Any payments you make on your loans are a good investment. Any payment is better than no payment.

 

[mtwop]

sorry if i sound misinformed. i'm still trying to learn all the different methods of paying back loans.

i understand how the 9 years of training + 1 year in academics theoretically will put you in PSLF after 10 years of IBR payments. but what if (for example) you do 5 years of training + 5 years in academics? you could technically still qualify for PSLF after 10 total years, but you would be paying a lot more in those last 5 years. would you end up paying off your loans before the 10 years anyway? in which case it wasn't really worth it to go into IBR and PSLF?

I understand that it would be more if I went directly to private practice. It would be 10% of my income for 5 years. Let's say I made 250K on average during those 5 years. This would put me at about 250K in total repayment for those 5 years plus the payments made during residency (call it a total of 25K), and then I would then subtract the 50K I had already borrowed before, which would put me at 225K total in repayment. This is still less than half of what it would cost me to repay my loans in 10 years if I paid the entire principal plus interest.

 

[LucidSplash]

I understand that it would be more if I went directly to private practice. It would be 10% of my income for 5 years. Let's say I made 250K on average during those 5 years. This would put me at about 250K in total repayment for those 5 years plus the payments made during residency (call it a total of 25K), and then I would then subtract the 50K I had already borrowed before, which would put me at 225K total in repayment. This is still less than half of what it would cost me to repay my loans in 10 years if I paid the entire principal plus interest.

I'm still confused on what you're attempting to accomplish here. Are you saying that you'd get the PSLF if you went right into PP? If so, that's not true. Additionally, just going to point out that, after taxes, your "250k" is going to be closer to 165k net. Have to figure in the 33% tax bracket you'll be in. So if you still want to do 10% of your gross, you're actually going to be handing over 15% of your net income. And we're still using pretty generous numbers here.

I guess my point is you can make the numbers work however you want in some respects. But you're gambling that a)you're going to get enough in loans to sock that lump sum away/invest it, b)you're going to be able to live on the rest (you've previously quote a pretty high expected loan burden suggesting you will be attending a private med school so you're likely to need to take out grad plus and possibly even private loans just to meet tuition requirements), c)you go into surgery and not another field, d)this whole program is still around at that time, and e)with the uncertainty in medicine at the moment that your starting salary will gross 250k.

Are you a 2nd year or a pre-med? If the former, as stated, might want to update your status (as people do take note and respond to you accordingly). Regardless, I think you should think carefully about the gamble you're suggesting here; you might be biting off more than your eventual income can chew.

 

[mtwop]

Yes, 2nd year med student here. I guess maybe I'm not being specific enough. My school is expensive. I'm taking out about 75K per year, and about 30K is through grad plus loans (7.9% interest). If I do IBR for 10 years at a qualifying non-profit hospital regardless of what my pay is, the rest of the loans are forgiven. This means that it actually protects me from health care reform if I make less money than stated above. If I make more, then I actually pay more into the system. Make sense? This program would not be a good idea if a student did not have that much in loans to pay off, but as stated above, I will have over 300K just by the time I graduate and over 20K that the initial principal of 300K will accrue per year. Even if I paid 20K/year during residency (very very unlikely) then I will just be treadmilling and not making any progress towards the principal. With this program, my debt will be much larger than if I paid it back ASAP, but that's the whole point, it maximizes the amount that will be forgiven after the 120 payments are over. I hope I cleared a few things up. Thanks again for the help!

 

[desice]

Yes, 2nd year med student here. I guess maybe I'm not being specific enough. My school is expensive. I'm taking out about 75K per year, and about 30K is through grad plus loans (7.9% interest). If I do IBR for 10 years at a qualifying non-profit hospital regardless of what my pay is, the rest of the loans are forgiven. This means that it actually protects me from health care reform if I make less money than stated above. If I make more, then I actually pay more into the system. Make sense? This program would not be a good idea if a student did not have that much in loans to pay off, but as stated above, I will have over 300K just by the time I graduate and over 20K that the initial principal of 300K will accrue per year. Even if I paid 20K/year during residency (very very unlikely) then I will just be treadmilling and not making any progress towards the principal. With this program, my debt will be much larger than if I paid it back ASAP, but that's the whole point, it maximizes the amount that will be forgiven after the 120 payments are over. I hope I cleared a few things up. Thanks again for the help!

thanks for the info. your post is pretty clear and it actually makes sense that you would be protected if healthcare reform dropped your income. just make sure you stay in that 501 category until the 10 years are up.

" One thing to bear in mind: don't ever plan to go into this program with the goal of getting paid. For just about everyone's debt they will make well more their first year out in private practice versus academics that they could write a check and pay off the balance and still afford a brand new BMW, and still yet make more than the academician. Only do it because you love the game."