What's the harm with signing up for IBR without regards to loan forgiveness?

[december07]

So, if you want lower monthly payment during residency, why not sign up for IBR? Isn't this a better way to keep the payment low rather than forbearance?

So what if after 4 yrs of residency and you do not work for a 403(c) company after residency? no penalty, right? By then, you'll be earning attending salary and should be able to pay a lot more monthly anyways.

I feel like I'm missing something important here... please educate me.

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[TMP-SMX]

It's not cheap making those payments during IBR in residency.

 

[december07]

It's not cheap making those payments during IBR in residency.

yeah, i figured that. But the only cheaper option is to do forbearance. Other wise, IBR is the lowest payment plan that a resident can have. The online calculation shows that my IBR payment during residency is lower than a 30 yr repayment plan.

 

[TMP-SMX]

Correct, which is why many residents want to use it. Some have to do forbearance though because they can't afford IBR payments.

 

[NYyanx28]

Correct, which is why many residents want to use it. Some have to do forbearance though because they can't afford IBR payments.

So long and short... if you enter residency with say $300,000 in loans but pay your calculated IBR payment of say $350-400(will vary slightly based on exact residency salary + as you progress through residency) EVERY month during residency... will you end up with $300,000 in loans AT the END of residency and can 'opt out' of IBR and begin normal repayment?

[assuming not married]

 

[december07]

So long and short... if you enter residency with say $300,000 in loans but pay your calculated IBR payment of say $350-400(will vary slightly based on exact residency salary + as you progress through residency) EVERY month during residency... will you end up with $300,000 in loans AT the END of residency and can 'opt out' of IBR and begin normal repayment?

[assuming not married]

No, you will end up with more because the interest is still running.

 

[TMP-SMX]

You'll end up with more than $300,000 because 350-450 isn't going to cover the full amount of interest. After residency, you just have a higher tier of payment but are still technically on the IBR. Many people are hoping that their jobs will qualify for the 10 year forgiveness plan. We will see if it pans out.

Read this pdf as it is very helpful.

 

[TheFlashMD]

No, you will end up with more because the interest is still running.

The government pays unmet interest payments for three years. So the difference between forbearance and IBR would be much different.

Also, if you can contribute to a 401k during residency, it will lower your AGI, causing your IBR payments to decrease (along with your tax burden).

 

[penguin24]

The government pays unmet interest payments for three years. So the difference between forbearance and IBR would be much different.

Also, if you can contribute to a 401k during residency, it will lower your AGI, causing your IBR payments to decrease (along with your tax burden).

The government only pays unmet interest of Subsidized loans, which usually only account for a small portion of the loan amount. Meaning that the majority of the loan, which is unsubsidized, will continue to accrue interest on top of the balance. Hence after residency the balance will be over 300K for the above example. But still, paying IBR is still better than forbearance if you can afford those $400 payments.

 

[december07]

The government pays unmet interest payments for three years. So the difference between forbearance and IBR would be much different.

Also, if you can contribute to a 401k during residency, it will lower your AGI, causing your IBR payments to decrease (along with your tax burden).

Do you get a 401K with your program during residency? or is this something you have to open up on your own?

 

[TheFlashMD]

The government only pays unmet interest of Subsidized loans, which usually only account for a small portion of the loan amount. Meaning that the majority of the loan, which is unsubsidized, will continue to accrue interest on top of the balance. Hence after residency the balance will be over 300K for the above example. But still, paying IBR is still better than forbearance if you can afford those $400 payments.

My mistake.

Do you get a 401K with your program during residency? or is this something you have to open up on your own?

401k's are employer sponsored. If you wanted an additional retirement accoutn you'd open up a IRA. Depends on the hospital. Some that offer 401k's will even match some of your contributions. I know my current job matches up to $50/month. Which isn't great, but it's still free money. And it'll compound over 40 years until retirement.

 

[penguin24]

Do you get a 401K with your program during residency? or is this something you have to open up on your own?

Exactly as noted above, the 401K can only be offered from an employer (hospital in our case as residents). Also, if the hospital offers any type of matching contribution, then it's free money and it would benefit you very much to take advantage. You can open up a Roth IRA on your own, even if you also have a 401K through the hospital. The thing about the Roth IRA is that for most of us, when we become attendings will make too much money to qualify for them, so you can only take advantage of the Roth during residency (the salary cap is around 105K for single & 177K for married couple, which most doctors will surpass hopefully as attendings).

 

[TheFlashMD]

Exactly as noted above, the 401K can only be offered from an employer (hospital in our case as residents). Also, if the hospital offers any type of matching contribution, then it's free money and it would benefit you very much to take advantage. You can open up a Roth IRA on your own, even if you also have a 401K through the hospital. The thing about the Roth IRA is that for most of us, when we become attendings will make too much money to qualify for them, so you can only take advantage of the Roth during residency (the salary cap is around 105K for single & 177K for married couple, which most doctors will surpass hopefully as attendings).

But the beauty of Roth IRA. Is that you put in post-tax money (max $5000 a year). So when you retire. your withdrawals are not taxed. And after 5 years, you can make withdrawals from contributions if you're in a tough spot.

Also, you don't lose your Roth once you become ineligible to contribute. You can still switch investments and it still continues to grow.

My plan is to max my Roth IRA during residency, and contribute enough to my 401k to get the full match, maybe more depending how well I budget.

 

[december07]

Exactly as noted above, the 401K can only be offered from an employer (hospital in our case as residents). Also, if the hospital offers any type of matching contribution, then it's free money and it would benefit you very much to take advantage. You can open up a Roth IRA on your own, even if you also have a 401K through the hospital. The thing about the Roth IRA is that for most of us, when we become attendings will make too much money to qualify for them, so you can only take advantage of the Roth during residency (the salary cap is around 105K for single & 177K for married couple, which most doctors will surpass hopefully as attendings).

so I take that you have 401K as a resident? cause i'm a resident and we do not have 401K at our hospital. Only employees have it.

 

[penguin24]

so I take that you have 401K as a resident? cause i'm a resident and we do not have 401K at our hospital. Only employees have it.

Yeah, I just started PGY-1 and they offered it to us. Apparently not every hospital does. But at the least you can start up a Roth IRA and put in your 5K/year.

 

[december07]

Yeah, I just started PGY-1 and they offered it to us. Apparently not every hospital does. But at the least you can start up a Roth IRA and put in your 5K/year.

Yeah, I was planning on doing that. But after I calculated loan repayment + rent + modest cost of living, I really don't think I'lll have 5K extra every year to put into my ROTH.

 

[Red Beard]

You'll end up with more than $300,000 because 350-450 isn't going to cover the full amount of interest. After residency, you just have a higher tier of payment but are still technically on the IBR. Many people are hoping that their jobs will qualify for the 10 year forgiveness plan. We will see if it pans out.

Read this pdf as it is very helpful.

But of course you aren't paying ANY of the interest in forbearance, so it seems like IBR during residency is still a better option if you can afford it, no matter what happens after residency, when you can change your repayment plan however you see fit.

 

[penguin24]

Not to mention that if you sign up for Electronic Debit that pays your monthly loan payment directly from your checking account, you get a 0.25% discount on your interest. So it drops from 6.8% to 6.55%, which is a nice little discount