Public Service Loan Forgiveness

[JumpingFrenchmn]

So, if you consolidate your loans, do IBR, finish residency and get hired as an academic physician (university hospital) for 5 years minimum, your loans are gone.... right? As far as I can tell most university hospitals are 501(c)(3)s and should qualify. This seems like a good potential option for people who want to go into academics. Only downside I can think of is once you're hired, IBR for an attending salary, even in academics, would be a lot for those 5 years.

Has anyone done this or thought of doing it?

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[napoleondynamite]

Yo hook us up with a link here on the 5 years thing! For real??? That would be sick is all I'm sayin!

 

[napoleondynamite]

Holy crud you might be right:

http://studentaid.ed.gov/PORTALSWebApp/students/english/PSF.jsp#Q1

 

[Radbio22]

It is true that if you do the interest based repayment (IBR) from the beginning of residency, for the 5 years and then are hired at a not for profit 501(c)(3)s institution, which most academic hospitals are, that 5 more years of IBR and you will be done with repayment. However it is important to calculate what this actually means. It is going to be variable for everyone, but say you owe $200,000 and you and a spouse combined make $80,000 a year for the 5 years of residency. You will be paying around $800-900 per month which might not be too bad on this salary. You need to figure however all of your other expenses into this equation, plus cost of living which varies dramatically depending where on you plan on being a resident. Once you become an attending and are bringing in $250,000, your monthly IBR is going to be around $2500 per month, again not too bad on that salary. If you calculate how much you will have payed over this time it will be approx $200,000. So you can see you won't be saving too much in reality. Of course with accruing interest over the ten years, you will still owe approx 25-50,000 depending on where your loans are from, private vs gov etc, but you won't in the grand scheme of things save too much. AND you have to also think about the fact that if you go into private practice out of residency and score a job making $500,000, you will be able to pay off the loans much quicker and not have had to "struggle" during residency to make the $800-900 payments at a time when you were making relatively little money. I'm not saying one is better than the other, just that you need to look at what your anticipated career path is and actually calculate out how much you would save and at what expense to quality of life as a resident and thereafter.

 

[ToasterThief]

Yes, combining IBR with PSLF is a very sweet deal if you plan on going into academics. The thing I question is just how long the program is going to last. The first borrowers that will be eligible to get their loans forgiven will hit 10 years in 2017. Is the public going to look favorably on doctors getting their loans forgiven? Are budget cuts going to eliminate it in the next few years? I don't think anyone knows the answer right now. Nevertheless, it's something to keep in mind.

 

[JumpingFrenchmn]

you have to also think about the fact that if you go into private practice out of residency and score a job making $500,000, you will be able to pay off the loans much quicker and not have had to "struggle" during residency to make the $800-900 payments at a time when you were making relatively little money.

just to confirm, you're referring to forbearance during residency in this scenario?

 

[Aphtalyfe]

Yes, combining IBR with PSLF is a very sweet deal if you plan on going into academics. The thing I question is just how long the program is going to last. The first borrowers that will be eligible to get their loans forgiven will hit 10 years in 2017. Is the public going to look favorably on doctors getting their loans forgiven? Are budget cuts going to eliminate it in the next few years? I don't think anyone knows the answer right now. Nevertheless, it's something to keep in mind.

The most likely scenario is that the IBR+PSLF for physicians "loop hole," will be patched after a few people get their 200k loans forgiven.

just to confirm, you're referring to forbearance during residency in this scenario?

In order for the 5+5 scenario to work, you would have to do IBR during residency and pay back the minimum of 10% per year in order to qualify.

 

[JumpingFrenchmn]

In order for the 5+5 scenario to work, you would have to do IBR during residency and pay back the minimum of 10% per year in order to qualify.

Thanks, yeah I understand that. I think Radbio22 was describing an alternate scenario where one does not do IBR during residency in order to not "struggle" paying off loans during residency given the big jump in income down the road. I think he was talking about forbearance but not sure.

 

[ToasterThief]

The most likely scenario is that the IBR+PSLF for physicians "loop hole," will be patched after a few people get their 200k loans forgiven.



In order for the 5+5 scenario to work, you would have to do IBR during residency and pay back the minimum of 10% per year in order to qualify.

I'd say the most likely reason it'll be killed is because of budget cuts down the road. On the other hand, every government loves giving handouts to the rich, so I give it a 50/50 shot of surviving.

 

[Brachyury]

Traditionally, government financial programs, when cancelled, tend to grandfather current particpants into the program if the law is changed.

A few things: if you and your spouse file seperately, your spouse's income will not need to be applied towards your IRB amount.

10% of elidgibel income is your income minus pre-tax deutions and a predetermined poverty level. For example, if you make 250k and are a single, you substract 150% of the poverty level for a single person (I think its about 15k right now) and pretax deductions (i.e. savings accounts, health spending accounts public transit, etc). Thus on an income of 250, if you have 17k (the max that can go into 403/405 accounts for 2012), 15k for the poverty adjustment, and 3100 for your HSA, you will pay 10% of (250-17-15-3.1)= $21,490.

Now, not all people would have to pay $21,490 a year with a 250k salary. How? When you enter IRB (i.e. day one of residency) the governemnt calculates with interest, how much would it cost for you to pay off all of your loans in 10 years: this amount is the ceiling of your payments. THerefore, even if you income greatly increases, you will pay either 10% of your income of the ceiling amount (you pay which one is lower). For example, you gradudated from a southern med school and left residency with 160k in loans, the total cost to pay the loan back in 10 years would be about 225k (or 22.5k a year). In the above scenario, 10% of your income is $21,490 and your ceiling is 22.5k, so you will pay $21,490. Let's say in two years you are promoted from an instructor to an assistan professor position and your income increased to $285. Now, (285-15-17-3.1)*.1 = 25k. Therefore, for this year, you will pay the ceiling amount of 22.5k instead of 25k.

The only part of IRB I'm not sure of is that the rules were recently changed on whether you pay 15% of 10% of you income. I though it was that any loan that originated on or after July 1, 2011 would be at 10% and any loans before that were at 15% of income, however, the government may have changed the program to make all loans (current and future) at 10%. Hopefully someone can clarify this point.

Edit: I wanted to add some more stuff

If you are thinking of doing IBR, your years in residency count towards your ten. Since pre-tax deductions, you can get creative with system. If you have a spouse that can support both of you, it's worth looking into maximizing your retirement savings. For example, if your salary is 52k, your pover adjustment is 22k (150% of poverty line for two people) and your max out your retirement (17k), your salary of 52-22-17= $1600 a year in loan payments. Once you leave residency, your could roll your retirement accounts into a single IRA and convert it to a Roth

 

[ToasterThief]

I believe the 10% vs 15% IBR payment goes into effect starting in 2014. I'm also not sure whether that applies retroactively or is just for loans originating that year.

 

[Brachyury]

I believe the 10% vs 15% IBR payment goes into effect starting in 2014. I'm also not sure whether that applies retroactively or is just for loans originating that year.

The change was supposed to occur in 2014, however, President Obama changed the rules this fall, so the 10% rate has been moved up to starting this year, but like I said, I cannot find information on how this effects previous loans

 

[Radbio22]

Thanks, yeah I understand that. I think Radbio22 was describing an alternate scenario where one does not do IBR during residency in order to not "struggle" paying off loans during residency given the big jump in income down the road. I think he was talking about forbearance but not sure.

I was describing deferment in this scenario. Depending upon the loan type, you can defer for variable time periods. Goverment loans allow you to defer without having to put the loans into forbearance for the duration of residency training. Some private loans will also allow you to defer loans for a certain time peirod even if they have already been in forbearance, once you start residency.

 

[radtothebone]

Traditionally, government financial programs, when cancelled, tend to grandfather current particpants into the program if the law is changed.

The problem with this is that no one is "signed up" for the PSLF program at this time. One has to go on faith that it will exist when the 10 years of payments is up and then you apply. Hard to grandfather in people who are planning on signing up for something in the future. Although the AMA has put out a decent amount of materials promoting IBR/PSLF so maybe they would fight to keep those programs around.

 

[napoleondynamite]

Wait is it necessary to enter IBR as a resident to qualify? Where are you guys getting this 5x5 stuff? Seems like you only have to do IBR for 5 years and then forgiven - what am I missing?

 

[Trevica]

To qualify for IBR you have to demonstrate 'financial hardship', which most of us as residents will. I don't think you probably would once you have an attending salary. In terms of the forgiveness, you need to make 120 payments (10 years), and remaining debt will be forgiven tax-free. The above 5+5 talk likely refers to the fact that if you get 5 years out of the way with a resident salary, you won't be paying quite as much. Where if you were to wait until your last year as a resident, you'd pay 1-2 years at a resident rate, then 8-9 years as an attending, and it may not be financially as worthwhile. The object is, of course, is to pay as little as possible so that there is a pile at the end to be thrown away.

 

[bamdstudent]

The PSLF program is probably going to be protected in the budgetary process. Because of the way federal direct loans are structures, the US Treasury simply writes off debt owed when it will forgive through PSLF and is thus considered "budget neutral". For more details: http://askheatherjarvis.com/blog/PSLF_is_secure

At some of the most expensive medical schools, students can accumulate up to 300k in federal loans in 4 years. With IBR, your interest is also partially capped so only a limited amount of interest will capitalize (you won't have to pay as much interest on interest). http://www.finaid.org/loans/icr.phtml

But if you do consolidate all those loans, choose IBR for 5 years of residency + 5 years as an attending, you could save a ton of money. Assuming a salary of 45k for residency, and an average salary of 300k after graduating for 5 years, you will have paid 172.5 k. Your loans by this time (after adjusting for your payments of 172.5k and accumulating interest) will actually still be around 300k (simple interest rate of 7% x 10 years = 210k)...so that's 300k forgiven. Pretty good deal.

By comparison, if you went into forbearance during for 5 years, with your interest capitalizing, you will come out of residency with 420k in loans.