owlegrad
Uncontrollable Sarcasm Machine
Staff member
Administrator
Volunteer Staff
Lifetime Donor
15+ Year Member
- Joined
- Mar 19, 2009
- Messages
- 25,316
- Reaction score
- 11,935
Student Loan Repayment Options for Doctors
- Thread starter owlegrad
- Start date
- Joined
- Jul 6, 2009
- Messages
- 794
- Reaction score
- 19
Color me skeptical, but here are my thoughts:
- yes, it is wonderful that loan rates are tied to treasury notes. However, this could be an absolute curse since rates are now fixed-variable. I'm just lucky I'm i started this year and get to undoubtedly benefit the entire time.
- Loan forgiveness in 10, 20, or 25 years depending on the program? I expect hell to freeze over before that happens for me. I believe 2017 is the first round Loan forgiveness. Hopefully they don't decide to just can the program by 2019.
- yes, it is wonderful that loan rates are tied to treasury notes. However, this could be an absolute curse since rates are now fixed-variable. I'm just lucky I'm i started this year and get to undoubtedly benefit the entire time.
- Loan forgiveness in 10, 20, or 25 years depending on the program? I expect hell to freeze over before that happens for me. I believe 2017 is the first round Loan forgiveness. Hopefully they don't decide to just can the program by 2019.
- Joined
- Oct 30, 2011
- Messages
- 265
- Reaction score
- 99
The article failed to discuss in necessary detail that the loan forgiveness amount being taxable may not be of much of a benefit from what I understand. Getting a significant amount of loans forgived in certain instances amounts to a "gift" which is subject to absurdly high tax rates.
- Joined
- May 26, 2007
- Messages
- 7,527
- Reaction score
- 4,515
This is the key problem: these various loan forgiveness programs don't make any guarentees. There is no contract, there is no interval partial loan forgiveness, the entire time you're waiting for the program to kick in your payments are less than your interest and your debt is skyrocketing. Considering that the federal government has had no problems whatsoever drastically altering the structure of student loans on three occasions in the last five years without grandfathering in anyone currently in school (eliminated unsubsidized loans, then doubled the interest rate, then tied interest rates to the treasury notes) in addition to birthing all of the programs. It takes a LOT of faith to say that the government is going to keep these policies in place for the next 10-25 years. Its not impossible, but it is like betting your future on a flip of the coin. What happens when you get 19 years into IBR and they cancel the program? Do you start paying off what is now 750K-1 million in debt in your late 40s?
The US government is the world's most powerful lender because they don't have a government looking over their shoulders to make sure they follow the rules that they enforce on other private lenders. They deny you the basic protections that any other legitimate lender has to offer you: there is no underwriting for your loan, there is no option for bankruptcy, there are no assests of yours that they can't seize, and there is no real due process for contesting any of their actions. Also, as someone stuck with these loans, I will say that the psychological burden is not unlike owing money to a loan shark. When you know that your lender has the freedom to change pretty much all the terms of your loan repayment on you at any time, and has the power to seize literally everything you own (including your home and social security checks) in order to enforce payment, they are a source of stress well beyond that of normal unsecured debt. When you borrow from someone with this much power over you its a constant source of stress. For 2-4 years for rapid repayment that's fine, but for 20? I'd go nuts long before they even had the chance to change the rules on me (again).
When you borrow money, I think you should expect to pay the amount you borrowed plus the interested you agreed to at the rate you borrowed at. If they ever create a program that forgives your interest and part of your debt each year you're in the program then jump on it, but if all the program can offer is a promise of repayment decades down the line I think its nuts to take them up on it.
Last edited:
The author makes a point about making sure to read the small print but maybe he should do the same. People in finance hate uncertainty in the market and there is currently a lot of uncertainty with regards to these new payment options that can have serious consequences for people. Perrotfish points out the biggest risk. If you read the fine print in your Promissory Note there is no contract with these forgiveness programs. This has the potential to totally screw you for the rest of your life.
If you're going to paint the picture of a perfect case of getting your loans forgiven you might as well do some research into what the taxes will look like instead of glossing over the tax bomb. Also to say that things are only getting better because of the misnomerly named Student Loan "Certainty" Act is laughable. It is temporary relief for the 2013-2014 and maybe the 2014-2015 academic year. The current treasury yields of 2.75% are already higher than the forecasts used in the writing of this bill (http://www.fameinc.com/blog/congres...rest-rate-structure-for-federal-direct-loans/) and will only continue to go up as the economy improves. You're looking at hitting the 9.5% and 10.5% cap in maybe 3 years if things continue picking up. That's called new borrowers getting screwed. The author not knowing the difference between a Treasury Note and a Treasury Bill just about sums up this article.
These shoddy student loan articles drive me absolutely crazy and they perpetuate a dangerous message. 400K in debt?? No problem just do IBR. 600K in debt? LOL it doesn't even matter how much you owe just do PAYE and you'll be fine. Nothing to see here folks...move along, move along. There was a Tulane medical student on the interview tour who told us that she wasn't worried about the loans because she heard through students how a program called PSLF essentially made it "free money". You go down that road and you're playing with fire.
If you're going to paint the picture of a perfect case of getting your loans forgiven you might as well do some research into what the taxes will look like instead of glossing over the tax bomb. Also to say that things are only getting better because of the misnomerly named Student Loan "Certainty" Act is laughable. It is temporary relief for the 2013-2014 and maybe the 2014-2015 academic year. The current treasury yields of 2.75% are already higher than the forecasts used in the writing of this bill (http://www.fameinc.com/blog/congres...rest-rate-structure-for-federal-direct-loans/) and will only continue to go up as the economy improves. You're looking at hitting the 9.5% and 10.5% cap in maybe 3 years if things continue picking up. That's called new borrowers getting screwed. The author not knowing the difference between a Treasury Note and a Treasury Bill just about sums up this article.
These shoddy student loan articles drive me absolutely crazy and they perpetuate a dangerous message. 400K in debt?? No problem just do IBR. 600K in debt? LOL it doesn't even matter how much you owe just do PAYE and you'll be fine. Nothing to see here folks...move along, move along. There was a Tulane medical student on the interview tour who told us that she wasn't worried about the loans because she heard through students how a program called PSLF essentially made it "free money". You go down that road and you're playing with fire.
Last edited:
- Joined
- Jun 11, 2013
- Messages
- 65
- Reaction score
- 26
Any response from the author?
- Joined
- Jul 30, 2013
- Messages
- 229
- Reaction score
- 29
Article fails to mention that under IBR or PAYE, the forgiven debt amount is seen as TAXABLE income so you still have to pay a hefty 35% tax on the remaining and ballooning student loan.
- Joined
- Dec 17, 2013
- Messages
- 1
- Reaction score
- 0
Thanks for the feedback folks. Apologies for not making it more abundantly clear, but the article does mention that forgiveness achieved after 20 or 25 years is taxable. This will be taxed as ordinary income, so the actual tax rate will vary based on the borrower's tax bracket. While this isn't as ideal as the tax free forgiveness associated with Public Service Loan Forgiveness, it still can be better than paying the debt back in full.
Let me be clear, the U.S. educational financing system is not perfect. But, as things currently stand, IBR and PAYE are the best repayment options for the majority of medical borrowers, at a minimum through training. What is the alternative?
With the average debt burden for a medical graduate being just over $200k, and a typical residency salary sitting around $50k, very few residents are able to afford the standard 10-year payment plan. On $200k of loans a 10-year standard plan amounts to about $2500 a month. Even an extended term plan amounts to about $1500 a month. Since most residents and fellows can't afford these payment amounts, many resort to forbearance, hoping to be able to quickly pay off the loans once they are attendings. The problem is that forbearance on $200k of loans results in interest accrual of about $15,000 a year which gets tacked on to the loan balances. IBR & PAYE allow the borrower to minimize this interest accrual while making relatively low payments, through the non-capitalization of interest, and 3 years of government subsidy.
I typically advise medical residents to position themselves for the Public Service Loan Forgiveness while they are working at non-profit hospitals during residency. The real decision comes once training is done and they'll know definitively what type of facility they'll begin their careers as attendings. If it is non-profit, they'll want to maintain the status quo of IBR/PAYE and hope to see the loans forgiven once they've fulfilled the 120 payments. Should they wind up in a for-profit facility they'll want to reevaluate and see if the 20 or 25 year forgiveness still makes sense, or if its advantageous to begin making over payments in hopes of retiring the loans as quickly as possible. The bottom line is that, for most, until they're earning an attending salary, the repayment options are limited to IBR/PAYE or forbearance. Long term viability of forgiveness aside, I think we can all agree that at a minimum, IBR/PAYE are able to minimize interest accrual enough to make them a more attractive option than a costly forbearance plan during training.
Let me be clear, the U.S. educational financing system is not perfect. But, as things currently stand, IBR and PAYE are the best repayment options for the majority of medical borrowers, at a minimum through training. What is the alternative?
With the average debt burden for a medical graduate being just over $200k, and a typical residency salary sitting around $50k, very few residents are able to afford the standard 10-year payment plan. On $200k of loans a 10-year standard plan amounts to about $2500 a month. Even an extended term plan amounts to about $1500 a month. Since most residents and fellows can't afford these payment amounts, many resort to forbearance, hoping to be able to quickly pay off the loans once they are attendings. The problem is that forbearance on $200k of loans results in interest accrual of about $15,000 a year which gets tacked on to the loan balances. IBR & PAYE allow the borrower to minimize this interest accrual while making relatively low payments, through the non-capitalization of interest, and 3 years of government subsidy.
I typically advise medical residents to position themselves for the Public Service Loan Forgiveness while they are working at non-profit hospitals during residency. The real decision comes once training is done and they'll know definitively what type of facility they'll begin their careers as attendings. If it is non-profit, they'll want to maintain the status quo of IBR/PAYE and hope to see the loans forgiven once they've fulfilled the 120 payments. Should they wind up in a for-profit facility they'll want to reevaluate and see if the 20 or 25 year forgiveness still makes sense, or if its advantageous to begin making over payments in hopes of retiring the loans as quickly as possible. The bottom line is that, for most, until they're earning an attending salary, the repayment options are limited to IBR/PAYE or forbearance. Long term viability of forgiveness aside, I think we can all agree that at a minimum, IBR/PAYE are able to minimize interest accrual enough to make them a more attractive option than a costly forbearance plan during training.
