Income-based loan repayment as of July 1 2009

Can someone please explain what the new July 1 2009 regulation on medical school loan repayment means? I read in other posts and on the AMA website that a monthly payment cannot exceed 15% of your monthly income, but can we still do the standard 3-year deferment (i.e. interest doesn't accrue) as residents have been doing for years and years? Is this new regulation a good thing or a bad thing?

I'm sorry if you think this question has been asked before, but honestly I have been reading through posts and the AMA website for over an hour and cannot get a clear answer about what this means for us. There is a lot of talk about what needed to happen BEFORE July 1, 2009 because of a gap in the regulations, but not a lot of talk about how the new regulation is going to affect us. (I'm a fourth year medical student, btw)

Thanks!

Just found some websites with some information about income-based repayment. Not sure if this is this applies to us, though?

http://www.ibrinfo.org/what.vp.html#calculator

https://www.acs-education.com/CS/Jsp/infocenter/ccraaActOf2007.jsp

neuropower said:

Can someone please explain what the new July 1 2009 regulation on medical school loan repayment means? I read in other posts and on the AMA website that a monthly payment cannot exceed 15% of your monthly income, but can we still do the standard 3-year deferment (i.e. interest doesn't accrue) as residents have been doing for years and years? Is this new regulation a good thing or a bad thing?

I'm sorry if you think this question has been asked before, but honestly I have been reading through posts and the AMA website for over an hour and cannot get a clear answer about what this means for us. There is a lot of talk about what needed to happen BEFORE July 1, 2009 because of a gap in the regulations, but not a lot of talk about how the new regulation is going to affect us. (I'm a fourth year medical student, btw)

Thanks!

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http://www.ama-assn.org/ama1/pub/upl...esentation.pdf

you cannot defer.

you can, however, forebear, but that means your interest WILL accrue. This new regulation is NOT a good thing for new residents.

also, economic deferment does NOT entirely mean interest doesn't accrue. your unsubsidized portions WILL accrue interest; only your subsidized ones won't. Forbearance means both types will accrue interest.

I'm not sure, but forbearance might also mean recapitalization of your principal, ie, your accrued tax adds into your principal so the following year your principal is even higher. iknow for a fact deferment does not recapitalize.

if you do not file forbearance, then with the new law, you WILL BE REQUIRED to pay a mininum monthly payment.

uclabruins47 said:

http://www.ama-assn.org/ama1/pub/upl...esentation.pdf

you cannot defer.

you can, however, forebear, but that means your interest WILL accrue. This new regulation is NOT a good thing for new residents.

also, economic deferment does NOT entirely mean interest doesn't accrue. your unsubsidized portions WILL accrue interest; only your subsidized ones won't. Forbearance means both types will accrue interest.

I'm not sure, but forbearance might also mean recapitalization of your principal, ie, your accrued tax adds into your principal so the following year your principal is even higher. iknow for a fact deferment does not recapitalize.

if you do not file forbearance, then with the new law, you WILL BE REQUIRED to pay a mininum monthly payment.

Click to expand...

Look. It's not like the government can take away your birthday. If you can't pay, don't. It's not like these loans ever go away. They will eventually get their money.

Beside the whole monetary house of cards may collapse in a few years anyway. We may all come out the otherside without any debt . . .

jdh71 said:

Look. It's not like the government can take away your birthday. If you can't pay, don't. It's not like these loans ever go away. They will eventually get their money.

Beside the whole monetary house of cards may collapse in a few years anyway. We may all come out the otherside without any debt . . .

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well, obviously if you can't pay, then you can't pay; aint like you gonna pull some cash out of your ass.

and of course govt will get their money; it's a matter of how much you want to hand over to them. with the new law you're basically handing over who knows how much more than you would have without the law. you can buy a new house with the interest you're gonna pay. just because the loans don't go away doesn't mean you just let it sit there and rack up the dough. it's like saying i have a revolving credit card debt at 30% and since i can't pay it off, i will just let it sit there. now i know why people say doctors have no financial acumen 👎

uclabruins47 said:

just because the loans don't go away doesn't mean you just let it sit there and rack up the dough. it's like saying i have a revolving credit card debt at 30% and since i can't pay it off, i will just let it sit there. now i know why people say doctors have no financial acumen 👎

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What else are you gunna do captain obvious? Anyone? Anyone?

I probably have 10x the financial acumen of you my friend . . . been through more trouble and experience I'd wager very easily, so I hope you are not easily offended when I don't turn my head while I yawn.

It sucks the gov is taking away deferment, but that's just life. Deal with it. Or pout. Your call homey . . .

jdh71 said:

What else are you gunna do captain obvious? Anyone? Anyone?

I probably have 10x the financial acumen of you my friend . . . been through more trouble and experience I'd wager very easily, so I hope you are not easily offended when I don't turn my head while I yawn.

It sucks the gov is taking away deferment, but that's just life. Deal with it. Or pout. Your call homey . . .

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The financial troubles are not difficult to believe.

AlternateSome1 said:

The financial troubles are not difficult to believe.

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Yeah? Why is that? You ever had a job disappear because of downsizing, only to look at a mortgage, credit-cards, feeding a family? Seriously what do you know about it smart guy?

You just don't pay. They can't take away your birthday. They can't put you in jail. They'll call you everyday, but that's about all they can do. Even if they go to court (which means they have to pay lawyers, which will cost them MORE money) and get your wages garnished, assuming you have found a new job, the court will understand the situation. Creditors are nothing to be a afraid of. Pay them back when you can. And the really gorgeous thingsabout it all is when you're done with training and making 6 figures, you won't have a problem getting a loan anyway (that is if you are silly enough to keep taking them out).

People without experience are funny when they freak out.

uclabruins is right
with the old law, if you qualified for "economic hardship" deferment (which way over 1/2 of residents did under the old law) then you could "defer" your loans for up to 3 years, during which time the gov't would pay the interest on your subsidized Stafford loans. Interest would still accrue on your other loans, like unsubsidized Stafford, etc., so it was still better to pay something on your loans (at least the interest). That is what I did the first couple years of my residency. I filed for "economic hardship" but then I'd look at my statements and try and pay the interest off, at least most months. I had 33k in loads at 2.85% so I think that was $300 or so a month, or thereabouts. If I hadn't filed for economic hardship, for 6 months after I graduated then I would have been paying $540/month, which is what a 30 year loan of 33k at 2.85% turned out to be.

The new law says that nobody will be able to get a free ride on the interest on your subsidized Staffords for 3 years. Instead the gov't will calculate how much you will pay for month (I think it's no more than 15% or so of your income, but I think it's pretax income - not sure on this). So you won't have thousands per month to pay off as a resident. It's just not as good a deal as before b/c no "free money" like I got. No "government-pays-your-subsidized-Stafford-interest-for-3-years".

My advice to graduating med students would be to try and pay at least the interest on your loans when you are a resident. Of course, if you have a spouse and kids, etc., or you live in some expensive place like San Francisco you might not be able to. Also, if you are an ortho resident and going to make $350k in 5 years, maybe it doesn't matter to try and pay off your loans now. You can legally "defer" as long as you just ask your lender to do so. The problem is you will just end up paying more in interest later. My advice is if you are entering one of the lower-paying specialties (peds, medicine, family practice, psych, etc.) it's good to try and pay off a little of your loans during residency, at least the interest, especially if your student loan interest is higher than what mine was. If I had loans at 5-6% I'd want to be paying that interest.

thanks everyone!
sorry for my ignorance. but you all have really clarified things. i guess i just won't worry about it and pay what i can when i can.

you should try and pay something on your loans while you are a resident. The first $2000 (or is it $2500) of student loan interest that you pay per year can be deducted from your income tax due, so that you can get a nice fat refund (I got >$1000 refund my first couple of years of residency). Most residents could afford to pay something on their loans, and this would keep the loans from getting bigger, if you can manage to pay the interest at least. Getting the tax refund is like getting "free money" back and the tax credit I think gets phased out at some point if your income is too high (like when you become an attending). That's just one more thing to realize.

Just talk to the financial aid people at your med school a couple months before you graduate from med school. They will help you with deciding when and how much to pay back on your loans, if they are any good at all.

Pay down as much as you can in residency. Try to make a really big payment on your loans at the end of residency/fellowship, right before you start making an attending's salary, if your income for that tax year falls below the $100G mark or so. Once you're in the 6 figure category you can't write off student loan interest anymore (I don't remember the exact dollar amount and it could change anyhow), so pay all you can while you can still write it off -I would say, even at the expense of contributing to a retirement plan, especially if it's not matched by your employer.