Can you repay private loan as a doctor?

[deleted158872]

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Hi all,
Is it a very unwise idea to borrow private loan for your entire medical education? I have a hard time deciding whether to do that... Do doctors ever manage to pay off private loans? Do the types of private loans available to medical students usually have higher interest rates than federal loans? Is there any private loan that offers low interest rates to med students?

 

[deleted158872]

bump

 

[doc05]

why don't you just get a federal loan?

 

[deleted158872]

Provisionally accredited (new) schools aren't eligible for federal loans until they graduate their first class.

 

[Cardboard101]

I actually went to Chase with this very question. The told me that they'd offer low rates for medical school students (~7%) after they've exhausted federal loans. I'm unsure if not being eligible for any = exhausted though. Went over to wells fargo, navy federal. bank of america and some smaller banks. The private educational loans I was able to find were all around 9-12% which is pretty high. If interest didn't start accruing until after residency, sure. But some of them require you to pay back right after med school or even sooner. One thing to look out for is variable interest. This one place had a 8% interest rate which was great, until I found it was variable up to 18% or something.

I would definitely look into wells fargo though: https://www.wellsfargo.com/student/graduate-loans/med-school/

They give you a loan and then defer interest for 5 years after you graduate if you enter residency. If you have a wells fargo checking, sign up for automatic payments they'll knock off .5%. They cap it @ $250k, so you'd need a job, some savings or another loan.

A 80k/year loan (slightly more than average for DO/MD) for 4 year + interest after medical school is $320,000. If you do 4 years of residency @ 10% interest/year that's ~$470,000 maybe less if you use some of your residency income, meager as it is. Even paying back $100k a year post residency it's close to 6 years before you're out of debt. Default on the loans and the bank starts seizing stuff. With federal, they give up to I think 60 months after graduating medical school. So all you'd have to pay back is the 320k, ~4 years.

Another option is loan forgiveness. Haven't really looked deeply into this yet though.

 

[RangerBob]

Loan forgiveness won't help the OP--he/she would need to be eligible for federal loans. Unless you're referring to the loan repayment hospitals/firms offer.

To the OP: lots of physicians pay off private loans. Hardly any physicians default on their student loans. I had a few private loans from my post-bac and I had to take one during medical school due to unexpected expenses that year. I took the loan through Wells Fargo. It was a MedCap loan, about 4-4.5% variable interest without a cosigner, with deferment for up to three years after graduation. Based on what carboard says, maybe they've increased rates (though that 7% may be a fixed rate--rates are still rock bottom, so I highly doubt you'd get a variable rate loan that high, seeing as I had no income or cosigner when I got offered my loan at ~4%) and increased the forbearance period as well. Pretty much any private lender will gladly lend a medical student money--they know they'll make money off you because physicians can and do pay off private loans.

Your financial aid office does need to certify the loan (ie., the bank confirms you're actually a student and that the amount you requested makes sense and they give the money directly to the school, which then disperses the leftover living expenses to you--the exact same way a federal loan works). If you get an un-certified loan (I'm not sure how common they are, but a residency and relocation loan is usually un-certified) then the interest rate will be higher and the bank mails you the check.

The only main differences between federal and private loans are:
1) Private loans aren't eligible for income-based repayment plans (but most attendings aren't using income-based repayment anyway)
2) Private loans aren't eligible for forgiveness (which most physicians won't be eligible for either as the odds are they will have paid off their loans well before 25 years--PSLF would be the exception however)
3) Private loans almost always have a better interest rate--especially if you get a cosigner (not always a good idea--it puts that person on the hook for a lot of money)

There are other differences, but those are the only big ones I can think of right now.

Keep in mind that currently residents are eligible for consolidation with DRB, where you only have to pay $100/month during residency (and the rate is usually better than most private graduate/medical school loans), so even if you do get private loans that require you to start repayment during residency, you can keep those payments very manageable if the current program continues.

I'd prefer federal loans over private loans anyday, due to the income-based repayment/forbearance benefits as well as the possibility of PSLF, but paying off private loans is definitely possible. The important thing is to come up with a financial plan now--and borrow as little as possible! Live with a roomate, live in cheap (but affordable) housing. If possible, walk/bike to work and rotations (often not possible due to distance--but very often doable for the first two years of medical school). Just because the school advertises a cost of attendance doesn't mean you need to borrow that amount--borrow only what you actually need. Your future self with thank you. In all honesty, present Rangerbob is quite upset past Rangerbob didn't have a financial plan and try to minimize borrowing.

 

[Cardboard101]

I was indeed referring to the hospital repayment perks.

Do you know if the interest rates are negotiable? I didn't try asking as I though they were set in stone by the bank. If I do have a cosigner it seems like the interest rate would be less?

 

[RangerBob]

I was indeed referring to the hospital repayment perks.

Do you know if the interest rates are negotiable? I didn't try asking as I though they were set in stone by the bank. If I do have a cosigner it seems like the interest rate would be less?

Technically, everything in life is negotiable. However, I tried negotiating with Wells Fargo to lower my interest rate to match what DRB offered me if I consolidated my private loans with them. I thought Wells Fargo would match the rate by offering me a new consolidation loan, but unfortunately they wouldn't, so I consolidated with DRB at a much better rate.

As a general rule, if you want to negotiate the rate, it helps to have a better offer. But even if you don't, it certainly never hurts to ask. Often the person you talk to on the phone is just a customer service representative with now power to change the rate, so you'd probably have to actually meet and talk with a loan officer.

As for the hospital loan payoff perks--those are most certainly negotiable. I know quite a few residents who negotiated a $10-30k more in loan repayment because another hospital gave them a better offer. Keep in mind those payments are taxed--the repayment perk is really just a guaranteed bonus for signing on/staying x amount of time.

Yes, the interest rate is almost always lower if you have a cosigner. In my case one of my private loans was at 4% or so--this loan I took out on my own. Another one my dad cosigned with me was 2%.

Be cautious if you get a cosigner. My dad cosigned one of my post-bac loans. In my two years between graduating from my post bac and starting medical school, I couldn't find work for about six months and had to put that loan in a hardship forbearance (most private lenders do offer this). However, I was never warned (other than small fine print in my MPN that I never--but should have--read) that doing so means your cosigner can NEVER be released from the loan. Typically you can get your cosigner released from the loan after a year of on-time payments, but the forbearance eliminated that. In hindsight we both wished he had just covered the loan payments for those six months, but I ended up consolidating that loan anyway, so it effectively released my dad since the loan got paid off.

 

[Seth Joo]

Hi all,
Is it a very unwise idea to borrow private loan for your entire medical education? I have a hard time deciding whether to do that... Do doctors ever manage to pay off private loans? Do the types of private loans available to medical students usually have higher interest rates than federal loans? Is there any private loan that offers low interest rates to med students?

Bad, bad idea. Private loans have far fewer repayment options, its better to take the Federal option, and Gradplus can make up for whatever the Stafford does not, do not take out a private loan for medical school.

One good thing about the new Federal loan program is nowhere near as draconian as the old system where you were dealing with private banks.