I totally get what you are saying. I think the rules will change and I have reason to believe this. Reagan introduced a new loan for med students, called HEAL. Health Education Assistance Loan. It was a few points above prime, like the current loans are. The thinking at the time was physicians made several times the average American income, like now. Why should we continue to subsidize student loans for med students at 2%, when they can easily pay them back?. Btw, my wife's HEAL loan was at 17%, and our first mortgage was at 10.75%. I dont see this program, PSLF, remaining unchanged. Most americans will believe doctors should easily be able to pay off their debt, without fully understanding the enormous costs of med school. I agree, some may slip through with loan forgiveness, but it's a risky proposition and should be taken only if they have a relatively high risk tolerance. Good luck and best wishes!
I hear your perspective. Here’s a hypothetical;
Person A
Pays back loans on income driven repayment plan throughout residency and fellowship (7yrs)
Principal amount: 250,000
Amount paid off in 7 years: $42,000
Remaining with interest: $310,000 (rough estimate)
options;
Continue making IDR
Year 8: remains at 500$/mo=$6000
Additional interest accrued after payments ~$15,000
Year 9: based on year 8 salary, $2500/mo payments. Covers interest +~$5000.
Year 10: based on year 9 salary, $2700/mo
Again covers interest and and additional $10,000
Amount left $315,000. Forgiven tax free (pre tax value of ~$500,000)
Total amount paid back; $110,000
$11,000 a year for 10 years
Person b
Same exact situation but decides he/she doesn’t want to do loan forgiveness due to uncertainty.
Refinances remaining $310,000
Interest rate from 7% to 4%, 7 year repayment plan.
~$4250/mo
Total paid after refinancing: $355,000
Total paid altogether $397,000
Difference in loan payments between person a and b=$287,000
That difference is more than the principal of the loan itself and is a substantial amount of money.
Now if person A was smart, they’d take there monthly savings during those 7 yrs and invest smartly in a mutual fund cd etc and let’s assume conservative growth at 5%.
After 20 years that difference has gone from substantial to massive.
At the end of 7 years the value on that money is ~$350,000 and after 20 years (assuming you stopped making contributions for arguments sake) is worth $675,000. This is at a modest rerun of 5%. At 7% it’s $862,000 difference after 20 years.
now let’s take the case of hypothetical person c who attempts loan forgiveness but is either denied or program is rescinded:
same as person A up until year 10, then:
$315,000 refinanced at 4% paid back over 7 years:
$4400/mo
Total amount paid during 7 years: $370,000
Total amount paid altogether: $480,000
difference between person b and person c=
$83,000
not insignificant but also 3.33x less than the possible upside. It’s an excellent bet based on this exact situation. Some people make higher payments during training. Some people want to do private practice. Some people will train for a shorter time. Some have smaller or larger loan amounts. The advice to take advantage of PSLF should be given on a case by case basis
