Is this a real thing like telling your employer to categorize that loan repayment into a sign on bonus?
OP, I was in a similar position like yours. I took out max loan bc if I take PAYE/REPAYE, my effective interest rate on those loans over 20 years is about 1.5-2.0%. I might pay back all of those loans by the end of residency if my finance situation changes. However, I personally will not take a hit in higher tax rates as a financial responsible person when handouts are being given out freely left and right. I just want fair treatment, but I really don't trust our government to do anything sensible. The returns on these loans, which stand at currently about 12-15% annually, will be used to buy a house during residency in order to cross out that living cost expense.
For the first part, you can choose to have the loan repayment paid to you rather than directly to the lender, it is a thing.
So I just wasted a bunch of time trying to calculate out what you said, so I could see if it could be true. Its not quite, but mostly because REPAYE is 25 years, and you don't qualify for PAYE as a physician d/t income restrictions. Under both those programs any amount forgiven is taxable. So going with 300k principle with deferred payments during school gets you to approximately 340k by the end of school, using REPAYE with the half interest paid option gets that upto 367k by three years or 394k by 6 for a longer residency (all uncapitalized interest as well).
At that point, you go upto your real interest rate of 6%, which is approximately 18k a year as long, as you recertify every year and keep the interest from capitalizing. REPAYE has you at approx. $1,776 a month for 250k a year income, and 2609 for 350k a year (assumptions: family of 4 in continental US). Long story short, you will be forgiven 116k (taxed for 46k from that) add that to what you paid and you come up with approximately $645k. With the 250k income you will be forgiven 297k, which will then be taxed at approximately 40% percent for 119k (top bracket). Total paid = approx. 590k.
So using my handy compound interest calculator and working backwards, I have my short residency guys interest at approx. 2.4%, and my 'specialist' at approx. 2.7%. Assumptions are no raises for my Docs (but I also didn't raise the poverty level either, so no decrease in payment).
When I used student loan heros repayment calculator, and allowing for a 2% increase in pay (I do not think our reimbursement is keeping up with inflation) I came up with 667k paid for my 250k guy with 109k forgiven (so add 43.6k to 667 = 710k) over the 25 years. The problem is I have no way to correct for the 3 years of residency with this, but this is more like 3% over the life of the loan. For my specialist, he pays 632k and ends up paying off his loan in 17.3 years according to student loan hero. This is more like 3%, since he paid it off quicker.
I have to admit, I thought I disagreed with you earlier, but actually, you are closer to correct with the way REPAYE is set up. That whole never letting the interest capitalize while you are in it is a big deal and really makes a difference.
That said, I still don't like debt, and would absolutely prefer to be debt free. Mathematically tho, you are right that the interest rate is effectively 3% or less as currently set up. I have to think most stocks will beat 3% over 20 years tho.
Interesting side note: These programs definitely lose their benefit the more you make. At 500k REPAYE basically is the standard 10 year plan.