Effects of loan debt

Discussion in 'Medical Students - DO' started by bla_3x, Oct 20, 2002.

  1. bla_3x

    bla_3x Grip it and rip it!
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    OK, I know that i Will likely be 200K+ in debt after medical school. I'm OK with this, and I know that I will eventually pay it off. My fiance is going to be a RN (she'll start after my first quarter of med school) and making "decent" money. Now, when I get out of medical school and residency, how is my student loan debt going to effect my family in things like buying a car/house/etc.? Am I going to have to wait until I make a large dent in the debt to bring my debt:income down??
    I will almost definately have to defer my loadns while in residency, but I "hope" to be able to at least make interest payments during this time.
     
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  2. Do you want to know if you can AFFORD these things or if your credit will allow you to buy these things?


    Assuming you have maintained good credit, your credit score will be "fine". When I say fine, I mean it will be in the 650-700 range on an 800 scale, especially if you have a history of installment purchases like automobiles. It won't be at the top of the score scale because of the high debt to income ratio, but as time passes and your student loans get paid down, your score will be at the top of the scale, and you'll get the best interest rates on your major purchases.

    I recommend everyone check a copy of their credit report. www.equifax.com. They offer all 3 reports from all three major reporting agencies. If you have any mistakes on your credit report, make sure you get them cleared up. The sooner the better. It takes months to really get it all fixed.
     
  3. double elle

    double elle Senior Member
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    It's my understanding that you can defer, or use a forbearance, (I don't remember) during residency. However....what it really comes down to is how much you want to spend vs how badly you want those loans paid off........and how much money you want to throw out the window in interest.

    As medical students who may 'do without' for so long...it's tempting to go splurge on a car or new house for the family. However, using that down payment for the house could significantly knock out at least part of a student loan...and you are now interest free on what you paid. Whereas, if you buy that new house, not only did you not pay any loans and have interest to still pay on that....you now ALSO have a larger house payment with the interest on that, too. Which, if you have no problem with that...it's great. If you can just stand to live frugally for the first few years after you begin making significant cash...and apply most of it towards loans, not only may you feel a little less stressed about how much you owe....you will be able to, perhaps, even buy a better house or car when you decide to do so.

    That's the 'ideal'...however, most of us don't live by that. It's completely up to you on how you want to handle the finances. However, you may want to sit down with an advisor when the time comes to seriously calculate all the interest you are paying by paying your loans off in 10,20,and 30 years. I think when you see the figures, it will astound you.

    For example, we were going to consolidate my undergrad loans and go with the 25 year plan instead of the 10 year, high payment plan. Well, the payments were a ton cheaper, but guess how much EXTRA interest would have been tacked on if I'd waited the entire 25 years to pay...this is on about 38,000 in loans....it would have been and EXTRA 50,000 bucks in interest alone vs if I just keep it on the 10 year plan. Needless to say, we kept it where it was.

    There are tons of people out there who can sit down with you and help you figure all this out....and factor in how you can buy a new house, car, etc if you choose to do so. Many docs are still paying on their loans 25 years after school, and that's fine if they are okay with that. However, some docs pay off their loans in less than 10 years and just live simply to get rid of the debt. It's up to you and your comfort level.
     
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  4. San_Juan_Sun

    San_Juan_Sun Professor of Life
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    Just a quick note to those who might be reading this thread:

    Many of you obviously know this, but it always bears repeating. Please be wise whn you are considering taking out loans. I know that virtually no one can pay for school without them, but you can moderate the amount of money you need to live on. In short, just avoid unnessecary debt. It eventually makes a huge difference.

    Also, the guy who wrote my LOR gave me some good advice that is worth sharing. He talked about young docs finally making good money and qualifying for loans on houses, cars, etc. He said they get a bit starry eyed, and end up with huge debt amounts that stifle their ability to live hppily and practice as they see fit. He broke down the math for me, and starting a practice will make you money, but don't order yourself a Mercedes until you are sure you can handle it. :)

    I worked as a loan officer for a while, and getting into people's finances you wouldn't belive the amount of debt they carry. Oh yeah, another word of advice: be VERY, VERY careful when you buy a house. Despite all the truth-in-lending laws, it is still very easy to get screwed.

    I know most of you have realized this, especially those who have used loans for their undergrad education. Just remember to be smart and avoid debt like the plague if possible.
     
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  5. BigSkyDreams

    BigSkyDreams Smelly Uncle Member
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    Howdy,

    http://www.interest.com/cgi-bin/financial_new.cgi

    $200,000 @ 8.25 x 10 years = The monthly payment would be $2453.05. Your total interest costs for this loan would be $94366.46

    $200,000 @ 8.25 x 8 years = The monthly payment would be $2852.81. Your total interest costs for this loan would be $73870.43

    $200,000 @ 8.25 x 6 years = The monthly payment would be $3531.11. Your total interest costs for this loan would be $54240.13 :eek:

    $200,000 @ 8.25 x 25 years = The monthly payment would be $1576.90. Your total interest costs for this loan would be $273070.27 :mad:

    The interest rate is the worst case but it serves the purpose.

    http://www.zeal.com/exit.jhtml?cid=...website/profile.jhtml?cid=81767&wid=100235307

    The above link is to estimate Federal income tax (neglecting State/local taxes)

    @ $120,000 taxes without deductions, married, two dependents, etc is $ 21,000. Add in your deductions and shelters and you should be able to afford the rent and student loans.


    I was making 20,000 before med school, NOW i am living on 18,000. I think that I will be able to pay off the loan in less than ten years. As medical students we are acclimated to poverty, why not ride the tide for a few more years?
     
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  6. maysqrd

    maysqrd Go A's!
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    I know this might sound strange but if you are married and looking at how to payback the debt so that you can eventually enjoy your income after residency I suggest that you find a way to live on your spouse's income only.

    By learning to live on one income in our household, I will be able to take all of my income in the first three years after residency and pay off all of my loans. It seems like such a waste to not be able to spend my income once I start making a decent salary but then if I look at it from the perspective of being able to pay off my loans in three years and not having any debt anymore then it is worth it.

    Think of it as a kind of self imposed military scholarship or NHSC programs except that instead of having to go into the residency that they choose, I get to do what I want and I will still only be committing three years of my life.
     
  7. bla_3x

    bla_3x Grip it and rip it!
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    We have actually thought about doing just that. It will be hard, and i "hope" that we will be able to at least make some interest payments while I'm in residency.

    Personally I am just waiting to hit "Megabucks" so I dont have to bother with loans!:D
     
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  8. kirkdo

    kirkdo Member
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    If you don't want to have major loan debt then consider a military or National Health Service Corps Scholarship.
     
  9. Newdoc2002

    Newdoc2002 Senior Member
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    While it is tempting to pay off your loans as quickly as possible, remember to keep the long term in perspective.

    A key strategy is to consolidate your loans post-graduation which allows a longer payback time but the key feature is that you lock in an average interest rate on your qualified loans which now is hovering around 4%.

    Four percent is LOW and that interest is deductible on your income tax. While the stock market hasn't been great lately, its long term return has been much higher than 4%.

    You may think about taking more than 3-4 years to pay off loans and allocating a BIG chunk of your income into retirement savings which can yield a greater long term return than just paying off student loans as quickly as possible.

    This can be complex but there are financial gurus who are eager to help young doctors with this planning. I would suggest you enlist their help even before graduating.;)
     

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