How much does debt matter?

Getting into Med School is Hard? Not with BeMo.
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ArkansasRanger said:
Well, I've never had student loans, but I'm guessing it may work like credit cards with an insanely small minimum payment. You could pay the $15 or so a month for the rest of your life and still die in debt. That's always an option.

This has nothing to do with. I pay off my CCs as soon as I get the bills.
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That's not how student loan repayment works.
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ArkansasRanger said:
Well, I've never had student loans, but I'm guessing it may work like credit cards with an insanely small minimum payment. You could pay the $15 or so a month for the rest of your life and still die in debt. That's always an option.

This has nothing to do with. I pay off my CCs as soon as I get the bills.
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The minimum monthly payment is usually more than that. You have a 10-year payoff plan built once you start making payments (that's supposedly the longest you can take to payoff the loans). That's 120 months that you have to pay off $200k+, with interest accumulating every year.

My payments on a $5k private loan, interest only, were like $35. Once I went into repayment, it jumped up to about $150 a month. I had a $1200 govt loan, and my minimum payments were a little more than $50 a month.

So paying $15 a month for the rest of your life isn't an option.
 
Like I said, I've never had student loans so I have no clue how they work. I was just throwing it out there. I didn't know they had a period of time they had to be paid off in. Just from what others have told me in passing I've always had the idea that they were a bit more liberal than a typical consumer loan.
 
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zogoto said:
Well, since I'm trying to choose between the two schools, I'm focusing on the difference rather than the absolute amount of debt.

Why would the $250K get eaten up? I mean, tons and tons of people live off of $125K or less (my family always has) and been perfectly happy. So you take the other $125K, after taxes it's $75K or so, and use it to pay the debt. Even with interest accruing for 5 years of training, a $200K debt will be $270K, only 1 year's worth of post-tax savings more.

Am I missing something? I know people say it takes forever to pay back the graduation debt, but I don't see why you can't just save more.
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1. Most people don't graduate and jump right to $250,000/year. Some specialties do, but if you're in any kind of specialty where you have to accumulate your own patient base, it could be a few years before you make that much.

2. Your loans accumulate a LOT of interest. This $200K will be around $300K by the time you finish med school, residency and fellowship. It continues to gain interest as you pay it off too.

3. What if you fall in love with family practice and want a job that pays $120K/year? Or even less? Now you're really in a bind.
 
MacVA said:
So, let me get this straight...

If you do IBR you must pay off the loans within a 10 year timeframe??

That cannot be correct... :eek:
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http://studentaid.ed.gov/PORTALSWebApp/students/english/IBRPlan.jsp

What are the benefits of IBR?



  • PAY AS YOU EARN - Under IBR, your monthly payment amount will be less than the amount you would be required to pay under a 10-year standard repayment plan, and may be less than under other repayment plans. Although lower monthly payments may be of great benefit to a borrower, these lower payments may result in a longer repayment period and additional interest.
  • INTEREST PAYMENT BENEFIT - If your monthly IBR payment does not cover the monthly interest that accrues on the loans, the government will pay your unpaid interest on Subsidized Stafford Loans (either Direct Loan or FFEL) for up to three consecutive years from when you first enter IBR repayment. After three years, and for all the other types of loans, interest that accrues will be capitalized (added to the loan principal on which future interest is calculated) when the borrower no longer is eligible for an IBR repayment amount.)
  • 25-YEAR CANCELLATION - If you repay under the IBR plan for 25 years and meet certain other requirements, any remaining balance will be cancelled.
  • 10-YEAR PUBLIC SERVICE LOAN FORGIVENESS If you work in public service and have reduced loan payments through IBR, your remaining balance after ten years in a public service job could be cancelled if you made loan payments for each month of those ten years. The Public Service Loan Forgiveness Program is available only if you have Direct Loans and you make 120 monthly payments under the Direct Loan Program. If you have FFEL loans, you may be eligible to consolidate them into the Direct Loan Program to take advantage of the Public Service Loan Forgiveness Program. However, only the payments made while in the Direct Loan Program will count toward the required 120 monthly payments. For more information about this program, review the Departments Public Service Loan Forgiveness Program Fact Sheet.
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mvenus929 said:
The minimum monthly payment is usually more than that. You have a 10-year payoff plan built once you start making payments (that's supposedly the longest you can take to payoff the loans). That's 120 months that you have to pay off $200k+, with interest accumulating every year.

My payments on a $5k private loan, interest only, were like $35. Once I went into repayment, it jumped up to about $150 a month. I had a $1200 govt loan, and my minimum payments were a little more than $50 a month.

So paying $15 a month for the rest of your life isn't an option.
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I think all federal student loans have a $50 per month minimum payment.
 
Current interest rates For subsidized and unsubsidized loans first disbursed between July 1, 1998, and June 30, 2006, the interest rate for the period July 1, 2009, through June 30, 2010, is 2.48% for loans in repayment and 1.88% during in-school, grace, and deferment periods. Similarly, for PLUS loans disbursed between July 1, 1998, and June 30, 2006, the interest rate is now 3.28%. The interest rate for new subsidized and unsubsidized loans first disbursed on or after July 1, 2006, is a fixed 6.80%, with these exceptions: subsidized undergraduate loans first disbursed between July 1, 2008, and June 30, 2009 (inclusive), have an interest rate of 6.00%; those disbursed between July 1, 2009, and June 30, 2010, have a rate of 5.60%. This will be further reduced in coming years. The interest rate for PLUS loans first disbursed on or after July 1, 2006, is a fixed 7.90%. For Direct consolidation loan interest rates, see that rate page for information.
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*Sigh*
 
MacVA said:
So, let me get this straight...

If you do IBR you must pay off the loans within a 10 year timeframe??

That cannot be correct... :eek:
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It isn't, you misread the page:

Under this plan the required monthly payment will be based on your income during any period when you have a partial financial hardship. Your monthly payment may be adjusted annually. The maximum repayment period under this plan may exceed 10 years. If you meet certain requirements over a specified period of time, you may qualify for cancellation of any outstanding balance of your loans.
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TheProwler said:
When residents graduated med school in ~2002-2003, some of them were consolidating at 2-3% interest. Now, if you consolidate, it's at the same interest rate as what you've got (6.8%).
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The game has changed for the worse for students today. All the more reason to avoid taking on more debt than necessary to get a standardized medical education.

My guess is that financially illiterate premeds have no idea how much worse that higher interest and consolidation rate is for people borrowing now...the power of compounding interest is awesome.
 
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I don't understand the "just 200k" type arguments anyway. That is a nice house in some areas. That is a very nice car and college tuition for a kid. That is an extra year or two early to retire. lol
 
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zogoto said:
Well, since I'm trying to choose between the two schools, I'm focusing on the difference rather than the absolute amount of debt.

Why would the $250K get eaten up? I mean, tons and tons of people live off of $125K or less (my family always has) and been perfectly happy. So you take the other $125K, after taxes it's $75K or so, and use it to pay the debt. Even with interest accruing for 5 years of training, a $200K debt will be $270K, only 1 year's worth of post-tax savings more.

Am I missing something? I know people say it takes forever to pay back the graduation debt, but I don't see why you can't just save more.
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You CANNOT focus on the difference you MUST focus on the absolute amount of debt. Student loans use compound interest so the larger your original principle the quicker and larger your debt will accrue. The difference between a principle of 70K and 200K will continue to grow WELL beyond the original 130K.

Oh sweetheart, how old are you, have you lived on your own yet? You are indeed missing something....the economics of real life.

I want to give you some math/tax economics to help you understand what you are looking at, I'd also suggest you talk to your parents because if they've made a nice life for you they should certaintly know something about interest, debt and taxes.

$250,000 (salary)
-80,000 (you're in one of the highest tax brackets the Fed. govt. will take at least a third of you money for social security, medicare and income tax. Probably more by the time this health care boondagle gets settled.)
-2,500 (local taxes-thats a very conservative estimate, usually around 1% unless you life in a high cost area)
-7,500 (state taxes-estimate 3% could be more or less depending on your state)
-4200 (car payment of 350---really cheap car!)
-1,500 (insurance and upkeep on said car)
-24,000(rent+utilities+renters insurance at $2,000/mnth---you're living on the cheap)
-5200 (food, clothing, some luxury items $100 per week...Meaning you are stilll living like a poor medical student well into your 30s)
-2000 (health insurance, assuming your employer pays the rest)

Total income after necessary deductions: about $123,000

So yes maybe you could put that 123K right into your loans, but notice that in the above you didn't: (1) save for a downpayment on a house (2) have kids (3) get married (4) save for retirement (5) save any money in general (6) go on vacation (7) have any unforseen financial issues--car breaks down, dog eats a sock and needs surgery (8) buy anything that costs more than $100 per week--no flat screen, no golf clubs, no nice dinners, no gifts for the significant other

If you actually want to own your own home you could never pay more than a few hundred per month toward student loans.

Your plan of paying off 200k of initial debt is shot unless you want to live like a hobo in the basement of the hospital. Think about it this way, there is a reason that even wealthy doctors take out 15-30 year mortgages...because no one can pay a few hundred thousand dollars in a few years. The more money you make the more luxuriously you will want to live. When your fellow specialists are going to Greece are you gonna be happy going to Six Flags for vacation???

My advice--go where you will be happy. But if taking more than a few years to pay off debt, or having to bicycle to work will make you unhappy in the long run go for the school with less debt...or alternatively marry someone who makes a ton of money and all your problems are solved.
 
zogoto said:
Well, since I'm trying to choose between the two schools, I'm focusing on the difference rather than the absolute amount of debt.

Why would the $250K get eaten up? I mean, tons and tons of people live off of $125K or less (my family always has) and been perfectly happy. So you take the other $125K, after taxes it's $75K or so, and use it to pay the debt. Even with interest accruing for 5 years of training, a $200K debt will be $270K, only 1 year's worth of post-tax savings more.

Am I missing something? I know people say it takes forever to pay back the graduation debt, but I don't see why you can't just save more.
Click to expand...

I see what you are saying and you do make a valid argument however, don't you have to start paying off debts in residency? I think the extra 125k in debt would become QUITE burdensome when you are making the equivalent of a first-grade teacher.

With that said, I think I would make the same choice as you ( and actually did with regards to my undergraduate institution[NYU>awesome state school]. Power too you and do what YOU think will make YOU happiest :xf:
 
Van Chowder said:
I see what you are saying and you do make a valid argument however, don't you have to start paying off debts in residency? I think the extra 125k in debt would become QUITE burdensome when you are making the equivalent of a first-grade teacher.

With that said, I think I would make the same choice as you ( and actually did with regards to my undergraduate institution[NYU>awesome state school]. Power too you and do what YOU think will make YOU happiest :xf:
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You don't have to make the full $2-3k per month payments while in residency, but, of course, you end up paying more for it in the long run.
 
Van Chowder said:
I see what you are saying and you do make a valid argument however, don't you have to start paying off debts in residency? I think the extra 125k in debt would become QUITE burdensome when you are making the equivalent of a first-grade teacher.
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No, you don't. ALL residents can forbear on their loans for their entire residency. However, interest is accumulating, and it might also be capitalizing onto your principle (AKA, the snowball effect).
 
TheProwler said:
No, you don't. ALL residents can forbear on their loans for their entire residency. However, interest is accumulating, and it might also be capitalizing onto your principle (AKA, the snowball effect).
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I think the law changed on that a year or two ago. From what I recall, residents can pay reduced amounts on their loans due to economic hardship, but they can no longer defer/forbear during residency. Could be wrong, though.
 
TooMuchResearch said:
I think the law changed on that a year or two ago. From what I recall, residents can pay reduced amounts on their loans due to economic hardship, but they can no longer defer/forbear during residency. Could be wrong, though.
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Forbearance is still available, it's deferment that took a hit.

The only difference is that your subsidized loans do not accrue interest in deferment, while they do in forbearance. Most of your loans will be unsubsidized, and thus accrue interest either way.
 
The majority of medical students have to take out loans to pay for medical school. Time and time again, I hear it from a variety of financial experts, like Suze Orman, etc, the best types of loans you can use are ones guaranteed by the federal gov't. If and when I got accepted to med school, I would use subsidized/unsubsidized stafford loans in conjuntion ith graduate plus loans to cover all expenses. At least this way, some of the loans, the subsidized ones will have no interest while your in school and the others with have fixed interest rates.

I would never take private loans unless absolutely necessary because the majority of them can change the interests rates to ridiculous amounts making it impossible to pay.
 
smarty666 said:
The majority of medical students have to take out loans to pay for medical school. Time and time again, I hear it from a variety of financial experts, like Suze Orman, etc, the best types of loans you can use are ones guaranteed by the federal gov't. If and when I got accepted to med school, I would use subsidized/unsubsidized stafford loans in conjuntion ith graduate plus loans to cover all expenses. At least this way, some of the loans, the subsidized ones will have no interest while your in school and the others with have fixed interest rates.

I would never take private loans unless absolutely necessary because the majority of them can change the interests rates to ridiculous amounts making it impossible to pay.
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The annual limit for subsidized+unsubsidized Stafford loans is $40,500 per year for medical students, with a limit of $224,000 total (including undergraduate and any other graduate debt).

My private undergrad loans are currently at 4% and 5.25% (yes, I know they're variable rate loans...). Grad PLUS loans are what, 8.5%?
 
TooMuchResearch said:
The annual limit for subsidized+unsubsidized Stafford loans is $40,500 per year for medical students, with a limit of $224,000 total (including undergraduate and any other graduate debt).

My private undergrad loans are currently at 4% and 5.25% (yes, I know they're variable rate loans...). Grad PLUS loans are what, 8.5%?
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I think those numbers you quoted are correct. I am lucky in the fact I paid off my undergraduate stafford loans so when I go into grad or med school I'll have the full load. I guess if you have undergrad loans you might max out your gov't loans with certain med schools, especially private ones, so you might need a private loan.
 
smarty666 said:
I think those numbers you quoted are correct. I am lucky in the fact I paid off my undergraduate stafford loans so when I go into grad or med school I'll have the full load. I guess if you have undergrad loans you might max out your gov't loans with certain med schools, especially private ones, so you might need a private loan.
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I thought it was lifetime amounts regardless of amount paid off.
 
TooMuchResearch said:
The annual limit for subsidized+unsubsidized Stafford loans is $40,500 per year for medical students, with a limit of $224,000 total (including undergraduate and any other graduate debt).
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You can get more than that for Stafford loans. My school's tuition is $38,000/year for out-of-state, and there's at least another $10,000 on top of that for living expenses. Stafford loans will cover it.
 
TheProwler said:
You can get more than that for Stafford loans. My school's tuition is $38,000/year for out-of-state, and there's at least another $10,000 on top of that for living expenses. Stafford loans will cover it.
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I don't think the loans over the 40 grand are Stafford anymore. They're Grad Plus loans, which are slightly different, with a higher interest rate and a credit dependency. Schools will give you loans up to your cost of attendence, but they're not all Staffords.
 
Kb041 said:
You CANNOT focus on the difference you MUST focus on the absolute amount of debt. Student loans use compound interest so the larger your original principle the quicker and larger your debt will accrue. The difference between a principle of 70K and 200K will continue to grow WELL beyond the original 130K.

Oh sweetheart, how old are you, have you lived on your own yet? You are indeed missing something....the economics of real life.

I want to give you some math/tax economics to help you understand what you are looking at, I'd also suggest you talk to your parents because if they've made a nice life for you they should certaintly know something about interest, debt and taxes.

$250,000 (salary)
-80,000 (you're in one of the highest tax brackets the Fed. govt. will take at least a third of you money for social security, medicare and income tax. Probably more by the time this health care boondagle gets settled.)
-2,500 (local taxes-thats a very conservative estimate, usually around 1% unless you life in a high cost area)
-7,500 (state taxes-estimate 3% could be more or less depending on your state)
-4200 (car payment of 350---really cheap car!)
-1,500 (insurance and upkeep on said car)
-24,000(rent+utilities+renters insurance at $2,000/mnth---you're living on the cheap)
-5200 (food, clothing, some luxury items $100 per week...Meaning you are stilll living like a poor medical student well into your 30s)
-2000 (health insurance, assuming your employer pays the rest)

Total income after necessary deductions: about $123,000

So yes maybe you could put that 123K right into your loans, but notice that in the above you didn't: (1) save for a downpayment on a house (2) have kids (3) get married (4) save for retirement (5) save any money in general (6) go on vacation (7) have any unforseen financial issues--car breaks down, dog eats a sock and needs surgery (8) buy anything that costs more than $100 per week--no flat screen, no golf clubs, no nice dinners, no gifts for the significant other

If you actually want to own your own home you could never pay more than a few hundred per month toward student loans.

Your plan of paying off 200k of initial debt is shot unless you want to live like a hobo in the basement of the hospital. Think about it this way, there is a reason that even wealthy doctors take out 15-30 year mortgages...because no one can pay a few hundred thousand dollars in a few years. The more money you make the more luxuriously you will want to live. When your fellow specialists are going to Greece are you gonna be happy going to Six Flags for vacation???

My advice--go where you will be happy. But if taking more than a few years to pay off debt, or having to bicycle to work will make you unhappy in the long run go for the school with less debt...or alternatively marry someone who makes a ton of money and all your problems are solved.
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that was really helpful. But if you are still single at that point in life, then I would use the 50k/123k left over for lifestyle comforts

Then use the leftover 70k to pay loans. Do this for 4 years and the 280k loan is paid off while living with 50k spending money per year.

if you are married at that point, your 50k plus your spouse's salary will cover kids, downpayment on the house, and family expenses.

Then after the fours years, you are ready to upgrade the car, buy a house, start saving for retirement and in general.
 
Infinitydrop said:
that was really helpful. But if you are still single at that point in life, then I would use the 50k/123k left over for lifestyle comforts

Then use the leftover 70k to pay loans. Do this for 4 years and the 280k loan is paid off while living with 50k spending money per year.

if you are married at that point, your 50k plus your spouse's salary will cover kids, downpayment on the house, and family expenses.

Then after the fours years, you are ready to upgrade the car, buy a house, start saving for retirement and in general.
Click to expand...

You are still missing the point. You will not have that $70k in hand at one point in time - you will accrue small pieces of it with each paycheck. At the same time, the meter is running on the $280k debt - you will have monthly payments of at least $2500 to just stay current on the debt without really reducing much of the principal. (i haven't run it through a financial calculator, but this seems in line with what i recall).

It will take far more than 4 x $70k over 4 years to extinguish a $280k debt. Compounding interest is working against you every single day, and the fact that you do not have this lump sum of money on hand is a big problem, too.

Paying down debt is an insidious process. It is hard enough to make the minimum payments much less to magically pay off large chunks of the debt at any point in time because you do not have that kind of money at any one point in time since it is paid to you incrementally.
 
flip26 said:
You are still missing the point. You will not have that $70k in hand at one point in time - you will accrue small pieces of it with each paycheck. At the same time, the meter is running on the $280k debt - you will have monthly payments of at least $2500 to just stay current on the debt without really reducing much of the principal. (i haven't run it through a financial calculator, but this seems in line with what i recall).

It will take far more than 4 x $70k over 4 years to extinguish a $280k debt. Compounding interest is working against you every single day, and the fact that you do not have this lump sum of money on hand is a big problem, too.

Paying down debt is an insidious process. It is hard enough to make the minimum payments much less to magically pay off large chunks of the debt at any point in time because you do not have that kind of money at any one point in time since it is paid to you incrementally.
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That's why i rounded the person's debt to 280k instead of 200k to take into effect the interest. in 4 years, you will also likely recieve a pay raise as well, furthur to help you equal out the debt.

beside, 70k /12 is 5800 dollars. So you can pay back 5800 a month. How is that barely making miminum payment? If its a frugal month, you can pay back 1000 more from your 50k lifestyle a year money.

There's nothing magically about this process, the truth is that over 4 years at 250k, you will make 600k after taxes. At the end of 4 years, your 200k loan goes to 300k at most. And you have 300k leftover/ 4 thats near 80k a year. And you can live very nice off of that.
 
Infinitydrop said:
That's why i rounded the person's debt to 280k instead of 200k to take into effect the interest. in 4 years, you will also likely recieve a pay raise as well, furthur to help you equal out the debt.

beside, 70k /12 is 5800 dollars. So you can pay back 5800 a month. How is that barely making miminum payment? If its a frugal month, you can pay back 1000 more from your 50k lifestyle a year money.

There's nothing magically about this process, the truth is that over 4 years at 250k, you will make 600k after taxes. At the end of 4 years, your 200k loan goes to 300k at most. And you have 300k leftover/ 4 thats near 80k a year. And you can live very nice off of that.
Click to expand...

You, and many others, have no concept of the time value of money, the process of compounding interest, the net cash flow of your income after taxes, and realistic budgeting.

In addition, your "analysis" assumes an income level, and you are now assuming pay "raises," that simply can't be reliably projected. If anything, physician compensation is likely to continue to decline in 2010 dollars in the future once inflation returns.
 
ThaliaNox said:
I don't think the loans over the 40 grand are Stafford anymore. They're Grad Plus loans, which are slightly different, with a higher interest rate and a credit dependency. Schools will give you loans up to your cost of attendence, but they're not all Staffords.
Click to expand...
I'm graduating this May, so if things are changing for next year, I wouldn't know, but people have gotten >$40K/year without using Grad Plus.
 
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