Hypothetically speaking...what is the worst thing that can happen if you cannot pay off your Federal Student Loans?

[nebuchadnezzarII]

Let's say for example you have 400k in student loans - all federal government loans. Let's also say you're in the PAYE program or whatever, and only pay 400 a month, and 10% a month after residency. If for some reason (poor income <10k a year, no income, etc.) you are unable to pay off the loan, even in 25-years, what happens? Do they put you in prison? I understand taking all your assets, but what if you don't own a house/car or anything?

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[Apollyon]

They kill your credit rating, can (and probably will) sue you, and you can never, ever discharge them, unless you die, or are permanently disabled. You lose the suit, you always owe them. Always.

 

[ucladoc2b]

Well, if you have been in a repayment plan (note it is possible to have a 0 payment if your income is low enough), your loans are forgiven after 25 years. But you may owe tax on the forgiven part.

 

[calvnandhobbs68]

Let's say for example you have 400k in student loans - all federal government loans. Let's also say you're in the PAYE program or whatever, and only pay 400 a month, and 10% a month after residency. If for some reason (poor income <10k a year, no income, etc.) you are unable to pay off the loan, even in 25-years, what happens? Do they put you in prison? I understand taking all your assets, but what if you don't own a house/car or anything?

Consequences of a Student Loan Default - FindLaw

A student loan default occurs when the borrower fails to stay current with the payments on their student loan. Delinquency begins the first day a borrower misses a

www.findlaw.com

They can do everything up to and including making sure you never get another tax refund again, garnishing wages, putting liens on your house/car/assets and even taking your social security benefits if it gets that extreme.

The poster above is correct though, with the fact that REPAYE/PAYE/IBR plans exist, you'd just stay in those plans (and never go back to a standard repayment plan) and then have the balance forgiven after 20-25 years depending on the plan.

 

[nebuchadnezzarII]

Consequences of a Student Loan Default - FindLaw

A student loan default occurs when the borrower fails to stay current with the payments on their student loan. Delinquency begins the first day a borrower misses a

www.findlaw.com

They can do everything up to and including making sure you never get another tax refund again, garnishing wages, putting liens on your house/car/assets and even taking your social security benefits if it gets that extreme.

The poster above is correct though, with the fact that REPAYE/PAYE/IBR plans exist, you'd just stay in those plans (and never go back to a standard repayment plan) and then have the balance forgiven after 20-25 years depending on the plan.

Thank you guys. I understand your loans are forgiven in 20-25 years for certain plans and that you still have to pay tax on them as income. So what happens if you can’t afford to pay that tax? The same cycle?

I don’t plan on/I don’t think I can get away with not paying my loans. I was just thinking about it and wondering what the situation would be if I ever decided to leave medicine and do something else without as much income....(and time commitments/stress).

 

[Dr.LeoSpaceman]

So what happens if you can’t afford to pay that tax? The same cycle?

You can enter into an installment agreement with the IRS. But if you default on that, then you're go down the delinquent taxpayer route which can involve a federal tax lien and action which prevents you from obtaining a passport (if the amount is large enough).

IRS Collection Process

 

[shaggybill]

If you switch jobs/lower income, you just adjust your income with REPAYE and your payment will still be 10% of your gross, whatever that new number is.

I've read there is already rumblings within the legislature about doing away with the "tax bomb" at the end of the repayment period. With the way the country is going I wouldn't be surprised to see that happen in the next 5-10 years, but I would certainly never count on it until it's written in stone.

 

[nebuchadnezzarII]

Thanks all. I’m just not sure what to do. If I should pay off my loans as required (10% of income) or if I should aggressively try to get rid of it after I am an attending. Just feels like I’m trapped.

 

[rokshana]

Thanks all. I’m just not sure what to do. If I should pay off my loans as required (10% of income) or if I should aggressively try to get rid of it after I am an attending. Just feels like I’m trapped.

Lol...are you are special how? Welcome to the world of medicine...probably 75% of the people posting here have Med school debt...we are generally not looking for ways to default...

 

[nebuchadnezzarII]

Lol...are you are special how? Welcome to the world of medicine...probably 75% of the people posting here have Med school debt...we are generally not looking for ways to default...

Right. But most people here want to do this for a long time. I’m looking at options in case I don’t want to do medicine forever.

 

[rokshana]

Right. But most people here want to do this for a long time. I’m looking at options in case I don’t want to do medicine forever.

Live like a resident for 3-4 years and put everything into your loans... 2-3 years you should be able pay off.

and again...many here are looking to get out of medicine in 10-15 yrs...not really that different.

 

[NotAProgDirector]

I am confused. You are a psych intern, slogging through 6 months of medicine. Most likely you will enjoy your PGY-2 much more than your PGY-1. When you're done with your psych training, you could still work a 50% job and make enough to pay back your loans. You're very likey to find that once you're finished training you enjoy your job. There's lots you can do as a physician. Thinking about quitting now is a bad call.

 

[Mass Effect]

Thank you guys. I understand your loans are forgiven in 20-25 years for certain plans and that you still have to pay tax on them as income. So what happens if you can’t afford to pay that tax? The same cycle?

I don’t plan on/I don’t think I can get away with not paying my loans. I was just thinking about it and wondering what the situation would be if I ever decided to leave medicine and do something else without as much income....(and time commitments/stress).

This Doctor Got $430,000 Of Student Loan Cancellation

Will your student loans get cancelled?

www.forbes.com

 

[Iamnew2]

They kill your credit rating, can (and probably will) sue you, and you can never, ever discharge them, unless you die, or are permanently disabled. You lose the suit, you always owe them. Always.

Not exactly. There have been numerous lawsuits re: this including an MD who was unable to get a residency and was working menial jobs who sued and won, essentially saying that there is no way he could ever pay back the massive amount of money he owed, given that while he was an MD he couldn't get a residency. I think 100% of his loans were wiped. Numerous other people have been away to wipe away loans in bankrupcty.

 

[Iamnew2]

This Doctor Got $430,000 Of Student Loan Cancellation

Will your student loans get cancelled?

www.forbes.com

Yes! this guy is who I was talking about. Thank you Mass Effect.

 

[Apollyon]

Not exactly. There have been numerous lawsuits re: this including an MD who was unable to get a residency and was working menial jobs who sued and won, essentially saying that there is no way he could ever pay back the massive amount of money he owed, given that while he was an MD he couldn't get a residency. I think 100% of his loans were wiped. Numerous other people have been away to wipe away loans in bankrupcty.

"Numerous"? Maybe you're being literal and mean "at least one", but, I don't think that that is what you mean. If it was a thing, there would be hundreds or thousands doing it.

 

[Iamnew2]

"Numerous"? Maybe you're being literal and mean "at least one", but, I don't think that that is what you mean. If it was a thing, there would be hundreds or thousands doing it.

Numerous as in a number of them. Not thousands or hundreds. In addition to the guy above, I have read about numerous people going to court, making cases of various sorts as to why their loans should be discharged and actually winning. There was even a recent article about a lawyer who "fights injustice" by going to court for people to get their loans discharged and apparently has been successful in getting reprieves. Don't have that article with me but progressively given the more liberalish nature of the nation and the big push to "cancel student loan debt" because people are flowers who "didn't know they were borrowing money they had to pay back" *eyeroll* people who can make a great case have a certain chance of getting loans decreased/removed. Yes it doesn't mean that a doctor making 400k will have any sympathy, I am simply saying that some people with reasonable arguments have had success in recent times, as opposed to the automatic no that was in the past.

 

[Dr.LeoSpaceman]

Thanks all. I’m just not sure what to do. If I should pay off my loans as required (10% of income) or if I should aggressively try to get rid of it after I am an attending. Just feels like I’m trapped.

The answer to this problem is "find a reputable financial advisor that charges hourly rates". At this point you won't have them doing much, so it's pretty cheap. As a resident we were paying like $250 a year to have someone just double-check our math.

The answer to whether you should aggressively pay off debt early vs. save/invest isn't necessarily straightforward, and hinges upon a variety of factors.

This article will give you some idea of those considerations. If thought of the debt gives you crippling anxiety, then yes, paying it off early might be the "right" move. But it's not necessarily the best one from a financial perspective.

 

[Iamnew2]

The answer to this problem is "find a reputable financial advisor that charges hourly rates". At this point you won't have them doing much, so it's pretty cheap. As a resident we were paying like $250 a year to have someone just double-check our math.

The answer to whether you should aggressively pay off debt early vs. save/invest isn't necessarily straightforward, and hinges upon a variety of factors.

This article will give you some idea of those considerations. If thought of the debt gives you crippling anxiety, then yes, paying it off early might be the "right" move. But it's not necessarily the best one from a financial perspective.

I agree to some extent. Paying off debt vs. making monthly payments and having money on hand is a personal choice. i personally despise debt, therefore i prefer to pay it off - i personally think it's very freeing to be able to live with no debt. others are not bothered by having debt and paying it off monthly. so really a personal choice. in general as an attending making 6 figs of some sort, no one is going to feel sorry for OP so the chance of discharge is next to 0.

 

[nikolaite]

To the OP: I was on a federal loan program ages ago that allowed for deferred payments until commencement. I had never even reckoned my debt prior to finishing, just signed a new promissory note every semester; extreme stupidity, I know. When it hit me all at once when payments kicked in, I was horrified.

It took me four years to pay off my crushing uni debt and mortgage while trying to get my business off the ground. I took an extreme antisocial route that most wouldn’t, though...not to the point of living out of my car, but close. And having zero debt is absolutely great.

About the feds: you shouldn’t be afraid to call up and negotiate if you really can’t pay and are clearly not trying to rip them off. In my experience fed depts have mostly reasonable people in them. For about two years I worked where I had to have daily convos with the IRS. Only had one single bad experience with a “Karen” (literally Karen in this case) who was having a bad day and was irrationally trying to make it better for herself by threatening liens and jail time.

I hope you can find the info you need to guide you. All the best.

 

[LucidSplash]

The existence of this thread means you need to look for the FB group for white coat investor and start reading and educating yourself.

 

[FlowRate]

Numerous as in a number of them.

Sorry, I just thought that was funny. Words you were probably looking for include some, several, or if you wanted to get mathy with it, ℝ, or programmy, int().

 

[Iamnew2]

Sorry, I just thought that was funny. Words you were probably looking for include some, several, or if you wanted to get mathy with it, ℝ, or programmy, int().

*sigh* I'm glad I found it humorous.

 

[SurfingDoctor]

Fake your death and have it discharged.

 

[brazilianpsych]

What if he moves to another country that recognizes US training, like Australia or New Zealand? Just curious about the possibility.

 

[AlbinoHawk DO]

What if he moves to another country that recognizes US training, like Australia or New Zealand? Just curious about the possibility.

You'd probably have to renounce your US Citizenship and even then the government may not agree to you renouncing. They can hunt you down. Besides, credit reporting agencies are international

 

[90sportsfan]

Let's say for example you have 400k in student loans - all federal government loans. Let's also say you're in the PAYE program or whatever, and only pay 400 a month, and 10% a month after residency. If for some reason (poor income <10k a year, no income, etc.) you are unable to pay off the loan, even in 25-years, what happens? Do they put you in prison? I understand taking all your assets, but what if you don't own a house/car or anything?

I don't know for sure. I heard a story about a MD who got through IM residency and racked up a ton of debt. Then he (she? don't remember) got SUED for Malpractice right after residency and it was such an agonizing ordeal, and due to the stress/pressure ended up quitting medicine. Not sure what happened but I'm guessing they will sue you. I also thought that if you have a license (assuming it's in good standing), they could place you in a federal medical facility so that you could essentially "work off your debt," but maybe that's just hearsay?

 

[90sportsfan]

Yes! this guy is who I was talking about. Thank you Mass Effect.

Was that the guy in California who had an MD from a Caribbean school, but couldn't get into a residency program and was working retail jobs and living with his parents?

I think I heard about that. It's really rare. If I remember correctly, the guy showed real evidence of years of trying to match and for some unknown reason (they did not mention in the articles I read; but I'm guessing it was grades/board scores) was getting rejected from everywhere (even low undesirable places) and thus couldn't get a license to be able to pay off the debt.

In the end, I think he still had to pay like $80K even though most of it was wiped out.

I think this would be unheard of for a US MD. Although the Anesthesiology resident who was charged with sexual harassment and was kicked out of residency, may be facing something similar.

 

[90sportsfan]

Thanks all. I’m just not sure what to do. If I should pay off my loans as required (10% of income) or if I should aggressively try to get rid of it after I am an attending. Just feels like I’m trapped.

At this point, you are too far in and will need to finish and grind it out (and work) until you at least pay off your debt. Once you do that, you can start thinking about other options (non-clinical jobs).

The thing about non-clinical medical-related jobs, is that they usually require a good bit of "real world" experience to get them.

 

[Etorphine]

firing squad