Loan forgiveness

[oldtimer]

Pardon me if this topic has been discussed ad nauseam in the past. For those of you who are nearing the end your residencies and will work for practice groups or hospitals, are you finding that most of these places offer some form of loan forgiveness where they will pay off some or all of your medical school loans in exchange for working there for an agreed period of time? If these loan forgiveness programs are common, do most people accept them? I'm interested in learning about people's experiences with these programs and what they think are the pros and cons. Thanks in advance!

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[oldtimer]

100+ views and NOT 1 response??? Somebody out there must have come across these programs. Should I interpret this deafening silence to mean that loan forgiveness programs are rare?

 

[fourthyear]

I have only heard of this for Family Practice docs in rural/underserved areas. They are in need of primary care doctors in many rural areas and some places are willing to reward a 2-5 year time commitment with some loan repayment programs. Other than that, the military programs are the only form of using worktime to pay off loans.

 

[iwakuni_doc]

US Public Health Service also has programs for loan foregiveness in exchange for working in under-served areas.

 

[oldtimer]

What about competitive specialties like Derm, Opth, Rads, EM, Neurosurgery, etc? Do these hospitals or practice groups dangle loan forgiveness in front of prospective candidates as an incentive to join them? When I graduated from college and went to work, my first employer used a signing bonus as an incentive. What do hospitals and practice groups use to intice strong candidates to come work for them?

 

[ckent]

Hey oldtimer,
I probably know less about this then you do, but I will tell you that I have seen many employment ads looking for physicians with generous loan re-payment deals for your first year out. It works out nicely for both you and your employer, I don't think that you or your employer has to pay taxes or social security/medicare on whatever they elect to pay off from your loans. I've also seen a lot of places offer signing bonuses in leu of the loan repayment program. Don't worry, as a radiologist, I'm certain that you won't have any difficulty making those down payments. Unless you decide to read mammograms for the underserved all day I suppose.

ckent

 

[Andrew_Doan]

Originally posted by oldtimer
What about competitive specialties like Derm, Opth, Rads, EM, Neurosurgery, etc? Do these hospitals or practice groups dangle loan forgiveness in front of prospective candidates as an incentive to join them? When I graduated from college and went to work, my first employer used a signing bonus as an incentive. What do hospitals and practice groups use to intice strong candidates to come work for them?

Hi oldtimer,

When you join a practice and they offer you "loan payback", you really need to sit down and do the math with someone who knows what they're doing. Most incentive packages for newly graduated residents include: profit sharing plans, signing bonuses, funds for CME, non-financial incentives, practice-buy-ins, and base salary.

The loan payback is really part of your total compensation; thus, your starting salary may also be lower than your peers. For instance, if a practice is willing to pay off your loans in 4 years and you owe $140K, then you may find that your base salary over those 4 years may also be lower.

Clearly, each situation will be different. Thus, you really need to sit down and consider your whole compensation package. I think most of us are too focused on the actual dollar amount being given as "pay". There are many ways of getting compensated that will not be reflected in your monthly paycheck, e.g. retirement funding, health and life insurance, cell phone, paid trips for CME and meetings, etc...

One other thing you should think about is location. For instance, a general surgeon in a large city may make about $200K/year while a general surgeon in a city of 50-100K in Kansas can make two or three times the amount. You could go work in a small town/city and pay back your loans in 1-2 years.

 

[oldtimer]

Thanks for the info everyone. I'm asking about loan forgiveness because I am trying to make an important decision between paying for most of medical school using my savings or taking out loans in the hope that the hospital or practice group I join will offer some form of loan payback. If these programs are common, it makes more sense to take out loans. However, as many have pointed out, there are many other facets to the compensation plan that need to be considered. I want to get other people's opinions. If you had significant savings that you had accumulated from working, oh let's say 100K, would you pay for school using your savings or taking out loans?

 

[Andrew_Doan]

Originally posted by oldtimer
If you had significant savings that you had accumulated from working, oh let's say 100K, would you pay for school using your savings or taking out loans?

If you have $100K, the investment return on that $100K is going to be higher than the interest rates charged for current student loans. I can't predict what the interest rates will be in 4 years, but if the student loan interest rates remain low, you're better off taking out the loan. You can always use your savings to pay off the loans at any time without penalty.

On the other hand, this will also depend on how much federal student loans you will qualify for. You definitely won't receive subsidized loans, but you will likely be able to take out un-subsidized student loans that accrue while you're in school and training.

You may end up paying part of your education with loans and the rest with your savings.

 

[edmadison]

Two points to raise,

First, investments are no guarentee unless you are in a money market or CDs. These rates will certainly be less than you student loan interest. Higher interest rate investments entail more risk so be carefull.

Second, loan forgiveness will incur taxable income, but better than the alternative.

Ed

 

[kristing]

Originally posted by Andrew_Doan
If you have $100K, the investment return on that $100K is going to be higher than the interest rates charged for current student loans. I can't predict what the interest rates will be in 4 years, but if the student loan interest rates remain low, you're better off taking out the loan. You can always use your savings to pay off the loans at any time without penalty.

On the other hand, this will also depend on how much federal student loans you will qualify for. You definitely won't receive subsidized loans, but you will likely be able to take out un-subsidized student loans that accrue while you're in school and training.

You may end up paying part of your education with loans and the rest with your savings.

You will qualify for subsidized staffords. They are not based on need.

 

[Southern Hick]

hey,

yes, be careful with investing your loan money--better stick it in something that is stable (CD, money market, perhaps if for the longer haul, an index fund).

btw, for those who have already done it, at what point this year can i start the consolidation process? do i really need to wait until i've graduated, or can i get the ball rolling like in april or so? (i'll be travelling between graduation and internship so i want to get it done earlier rather than later, and before rates go up again in july). i have student loans spread out over several lenders from college, even med school (i.e. Federal gov't, sallie mae, others). i'll probably consolidate all my loans with sallie mae since i can eventually lower my interest rates further with regular on-time payments?

thanks everyone!

 

[DrQuinn]

You SHOULD consolidate during your grace period, as you'll get another 0.6% interest knocked off. I locked in at 2.6%, and after 4 years it will be dropped down to 1.4%....

ONE POINT FOUR PERCENT! That's less than a money market, and close to inflation. Hence, I am in no hurry to pay off my loans, and will (after economic hardship) be paying only about 700 a month (for 30 years).

Q, DO

 

[Andrew_Doan]

Originally posted by kristing
You will qualify for subsidized staffords. They are not based on need.

FYI. They are based on need. Tax payers are not going to pay for your interest free loans if you have money.

Read the info below:

http://www.ed.gov/prog_info/SFA/StudentGuide/2002-3/stafford.html

"A subsidized loan is awarded on the basis of financial need. You will not be charged any interest before you begin repayment or during authorized periods of deferment (see below). The federal government "subsidizes" the interest during these periods."

 

[apellous]

Oldtimer

One other consideration here is that for must of us without saving, investments, houses, ect the loan repayment is a good thing b/c neither the employer or that person will have to pay taxes on the money. But on the other hand loan forgiveness is taxable in some instances. 1) if your assests are greater than the some forgiven. for example you have a house, car, boat =100,000 and 150,000 in debt only the 50,000 is tax free. also keep in mind that if it is spread over 3-4 years you will accumulate more assets and the money forgiven my also be spread over those years resulting in taxable income.

Anyway be careful marry a CPA if you can still do so b/c knowning the rules to our insane tax code is the best way to keep money in your pocket.

 

[edmadison]

Originally posted by apellous
Oldtimer

One other consideration here is that for must of us without saving, investments, houses, ect the loan repayment is a good thing b/c neither the employer or that person will have to pay taxes on the money. But on the other hand loan forgiveness is taxable in some instances. 1) if your assests are greater than the some forgiven. for example you have a house, car, boat =100,000 and 150,000 in debt only the 50,000 is tax free. also keep in mind that if it is spread over 3-4 years you will accumulate more assets and the money forgiven my also be spread over those years resulting in taxable income.

Anyway be careful marry a CPA if you can still do so b/c knowning the rules to our insane tax code is the best way to keep money in your pocket.

I'm not exactly sure where this definition comes from, but this issue is governed by Section 108 of the Internal Revenue Code covers "income from sidcharge of indebtedness". Unless you are working in a special loan forgiveness program serving special needs area, loan foregiveness or payback is income. Certainly the OPs question addresses a practice groups or hospitals which would pay off loans. That would be taxed.

Let me know if you have found otherwise.

Ed

 

[kristing]

Originally posted by Andrew_Doan
FYI. They are based on need. Tax payers are not going to pay for your interest free loans if you have money.

Read the info below:

http://www.ed.gov/prog_info/SFA/StudentGuide/2002-3/stafford.html

"A subsidized loan is awarded on the basis of financial need. You will not be charged any interest before you begin repayment or during authorized periods of deferment (see below). The federal government "subsidizes" the interest during these periods."

Dude - my bad.

That said, I have yet to run into anyone who didn't qualify for the full amount of subsidized staffords in grad/med school. Even my friend who left a job as a programmer in Silicon Valley and was making bank.

If you do make a lot of $ now, if you start med school and you don't have income (few of us do, you know), your EFC will go down sharply and then you are most likely to qualify for a sub stafford.

Again, sorry for the mistake.

 

[ccCrazie]

Even if you have some bank, you can still get 8500 a year in subsidized loans. I receive no financial aid whatsoever because my parents make enough (although they don't contribute anything to med school) and I have a decent amount in savings. I take out the full 38.5K a year and 30,000 is unsubsidized, while the remaining 8,500 is automatically subsidized. I think if you have more need you can get more subsidized.

If you have savings, I say invest in some blue chips. They won't make you big bucks fast but they grow fairly steadily over time. Plus it's always nice to know you have a cushion in case of an emergency or if you decide to buy a house or something.

 

[ccCrazie]

One thing I don't know, and maybe someone could answer it for me....

What exactly happens to loans during residency? You can defer payment and just accrue interest right? Is there a set amount of time you can do that for or is it for your entire residency? Also, does deferring repayment depend on your financial situation or can anyone do it? Any help would be appreciated.

 

[Andrew_Doan]

Originally posted by ccCrazie
One thing I don't know, and maybe someone could answer it for me....

What exactly happens to loans during residency? You can defer payment and just accrue interest right? Is there a set amount of time you can do that for or is it for your entire residency? Also, does deferring repayment depend on your financial situation or can anyone do it? Any help would be appreciated.

Some may defer their loans, but most will have to forbear.

To defer loans, you have to be considered an "old borrower": that is have an outstanding stafford loan that was taken out before 1993 (pls correct me if I'm wrong about the year). Under this rule, you have 2 years of deferment for subsidized loans and interest does not accrue. The bonus is that if you consolidate near the end of those 2 years, then you get an additional 2 years! Which I did b/c my first student loan was in 1989.

Most will have to forbear where interest will accrue during residency and fellowship training, but you will not have to make payments. I recommend paying the interest because the loan is going to balloon. I believe anyone in residency training will be able to forbear.

I hope this helps!

 

[ckent]

Yup, I retract my previous post and now agree with many of the other users in this thread. I just consulted a medical contracting lawyer who charges $240 per hour (he was at my school giving a talk). He told me that loan forgiveness packages are rare, and they essentially work as signing bonuses in that in general, it's the employers who have difficulty attracting physicians to their location who offer them (probably why I see so many of them posted in the back of JAMA all the time, because it's really expensive to advertise in there, so a lot of employers who do advertise there are desperate for physicians). They are fully taxable just like income or a signing bonus. This is even true for government programs that offer loan forgiveness programs, you end up being charged with taxes for loans that you are forgiven on as if they were income. This lawyer told me that everyone should consult a medical contracting lawyer before signing a contract too, because there is a lot of legal mumbo jumbo that they put in these contracts that can really screw us and everything is negotiable.

 

[apellous]

www.bankrate.com/nsc/itax/news/tax_surprises/forgiven-debt.asp

CHeck out the link. everything is here on the forgiveable tax law. easy to read too.

apellous

 

[edmadison]

Originally posted by apellous
www.bankrate.com/nsc/itax/news/tax_surprises/forgiven-debt.asp

CHeck out the link. everything is here on the forgiveable tax law. easy to read too.

apellous

Good information. This information refers to the discharge of debt by the lender rather than the debt being paid off by a third party. However, the result is the same --> pay the IRS.

Ed

 

[alison08]

Does anyone know if there are loan forgiveness programs for those of us who want to go into surgery or a surgical specialty like reconstructive plastics or pediatrics? Also, where is the best place to find info on loan forgiveness programs?

 

[Teejay]

Can one consolidate private loans?(for Eg, one from washington mutual). What are the risks and benefits?

 

[prominence]

Can one consolidate private loans?(for Eg, one from washington mutual). What are the risks and benefits?

if so, what's the best private loan consolidation rate you have heard of. Bump.

 

[Winged Scapula]

Moving to Financial Forum...

 

[Toomeke]

...disregard...wrong thread.