Loan information, how to repay

[StarFall]

Advertisement - Members don't see this ad

I am trying to understand how to take out loans and how to repay it all back but the finance jargon is a bit complex for me. I am hoping to better understand how to repay the loans with some concrete numbers.

Taking out loans
Using VCU medical school's COA, for an out-of-state student with no help from parents/other sources,
M1 to M4 total cost (Tuition+fees+other costs (living, supplies, insurance, misc., travel, etc.)) = 78,070 + 83,340 + 83,868 + 79,070 = $324,348.
Using this financial aid information, the max unsubsidized stafford annual loan limit is $40,500 at 6.21%. I would take out the remaining COA each year from Grad PLUS loans (7.21%) for a total of $162,348 ($324,348-$162,000) for the 4 years, assuming no processing fee. Is this correct for taking out loans for medical school? I understand that year 1 and 4 are a bit different since you're not including the summer months. I also understand that interest is always accumulating from year 1 to 4 and that once you enter residency, you qualify for deferment or forbearance, but interest still accumulates.
Question 1: How does interest (assume 6.21% for unsub and 7.21% for Grad Plus) accumulate from M1 to M4 assuming loan disbursement is biannually for each semester? What is the total amount in loans in year 4?

Question 2: How does interest accumulate during residency, assuming 3 years? What is the total amount after 3 years of residency? What about 3 years of fellowship?

---
Repaying loans
Rounding up to $325,000 from M1-M4 before interest, assume 3 years of residency, 3 years fellowship, let's assume I earn $180,000.
Using a salary calculator and SDN physician source, take home pay after taxes would be around $9,600 (9600*12=$115,200) for Single federal filing status. It goes up to about $123,000 if Married with a take home of let's say $10,000.

Costs:
Assume monthly loan payment of $5000/month
Malpractice insurance: $1500/month
=$7500/month
So $3500 left for cost of living costs (rent/mortgage, food, transportation, insurance, etc) which is about 42k/year. I know I can moonlight as well to help with costs.
Question 3: Is this a reasonable financial budget/plan? How would adding a wife who makes 45k affect this budget plan?

I've also tried using the Medloans Calculator/Organizer, but am unsure if I used it correctly.
Question 4: Under IBR, I would be making payments of supposedly 1800-3600 for 20 years (starting July 2014, IBR is at 10% and 20 years), then the rest is forgiven. Is the amount forgiven taxed as the "tax bomb" for that year? That means that I would have to pay a tax on let's say the $385,518?

Question 5: When is there time or when is the best time or is there time to get married, sign a mortgage for a house, have kids, and save for retirement and kids' college fund?
I am very concerned about getting married, finding a house, and having kids and know it is variable, but would like to hear some opinions and viable options.

Thank you so much!

 

[Zagaza]

Well as you see, Cost is close to $$350k give or take which you will be paying down for along time.If you are waiting for the perfect time, you will be waiting along time.I will say the best time to take on any more debt is when you have paid more than half of what you owe and your income to debt ratio is better.the wife part, she better be coming in with an income or else it will beans and ramen for a mighty swell time.Many physcians just go with th flow and it evens out many years or so along the line depending on how quick you can get an income high in the clouds.

I am trying to understand how to take out loans and how to repay it all back but the finance jargon is a bit complex for me. I am hoping to better understand how to repay the loans with some concrete numbers.

Taking out loans
Using VCU medical school's COA, for an out-of-state student with no help from parents/other sources,
M1 to M4 total cost (Tuition+fees+other costs (living, supplies, insurance, misc., travel, etc.)) = 78,070 + 83,340 + 83,868 + 79,070 = $324,348.
Using this financial aid information, the max unsubsidized stafford annual loan limit is $40,500 at 6.21%. I would take out the remaining COA each year from Grad PLUS loans (7.21%) for a total of $162,348 ($324,348-$162,000) for the 4 years, assuming no processing fee. Is this correct for taking out loans for medical school? I understand that year 1 and 4 are a bit different since you're not including the summer months. I also understand that interest is always accumulating from year 1 to 4 and that once you enter residency, you qualify for deferment or forbearance, but interest still accumulates.
Question 1: How does interest (assume 6.21% for unsub and 7.21% for Grad Plus) accumulate from M1 to M4 assuming loan disbursement is biannually for each semester? What is the total amount in loans in year 4?

Question 2: How does interest accumulate during residency, assuming 3 years? What is the total amount after 3 years of residency? What about 3 years of fellowship?

---
Repaying loans
Rounding up to $325,000 from M1-M4 before interest, assume 3 years of residency, 3 years fellowship, let's assume I earn $180,000.
Using a salary calculator and SDN physician source, take home pay after taxes would be around $9,600 (9600*12=$115,200) for Single federal filing status. It goes up to about $123,000 if Married with a take home of let's say $10,000.

Costs:
Assume monthly loan payment of $5000/month
Malpractice insurance: $1500/month
=$7500/month
So $3500 left for cost of living costs (rent/mortgage, food, transportation, insurance, etc) which is about 42k/year. I know I can moonlight as well to help with costs.
Question 3: Is this a reasonable financial budget/plan? How would adding a wife who makes 45k affect this budget plan?

I've also tried using the Medloans Calculator/Organizer, but am unsure if I used it correctly.
Question 4: Under IBR, I would be making payments of supposedly 1800-3600 for 20 years (starting July 2014, IBR is at 10% and 20 years), then the rest is forgiven. Is the amount forgiven taxed as the "tax bomb" for that year? That means that I would have to pay a tax on let's say the $385,518?

Question 5: When is there time or when is the best time or is there time to get married, sign a mortgage for a house, have kids, and save for retirement and kids' college fund?
I am very concerned about getting married, finding a house, and having kids and know it is variable, but would like to hear some opinions and viable options.

Thank you so much!

 

[RangerBob]

To answer a few of your questions:

1) Interest accumulates on all unsubsidized loans (any loan taken out these days) from the day of dispersement. The interest will not capitalize until you begin repayment (6 months after you graduate or leave medical school). If you're borrowing ~$300,000, that usually means ~$50,000 or so in interest that will accrue while in medical school.

2) How interest accrues during residency depends on your repayment program. If you defer/put your loans in forbearance, it might be capitalized monthly or quarterly. If you go into IBR or PAYE, it will not capitalize until you leave IBR/PAYE. (But regardless, it will capitalize at the end of that six month grace period when you start repayment, even if you pay through IBR)

3) I'm not sure why you're factoring in the cost of malpractice insurance--the odds are you'll end up as an employee of a hospital or group and have those paid for you. But whether your plan is reasonable is really up to you and what you're willing to live on. Most people recommend physicians with a high loan burden live like a resident for a while after making that attending salary.

4) The tax bomb is the amount you're taxed on when your loan is (if forgiveness sticks around...) forgiven. It would be quite a bit. Personally I think it's a ridiculous option to rely on--making the minimum payments you accrue so much interest (because you're often not even paying off the interest that accrues each month when you owe that much). What happens if the government changes the terms of loan forgiveness? Now you're 20-25-years out and owe more than you started with. Better to pay off the loans quickly--or at least front load repayment. Debt, especially at the rates our loans are at, is a huge shackle. Get rid of it as fast as you can.

5) The time to get married/have kids/buy a home, etc, is when it's the right time for you. You don't wait to get married because you're broke/in debt--I got married in medical school and we were dirt broke. We had a small wedding in a chapel with 25 of our closest friends/family, had the reception in my family's backyard, and went camping for our honeymoon. Having kids is a bit more difficult because in my case it means my wife will stop working and we lose her income (but still have her loans), but we don't want to wait until after residency to start a family--I'd like to still be able to chase after the little rascals... We did buy a home for residency, but it only cost about $100k. Overall we might break even or lose a little, but it makes life easier and much more enjoyable for us while in residency. But as a general rule, buying a home in residency probably isn't a good idea. It usually doesn't make financial sense, or practical sense (at least if you're single).

Medical school is expensive. If you have the opportunity, go to the cheapest school you are accepted to. If you can, live at home and save on the cost of living--you don't have to borrow the full estimated cost of attendance. There are lots of ways to save money--get a roommate, or rent a room in a house. If I was single in medical school, I would have rented a room in a house with a bunch of grad students or professionals.

Also--remember in your calculations that interest rates are going up, so the rates next year will likely be higher than this year. How fast they go up is still up in the air, but the trend is towards higher rates.

 

[StarFall]

Well as you see, Cost is close to $$350k give or take which you will be paying down for along time.If you are waiting for the perfect time, you will be waiting along time.I will say the best time to take on any more debt is when you have paid more than half of what you owe and your income to debt ratio is better.the wife part, she better be coming in with an income or else it will beans and ramen for a mighty swell time.Many physcians just go with th flow and it evens out many years or so along the line depending on how quick you can get an income high in the clouds.

Thank you for your input. Yes, I am hoping that I can avoid the whole beans and ramen scenario by having a spouse.

To answer a few of your questions:

1) Interest accumulates on all unsubsidized loans (any loan taken out these days) from the day of dispersement. The interest will not capitalize until you begin repayment (6 months after you graduate or leave medical school). If you're borrowing ~$300,000, that usually means ~$50,000 or so in interest that will accrue while in medical school.

2) How interest accrues during residency depends on your repayment program. If you defer/put your loans in forbearance, it might be capitalized monthly or quarterly. If you go into IBR or PAYE, it will not capitalize until you leave IBR/PAYE. (But regardless, it will capitalize at the end of that six month grace period when you start repayment, even if you pay through IBR)

3) I'm not sure why you're factoring in the cost of malpractice insurance--the odds are you'll end up as an employee of a hospital or group and have those paid for you. But whether your plan is reasonable is really up to you and what you're willing to live on. Most people recommend physicians with a high loan burden live like a resident for a while after making that attending salary.

4) The tax bomb is the amount you're taxed on when your loan is (if forgiveness sticks around...) forgiven. It would be quite a bit. Personally I think it's a ridiculous option to rely on--making the minimum payments you accrue so much interest (because you're often not even paying off the interest that accrues each month when you owe that much). What happens if the government changes the terms of loan forgiveness? Now you're 20-25-years out and owe more than you started with. Better to pay off the loans quickly--or at least front load repayment. Debt, especially at the rates our loans are at, is a huge shackle. Get rid of it as fast as you can.

5) The time to get married/have kids/buy a home, etc, is when it's the right time for you. You don't wait to get married because you're broke/in debt--I got married in medical school and we were dirt broke. We had a small wedding in a chapel with 25 of our closest friends/family, had the reception in my family's backyard, and went camping for our honeymoon. Having kids is a bit more difficult because in my case it means my wife will stop working and we lose her income (but still have her loans), but we don't want to wait until after residency to start a family--I'd like to still be able to chase after the little rascals... We did buy a home for residency, but it only cost about $100k. Overall we might break even or lose a little, but it makes life easier and much more enjoyable for us while in residency. But as a general rule, buying a home in residency probably isn't a good idea. It usually doesn't make financial sense, or practical sense (at least if you're single).

Medical school is expensive. If you have the opportunity, go to the cheapest school you are accepted to. If you can, live at home and save on the cost of living--you don't have to borrow the full estimated cost of attendance. There are lots of ways to save money--get a roommate, or rent a room in a house. If I was single in medical school, I would have rented a room in a house with a bunch of grad students or professionals.

Also--remember in your calculations that interest rates are going up, so the rates next year will likely be higher than this year. How fast they go up is still up in the air, but the trend is towards higher rates.

For answers 1 and 2, I guess I will just have to see when I get there. I know I will definitely try to avoid forbearance and do IBR or PAYE instead, hoping that those payment plans will still be around..

For answer 3, I apologize for not making myself clear. I wanted to know if that budget plan makes sense. Using the table, if IBR payments range from 1800-3600, and I make around 10,000 a month, does that mean that I would take home 7500 after I'd pay, let's say 2500 for the IBR payment? Then I'd be using the remaining 7500 for whatever I please, be it more money to loans, rent/mortgage payments, food, etc. I understand that the cost of living varies between individuals as well as location. But I just want to make sure that after I paid 2500 for IBR loan repayment, I'd take home 7500 for my own use, assuming I make 10,000 a month.
I factored in malpractice insurance because I thought every physician usually pays for that. I did not know that the hospital pays that for you. That's a plus!

Answer 4, yes, I am not relying on the forgiveness policy due to recent 'rumors' about the cap at $57,500 at least for PSLF. Again, I'm sure IBR/PAYE will change over the years. I just wanted to make sure that I'm understanding the policy now. For the tax, does that mean that the amount forgiven is added on to my salary/income for that year? Ex, income at 120,000, assume tax is 10,000 for that year. For the next year, loan forgiven is 380,000. So I would add 380,000 to my income of 120,000 for a total of 500,000, and pay a tax of (assume) 50,000 for that year? Overall, I'm just not sure how tax works..

Answer 5, I guess I'll just have to play it by ear and take it as it comes. Is there a norm for the time to buy a house? It seems like my future spouse and I could just live in an apartment for residency and then buy a house at the end of residency or the beginning of fellowship.

 

[RangerBob]

I think your budget plan mostly makes sense--if you have 7500 left over a month that's plenty to live on (90k a year, which is a lot if it's post-tax dollars we're talking about).

But I'd also estimate taxes to be closer to 30% compared to 10%. A general rule of thumb is to assume a third of your earnings go to taxes (Federal and State). You won't owe quite that much as a resident (especially your first year, when you only earn half a year's income). Paycheckcity.com is a great source to look at what you can expect to pay/take home

Yes--the amount forgiven is considered income, so it will be added to your income that year, and you will get taxed for all of it. So estimate paying roughly a third of the amount forgiven in taxes (possibly more because you'll be in the highest tax bracket, but if you set things up right and get the right tax deductions, etc., then hopefully your tax burden would be less)

The "norm" to buy a house is entirely dependent on your situation and where you live. It seems like a lot of married couples/families that went to my intern program in a smaller Midwest city bought homes, including IM residents (3 year residency). But those same people would almost certainly be renting in Chicago.

If you would be happy living in an apartment, there's really no reason to buy a house while in residency. The odds are you will not come out financially ahead unless you are doing a long residency (gen surg, etc.). But even then, as a gen surg resident, how would you have time to maintain/take care of your house? And would you even want to use your time for that? It's a hobby of mine--I enjoy it.

Buying a house at the beginning of fellowship probably makes the least amount of sense--fellowships are usually only a year or two, and the odds are whatever house you buy in residency/fellowship you won't want to stay in long as an attending (assuming you get your first job in that location). Unless you feel your quality of life would be substantially better buying a home, most people would be better off waiting until they're an attending (and even then, it's best to rent for a few months to get to know what neighborhoods they'd want to live in, and make sure they want to stay at that first job).

 

[383]

This is really great advice, glad I found this thread. What are your thoughts on private loans? Discover for example offers 5.99% fixed with capitalization after graduation and a 6 month grace period. I believe they allow forbearance throughout residency but of course no IBR plan. Is it worth it to go with all federal loans? It seems private loans are extremely unpopular for some reason. I too have to pay out of state tuition so the numbers are right up with OP's.

 

[StarFall]

I think your budget plan mostly makes sense--if you have 7500 left over a month that's plenty to live on (90k a year, which is a lot if it's post-tax dollars we're talking about).

But I'd also estimate taxes to be closer to 30% compared to 10%. A general rule of thumb is to assume a third of your earnings go to taxes (Federal and State). You won't owe quite that much as a resident (especially your first year, when you only earn half a year's income). Paycheckcity.com is a great source to look at what you can expect to pay/take home

Yes--the amount forgiven is considered income, so it will be added to your income that year, and you will get taxed for all of it. So estimate paying roughly a third of the amount forgiven in taxes (possibly more because you'll be in the highest tax bracket, but if you set things up right and get the right tax deductions, etc., then hopefully your tax burden would be less)

The "norm" to buy a house is entirely dependent on your situation and where you live. It seems like a lot of married couples/families that went to my intern program in a smaller Midwest city bought homes, including IM residents (3 year residency). But those same people would almost certainly be renting in Chicago.

If you would be happy living in an apartment, there's really no reason to buy a house while in residency. The odds are you will not come out financially ahead unless you are doing a long residency (gen surg, etc.). But even then, as a gen surg resident, how would you have time to maintain/take care of your house? And would you even want to use your time for that? It's a hobby of mine--I enjoy it.

Buying a house at the beginning of fellowship probably makes the least amount of sense--fellowships are usually only a year or two, and the odds are whatever house you buy in residency/fellowship you won't want to stay in long as an attending (assuming you get your first job in that location). Unless you feel your quality of life would be substantially better buying a home, most people would be better off waiting until they're an attending (and even then, it's best to rent for a few months to get to know what neighborhoods they'd want to live in, and make sure they want to stay at that first job).

Thank you! For someone who has no knowledge about finance and is still learning all of the finance jargon, I know I still have a lot to learn. Your guidance has helped me so much! I now understand the basic gist of how these things work. Of course, I will have to learn more about the technical details.. As for housing/renting, I suppose that will have to be something I work out when I get there.

This is really great advice, glad I found this thread. What are your thoughts on private loans? Discover for example offers 5.99% fixed with capitalization after graduation and a 6 month grace period. I believe they allow forbearance throughout residency but of course no IBR plan. Is it worth it to go with all federal loans? It seems private loans are extremely unpopular for some reason. I too have to pay out of state tuition so the numbers are right up with OP's.

I'm glad you could find this thread useful! I'm assuming you're talking to RangerBob, but I'll give my input anyway.
Although I haven't looked at private loans in detail, I've 'heard' to stay away from private loans because you don't qualify for the IBR/PAYE payment plans. A seemingly well informed SDN user, DrMidLife, has advised against private loans for a couple of reasons. You can run a search and read a couple points that he makes regarding private loans. The general consensus seems to be to go federal, but of course, I will look at private as well.

 

[RangerBob]

This is really great advice, glad I found this thread. What are your thoughts on private loans? Discover for example offers 5.99% fixed with capitalization after graduation and a 6 month grace period. I believe they allow forbearance throughout residency but of course no IBR plan. Is it worth it to go with all federal loans? It seems private loans are extremely unpopular for some reason. I too have to pay out of state tuition so the numbers are right up with OP's.

At that rate I'd definitely go with the federal loans. It just doesn't seem like a big enough difference to be worth it, and you get so many benefits with the federal loans. And you really don't want to repay loans while in residency (so you want to make sure it says you really can go into forbearance while in residency), beyond the 10-15% for IBR/PAYE. If you enter repayment on private loans while in residency, you'll be making the standard payment.

Either way, Federal loans have more benefits, in terms of loan repayment options and forgiveness (and while I don't think forgiveness will stick around in it's current form, it's possible it might!). Plus you usually get more protection from federal loans if you die/become disabled.

 

[383]

At that rate I'd definitely go with the federal loans. It just doesn't seem like a big enough difference to be worth it, and you get so many benefits with the federal loans. And you really don't want to repay loans while in residency (so you want to make sure it says you really can go into forbearance while in residency), beyond the 10-15% for IBR/PAYE. If you enter repayment on private loans while in residency, you'll be making the standard payment.

Either way, Federal loans have more benefits, in terms of loan repayment options and forgiveness (and while I don't think forgiveness will stick around in it's current form, it's possible it might!). Plus you usually get more protection from federal loans if you die/become disabled.

I've been researching it a lot and have concluded that yes, the repayment options for federal are the best. Discover allows 5 years deferment during residency--but the problem lies in if I end up doing a residency+fellowship that is well over 5 years. I'm allowed to make payments or any amount during the deferment period for Discover, so I can pay off some interest before it capitalizes at the end of deferment. At this point I'd still be paying off federal loans via IBR and then I'd have to put up higher sums to pay off the private loans per month.

I don't know how much one makes in fellowship but I'm guessing its a bit more than residency and enough to pay off the private loans at what they ask, on top of the IBR required by federal loans.

My fear (and I'm glad you mentioned this) is that I'll become disabled sometime during this period as I've got pretty bad shoulders and already had surgery on the left one for a tear. The right one has some issues too.... so I feel I might be paying for insurance with the federal loan as well.