Loan Repayment

[GreatSaphenous]

Does anyone know if there's a tax advantage to having a portion of your salary designated as loan repayment by an employing hospital?

---

Members don't see this ad.

 

[Winged Scapula]

Does anyone know if there's a tax advantage to having a portion of your salary designated as loan repayment by an employing hospital?

I'd speak to an accountant. But if the loan reimbursement is taken "off the top", ie, non-taxed you may still be responsible for it as taxable income to you (even if it never appeared in your bank account).

You should be setting up a corporation in your name and seeing an accountant for these issues, as they are very complicated.

 

[Leforte]

Agree with WS.

My understanding of this when I was looking at post-residency positions and, at one point, negotiating with a hospital, that Student Loan repayments are considered "income" as far as tax purposes and that you would pay tax on these at what ever marginal tax bracket your income places you.

So if they pay 25k/year towards your loans, and you are in the 33% tax bracket and 6% for your state, you'd be liable for $10,250 to the man at the end of the year.

However, I'd get involved with a CPA straight off - they can help you divert taxable income into tax deferred accounts as well assist with advice regarding perks that hospitals are offering.

 

[JackADeli]

I'd speak to an accountant...

...My understanding...

...if they pay 25k/year towards your loans, and you are in the 33% tax bracket and 6% for your state, you'd be liable for $10,250 to the man at the end of the year.

...I'd get involved with a CPA straight off ...

I have to agree with all of the above. I don't know all the ins and outs of tax law, but.... I had a colleague in residency. She contracted with the military with loan repayment benefits. She did not draw on any of them during residency cause, after trying to calculate it all out, couldn't cover the taxes at the end of the year. It is taxable income... that goes to the lenders and thus she still was going to owe taxes on the dollars she didn't ever have in her bank account.

She said she was going to wait until she had enough income after graduation to start drawing the benefit.

 

[PhillyMD2006]

considering the length of GS residency + fellowship, anyone currently considering using the public service loan forgiveness program? it seems too good to be true -- then again, 10 yrs is a lonnnnng time.

 

[Semmelweis]

considering the length of GS residency + fellowship, anyone currently considering using the public service loan forgiveness program? it seems too good to be true -- then again, 10 yrs is a lonnnnng time.

That's the way I'm pulling. It doesn't really matter practically whether it's too good to be true down the line since I'll anyway be relying on the IBR program during my time in residency/fellowship. But it would be awesome if after 6+ years of training and a few more years working as an attending for virtually any hospital (all you need is for it to be a 501c3 organization) that the rest of my debt would be forgiven. Doing the math, that could save me over six figures, while not significantly impinging on my planned career path.

 

[Musashi450]

considering the length of GS residency + fellowship, anyone currently considering using the public service loan forgiveness program? it seems too good to be true -- then again, 10 yrs is a lonnnnng time.

Absolutely! I plan on being on residency for 7 years and most likely a fellowship afterwards so I would be absolutely stupid to not take advantage of it! As the poster above pointed out though, as long as you'll be working at a 501c3 hospital it'll count toward your 10 years so you don't necessarily have to be in a long residency. In fact I'm worried that this is too much of a good thing since the government will potentially be forgiving LOTS of $$ worth of loans in 10 years, may wise up and pull the program.

 

[Semmelweis]

In fact I'm worried that this is to much of a good thing as the government will potentially be forgiving LOTS of $$ worth of loans in 10 years and pull the program.

It's possible, but the IBR website seems to think that if they do pull the program they are likely to grandfather in those were initially eligible. In any event, for doctors it's mainly only advantageous for those with long residencies (or if you plan on being truly altruistic and working for the peace corps long term). Those with short residencies start making attending level pay much earlier into those 10 years, will max out the IBR plan and probably pay nearly the same as they would with a standard 10 year loan repayment plan.

The best thing about IBR is that if you later on discover that you hate clinical work or even decide to drop out of medicine altogether, those lenders will never bankrupt you since they can never demand more than 15% of your discretionary income for 25 years - after which the remainder of the loans are forgiven no matter what kind of work you do. A costly decision, sure, especially considering your opportunity costs put into medical education, but I get the sense among a number of those in practice that they feel trapped doing work that they dislike and are deeply unhappy. IBR allows you to not be a slave to your debt. You don't have to rely on your choice of career to pay it back.

 

[filter07]

Can you tell me more about this loan forgiveness thing?

Do you have to start repayment while in residency? And then after a certain number of payments, your loan is forgiven as long as you do 10 years or certain type of work?

I will probably have 9 years of residency and fellowship but I've already done 3 years. I haven't paid back any of my federal loans yet. So do I start paying back the loan now for the 6 years left in training, then work 4 years at some university hospital, and then the rest of my loans are forgiven?

 

[Semmelweis]

Can you tell me more about this loan forgiveness thing?

Do you have to start repayment while in residency? And then after a certain number of payments, your loan is forgiven as long as you do 10 years or certain type of work?

I will probably have 9 years of residency and fellowship but I've already done 3 years. I haven't paid back any of my federal loans yet. So do I start paying back the loan now for the 6 years left in training, then work 4 years at some university hospital, and then the rest of my loans are forgiven?

My understanding is that if you have documentation showing that you worked for a public service employer (widely defined, but specifically including 501c3 organizations - so not even necessarily a university hospital, most hospitals are 501c3 organizations) while making 120 monthly payments then you can apply to have your remaining principle plus accrued interest forgiven. Residency would be included as years employed by a public service employer, but there is no requirement to start repayment while in residency.

The benefit to starting payment while still a resident is that while your income is, ahem, modest opting to repay with an Income Based Repayment plan (IBR) where you only need to pay 15% of your discretionary income allows you to pay marginal rates on many or even most of those 120 payments. So if you're planning on starting to repay your federal loans now, you should definitely consider using an IBR plan.

So, yeah, if you start repaying the loan now and complete 120 payments while still employed by a public service employer then in ten years you can apply to have the rest of the loan forgiven.

However, this is a pretty new piece of legislation and there does not yet exist even an application form for applying for forgiveness since the earliest a debtor could be forgiven is in 2017. That being the case, it is suggested that you keep a hold of your pay stubs and the like to document your employment.

 

[nonbilious]

few questions:

so what happens those last couple of years.... lets say your starting salary is 200k, then you get bit with a big monthly payment? much bigger than a traditional?

also what about spouses income? or do you just file as single for the next 10years.... i can't wrap my head around what that will (may) cost over 10yrs?

if its not working out, can you jump ship to another repayment?

finally, my loans are split up either direct sallie mae or goverment something or other, can I consolidate and then IBR?

 

[Musashi450]

I have a feeling this thread will get moved to the loans forum so I apologize ahead of time WS.

Regarding how income based repayment (IBR) works for couples they just revised some of the ways that it is calculated. I'm not applying for IBR with a spouse so I never paid much attention to it but everything you ever needed to know about IBR is in the link below. It's extremely helpful. There is also a section specifically for couples.

http://studentaid.ed.gov/students/attachments/siteresources/IBRQ&A_template_123109_FINAL.pdf

Regarding the Public Service Loan Forgiveness, a similar FAQ document was created and linked below.

http://studentaid.ed.gov/students/attachments/siteresources/PSLF_QAs_final_02 12 10.pdf

I'm by no means a financial guru. Infact I consider myself extremely stupid when it comes to money but this is one thing I think is crucial that everyone in medicine with debt needs to know about it. It's a really big deal.

 

[Semmelweis]

so what happens those last couple of years.... lets say your starting salary is 200k, then you get bit with a big monthly payment? much bigger than a traditional?

My understanding is that your monthly payments will never go higher than a standard 10 year repayment loan.

also what about spouses income? or do you just file as single for the next 10years.... i can't wrap my head around what that will (may) cost over 10yrs?

I think they get lumped together if you file jointly. Filing separately keeps your income evaluation separate from that of your spouse's. It may make sense to file jointly for some reasons and not for other reasons, but that determination depends on a lot of variables. Does your spouse also have significant loans? Are there additional benefits that you want to take advantage of now that you can only get by filing jointly?

if its not working out, can you jump ship to another repayment?

You can change your repayment schedule whenever you wish.

finally, my loans are split up either direct sallie mae or goverment something or other, can I consolidate and then IBR?

Probably, but it depends what exactly the kinds of loans you have. The IBR website has a list of loans that can be consolidated and paid by IBR. Not all loans are eligible.