loan repayment

[mossyfiber12]

So now that I am close to $200k in debt, how do I start paying it off on a resident's salary?

Do most people select income based repayment or do you just a fixed amount each month? If you are paying a fixed amount, do you usually just pay off the interest or more? What is a reasonable amount to be paying each month for loan repayment?

I wish there was a lecture series on loan repayment instead of BS ethics courses...

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[Droopy Snoopy]

So now that I am close to $200k in debt, how do I start paying it off on a resident's salary?

Do most people select income based repayment or do you just a fixed amount each month? If you are paying a fixed amount, do you usually just pay off the interest or more? What is a reasonable amount to be paying each month for loan repayment?

I wish there was a lecture series on loan repayment instead of BS ethics courses...

If you can live frugally and perhaps have a spouse with a second income then it may be worth it in the long run to make the largest payments your budget will allow.

Most people are like me and choose income-based however, and it isn't just because they don't like to (or can't) pinch pennies. If you're planning on working for the government in some capacity (military, state or federal agencies such as the VA, Indian Affairs, etc) for 10 years then the Public Service Loan Forgiveness program will pay off all your loans. Likewise many employers will pay off some or all of your loan debt as a recruitment perk. So in cases like this you don't really get any return on paying $1200/month instead of $300.

 

[Dr Gerrard]

If you can live frugally and perhaps have a spouse with a second income then it may be worth it in the long run to make the largest payments your budget will allow.

Most people are like me and choose income-based however, and it isn't just because they don't like to (or can't) pinch pennies. If you're planning on working for the government in some capacity (military, state or federal agencies such as the VA, Indian Affairs, etc) for 10 years then the Public Service Loan Forgiveness program will pay off all your loans. Likewise many employers will pay off some or all of your loan debt as a recruitment perk. So in cases like this you don't really get any return on paying $1200/month instead of $300.

I've heard there is no telling what will happen to this program in the future and if you do IBR for 10 years and they take away PSLF 8 years in, you are stuck with a significantly greater amount of debt bc of how much more interest gets to accumulate

 

[equinsu ocha]

So now that I am close to $200k in debt, how do I start paying it off on a resident's salary?

Do most people select income based repayment or do you just a fixed amount each month? If you are paying a fixed amount, do you usually just pay off the interest or more? What is a reasonable amount to be paying each month for loan repayment?

I wish there was a lecture series on loan repayment instead of BS ethics courses...

Take the longest repayment period you can (30 yrs prob) as this will make your minimum payments the lowest each month. This allows you to have your money if you need it, i.e. for emergency, investments (roth, 401k etc.), buying into a practice, paying down high interest debt (credit cards). Of course, your goal should be to pay your loans off asap to avoid the interest, but since there is no penalty for early repayment, take the longest period and pay as much as you can.

Anyone correct me if my logic is flawed.

 

[Brachyury]

I've heard there is no telling what will happen to this program in the future and if you do IBR for 10 years and they take away PSLF 8 years in, you are stuck with a significantly greater amount of debt bc of how much more interest gets to accumulate

Do a search (I'm on my phone): individuals are often grandfathered into government financial programs when they are changed, and the loan foregiveness is deficit neutral (this was discussed in tHe radonc forum)

 

[Brachyury]

Take the longest repayment period you can (30 yrs prob) as this will make your minimum payments the lowest each month. This allows you to have your money if you need it, i.e. for emergency, investments (roth, 401k etc.), buying into a practice, paying down high interest debt (credit cards). Of course, your goal should be to pay your loans off asap to avoid the interest, but since there is no penalty for early repayment, take the longest period and pay as much as you can.

Anyone correct me if my logic is flawed.

Well, your loans will be at a minimum of 6.8%, and considering you probably will not be able to get a return greater than that on an investment, it makes sense to pay them off quickly. Now, if your loan were at 3%, it would be a different story

It's also important to note that if you do IBR, the maximum life of you loans will be 20 years (the loans are cancelled at 20 years, however, the total cost of forgiveness, unlike in the 10 year public service case, is considered taxable income

 

[dyeguy21]

So technically, if you were going high risk portfolio you could earn 8% annual return (this is actually not unheard of as compared to others that claim they get 20-30%) however, in this case future value calculations are your friend.

To skip over the boring technical and mathematical reasons. If you want to risk it with 8% returns, you can still earn 1.2% (assuming the rates increase to 6.8 on july 1st) or 4.6% the way they are currently. A more moderate portfolio can bring you down to 6%, which as long as they stay at 3.4%, still gives you a profit of 2.6%.

A lot of this does depend on your willingness to accept debt. In addition, paying MORE than the required fixed schedule does help reduce the cost of interest in the long run. This is the reason you should ALWAYS pay more than the "suggested payment" on mortgages (one you save money, two you pay it off sooner). This does mean that you have to live with less money, but a simple trick to make it not seem like that is to do Direct Deposit and pay yourself first.

That means you make automatic deductions for IRA/401k and some more for personal savings and the like. You'd be surprised how easy it is to spend money when you know its there vs. it being removed automatically and just that little bit more of effort to get at it makes it less enticing.

The fixed payment of interest is a bad idea. You will always be paying the same fixed amount and the interest amount will never decrease PLUS the principal is waiting for you at the end of the payment period to be paid in full. You always want to amortize the loan over the life of the payment period to ensure that you pay off interest plus a little extra each month towards reducing the principle.

To do the calculations yourself, use excel and figure out how to use future value and net present value calculations to come to a payment level that you feel comfortable with based on assumptions of return v. risk (interest going up, probability of low return, etc.).

Keep in mind I'm not a registered public financial adviser and the above is only the opinion of a student working on his MBA.

 

[Ibn Alnafis MD]

Can one exploit the IBR during residency then switch to the traditional 10-year repayment plan? If yes, what will happen with the interests accrued during residency?

 

[dyeguy21]

Can one exploit the IBR during residency then switch to the traditional 10-year repayment plan? If yes, what will happen with the interests accrued during residency?

Everything you could ever want to know about IRB: http://www.ibrinfo.org/what.vp.html

 

[Droopy Snoopy]

So technically, if you were going high risk portfolio you could earn 8% annual return (this is actually not unheard of as compared to others that claim they get 20-30%) however, in this case future value calculations are your friend.

To skip over the boring technical and mathematical reasons. If you want to risk it with 8% returns, you can still earn 1.2% (assuming the rates increase to 6.8 on july 1st) or 4.6% the way they are currently. A more moderate portfolio can bring you down to 6%, which as long as they stay at 3.4%, still gives you a profit of 2.6%.

A lot of this does depend on your willingness to accept debt. In addition, paying MORE than the required fixed schedule does help reduce the cost of interest in the long run. This is the reason you should ALWAYS pay more than the "suggested payment" on mortgages (one you save money, two you pay it off sooner). This does mean that you have to live with less money, but a simple trick to make it not seem like that is to do Direct Deposit and pay yourself first.

That means you make automatic deductions for IRA/401k and some more for personal savings and the like. You'd be surprised how easy it is to spend money when you know its there vs. it being removed automatically and just that little bit more of effort to get at it makes it less enticing.

The fixed payment of interest is a bad idea. You will always be paying the same fixed amount and the interest amount will never decrease PLUS the principal is waiting for you at the end of the payment period to be paid in full. You always want to amortize the loan over the life of the payment period to ensure that you pay off interest plus a little extra each month towards reducing the principle.

To do the calculations yourself, use excel and figure out how to use future value and net present value calculations to come to a payment level that you feel comfortable with based on assumptions of return v. risk (interest going up, probability of low return, etc.).

Keep in mind I'm not a registered public financial adviser and the above is only the opinion of a student working on his MBA.

You forgot to factor in average annual inflation of 2%+ as well as capital gains (besides the IRA). Sure you might luck out and get in on the ground floor of Google or Yahoo, but realistically speaking there are no secure investment options that will provide a net gain over paying down the loans.

So again it really boils down to two viable options. Plan to have someone else pay them, which may result in you needing to go work in a less desireable position or area for some amount of time (or unforeseen changes in the way things are done as mentioned above). Or pay 'em down and plan on paying them off yourself, which is the safest option and allows you to control your own destiny but may require an extended period of financial hardship for now.

 

[dyeguy21]

You forgot to factor in average annual inflation of 2%+ as well as capital gains (besides the IRA). Sure you might luck out and get in on the ground floor of Google or Yahoo, but realistically speaking there are no secure investment options that will provide a net gain over paying down the loans.

So again it really boils down to two viable options. Plan to have someone else pay them, which may result in you needing to go work in a less desireable position or area for some amount of time (or unforeseen changes in the way things are done as mentioned above). Or pay 'em down and plan on paying them off yourself, which is the safest option and allows you to control your own destiny but may require an extended period of financial hardship for now.

Actually, if inflation (which historically is around 3%) is applied to all things then the average of everything goes up, including his dynamically traded portfolio. Thus, the 8% return on a yearly basis is feasible because it is done in that present time's dollars.

Again, it does depend on his risk profile. Yes, capital gains and the like do eat into your profit, but its 15% of the profit above base. And that does cut down your profit, but that's another part of the risk you are factoring in.

A lot of "rich" people take out mortgages on their home, even when they can afford it outright because of the differential in APY on the loan and their annual return (similar numbers).

Also, I didn't say this would pay down the loan quickly. I was just giving possible options without specifics because a financial planner can give you a much better opinion that myself or others on here, seeing as he has the exact numbers of income, the rate on the loans (we're just assuming federal), area living expenses, prior returns, and his current earnings.

 

[Droopy Snoopy]

Actually, if inflation (which historically is around 3%) is applied to all things then the average of everything goes up, including his dynamically traded portfolio. Thus, the 8% return on a yearly basis is feasible because it is done in that present time's dollars.

True, I mean that (all other things being equal) 200K is a much larger debt in 2012 than it will be in 2032. Inflation, in its own way, actually helps defray the effect of interest.

 

[strike5858]

So I just got off the phone with Direct lending, the lady told me that as a physician you are working in the public service sector so it doesn't matter where you work (ie private group or at a VA/County Hospital) Those still qualify as a job that can lead to Public service loan forgiveness. Can anyone confirm. Seems to good to be true... ie( do IBR while in residency/fellowship then you can switch to standard payments or ICR once your an attending for the remaining few years. Once 10 years are completed you can apply for loan forgiveness.)

 

[SteinUmStein]

So I just got off the phone with Direct lending, the lady told me that as a physician you are working in the public service sector so it doesn't matter where you work (ie private group or at a VA/County Hospital) Those still qualify as a job that can lead to Public service loan forgiveness. Can anyone confirm. Seems to good to be true... ie( do IBR while in residency/fellowship then you can switch to standard payments or ICR once your an attending for the remaining few years. Once 10 years are completed you can apply for loan forgiveness.)

That doesn't sound right, I would check with someone else. My impression was that private practice does not count for PSLF. Not sure why she would say that it would, it's not public service. A non-profit may be a different story.

 

[Brachyury]

So I just got off the phone with Direct lending, the lady told me that as a physician you are working in the public service sector so it doesn't matter where you work (ie private group or at a VA/County Hospital) Those still qualify as a job that can lead to Public service loan forgiveness. Can anyone confirm. Seems to good to be true... ie( do IBR while in residency/fellowship then you can switch to standard payments or ICR once your an attending for the remaining few years. Once 10 years are completed you can apply for loan forgiveness.)

This is where it's grey. If you are a neurologist who is part of a group that contracts with a hospital, you're in private practice. However, if you are a neurologist that is employed by a not-for-profit hospital, technically, you do work for a non-profit.

For example, the NHSC has made it clear that individuals who work for, say, a county primary care organization do qualify for loan foregivness, so why wouldn't a pathologist at a county hospital or St. Elsewhere's not qualify

 

[paciencia]

I may not be in the most apropriate thread, but I just don't know where to drop my qtn.

Some of my loans will be do for payment starting 8/2012. I have exhausted by forebearance and temporary hardship months because life happenned and I took some time off from residency. I am currently a second year going into third year residency and I can't not afford any of the payments.

Does any one know about programs that can help residents deal with loans? I was informed that I could try to get a personal loan to repay the student loans, but who will lend approx 260 thousand dollars to me? Any noprofit organizations out there?

To make matters worse, my co-signer needs to be removed from the loan b/c she needs to send her kids to college! what a nightmare! The loan company gives me a different excuse everytime I call on why I can't.

Help!

 

[FSUseminoleEM1]

That doesn't sound right, I would check with someone else. My impression was that private practice does not count for PSLF. Not sure why she would say that it would, it's not public service. A non-profit may be a different story.

I'm just two weeks out from classes and my first loan, so this topic is rather important to me. I'm not waiting until fourth year to sort this mess out. Would any practice taking Medicare technically be in public service of some fashion? It seems like rural areas with tiny practices, urgent care centers, etc should be included...

 

[Green Grass]

I'm just two weeks out from classes and my first loan, so this topic is rather important to me. I'm not waiting until fourth year to sort this mess out. Would any practice taking Medicare technically be in public service of some fashion? It seems like rural areas with tiny practices, urgent care centers, etc should be included...

The place you work for must be a 501c3 entitled institution.

 

[Green Grass]

Can one exploit the IBR during residency then switch to the traditional 10-year repayment plan? If yes, what will happen with the interests accrued during residency?

You can do IBR during residency - this counts to the 120 on-time payments.

As an attending, your payments under IBR will max out at the standard 10 year repayment amount. You continue paying those until you get to the 120 on-time payments. Then your loans are forgiven.

 

[Kevin Baker]

So technically, if you were going high risk portfolio you could earn 8% annual return (this is actually not unheard of as compared to others that claim they get 20-30%) however, in this case future value calculations are your friend.

To skip over the boring technical and mathematical reasons. If you want to risk it with 8% returns, you can still earn 1.2% (assuming the rates increase to 6.8 on july 1st) or 4.6% the way they are currently. A more moderate portfolio can bring you down to 6%, which as long as they stay at 3.4%, still gives you a profit of 2.6%.

.

I think you're forgetting taxes. That should bring any portfolio geared for the long run to below 6.8%. Not that there wont' be years you're above it, but I think the average ROI for a 30 year period in one of the big index fund is between 9-10% per year, with the lowest 30 yr period still being in the 8% range. Though I last checked this before the most recent crash and am not sure if that hold up. Capital gains will eat our return away but taxes on dividend income is taxed at almsot 40% when in the highest tax bracket.

The 3.4% number applies only to undergrad loans. All federal grad school ones are at 6.8% or above, except for the 0% $8500 that was phased out so undergrads could get more Pell grants


To the OP. I've heard many people recommend different things. Some say pay it off ASAP. Some say to do 30 years. Some say IBR or PSLF.

I think a lot depends on specialty and what type of lifestyle you envision. You know the math and how much you'll have to repay eventually.

My plan is to take out a second mortgage and use that low interest to pay off student loans. But I think that qualifies as fraud

 

[mossyfiber12]

Thanks for all the replies guys. Obviously this topic concerns a great majority of us. I would like to know specifically which options are available for us recent grads with no investments/savings and a modest residency salary.

I know about income based repayment but is that the best option? Is it enough to just pay off the interest monthly and then try to pay off the rest when I become an attending? Is there a good online source where you can calculate your loan repayment plan out and how much interest you end up paying long term? Also, is it better to start paying off the loans now before the grace period is over?

This is especially concerning to me as I will be in a large city where my monthly rent will be ~$1300...