Managing $300,000 in student debt

[ATrim7]

I realize there may be similar threads however I was hoping for some new thoughts on my situation.

I will be an M-1 next Fall and my girlfriend of 4 years and I have been trying to determine what our future life will be like with nearly $300,000 of my student debt. Unfortunatly I did not have much financial guidance as an undergraduate student and chose to attend a private institution to earn my BA in Justice Law and Society and then a post-bac pre-med program at a private university. In total, I currently have $120,000 in student debt prior to entering medical school and work two jobs to maintain my quality of life.

I was fortunate to earn an acceptance to a state medical school which I am hoping I can get through for about $160,000 in loans. This means after school I will have about $300K in loans. What will life be like? Will it be possible to start a family with so much debt? What have your experiences been when paying back such a large amount of money? I realize that many of these answers depend on residency selection and among other factors.

That being said I am committed to being a physician with or without this debt. I made the decision to pursue a career in medicine knowing that life would be challenging - I just wonder whether my future situation will be challenging or torture.

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[WellWornLad]

Well, assuming 6.8% interest, 4 years of residency with no payments, and a 10-year repayment plan, you're looking at around $4,500 in monthly payments, or $54,000 per year in loan repayments.

Now take the average physician salary for whatever you're interested in, reduce it by about 40% for taxes, subtract $54,000, and you'll have a good idea of what you're looking at.

Total repayment under these assumptions would be ~$550,000. If you pay it off in 5 years, it'll cost ~$94,000 per year, but will save you about $75,000 in interest.

 

[themudphud]

It's called "dermatology". Look into it...

 

[meister]

Nah it's all about rads

 

[diosa428]

Well, assuming 6.8% interest, 4 years of residency with no payments, and a 10-year repayment plan, you're looking at around $4,500 in monthly payments, or $54,000 per year in loan repayments.

Now take the average physician salary for whatever you're interested in, reduce it by about 40% for taxes, subtract $54,000, and you'll have a good idea of what you're looking at.

Total repayment under these assumptions would be ~$550,000. If you pay it off in 5 years, it'll cost ~$94,000 per year, but will save you about $75,000 in interest.

Don't most people take like 20 years to pay off that much debt? Obviously it would involve waaaay more interest building up, but $4,500 a month is like 2 mortgages and a car.

 

[silas2642]

Nah it's all about rads

too dark.

 

[NonTradMed]

I'll let some of the number crunchers on SDN give you the stats, but I was wondering if you're girlfriend would be able to work while you are in school? This means you pay for tuition only which can halve your debt (or more).

$300k is tough no matter how you slice it. I would be open to specializing. But if you want primary care, that could work in your favor if you don't mind living in small town/rural areas. I was with some family medicine residents this summer and many of them had offers/jobs in small towns already despite being only first year residents. As part of the deal, they ALL had their debts wiped off in exchange for working for a few years in those rural areas.

There is also the military option too. They pay for everything including living expenses from med student onwards. But you have to like the military to put up with the inconvenience inherent in military life.


Just some ideas.

 

[yadayadadude]

I have a couple of thoughts here:

1. Remember that most of your student debt will be accruing interest while you're in school. Only $8500/year is subsidized (=feds pay the interest while you're in school). If your estimate of $160K total medical school borrowing comes from an estimated MS1 borrowing of $40K multiplied by four, then you need to revise that number up considerably. If you're borrowing $40K as an MS1, your total (medical school) debt at the end of medical school will be closer to $200K. (Looked at the other way, if you borrow $30K as an MS1 and continue in the same way throughout medical school, your debt at the end of medical school will be around $160K.) On the upside, if you limit your first year's borrow to $40K, you won't need much/any GradPlus, so your interest rate will hang out around 6.8%.
2. Will your undergraduate debt be accruing interest during medical school?
3. Assume that all of your student debt will accrue interest during residency. As an example, if you graduate medical school with $200K in medical school debt, plus $120K in undergraduate debt (which I am assuming will have increased in the intervening years, since I don't see how you could have amassed $120K in subsidized debt), your debt will increase by about $20K per year of residency, assuming you aren't able to make payments during residency. SO. If you indeed are planning to borrow $40K as an MS1 (which, maybe you aren't so please accept my apologies) and then you do a four year residency ... your total debt (at the end of residency when you start paying it off) will be close to $400K. This number doesn't count any interest that accrues on your undergraduate loans during medical school.
4. Spend some time playing around with the calculators on finaid.com. If you want to estimate what your takehome pay will be for various levels of attending salary, I recommend the calculators at paycheckcity.com. In any case, in broad numbers, if you want to pay off your debt in 10 years, your payments will be around $4600/m. If you take a 30 year repayment schedule, payments are more like $2600/m.
5. It's hard to know if this will be challenging or torture because it's hard to know what specialty you will persue, what area of the country you will choose to live in, what your spouse's income will be, etc. If your household income is $200K, you can expect to take home about $10K/m. So, on a 10 year schedule, it's conceivable that your student loan payments may be almost half of your takehome. To me, that sounds like torture.

Best of luck.

 

[dragonfly99]

Hi. I'm a fellow in one of the internal medicine specialties. I graduated in 2004 with 132k in debt at 2.9% interest. I consolidated my loans to a 30 year repayment program and my payments are $540/month. This has been doable on a resident/fellow salary. One of the problems for you is that Congress has rewritten the laws r.e. student loan rates - they are no longer variable rate (from my understanding), but are now fixed at something like 6 or 6.9%. This is going to increase the interest you will pay significantly. Most docs don't pay off their loans in 5 years so I don't think the above comments about the 4-5,000/month repayments are necessarily what you'll be facing. However, the longer you wait to repay the loans in full, the more interest you end up paying, so it's a balance you have to find.

Your student debt will be serious. Some good comments above. One of the main problems is your already having 120,000 in debt from undergrad and a postbac. My best advice is that you need to talk with the financial aid folks at your medical school very early (like even before you enroll) and see what advice they have. One other very important thing we need to know is whether your girlfriend is going to be working (particularly if you end up married, etc.). She really needs to. If at least you didn't have rent and other expenses to pay for, other than your tuition, that would help. Also, try to pay off some of your 120k loans before you start med school (may not be possible, but pay the interest at the very least, so they don't get bigger).

I think you need to look at trying to get into one of the higher-paying specialties, unless you want to live in a rural area or other underserved area where you may have more options for loan forgiveness (should you choose something like primary care of psych). In my experience with those primary care loan repayment programs, they usually don't just "forgive all your debt". Usually the contracts people sign are for something like 20k-30k/year debt repayment but usually the contract says you have to stay there 3 years, 5 years, whatever. So it may be helpful, and certainly a good idea if you want to live in a rural area, but it's not just "free" money. Neither is the military. They will get their pound of flesh.

You do need to factor in the fact that interest will accrue on your loans (except the first 8500 or so subsidized Stafford loan) during school, as was mentioned above. I think some of the above comments/estimates assuming that you will be paying nothing on your loans while you are in residency are probably not accurate - really you should be making loan payments while in residency. I was able to make my loan payments of more than $500/month while in residency - remember you're going to get paid 45k/year...probably 50k/year by the time you start residency. The gov't has mandated that the lenders cannot make you pay thousands/month during residency...there is graduated repayment according to your income (15% of your total income, I think, that they expect you to pay). It ends up being 200-300-something dollars/month on a resident salary. The problem for you will be that this level of repayment won't even pay your interest if your debt is 300k-400k, so the loans will keep getting bigger and bigger.

You're going to need some help from your family if they are willing and able to do so. I know it sucks, but if they have any money, it would be best to swallow your pride and go ask the parental units for help. I got a little money from mine during med school (just to help with rent, etc., not my tuition). If yours could maybe pay the interest on your current 120k student loans, that would at least help so they don't get bigger and bigger while you are in med school.

 

[TMP-SMX]

I just wanted to say that residency deferment is being phased out now. You will have to make payments in residency from now on.

 

[bjolly]

that's not entirely true - although it's no longer going to be possible to defer during residency, you can still get residency forbearance. You don't have to make any payments in forbearance, the only difference from deferment is that interest will accrue on your subsidized loans, where with deferment it doesn't. Since subsidized loans are a small portion of most people's loan debt, the loss of deferment isn't nearly as big a deal as a lot of people think. It sucks, yes, but it's not a disaster.

 

[thebeatgoeson]

There's a new option that you may not know about.

Public Service Loan Forgiveness Program.
Basically if you work for a 501(c)(3), high need areas, military, or other public venues you can have your debt forgiven after 10 years of work and loan repayment.

There are many options out there. My understanding is that you could work for a not-for-profit hospital (something like a Catholic or Jewish hospital) and that would qualify.

I think it's advantageous for those with a $300K+ debt load and a "low-paying" specialty.

http://www.aamc.org/advocacy/library/educ/ed0004.htm
http://www.finaid.org/loans/publicservice.phtml

 

[TMP-SMX]

that's not entirely true - although it's no longer going to be possible to defer during residency, you can still get residency forbearance. You don't have to make any payments in forbearance, the only difference from deferment is that interest will accrue on your subsidized loans, where with deferment it doesn't. Since subsidized loans are a small portion of most people's loan debt, the loss of deferment isn't nearly as big a deal as a lot of people think. It sucks, yes, but it's not a disaster.

True, but at 300,000 that's a mistake to forbear and not make any payments. It is in the OPs interest to be paying off these loans as fast as possible.

 

[ATrim7]

Thank you for all of your informative posts. To address a few of the questions that have been posed:

1) My girlfriend will be working while I am in school. It's slighly ironic that she works in development for a non-profit. If only she could spend 40 hours a week raising money for me. It's hard to tell how much money she will be making over the next five years or so and it will depend on what city I decide to attend for medical school. Right now she makes 50 K which is not a significant amount of money when trying to support two people.

2) My family is not in the best financial situation. My father lost his job twice within 13 months about 4 years ago and they were forced to dip into their retirement and savings. This combined with the recent financial crisis has not bred the best financial situation for my family. They will help me with some food here and there and other small expenses but I do not expect them to be able to help with larger payments. They will do the best they can.

3) I will consider residency in the higher paying subspecialities, but again there is the longer residency to deal with.

I am searching all over the place for any grants, low interest loans and scholarships I can get my hands on. I am fortunate that the school I was accepted to costs about $24,000 a year so if I can get some instituational aid, state aid, subsidized federal loans, and be as conservative as possible when taking out private loans I may be able to reduce my total amount owed signifcantly.

I appreciate the information you all have provided and although I am nervous for my future, I am comforted by knowing what may lie ahead.

 

[dragonfly99]

Atrim,
you can do it. Just don't get yourself into credit card debt. Realize that new cars, fancy apartments, etc. are out.

Your girlfriend has a better paying job than my fellowship right now, and I'm managing to make payments on my 130k in med school loans right now on my fellow salary.

Load deferment is being phased out, but really the only thing lost was getting the gov't to pay your interest on your subsidized Stafford during the first couple years of residency. That actually only saved people maybe $100/month or something. You can still do forbearance and pay nothing during residency if you want - I do not recommend that unless you are forced to do so (i.e. had 2 kids and needed all your money just to live on, etc.). What worked for me was to try and make SOME payments even while an intern...you can pay a few hundred a month from your resident salary. At least try to pay the interest while you are in training, and that way your loans don't get bigger and bigger.

You can probably get some sort of research position or job between first/2nd year that will pay your living expenses, etc. You pretty much can't work any other time during school.

I agree with your plan to look for as many loans and scholarships as you can. Be careful about the loans - federal loans may be the best ones as some of the private ones have crappy interest rates, even the ones sponsored by state medical societies, etc. Federal/Stafford loans are actually not that bad.

 

[TMP-SMX]

During residency you should definitely at least pay 2000 in interest as you can deduct that from your taxes.

 

[alwaysaangel]

If you already have 120k in loans - one thing to look into is how long you have for deferment and forbearance of any private loans. Federal loans can be refinanced and you can reset your deferment/forbearance options. But that doesn't work for private loans. You want to know in advance if suddenly in your 4th year you're going to have to start paying $500/month toward your undergrad. Not trying to scare you - I know people its happened to and the school refuses to increase their CoA so they just live like paupers off of 2/3 of what the rest of us have to live off of.

Overall your debt is doable. I will be 200k in debt when I get out. If I marry a fellow doctor then we will be like 400-500k in debt. If you start paying back in residency and live frugally you can live off of 25k/year (EASY if you're single) or maybe 40k if you're married. The rest of your income can go towards paying off loans (putting 15k or more toward your loans). So at the end of resdency you've already paid off 45k.

When you get a job you could move to the middle of no where on a gov't repayment program - a lot of them will pay you like 100k/year toward loans in addition to your salary. I know someone who signed a 4 year contact to work in the middle of no where in Texas as an EM doc. She is being paid 450k/year (gov't subsidized part of that). With that you could pay off all your loans in 1-2 years!!! And then save a ton!

Or if you don't like that - say you make 100k/year and your spouse makes 50k (lets say after taxes). So even if you start having kids then - you could live pretty comfortable almost anywhere in the country off of 50-60k/year. So you can put 90-100k/year toward loans. Would only take a few years to pay off then you can start living big. And thats a worse case.

There are tons of options - worry about any currently due debts now (credit cards and look into how long you can put off paying your private loans) and forget about the rest until you're done with school.

 

[SB100]

It's called "dermatology". Look into it...

To quote the great Dr. Cox: "Dermatology is Greek for 'fake doctor.'"