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So the debate for graduating medical students at my institution seems to be PAYE vs Forbearance.
As far as how to pay overall LEAST over time, in total payments + interest on unsubsidized federal loans... Assuming that the most a resident can afford to pay per month during residency is exactly what Pay As You Earn calculates one could pay.
If PAYE is considered "entering repayment" and your loan capitalizes immediately when started, while with Forbearance your interest doesn't capitalize until Forbearance period ends (i.e. the end of residency), would it then be far better to choose forbearance and save the exact amount you'd pay with PAYE in a Roth IRA or taxable passive investment account instead and then, right before forbearance ends, make a lump sum payment with all the saved +/- investment return money so that zero interest is capitalized in addition to paying off the equivalent amount of your loan?
The other benefits I'm seeing of this would be 1) that you'd also have the opportunity to moonlight or work your tail off the first few months as an attending (if you time your grace period and forbearance right) to definitely have the chance to pay all interest off before capitalizing. And 2) not to be really depressing, but if you get leukemia your PGY-3 year, you can't take your family on a trip around the world with your timely payments... but you could with your meanwhile-savings account.
Am I missing anything that makes the above not correct? If not, why would any financial aid counselor ever suggest PAYE instead of forbearance with disciplined saving in a tax-advantaged investment account and a lump sum final payment?
FYI my loans are all unsubsidized 6.8% at 200k with my wife who has the same 6.8% and 200k, both starting our 3 year residencies in July. (I don't think different numbers would change the above strategy, but just in case.)
As far as how to pay overall LEAST over time, in total payments + interest on unsubsidized federal loans... Assuming that the most a resident can afford to pay per month during residency is exactly what Pay As You Earn calculates one could pay.
If PAYE is considered "entering repayment" and your loan capitalizes immediately when started, while with Forbearance your interest doesn't capitalize until Forbearance period ends (i.e. the end of residency), would it then be far better to choose forbearance and save the exact amount you'd pay with PAYE in a Roth IRA or taxable passive investment account instead and then, right before forbearance ends, make a lump sum payment with all the saved +/- investment return money so that zero interest is capitalized in addition to paying off the equivalent amount of your loan?
The other benefits I'm seeing of this would be 1) that you'd also have the opportunity to moonlight or work your tail off the first few months as an attending (if you time your grace period and forbearance right) to definitely have the chance to pay all interest off before capitalizing. And 2) not to be really depressing, but if you get leukemia your PGY-3 year, you can't take your family on a trip around the world with your timely payments... but you could with your meanwhile-savings account.
Am I missing anything that makes the above not correct? If not, why would any financial aid counselor ever suggest PAYE instead of forbearance with disciplined saving in a tax-advantaged investment account and a lump sum final payment?
FYI my loans are all unsubsidized 6.8% at 200k with my wife who has the same 6.8% and 200k, both starting our 3 year residencies in July. (I don't think different numbers would change the above strategy, but just in case.)
