Medical School Loan Repayment - Ophtho Centric

[wakeringer]

I'm looking for some advice for managing my medical school loans when residency starts:

The main question being do most ophtho residents opt for income-based repayment (IBR) or forbearance? I know that personal situations will dictate the decision. I will have 200k+ in loans. A great benefit of IBR is if you are granted Public Service Loan Forgiveness (PSLF) after 10 years working at a non-profit (80% of hospitals). My assumption is most optho residents will qualify for 4-6 years of PSLF while in residency/fellowship but then do not work in a PSLF qualifying position thereafter (i.e. private practice).

There are plenty of forums dedicated to this topic but nothing that I could find specifically speaking to future ophthalmologists. Any advice or personal experiences would be great!

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[RestoreSight]

This is basically my plan. I worry that the government will not follow through on the PSLF program for high end loan borrowers, but hopefully they will. The percentage of loan borrowers with >200k of outstanding debt is exceedingly small and limited to graduate professionals. The majority of the borrowers have far less debt. I plan to work in academics so it makes sense for me, but depending on how much more you make in private practice vs academics will determine whether it makes sense to try and complete the 10 years of payments. These payments also do not have to be consecutive, so if you return to academics you can complete the payments at a later time. They also require you to work 30 hrs each week in a qualifying 501(c) non-profit, but that seems to imply you could work 20-40 hrs additionally in some other job (?private practice, moonlighting) and still have your loans forgiven.

 

[MstaKing10]

Does the forgiveness of a 200k+ loan by having to work and earn a non-profit/academic salary offset the potential money lost by earning a significantly larger salary in a private practice? Over a 10 year span for example, I would think your earning potential would be much larger in a private practice setting, certainly more than the 200k you are focused on now.

Of course, if your goal has always been to be in an academic setting and this is what you want to do as a career choice, then the finances should be much less important.

 

[RestoreSight]

I agree with the above post, but its slightly more complicated. You have to take into account the growth of that 200k loan through 4-6 years of residency/fellowship training followed by the increase in income based payments once you are an attending and, presumably, making significantly more. As you mentioned, career goals come into play, but I think in the long run you will make much more in private practice.

 

[dantt]

They also require you to work 30 hrs each week in a qualifying 501(c) non-profit, but that seems to imply you could work 20-40 hrs additionally in some other job (?private practice, moonlighting) and still have your loans forgiven.

Unfortunately, you would have to be paying 15% towards the loan from that second gig as well and your loans may have already been paid by then.

 

[ophthope]

I'm looking for some advice for managing my medical school loans when residency starts:

The main question being do most ophtho residents opt for income-based repayment (IBR) or forbearance? I know that personal situations will dictate the decision.

All of the ophtho residents I know are in forbearance. The advice that I have gotten from a financial planner is that the $300-400/month in residency it will take to pay IBR will make a bigger difference to you now than payments later will. EVERYONE should use THE AAMC MEDLOANS ORGANIZER AND CALCULATOR to figure out what their loan repayment will look like. It is a GREAT TOOL!

I'm about $180,000 deep in student debt right now. For me, if I do IBR then my loan balance after residency will be $219,000. If I go into forbearance then my loan balance after residency will be $238,000. A difference of $19,000 - but how much will I have paid during residency? The calculator estimates my IBR payment would be between $330 and $445 per month. If I split the difference at $388/mo then I will have paid $18,600 in the four years of residency to lower my loan balance by $19,000. A difference of $400.


Even if I extend the calculation to 5 years (fellowship, baby) then I end up with a sum total difference of $7,000 at the end of fellowship.


So to sum it up:
IBR payments in a 4 year residency for my level of debt end up saving me no money over the long term. Over 4+1 fellowship they save me $7,000 at the end of the 5 years. This is not a fancy discounted cash flow calculation and I'm not assuming that I will be making interest on the money I keep during residency. I have also not calculated the difference in interest growth after the 5 years of residency on the loan balance difference.


For my personal situation, that almost $25,000 is more valuable now than $7,000 after residency/fellowship. My family and I can easily continue the resident standard of living and pay down extra on loans to eliminate the balance difference in a year out of residency/fellowship.

 

[wakeringer]

All of the ophtho residents I know are in forbearance. The advice that I have gotten from a financial planner is that the $300-400/month in residency it will take to pay IBR will make a bigger difference to you now than payments later will. EVERYONE should use THE AAMC MEDLOANS ORGANIZER AND CALCULATOR to figure out what their loan repayment will look like. It is a GREAT TOOL!

I'm about $180,000 deep in student debt right now. For me, if I do IBR then my loan balance after residency will be $219,000. If I go into forbearance then my loan balance after residency will be $238,000. A difference of $19,000 - but how much will I have paid during residency? The calculator estimates my IBR payment would be between $330 and $445 per month. If I split the difference at $388/mo then I will have paid $18,600 in the four years of residency to lower my loan balance by $19,000. A difference of $400.


Even if I extend the calculation to 5 years (fellowship, baby) then I end up with a sum total difference of $7,000 at the end of fellowship.


So to sum it up:
IBR payments in a 4 year residency for my level of debt end up saving me no money over the long term. Over 4+1 fellowship they save me $7,000 at the end of the 5 years. This is not a fancy discounted cash flow calculation and I'm not assuming that I will be making interest on the money I keep during residency. I have also not calculated the difference in interest growth after the 5 years of residency on the loan balance difference.


For my personal situation, that almost $25,000 is more valuable now than $7,000 after residency/fellowship. My family and I can easily continue the resident standard of living and pay down extra on loans to eliminate the balance difference in a year out of residency/fellowship.

Thank you, this is exactly what I was looking for. I did a bunch of research last night too and basically came up with the same idea! Glad to hear most Ophtho residents do forbearance.

 

[TheHero]

There's this new PAYE program and if you qualify for that, if you have 200K+ loans and earn $55K during residency then you pay $290 or so per month. And after 4-5 years of residency/fellowship you would have finished half of the loan forgiveness program. I think this would be the best option because once you're done with residency, you can either work an extra 5 years at a hospital/public service and be forgiven from loans, or go into private practice and finish paying the loans because all you would have paid is $250/month but still counted it for the loan forgiveness.

 

[ophthope]

Thank you, this is exactly what I was looking for. I did a bunch of research last night too and basically came up with the same idea! Glad to hear most Ophtho residents do forbearance.

Glad I could help. I had a big freak out after I started thinking about buying a place when I move for residency and looked at my finances. I thought IBR was going to make a much bigger difference long-term than it actually does and I had relegated myself into thinking I needed to pay it. If you have a spouse, or kids, or other people depending on you financially then that extra $300/month in residency can make a big difference - and ultimately it doesn't make a huge difference in your total repayment.

 

[riverwoman1040]

I had a lengthy conversation with my financial planner who is also a physician about this last year. He did not advise that I do IBR. For someone who is planning on doing a long residency (like IM+fellowship) and/or going into acadmics it is a great deal assuming that the government continues the program. For me there were multiple problems with it. First, if you don't go into acadmics you lose the benefit of forgiveness. More people in ophtho seem to go into private practice than other fields, so the chances of getting this benefit are lower. If you don't go into academics, not only are there no benefits to IBR, but you're actually in worse shape than you would have been if you made the same payments without it. The interest rates on my loans range from 6.8% to 8.5%. With IBR your monthly payments are spread out evenly to all of your loans meaning you're making payments on your 6.8% loans while your 8.5% ones continue to grow. If you choose forbearance you can make voluntary payments and choose which loans they go to. My loans are in forbearance, but my goal is to pay off my 8.5% loans by the end of my residency and not contribute anything to the lower interest rate loans, essentially borrowing money at 6.8% to pay off my 8.5% loans. I can spend the same $300ish/month that I would with IBR but come out with less debt at the end of residency. Plus, if my car breaks down, my pet gets sick, or I decide I want to go on a vacation, I always have the option of using that money elsewhere.

Even if you are going into acadmics, there's always the risk that the program will end. It was designed for social worker and lawers going into low paying, public service fields, not doctors with six figure salaries. My personal opinion is that it's only a matter of time before someone discovers that the government is handing out large sums of money to well paid doctors and puts an end to it. If you were counting on forgiveness then you're really screwed.

Unless you're totally sure you want to do acadmics, I vote forbearance with voluntary payments at whatever rate you can comfortably afford. Much less stressful and you're not counting on the government continuing IBR.

 

[dantt]

On the issue of IBR vs. forebearance, what about things such as subsidized interest that you would be losing going into IBR vs. forebearance?

"In addition to discharging the remaining balance at the end of 25 years (10 years for public service), the IBR program also includes a limited subsidized interest benefit. If your payments don't cover the interest that accrues, the government pays or waives the unpaid interest (the difference between your monthly payment and the interest that accrued) on subsidized Stafford loans for the first three years of income-based repayment. Interest on unsubsidized loans and interest that accrues on subsidized Stafford loans after the first three years will be capitalized upon status changes (e.g., a borrower is no longer eligible for IBR or chooses to switch to a different repayment plan). Borrowers who are concerned about the potential for negative amortization, where the amount owed grows because the payments are less than the interest that accrues, always have the option of increasing the payment to at least the interest since federal education loans do not have prepayment penalties."