My take on Forbearance vs IBR during residency

[GoLytely]

Can somebody tell me whether my logic here is legitimate?

I have 200k+ in direct federal (and a small portion private) loans. The prevailing advice seems to be to make payments on the interest using the income-based repayment structure, to prevent the total debt from increasing considerably.

I believe that going into forbearance on these loans for my anticipated SIX years of residency and fellowship is a better idea than coughing up 10-15 percent of my income each year as a resident or fellow. Even though I'll end up adding many thousands of dollars to my current debt, my opinion is that the TOTAL EFFORT required to repay the loans would ultimately be less by going into forbearance.

Surely it's easier to to pay a thousand dollars more per month as an interventional cardiologist or GI guy than it is to part with $400 per month as a resident. Plus, the idea of making my life as a resident so much more difficult to make payments WITHOUT even touching the principle drives me nuts. I'd rather acquire some more debt and then pay it back aggressively as an attending.

I guess I'd like to hear that someone else has this philosophy, and that it's not an insane idea. I've heard of plenty using forbearance for 3-4yr residencies....anyone done it for 6-7 years?

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[mx_599]

I am only doing fam med, but my line of thinking is about the same as yours. I know my training is not as long, but I owe more...oops

shoot, I mean I have expensive hobbies and stuffs. So am I supposed to just give them up while in med school and residency?? Some are somewhat age dependent...I can't just turn the clock back when done with residency and I am pretty sure that my life here is a one shot deal...

In summary, if it's any consolation, someone else on SDN agrees with your madness.

(join sermo, they might have some insight)

 

[daveyjwin]

I'm in the same boat as you guys, ~$210K in debt. I ran my numbers a while back, and figured that if I did IBR, I'd save about $12-15K in the long run. Then it because a simple decision of what means more to me, $380/month as a residenct, or $15K extra as an attending. I'd personally rather have my $380/month as a resident.

 

[december07]

Can somebody tell me whether my logic here is legitimate?

I have 200k+ in direct federal (and a small portion private) loans. The prevailing advice seems to be to make payments on the interest using the income-based repayment structure, to prevent the total debt from increasing considerably.

I believe that going into forbearance on these loans for my anticipated SIX years of residency and fellowship is a better idea than coughing up 10-15 percent of my income each year as a resident or fellow. Even though I'll end up adding many thousands of dollars to my current debt, my opinion is that the TOTAL EFFORT required to repay the loans would ultimately be less by going into forbearance.

Surely it's easier to to pay a thousand dollars more per month as an interventional cardiologist or GI guy than it is to part with $400 per month as a resident. Plus, the idea of making my life as a resident so much more difficult to make payments WITHOUT even touching the principle drives me nuts. I'd rather acquire some more debt and then pay it back aggressively as an attending.

I guess I'd like to hear that someone else has this philosophy, and that it's not an insane idea. I've heard of plenty using forbearance for 3-4yr residencies....anyone done it for 6-7 years?

NO WAY, if you're gonna do a fellowship after your residency, IBR is a no brainer. Come out and work for FOUR more years as an attending in a nonprofit (80% of hospitals are) and you're DONE!

the dilemma with IBR rests with people that either have a shorter residency or emergency medicine physicians who will be contractors and not hospital employees.

 

[GoLytely]

NO WAY, if you're gonna do a fellowship after your residency, IBR is a no brainer. Come out and work for FOUR more years as an attending in a nonprofit (80% of hospitals are) and you're DONE!

the dilemma with IBR rests with people that either have a shorter residency or emergency medicine physicians who will be contractors and not hospital employees.

Is this actually true? It sounds too good to be true. I'm honestly considering electrophysiology more than anything, which would give me EIGHT years before getting out of training. Maybe I'll need to look further into this and adopt your view instead.

I was under the impression that I'd have to sign up with a VA hospital or some place with awful pay, and didn't realize that the average hospital would count as non-profit...

 

[december07]

Is this actually true? It sounds too good to be true. I'm honestly considering electrophysiology more than anything, which would give me EIGHT years before getting out of training. Maybe I'll need to look further into this and adopt your view instead.

I was under the impression that I'd have to sign up with a VA hospital or some place with awful pay, and didn't realize that the average hospital would count as non-profit...

One thing you have to take in consideration is if you're married. Cause your spouse's income can bring up your monthly payment during residency, which means less saving. Granted that the monthly payment will never be more than the standard 10 yr payment plan.

As long as you work 30 hrs/wk at a 503c (non-profit) organization, you're locked in with IBR.

and yeah, if you're planning on doing an 8 year post graduate training... haha, no brainer.

 

[janV88]

IBR = Income Based Repayment. This totally depends on how much you make not whether you work for a non profit. You are getting IBR and Public Service Loan Forgiveness mixed up.

You are eligible for IBR if your calculated IBR payment is lower than your calculated 10 year repayment plan. IBR = 15% of your income that is greater than 150% of poverty level.

You are eligible for Public Service Loan Forgiveness if you work for 10 years in a non profit 501(c)(3) or in the government or serve full time in the peacecorps.

Another great thing about IBR is that the government will cover the interest on your subsidized loans that isn't covered by your monthly payments. So your subsidized loans don't accrue interest. (I dont know if this is the case in forbearance)

 

[GoLytely]

Thanks guys for the advice.

I was definitely confusing IBR with public service loan forgiveness in the sense that I thought they were different parts of the same program. As it turns out, it looks as if PSLF is its own program and IBR is one accepted way to get there.

I'm convinced, but I would obviously feel more comfortable if there were some way to sign up for the PSLF prospectively, i.e. now, instead of having to wait around 10 years hoping it'll still be there. There's a discussion from a 2007 thread alluding to how they hadn't yet gotten funding, and nobody was quite sure whether you could be "grandfathered" into forgiveness by meeting the requirements now (at the start of your payments).

Any progress on these issues that I'm unaware of? In any case, thanks to december and jan for the earlier clarification.

 

[blanche]

Thanks guys for the advice.

I was definitely confusing IBR with public service loan forgiveness in the sense that I thought they were different parts of the same program. As it turns out, it looks as if PSLF is its own program and IBR is one accepted way to get there.

I'm convinced, but I would obviously feel more comfortable if there were some way to sign up for the PSLF prospectively, i.e. now, instead of having to wait around 10 years hoping it'll still be there.

I totally agree. I'd like to get an idea now whether or not this thing will be a reality for me (I'm not in a lucrative specialty) b/c my loans will enter repayment in June. If I want to go for the PSLF, will need to move le loans over to Direct Loans (are at Sallie Mae now) If I move them over, I will have a slightly higher interest rate....

 

[nontrdgsbuiucmd]

One thing you have to take in consideration is if you're married. Cause your spouse's income can bring up your monthly payment during residency, which means less saving. Granted that the monthly payment will never be more than the standard 10 yr payment plan.

As long as you work 30 hrs/wk at a 503c (non-profit) organization, you're locked in with IBR.

and yeah, if you're planning on doing an 8 year post graduate training... haha, no brainer.

Yes this all matches what I've read, details of the IBR are posted on the federal register. Any not-for-profit would count; 30+ hrs per week is what is required if you were to work for different entities.

Only note to add is if you are married, and you file taxes separately, only your income (rather than household income) is counted when determining IBR payment. That is a change from the previous income repayment schedule, and part of why I signed up for IBR as soon as it became available.

 

[dynx]

Yes this all matches what I've read, details of the IBR are posted on the federal register. Any not-for-profit would count; 30+ hrs per week is what is required if you were to work for different entities.

Only note to add is if you are married, and you file taxes separately, only your income (rather than household income) is counted when determining IBR payment. That is a change from the previous income repayment schedule, and part of why I signed up for IBR as soon as it became available.

Not a bad idea to sign up in case it all works out BUT....
I can see a lot of problems with this:

1. accidently consolidate a Perkins loan or a Parent PLUS loan (a non-qualifying loan) and....whoops! you're ****ed. You're consolidated loans no longer qualify for forgiveness. I can see them counting on this happening to a lot of people. NO help from the consolidation service on this. Its up to YOU to figure it out and make sure what you're doing qualifies. You mess up....to bad.

2. The program vaporizes when the gov. realizes the bill is about to come due in 2017. No they dont have to not grandfather you in or do anything that obvious....they can just change the qualifying criteria for a non-profit.

3. Public service jobs start to offer 5 year contracts at an average of 40k per year less than the private sector. Not much less but locks you into thier program at the expense of the fed gov. and YOU when you're emotionally invested in getting your "loan forgiveness" after all those years of making more payments than you otherwise would have.

Believe me other people are thinking about how to make money off this...its not going to be a great deal for most people.

 

[GoLytely]

Listen up guys, I just whipped out an excel spreadsheet, and decided that whether or not we'll be eligible for Public Service Loan Forgiveness is NEARLY the ENTIRETY of the value of IBR. In other words, there's no way I'd take a hard-earned and much-needed $400/mo out of my pocket this intern year to pay for this UNLESS I was confident on getting PSLF.

I did the numbers exactly, using exactly what I owe and what my residency stipend is scheduled to be, but I'll use rough ones here (this will apply to those who have mainly unsubsidized loans).

Let's say you currently owe about 240k at 6.8% interest (we'll assume your loans have been consolidated to make this simpler). At the end of a 3-year residency, using forbearance, you would owe about 290k, after 4 years 310k, after 5 years 334k, after 6 years 355k, and after 7 years 380k.

So, if you began a 6-year residency with 240k in student loan debt, you'd come out having paid $41742 (assuming a standard ~45k salary to start with a 3k raise each year) in income-based repayments to do nothing but ultimately owe 331k at the end of residency instead of the 380k you'd owe using forbearance. Assuming a shorter residency, the income of your meager payments against huge interest would be similarly insignificant.

My point of view is that it will detract significantly from your quality of life to make the IBR payments during residency (when you don't have much money). I'm currently having to choose between making the payments and owning/parking a car. Sounds like quite a sacrifice each year to make a ~50k difference in what you ultimately end up paying (and even LESS with a shorter than 6-year residency).

Quite frankly, this 50k total difference can be made up rather quickly after residency, and NOT SO quickly (and with a great deal of inconvenience) during residency.

Again, my numbers are rough. But assuming I'm even close to right about this (and I do believe I am), nearly the entire utility of IBR for someone who owes a LOT of money rests in its ability to qualify us for the PSLF program.

And, as was mentioned by the above poster, something just doesn't feel right about it. I'd be hella surprised if the gov't doesn't find some way to weasel out of this by then, or at the least make the requirements so strict that we'll be thrust for an extended period of time into poor-paying public servitude.

 

[mx_599]

...and I stand by what I said above. Thanks guys above for confirming my hunch.

 

[thesauce]

Listen up guys, I just whipped out an excel spreadsheet, and decided that whether or not we'll be eligible for Public Service Loan Forgiveness is NEARLY the ENTIRETY of the value of IBR. In other words, there's no way I'd take a hard-earned and much-needed $400/mo out of my pocket this intern year to pay for this UNLESS I was confident on getting PSLF.

I did the numbers exactly, using exactly what I owe and what my residency stipend is scheduled to be, but I'll use rough ones here (this will apply to those who have mainly unsubsidized loans).

Let's say you currently owe about 240k at 6.8% interest (we'll assume your loans have been consolidated to make this simpler). At the end of a 3-year residency, using forbearance, you would owe about 290k, after 4 years 310k, after 5 years 334k, after 6 years 355k, and after 7 years 380k.

So, if you began a 6-year residency with 240k in student loan debt, you'd come out having paid $41742 (assuming a standard ~45k salary to start with a 3k raise each year) in income-based repayments to do nothing but ultimately owe 331k at the end of residency instead of the 380k you'd owe using forbearance. Assuming a shorter residency, the income of your meager payments against huge interest would be similarly insignificant.

My point of view is that it will detract significantly from your quality of life to make the IBR payments during residency (when you don't have much money). I'm currently having to choose between making the payments and owning/parking a car. Sounds like quite a sacrifice each year to make a ~50k difference in what you ultimately end up paying (and even LESS with a shorter than 6-year residency).

Quite frankly, this 50k total difference can be made up rather quickly after residency, and NOT SO quickly (and with a great deal of inconvenience) during residency.

Again, my numbers are rough. But assuming I'm even close to right about this (and I do believe I am), nearly the entire utility of IBR for someone who owes a LOT of money rests in its ability to qualify us for the PSLF program.

And, as was mentioned by the above poster, something just doesn't feel right about it. I'd be hella surprised if the gov't doesn't find some way to weasel out of this by then, or at the least make the requirements so strict that we'll be thrust for an extended period of time into poor-paying public servitude.

Where are you getting this? Even by your numbers: $400x12x6 = $28,800.

 

[GoLytely]

Where are you getting this? Even by your numbers: $400x12x6 = $28,800.

IBR payments equal 15% of the portion of your salary that's above 150% of the poverty level. They go up significantly each year with even small increases in salary.

 

[thesauce]

Not going to get into it

 

[mx_599]

 

[thesauce]

What an insightful contribution to the thread

 

[mx_599]

What an insightful contribution to the thread

you don't have to be all mean just because there is no mathematics in my post, geesh

 

[blanche]

one thing i'm wondering about is what specific positions will qualify....it appears that being an employee at most academic institutions and non-academic hospitals (which are classified as nonprofit/503c organizations) will make one eligible (for example, a community hospital that i am looking into going to....) but what if later i am employed by a physician group working in one of these 503s instead of being a straight up hospital employee....does that group qualify?

 

[GoLytely]

one thing i'm wondering about is what specific positions will qualify....it appears that being an employee at most academic institutions and non-academic hospitals (which are classified as nonprofit/503c organizations) will make one eligible (for example, a community hospital that i am looking into going to....) but what if later i am employed by a physician group working in one of these 503s instead of being a straight up hospital employee....does that group qualify?

That's that main question, which positions will ultimately qualify. In the ideal situation, any non-profit hospital would count. But can you really imagine the gov't paying off loans almost entirely for the thousands of people who would catch on to this and do 7-year residencies + 3 years at any typical high paying job? If something seems too good to be true, it usually is. Especially when Uncle Sam is involved.

I really want to believe the program will stay in place. I really do. But I'm leaning more toward forbearance, since I'd rather not markedly alter my life for something the gov't has no way of promising and may withdraw at any time.

At the very least, the criteria for eligible institutions will probably be better defined in the future, and bet high on them being relatively strict. Then, once you've taken a job at the VA (to qualify for PSLF) for 3-4 years at 140k instead of the 210k you could make elsewhere, plus how HIGH your IBR payments will be for those 4 years based on what your income will be then, I doubt there will be much benefit to IBR + PSLF versus just delaying all of your payments.

I'm admittedly a pissed-off political spectator, which may have me biased. But I smell the gov trying its best to rope us into doing as much cheap work directly for them as possible, even AFTER they've screwed us with incredible interest rates.

 

[mx_599]

slave labor you will be

 

[bbpiano1]

Just say the government is paying my interest on my subsidized Stafford loans. Then, one month, I decide to pay extra and it covers my interest on those loans. Does the government not pay/reimburse my interest for that month?

 

[PostLessOne]

Comment : lots of attendings today actually have multiple jobs on paper. It sounds like it's possible to have a 30 hour a week job working directly for a hospital, and 30 hours a week as a member of a physician group, ALSO working at a clinic near or inside that same hospital. Best of both worlds : near the full income of a pure private physician, while working towards that loan repayment at the same time. As long as both jobs are in the same specialty, you'd only have to pay for 1 malpractice insurance premium.

Course, you cannot get in this kind of beneficial financial setup if you didn't pay your loans using IBR during residency.

 

[CyberKnife19]

Is there a calculator that will tell you how much you will owe after residency if you use IBR during residency?

 

[ppisklak]

Some other things to consider:
1) Most of our loans have repayment benefits where you get a one or two percent interest rate reduction after making two or three years of on-time payments. If you enter Ibr during residency, your 2% reduction will kick in right when you are finishing.

2) the govt pays any subsidize interest that your ibr payment doesn't cover. This can actually be significant in terms of rate of return of your ibr "investment."

3) Your loans don't capitalize until you phase out of ibr, whereas in forebearance they usually captalize annually.

Also, you can pick and choose which ones to put into ibr. I think I will put he ones at 6.8 percent in ibr and the ones at 3.5 into forebearance.

Just my two cents - good points about the quality of life issues though! Excuse my typos - on my iPhone in a call room!

 

[thesauce]

Some other things to consider:
1) Most of our loans have repayment benefits where you get a one or two percent interest rate reduction after making two or three years of on-time payments. If you enter Ibr during residency, your 2% reduction will kick in right when you are finishing.

2) the govt pays any subsidize interest that your ibr payment doesn't cover. This can actually be significant in terms of rate of return of your ibr "investment."

3) Your loans don't capitalize until you phase out of ibr, whereas in forebearance they usually captalize annually.

Also, you can pick and choose which ones to put into ibr. I think I will put he ones at 6.8 percent in ibr and the ones at 3.5 into forebearance.

Just my two cents - good points about the quality of life issues though! Excuse my typos - on my iPhone in a call room!

You sure about this? This would be great if it were true.

 

[ppisklak]

I know it's true in my case because they are with different banks, and you apply for IBR with each individual bank (just as if you were applying for deferment).

Here is the definitive resource on this issue:

http://www.ibrinfo.org/

Good Luck!

 

[rbnsafsadgf]

...
3) Your loans don't capitalize until you phase out of ibr, whereas in forebearance they usually captalize annually.

Where did you find this info?

Don't unsub loans capitalize interest accrued during med school when you enter into IBR since you are entering re-payment?

I am hoping you are right, but want to make sure.

 

[ppisklak]

Where did you find this info?

Don't unsub loans capitalize interest accrued during med school when you enter into IBR since you are entering re-payment?

I am hoping you are right, but want to make sure.

Sorry, I don't think I was clear. They will capitalize when you enter IBR. However, once you are in IBR, they won't re-capitalize every year as they might in forebearance. Keep in mind that different banks seem to do this differently. At least one of my banks, however, re-capitalizes every year when you "change status," even when it is just going from one forebearance to another forebearance. Call your bank - they will tell you how they do it.

The benefit (as I see it), is that you will definitely avoid capitalization as long as you are in the program. You will capitalize when you earn too much, but by that time you could have enough money to pay that interest before it capitalizes. If you were in regular repayment after a forebearance, I think your loan would be "capitalizing" even more frequently (daily? quarterly? not sure on the details, but I assume it would be just like a credit card at this point).


You asked about my source: Dept. of Education

"Under IBR, unpaid interest is capitalized (added to your loan principal balance) only if you are
determined to no longer have a “partial financial hardship”, or if you choose to leave the IBR Plan."
studentaid.ed.gov/students/.../IBRQ&A_template_123109_FINAL.pdf


Also, it's not necessarily true that you will phase out of IBR immediately after residency. If you have the average $150,000 federal debt at 6.8% , and make $150,000 a year starting out (assuming you are a 2-person family with one wage-earner), you should be able to stay in IBR for 10 years and never have the loan capitalize. Whether it is wise to pay off that loan in that amount of time is another matter (maybe it is better to switch to the 25-year plan at that point), but the point is that it is possible to stay in IBR as an attending if you are on the low end of the salary spectrum.

My source for those calculations : http://www.ibrinfo.org/calculator.php

Sorry for the rambling post, but I am just looking to bounce ideas off other people. I'm certainly no expert, but I have read a bunch of this stuff. I'm 2 years out from finishing gas residency, and this seems to be a good plan for me. YMMV.

 

[rbnsafsadgf]

Sorry for the rambling post, but I am just looking to bounce ideas off other people. I'm certainly no expert, but I have read a bunch of this stuff. I'm 2 years out from finishing gas residency, and this seems to be a good plan for me. YMMV.

Thanks. That is all very helpful.

I am an incoming MS1 and I'm just trying to make an accurate projection of my total debt. How interest is capitalized makes a sizable difference.

 

[TopsyKrett]

one thing i'm wondering about is what specific positions will qualify....it appears that being an employee at most academic institutions and non-academic hospitals (which are classified as nonprofit/503c organizations) will make one eligible (for example, a community hospital that i am looking into going to....) but what if later i am employed by a physician group working in one of these 503s instead of being a straight up hospital employee....does that group qualify?

how do you find out which hospitals are 503c?

 

[blanche]

how do you find out which hospitals are 503c?

you can check it here:
http://www.irs.gov/charities/article/0,,id=96136,00.html

 

[bonesmd]

The way I understand it is to use PSLF, you much be paying on a Federal Direct loan. If your medical school loans were through a bank, you have to consolidate them into a Federal Direct Consolidation Loan.

" The borrower must have made 120 payments as part of the Direct Loan program in order to obtain this benefit. Only payments made on or after October 1, 2007 count toward the required 120 monthly payments. (Borrowers may consolidate into Direct Lending in order to qualify for this loan forgiveness program starting July 1, 2008.)"

 

[blanche]

The way I understand it is to use PSLF, you much be paying on a Federal Direct loan. If your medical school loans were through a bank, you have to consolidate them into a Federal Direct Consolidation Loan.

" The borrower must have made 120 payments as part of the Direct Loan program in order to obtain this benefit. Only payments made on or after October 1, 2007 count toward the required 120 monthly payments. (Borrowers may consolidate into Direct Lending in order to qualify for this loan forgiveness program starting July 1, 2008.)"

That is true. However, you can take separate loans over w/o actually consolidating if you have them processed separately in time (this can be a matter of days). The Direct loans people will give you advice on this over the phone. I'm still mulling it--but in case PSLF doesn't work or end up being the best idea for me, I'd like to keep my 3.5% and 6.8% loans separate. Of course you lose any loan benefits you have with your current servicer (Sallie Vomit, T.H.E, whatever..)

 

[odieoh]

Listen up guys, I just whipped out an excel spreadsheet, and decided that whether or not we'll be eligible for Public Service Loan Forgiveness is NEARLY the ENTIRETY of the value of IBR. In other words, there's no way I'd take a hard-earned and much-needed $400/mo out of my pocket this intern year to pay for this UNLESS I was confident on getting PSLF.

I did the numbers exactly, using exactly what I owe and what my residency stipend is scheduled to be, but I'll use rough ones here (this will apply to those who have mainly unsubsidized loans).

Let's say you currently owe about 240k at 6.8% interest (we'll assume your loans have been consolidated to make this simpler). At the end of a 3-year residency, using forbearance, you would owe about 290k, after 4 years 310k, after 5 years 334k, after 6 years 355k, and after 7 years 380k.

So, if you began a 6-year residency with 240k in student loan debt, you'd come out having paid $41742 (assuming a standard ~45k salary to start with a 3k raise each year) in income-based repayments to do nothing but ultimately owe 331k at the end of residency instead of the 380k you'd owe using forbearance. Assuming a shorter residency, the income of your meager payments against huge interest would be similarly insignificant.

My point of view is that it will detract significantly from your quality of life to make the IBR payments during residency (when you don't have much money). I'm currently having to choose between making the payments and owning/parking a car. Sounds like quite a sacrifice each year to make a ~50k difference in what you ultimately end up paying (and even LESS with a shorter than 6-year residency).

Quite frankly, this 50k total difference can be made up rather quickly after residency, and NOT SO quickly (and with a great deal of inconvenience) during residency.

Again, my numbers are rough. But assuming I'm even close to right about this (and I do believe I am), nearly the entire utility of IBR for someone who owes a LOT of money rests in its ability to qualify us for the PSLF program.

And, as was mentioned by the above poster, something just doesn't feel right about it. I'd be hella surprised if the gov't doesn't find some way to weasel out of this by then, or at the least make the requirements so strict that we'll be thrust for an extended period of time into poor-paying public servitude.

You are not quite fully calculating the whole cost of not making payments. You are correct that it is 50k difference at the end of residency. If you paid it off fully right at that moment then it stays at 50k. But if you are going to make payments on it, which most people are, then that extra 50k continues to accrue interest. At 6.8% thats ~3500 a year, and on a 15 year payment plan it ends up being 30k or so extra interest. So really closer to 80k difference. Now, if you don't think 50k is a big deal then probably 80k won't bother you either. To me its a $#!@# ton of money.

 

[doctron]

Let's not forget that you can deduct the interest you pay on your student loans each year (1099 form I think) for up to $2500. This should factor into the equation when deciding to pay or defer your loans.

 

[janV88]

Let's not forget that you can deduct the interest you pay on your student loans each year (1099 form I think) for up to $2500. This should factor into the equation when deciding to pay or defer your loans.

Very good point. For 2010 the average resident salary (45k) would fall into the 25% tax bracket. So that $400 payment per month pre-tax money is the same as $300 post-tax money.

I also played around with a spreadsheet and with a $250k loan at 6.8%, that $400 per month (actually $300 since its tax deductible) will cost you $300*36 months (im assuming 3 yr residency) = $10,800. I then assumed that once you finish residency you will start paying $2000/month. The savings added up to $100k. The savings will be larger for longer residencies and also larger if you decide to pay less than $2000/month post residency.

 

[CyberKnife19]

Very good point. For 2010 the average resident salary (45k) would fall into the 25% tax bracket. So that $400 payment per month pre-tax money is the same as $300 post-tax money.

I also played around with a spreadsheet and with a $250k loan at 6.8%, that $400 per month (actually $300 since its tax deductible) will cost you $300*36 months (im assuming 3 yr residency) = $10,800. I then assumed that once you finish residency you will start paying $2000/month. The savings added up to $100k. The savings will be larger for longer residencies and also larger if you decide to pay less than $2000/month post residency.

Why would you only have to pay $2,000/month? It seems like your payments would have to be higher.

 

[janV88]

Why would you only have to pay $2,000/month? It seems like your payments would have to be higher.

That's what the payments would be on a 25yr, $300k loan @ 6.8%.

And IBR for someone making $150k is $1600/month.

 

[daveyjwin]

Sounds like a poor assumption. If you try to pay off your loans ASAP after residency, instead of pricing them out over 30 years, the savings with IBR are minimal ($10-20K). Myself, I'd rather have my $300/mo during residency than $20K as an attending. I'm poorer, so the money means more to me.

 

[janV88]

Sounds like a poor assumption. If you try to pay off your loans ASAP after residency, instead of pricing them out over 30 years, the savings with IBR are minimal ($10-20K). Myself, I'd rather have my $300/mo during residency than $20K as an attending. I'm poorer, so the money means more to me.

Well if you try to pay off your student loans ASAP of course the difference wont be that big. But then your putting off the purchase of your home, or putting off the payment of your home. Something always has to give...its a balancing act. And with the future healthcare market, shouldn't we prepare for the worst?

I guess it really depends on what you are expecting to be payed as an attending. It won't matter much at $500k, $400k, or $300k. But what about $150k or $175k?

 

[daveyjwin]

Well if you try to pay off your student loans ASAP of course the difference wont be that big. But then your putting off the purchase of your home, or putting off the payment of your home. Something always has to give...its a balancing act. And with the future healthcare market, shouldn't we prepare for the worst?

I guess it really depends on what you are expecting to be payed as an attending. It won't matter much at $500k, $400k, or $300k. But what about $150k or $175k?

Paying off money owed is a guaranteed rate of return, whereas investing in things like real estate or the stock market, in the short term, are variable. When I finish residency, I'll owe in the neighborhood of $275K at an average rate of about 7.5%. If I pay that off ASAP, it would monetarily be the same as investing that amount of money into something that pays 7.5%, guaranteed. Sure, I could invest in a house or the market and hope for a better rate of return than that... but why hassle? Avg in my specialty is $258K/yr, there's no reason I can't pay $50-75K/yr towards my debt and make it disappear.

 

[janV88]

Paying off money owed is a guaranteed rate of return, whereas investing in things like real estate or the stock market, in the short term, are variable. When I finish residency, I'll owe in the neighborhood of $275K at an average rate of about 7.5%. If I pay that off ASAP, it would monetarily be the same as investing that amount of money into something that pays 7.5%, guaranteed. Sure, I could invest in a house or the market and hope for a better rate of return than that... but why hassle? Avg in my specialty is $258K/yr, there's no reason I can't pay $50-75K/yr towards my debt and make it disappear.

Yes, it really depends on your particular situation. If you will be living very poorly because of the $300/month and/or expect to be paid MUCH higher than residency then go for forbearance. If your residency is in a low cost of living area and/or expect to be paid ~$150k after residency then maybe ibr would be better.

I will be starting podiatry school this fall. 4 years then 3 yr residency will put me in ~$300k. The average pay is around $150k so it might be in my best interest to go IBR.

 

[blanche]

Very good point. For 2010 the average resident salary (45k) would fall into the 25% tax bracket. So that $400 payment per month pre-tax money is the same as $300 post-tax money.

I also played around with a spreadsheet and with a $250k loan at 6.8%, that $400 per month (actually $300 since its tax deductible) will cost you $300*36 months (im assuming 3 yr residency) = $10,800. I then assumed that once you finish residency you will start paying $2000/month. The savings added up to $100k. The savings will be larger for longer residencies and also larger if you decide to pay less than $2000/month post residency.

this is not quite right--if you paid $400/mo in residency, that would be $4800/year. But you can only defer $2500 for the IRS deduction for student loan interest (hence, max tax benefit per year ~600 at 25% tax bracket) So you'll be paying more than that assumed $10,800, but you 've got the right idea

the other thing to think about with paying v forbearing as a resident is capitalization. every dollar you pay early on is a dollar that won't collect interest. you can pay $10,000 as a resident or $10,000 5 years later, but the former will save you thousands of dollars over time!

 

[Sheldor]

sorry for the three year old bump...

Just curious what my fellow M4's are going to be doing with their loans. WIth my calculations it seems to agree with some of the above posters. As in, I'd pay maybe 20-30k, in order to prevent my loans from accruing 40kish in interest if I did forbearance.

Initially IBR seemed like the logical choice, but not it seems that even though there is an interest benefit, it isn't fee because you are paying 20-30k towards that interest.

Anyway, what are this years students thoughts? Anyone from this original thread still around and want to comment on what you ended up doing and how it worked?

 

[235009]

sorry for the three year old bump...

Just curious what my fellow M4's are going to be doing with their loans. WIth my calculations it seems to agree with some of the above posters. As in, I'd pay maybe 20-30k, in order to prevent my loans from accruing 40kish in interest if I did forbearance.

Initially IBR seemed like the logical choice, but not it seems that even though there is an interest benefit, it isn't fee because you are paying 20-30k towards that interest.

Anyway, what are this years students thoughts? Anyone from this original thread still around and want to comment on what you ended up doing and how it worked?

no offense but you sound confused. lemme try to help.

forebearance shouldn't be in your vocabulary at all at this point. the federal government allows you an unlimited number of years of deferment during residency in addition to the 3 years of deferment that everyone gets for federal loans.

deferment is a bad option and should not be used unless you REALLY can't make ends meet with your salary and the modest IBR payments.

IBR or PAYE are the absolute best options. Anyone can qualify for IBR. To qualify for PAYE you have to have had a zero federal loan balance as of october 2007. the difference between the two is that IBR asks you to pay 15% of your income less 150% of the poverty line while PAYE asks you to pay 10%.

monthly IBR/PAYE payments are based on your income from the previous year which is demonstrated on your tax return. So it is in your best interest to file a tax return for 2012 so you can use that as proof of income for IBR payments (i've heard it's hit or miss if you have 0 income on your tax return from the prior year) ....as a result you will likely be required to pay 0/month through IBR for the first year. The advantage of this over deferment is that the federal government covers the interest on your subsidized loans as long as you make the required IBR payments. For second year you'll show them a tax return demonstrating only half a year of income which will typically translate to <$200/month in required loan payments. During the third year and beyond you'll likely have to pay ~$500/month under IBR. At that point deferment might be a valid option if you can't make ends meet.

As you can see this is way less than paying $20-30k/year for loans while in residency which is of course unsustainable.

 

[Sheldor]

no offense but you sound confused. lemme try to help.

forebearance shouldn't be in your vocabulary at all at this point. the federal government allows you an unlimited number of years of deferment during residency in addition to the 3 years of deferment that everyone gets for federal loans.

deferment is a bad option and should not be used unless you REALLY can't make ends meet with your salary and the modest IBR payments.

IBR or PAYE are the absolute best options. Anyone can qualify for IBR. To qualify for PAYE you have to have had a zero federal loan balance as of october 2007. the difference between the two is that IBR asks you to pay 15% of your income less 150% of the poverty line while PAYE asks you to pay 10%.

monthly IBR/PAYE payments are based on your income from the previous year which is demonstrated on your tax return. So it is in your best interest to file a tax return for 2012 so you can use that as proof of income for IBR payments (i've heard it's hit or miss if you have 0 income on your tax return from the prior year) ....as a result you will likely be required to pay 0/month through IBR for the first year. The advantage of this over deferment is that the federal government covers the interest on your subsidized loans as long as you make the required IBR payments. For second year you'll show them a tax return demonstrating only half a year of income which will typically translate to <$200/month in required loan payments. During the third year and beyond you'll likely have to pay ~$500/month under IBR. At that point deferment might be a valid option if you can't make ends meet.

As you can see this is way less than paying $20-30k/year for loans while in residency which is of course unsustainable.

Two things:

1) The government stopped allowing deferment in residency a few years ago.

http://m.amednews.com/apps/pbcs.dll/article?aid=/20080616/profession/306169961&template=mobile_art

They now allow a "mandatory" forbearance, meaning you pick up the tab for the subsidized interest.

2) I apologize for not being clear, but not all medical graduates are single with zero salary. As I am married, my payments would start out high. So I'd pay an average of $400 a month on IBR for 5 years, or 24k to prevent my loans from accruing an additional 27k in interest. As in, the three years of subsidized interest on 30k-ish loans on IBR doesn't benefit me that much.

Either way sucks, but as most students these days don't qualify for pay as you earn (IE, have loans before 2007) it's an IBR vs Forbearance decision.

 

[PAYE1]

See http://forums.studentdoctor.net/showthread.php?t=1004133

 

[235009]

Two things:

1) The government stopped allowing deferment in residency a few years ago.

http://m.amednews.com/apps/pbcs.dll/article?aid=/20080616/profession/306169961&template=mobile_art

They now allow a "mandatory" forbearance, meaning you pick up the tab for the subsidized interest.

2) I apologize for not being clear, but not all medical graduates are single with zero salary. As I am married, my payments would start out high. So I'd pay an average of $400 a month on IBR for 5 years, or 24k to prevent my loans from accruing an additional 27k in interest. As in, the three years of subsidized interest on 30k-ish loans on IBR doesn't benefit me that much.

Either way sucks, but as most students these days don't qualify for pay as you earn (IE, have loans before 2007) it's an IBR vs Forbearance decision.

1. sorry, guess my information (which i got from the financial planning specialist that lectured at my school) is incorrect. you're right, this was eliminated

2. file taxes separately...

The marriage penalty inherent in the IBR formula was corrected by Congress (P.L. 110-153, December 21, 2007) by allowing a married borrower who files income tax returns as "married filing separately" to count only the borrower's adjusted gross income and student loan debt. This lets a borrower exclude the (higher) income of his/her spouse when calculating the cap on monthly payments under income-based repayment instead of combining the income as under the original legislation.

from http://www.finaid.org/loans/ibr.phtml