Igor4sugry

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Jan 25, 2005
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I would like to ask for some opinion of this strategy of handling medical school loans.

Lets say you graduate with $150k. Then instead of paying off the student loan in a 10/20/25yr plan, you just pay the interest for the rest of your life.
Then I would invest into stocks/bonds/retirement account with the money I would have payed down on this loan. So the idea is to have more money invested instead of spending it to pay down dept.

I also heard that to do this I would have to take out a physician loan for 150k, pay off my original lender, and then make an arrangement with the bank to only pay interest on the 150k for the rest of my life.

I am thinking of this b/c education dept is forgiven upon death, and I think it would make more sense to invest as early as possible rather than pay off education dept.
 

mx_599

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Apr 5, 2005
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I would like to ask for some opinion of this strategy of handling medical school loans.

Lets say you graduate with $150k. Then instead of paying off the student loan in a 10/20/25yr plan, you just pay the interest for the rest of your life.
Then I would invest into stocks/bonds/retirement account with the money I would have payed down on this loan. So the idea is to have more money invested instead of spending it to pay down dept.

I also heard that to do this I would have to take out a physician loan for 150k, pay off my original lender, and then make an arrangement with the bank to only pay interest on the 150k for the rest of my life.

I am thinking of this b/c education dept is forgiven upon death, and I think it would make more sense to invest as early as possible rather than pay off education dept.
huh?
 

NerdyAndrea

Pre-Med Student
Feb 10, 2010
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What about working in a medically underserved area for help with loans, or perhaps just taking a job and paying your loan?

Why pay interest all your life, and even if it is forgiven on death this seems a bit uummm bending the system, and why would you want to have an extra monthly bill all your life?

A
 

hardy

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Nov 21, 2004
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uhm, okay... that would make sense if you could reliably make more profit on your investments than your interest rate is (6.8% for most of us, not something you can count on with investments). And of course, your lender wants the money back, they will make you pay more than just interest.
 

mx_599

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I also heard that to do this I would have to take out a physician loan for 150k, pay off my original lender, and then make an arrangement with the bank to only pay interest on the 150k for the rest of my life.
what does this mean? what is a physician loan? why would the bank make a special arrangement to pay interest only?

what are you talking about?
 

dotdash

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Aug 28, 2008
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This is like an interest-only mortgage, which was fairly common back in the day. You decide that having lower monthly payments is more important to you than removing the liability from your balance sheet. No problem, but at some point (when you die, I guess), someone will want to get paid the principal back. Most of the mortgage arrangements, however, had fairly short due dates (not to the end of your life).

I'd be curious if you could get an arrangement like this from a bank. It's basically a bet on the bank's part that the interest rate is high enough to protect them from inflationary loss of principal, and I wonder who would make that bet, looking at all the $$ the government is printing these days....

Interesting idea. The primary drawback I see is that there are reasons to get debt off your balance sheet, mostly having to do with meeting guidelines for other types of debt (mortgages, etc.)
 
Aug 19, 2009
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This is considered generally to be a bad idea because you are guaranteed to get the interest rate of a loan back as a return on investment. If it's a loan at 6.8%, by paying down principle you are getting a guaranteed 6.8% return on your investment. No investment out there offers that high a guaranteed return.

Back in the 'old days', when loans were consolidated at around 2%, the math was very different. Treasury notes offered a higher guaranteed interest rate than that, and so it made sense to delay paying the loan off and only pay the minimums for as long as they would let you.
 

pezdispenser

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Dec 14, 2006
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I don't think you can legitimately pay interest only for extended periods of time AND have the balance forgiven upon death under the same loan terms.
 

Shoushu

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Jan 24, 2010
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I don't think you can legitimately pay interest only for extended periods of time AND have the balance forgiven upon death under the same loan terms.
If OP's scheme worked, it's a loop-hole in the system. What if someone graduates w/ 300,000 debt? And have the debt forgiven upon death, by only paying interest, and never touching principle.

only in America. In Asia, they're skeptical of the schemes, and they don't forgive debt. If you die, your son has to pay off the loan, and your son's sons, the son's son's son. There's a saying "Father dies with loan/debt, the son starts paying the debt."
 

dotdash

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Aug 28, 2008
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The debt being forgiven on death is not how these plans work. At some point you have to pay the principal back (or your estate does). It's not a "deal"; it's just one way to set up a debt that minimizes monthly payments.