PAYE a reliable way to pay for dental school?

[Dr.Penny]

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Is PAYE really going to stick around and is it a good deal? Paying $1000 a month for 20 years and having the rest forgiven as taxable income seems too good to be true. At that rate does cost really matter, in terms of choosing a dental school? I feel like there must be something I am missing.

I ask because my favorite dental program is extremely expensive but I also may have the opportunity to go to one of the cheapest dental schools too. If money weren't a concern I would go to the expensive school for many personal and academic reasons.

Until I heard about this program, I was trying to go to the cheapest school possible.

I would greatly appreciate anyone who could shed some light on this. People who are using it or have a financial background.

Thanks guys!

 

[EasTexan]

Haven't looked in to this, but doesn't PAYE stand for Pay As You Earn? I would assume it increases beyond $1k/month as your income goes up?

With the way politics operate in the United States I wouldn't bank on anything.

 

[Dr.Penny]

Haven't looked in to this, but doesn't PAYE stand for Pay As You Earn? I would assume it increases beyond $1k/month as your income goes up?

With the way politics operate in the United States I wouldn't bank on anything.

My fears exactly. No idea where things are going to go during the next presidential term. Yes, it stands for pay as you earn. It does increase if your income increases but I believe it is always a fixed percentage of your income. It's similar to IBR.

 

[Mushibachan]

Is PAYE really going to stick around and is it a good deal? Paying $1000 a month for 20 years and having the rest forgiven as taxable income seems too good to be true. At that rate does cost really matter, in terms of choosing a dental school? I feel like there must be something I am missing.

I ask because my favorite dental program is extremely expensive but I also may have the opportunity to go to one of the cheapest dental schools too. If money weren't a concern I would go to the expensive school for many personal and academic reasons.

Until I heard about this program, I was trying to go to the cheapest school possible.

I would greatly appreciate anyone who could shed some light on this. People who are using it or have a financial background.

Thanks guys!

YES that's basically what PAYE is but you get taxed on the forgiven part so you want to keep your payments as minimal as possible. Apparently, our amazing government has noticed this (I've heard) and may try to disband this program, but this shouldn't be happening for many years down the line

 

[Bifenthrin]

It's something like 10% of your income after taxes, I think. Which isn't bad at all in my opinion. I'm hoping it sticks around because I plan on doing it if it's still around when I graduate.

 

[Mushibachan]

also, its your AGI minus 150% of Federal Poverty Income Guidelines times 10% divided by 12.
USC gave us an example:
Assuming our AGI is 100K with PI = 11,170 and paying for family size of 1 in the state of CA
you would need to pay roughly 693.71/month under PAYE

 

[ajj70]

The monthly payments would be fine, but with those payments, you are only paying off $240,000. I'm assuming there is some interest accumulating along the way, but even if there is not, the other $180,000-200,000 will be a HUGE tax hit right about the time your kids are going off to college 🙂. You are looking at $45,000 tax hit in today's dollars. You really are not saving much doing this, are you????

 

[Dr.Penny]

The monthly payments would be fine, but with those payments, you are only paying off $240,000. I'm assuming there is some interest accumulating along the way, but even if there is not, the other $180,000-200,000 will be a HUGE tax hit right about the time your kids are going off to college 🙂. You are looking at $45,000 tax hit in today's dollars. You really are not saving much doing this, are you????

Ah the catch! This may be a stupid question...So when it says forgiven as taxable income, would I be paying this $45,000 in taxes as a one time payment for that particular year of taxes?

 

[BioDoc]

One thing I am curious about is whether or not you can still get a loan to buy a practice if you let your loan just balloon up by paying the minimum.

It would suck to not have your own practice after 20 years.

 

[ajj70]

Ah the catch! This may be a stupid question...So when it says forgiven as taxable income, would I be paying this $45,000 in taxes as a one time payment for that particular year of taxes?

That would be my guess. I don't know anything about this system, this thread is the first I've heard of it, but "taxable income" sure sounds like a huge tax hit down the road to me. Also, what does it do to your credit rating??

 

[Dr.Penny]

That would be my guess. I don't know anything about this system, this thread is the first I've heard of it, but "taxable income" sure sounds like a huge tax hit down the road to me. Also, what does it do to your credit rating??

I just heard about it and I can't find much information from people who actually used it. I have a feeling that you end up paying more long term due to interest, but I can't remember how interest factors into the program. That is a good point- I didn't think about credit. Im not sure. I want to say it wouldn't hurt it as long as you are following through with the payment amount?

One thing I am curious about is whether or not you can still get a loan to buy a practice if you let your loan just balloon up by paying the minimum. It would suck to not have your own practice after 20 years.

From what I heard from a financial advisor is that paying smaller payments actually helps you get a loan more so than paying off major chunks at a time (If these chunk payments are a large percentage of your income). He said you would most likely be rejected for a mortgage or additional loans because they will see that all of your money is going into 1 payment, which leaves little to go towards another (too high of a risk).

 

[suzlee]

also, its your AGI minus 150% of Federal Poverty Income Guidelines times 10% divided by 12.
USC gave us an example:
Assuming our AGI is 100K with PI = 11,170 and paying for family size of 1 in the state of CA
you would need to pay roughly 693.71/month under PAYE

exactly, its more nuanced

 

[embrojam]

this seems to be a great way to pay back, as its benchmarked to your earnings. Any details if the rate is indexed to prime, or could it be more variable?