Paying off 280K in debt after graduation

[Premedneedsadvice]

Hi everyone -
I am wondering if anyone has advice on ways to pay off this sum of loans. Is the general strategy to live very frugally and try to pay like 80K a year or something after residency? I don’t quite know what the average salary is for a primary care doctor or pediatrician (is 200K too high of an estimate?) so it is hard to formulate a solid plan

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[ciestar]

Living frugally is a good idea by itself. Look into PAYE/REPAYE.

 

[Arsartium]

Consolidate your federal loans with a federal consolidation loan right after graduation. Check to see if your residency is at a 501 (c)3 hospital. 73% are. Sign up for income-based (IBR) repayment for federal loans and pay it throughout residency. If you are at a 501 (c)3 hospital, your payments will count toward the Public Service Loan Forgiveness (PSLF) program. Say residency + fellowship is 7 years and you were dutifully paying. You have 3 years left of monthly payments as an attending, then your federal debt will get wiped away. Just make sure you work at a 501 (c) 3 (i.e. nonprofit) hospital during residency and as an attending. Also make sure that you submit the certification form (verifies you work at non-profit hospital) at least annually to Fedloan.

So now you've made 120 (doesn't need to be consecutive) payments. Congratulations, the government just forgave a couple hundred thousand dollars in debt. Oh, and yes, live like a resident until the debt is wiped away. Then buy your Tesla.

EDIT: If you're worried that your payments will skyrocket when you're an attending because of an IBR plan. Yes and no. Yes the payment amount will increase, but not beyond monthly amount expected for the standard 10-year repayment plan (IF YOU PICK THE RIGHT IBR PLAN, READ THE FINE PRINT). Meanwhile, in this scenario you get to skip out on 7 years of payments. Pretty cool, eh?

 

[getdown]

Consolidate your federal loans with a federal consolidation loan right after graduation. Check to see if your residency is at a 501 (c)3 hospital. 73% are. Sign up for income-based (IBR) repayment for federal loans and pay it throughout residency. If you are at a 501 (c)3 hospital, your payments will count toward the Public Service Loan Forgiveness (PSLF) program. Say residency + fellowship is 7 years and you were dutifully paying. You have 3 years left of monthly payments as an attending, then your federal debt will get wiped away. Just make sure you work at a 501 (c) 3 (i.e. nonprofit) hospital during residency and as an attending. Also make sure that you submit the certification form (verifies you work at non-profit hospital) at least annually to Fedloan.

So now you've made 120 (doesn't need to be consecutive) payments. Congratulations, the government just forgave a couple hundred thousand dollars in debt. Oh, and yes, live like a resident until the debt is wiped away. Then buy your Tesla.

EDIT: If you're worried that your payments will skyrocket when you're an attending because of an IBR plan. Yes and no. Yes the payment amount will increase, but not beyond monthly amount expected for the standard 10-year repayment plan (IF YOU PICK THE RIGHT IBR PLAN, READ THE FINE PRINT). Meanwhile, in this scenario you get to skip out on 7 years of payments. Pretty cool, eh?

@Premedneedsadvice

While the PSLF is a nice avenue for loan forgiveness... I would not bank on it remaining around or that you would be able to jump through all the bureaucratic hoops in order to qualify. Only a couple people actually got their loans discharged in this manner.

I agree with your advice of consolidating all your loans at graduation. After that there's pretty much 2 different ways to go about it.

1. You know you want to do private practice. In this case it might be smarter to refinance your loans with a private bank at a lower rate than the 7% from the government. The income you make from PP can be twice as much of what you would make working for the government or academia (which is what would qualify you for 501 (c)3 hospitals. You do REPAYE as a resident, live frugally and put any extra you can into loans. Even better if your residency allows moonlighting cause that can be an extra 30-50K possibly. Once you graduate (depending on which state you live) you can refinance again as an attending to a low fixed rate. Pay off as needed from there.

2. You hope PSLF is still around and start your application in early. Make sure you understand all the fine prints and qualifications as they are very strict and they are not good at communicating with you about anything. You really will be the one that needs to stay on top of this. Many stories of people submitting the application and start paying only to find out years later they never qualified because of something minor. Remember, this is the government and even small minor typos can disqualify you AND they won't tell you either. Another consideration is that to hit the 10 year mark you have to be in a qualified hospital. And as I mentioned above, the pay of staying in academics/teaching hospital or the VA is much smaller than what you'd make in private practice. Furthermore, there's no guarantee the PSLF exists when you get to it or you would ultimately meet all their criteria. This is pretty much high risk, high reward scenario. It's very possible you put all your eggs in this method and don't get your loans discharged leaving you with still tons of debt and stuck in a low paying (relatively) job.

Personally, I think route 1 is probably better. I ended up refinancing as an attending at a low fixed rate and that's worked out for me. This also depends on the amount of loans you have. Unless it's >500K, I think you should be able to pay it off while still living a decent lifestyle, and maxing out your retirement funds. It's gonna suck I can assure you but it's not impossible.

 

[RangerBob]

While 280k is a lot of money, it will be easy to pay that off if you live like a resident a few years to prevent lifestyle creep. Unless one has a long residency, I don’t think it’s worth shooting for PSLF. 280k isn’t actually that much in the scheme of things, and aiming for PSLF requires pushing back your payoff and banking on the government to hold up their end of the bargain (which I think they’ll probably do, but it’s never certain...)

I definitely think REPAYE is a smart way to go as a resident. It effectively halves/almost halves your interest rate due to the subsidy.

 

[ACSurgeon]

@Premedneedsadvice

While the PSLF is a nice avenue for loan forgiveness... I would not bank on it remaining around or that you would be able to jump through all the bureaucratic hoops in order to qualify. Only a couple people actually got their loans discharged in this manner.

I agree with your advice of consolidating all your loans at graduation. After that there's pretty much 2 different ways to go about it.

1. You know you want to do private practice. In this case it might be smarter to refinance your loans with a private bank at a lower rate than the 7% from the government. The income you make from PP can be twice as much of what you would make working for the government or academia (which is what would qualify you for 501 (c)3 hospitals. You do REPAYE as a resident, live frugally and put any extra you can into loans. Even better if your residency allows moonlighting cause that can be an extra 30-50K possibly. Once you graduate (depending on which state you live) you can refinance again as an attending to a low fixed rate. Pay off as needed from there.

2. You hope PSLF is still around and start your application in early. Make sure you understand all the fine prints and qualifications as they are very strict and they are not good at communicating with you about anything. You really will be the one that needs to stay on top of this. Many stories of people submitting the application and start paying only to find out years later they never qualified because of something minor. Remember, this is the government and even small minor typos can disqualify you AND they won't tell you either. Another consideration is that to hit the 10 year mark you have to be in a qualified hospital. And as I mentioned above, the pay of staying in academics/teaching hospital or the VA is much smaller than what you'd make in private practice. Furthermore, there's no guarantee the PSLF exists when you get to it or you would ultimately meet all their criteria. This is pretty much high risk, high reward scenario. It's very possible you put all your eggs in this method and don't get your loans discharged leaving you with still tons of debt and stuck in a low paying (relatively) job.

Personally, I think route 1 is probably better. I ended up refinancing as an attending at a low fixed rate and that's worked out for me. This also depends on the amount of loans you have. Unless it's >500K, I think you should be able to pay it off while still living a decent lifestyle, and maxing out your retirement funds. It's gonna suck I can assure you but it's not impossible.

Lots of good points.

One major correction to the above post is that some (?many) private hospitals are actually non-profit entities and qualify for PSLF. So, you can be employed making really good money and still qualify for these programs. Granted, if you have a good income, your income based payment over ten years might result in you paying off the entire amount anyways. That’s assuming you defer in residency and let it pile up...

 

[RangerBob]

Lots of good points.

One major correction to the above post is that some (?many) private hospitals are actually non-profit entities and qualify for PSLF. So, you can be employed making really good money and still qualify for these programs. Granted, if you have a good income, your income based payment over ten years might result in you paying off the entire amount anyways. That’s assuming you defer in residency and let it pile up...

This is true. My community hospital is non-profit (though I’m self-employed and thus not eligible...)

Some physicians at non-profit hospitals are actually employed by/paid by for-profit physicians groups. So it’s wise to look into who your employer actually is. It’s not unheard of for residents to qualify for PSLF at their training program (probably 90-95% of residents are employed by non-profits) and to then get hired on as an attending at the program and no longer be eligible.

 

[NickNaylor]

As others have mentioned, I would not make long-term plans banking on PSLF being around and/or assuming that that will be the way by which your loans are "paid off." That is removing the locus of control for your financial future from yourself and putting it onto someone else (i.e., the government), someone who can be quite fickle. If you get to take advantage of PSLF and you weren't planning to, great. If you don't get to take advantage of PSLF and you weren't planning to, then no problem. Some of the potential issues with PSLF and eligibility are raised above. The tl;dr is that there are many opportunities for you get screwed via PSLF through no fault of your own and despite specifically trying to maintain your eligibility, and if your long-term financial plan is based on having your loans forgiven via PSLF and, for one reason or another that doesn't work out, you're screwed.

I would suggest the following:

- If possible, make some kind of payments during residency. Assuming you're in an income-based repayment plan, the amount the you will be expected to pay will be minimal. I would strongly encourage you to make those payments. If nothing else, you're at least making a dent in interest charges.

- You can consider refinancing. Generally, as a physician you will be able to refinance at a much more favorable rate than what the government is lending you the money at. Of course, you will lose eligibility for many of the "benefits" of government-originated loans, but once you're in practice and making an attending salary, many of those benefits are irrelevant anyway. Unless you're in a crazy amount of debt, you will very likely be paying the 10-year repayment rate anyway, and it's likely that you will pay off much or all of your loans before you even become eligible for PSLF. Primary exceptions to this include specialties that have very long training periods, career paths which result in lower-than-expected salaries, etc.

- Make paying off your education debt a priority. This may mean forgoing some of the "nice things" that you're wanting for a short period of time. It's ultimately up to you how high of a priority you want to make this. While paying off debt is important, it's also important to have some material enjoyment in your life, especially since by the time you finish you will be in your late 20s or early 30s - arguably the prime of your life. Don't defer gratification forever, but don't be unreasonable.

- Minimize other debts. Don't keep a huge balance on credit cards. Live comfortably but within your means.

I think a lot of people vastly overestimate your ability to pay off your loans and/or bake a lot of assumptions into a statement like "just pay off $80k/year, lol" that may or may not be applicable to you. I am about to graduate from residency and currently have $140k in student loan debt. I will be making about $300k gross in an academic position. I'm married and my wife brings in about $60k/year, though we are working on having kids and she will very likely stop working once we have a baby. Even with paying off student loan debt aggressively, I still expect it will take 18-24 months to pay everything off, assuming there are no large, unexpected expenses. Especially once you're making a lot of money, it's important to remember that roughly a third of your income will be going to taxes. That's an overestimate, of course, but a rough ballpark estimate to work from. You may have a family to support, which is a big expense. Saving for retirement, paying for health insurance, paying for professional-related expenses, and on and on - all of these things cost money. While each of these things individually may not add up to all that much, in the aggregate they're a big chunk of your take-home income, even after taxes. Unless you're living like a pauper - which is easy to say but more difficult to do, especially if you have a spouse and/or kids that you're dragging along in that kind of plan - the reality is that you may not have as much money to dedicate to paying off debt as you expect.

 

[VA Hopeful Dr]

I'm going to make a post purely to emphasize refinancing.

My wife went from 6.8% to 3.15% almost literally overnight when we refinanced. Cut 1 year off of repayment and decreased monthly payment by $200. Would have been more but we didn't think to do this until she'd been paying on them for 3 years already.

I ran the numbers just now. Let's say you have 250k in loans. At 6.8% over 10 years, you'll owe 2.8k/month. Same amount at 3.5% is 2.4k. Take the extra $400/month and add that to the loan repayment and instead of 120 months you're down to 100 months. So you basically take almost 2 years off of the loans life by doing nothing more than refinancing.

Its the easiest way to help with loans because it doesn't require you to budget differently, make sure you work for a non-profit, or anything other than apply for a refinance loan.

 

[Chibucks15]

Question about consolidation: consolidating your loans makes the interest capitalize, correct? I'm wondering if it might be wise to not consolidate right after graduation and take the 6 month grace period to try to pay down my interest - I might be able to pay off the interest completely during the grace period if I'm very aggressive with my payments. And then I would consolidate after the grace period when the loans would capitalize anyway, and have less to pay off and lower monthly payments in the long term. Does that make sense or am I way overthinking this? (or maybe underthinking? lol)

I dont know how aggressive you can really get in residency, depending on where your practice

 

[jhamaican]

I would recommend making the minimum payments.

Reason being, as I get closer to getting a job, many places offer extensive student loan repayment as an incentive (taking >100,000K+) in some instances.

 

[Freeinfinity]

I don't consolidate. Because I have multiple loans with different interest rates. This allows me to tackle the principal amount with the higher interest rate more quickly and overall reduce the amount of interest that I would be paying off in the long term. If I consolidated, then I would just be chipping away at just the interest that accumulates and not be able to touch the principal at all for many years.

 

[VA Hopeful Dr]

I don't consolidate. Because I have multiple loans with different interest rates. This allows me to tackle the principal amount with the higher interest rate more quickly and overall reduce the amount of interest that I would be paying off in the long term. If I consolidated, then I would just be chipping away at just the interest that accumulates and not be able to touch the principal at all for many years.

Unless you consolidate at a significantly lower rate at the same time as your income increases to allow you to pay more than the minimum

 

[anbuitachi]

Hi everyone -
I am wondering if anyone has advice on ways to pay off this sum of loans. Is the general strategy to live very frugally and try to pay like 80K a year or something after residency? I don’t quite know what the average salary is for a primary care doctor or pediatrician (is 200K too high of an estimate?) so it is hard to formulate a solid plan

live frugally and you'll pay it off within a few years. i paid off 80k loans in residency on residency salary in a high cost of living area. i didn't spend any money on vacations (stayed home). i'm expecting to pay off rest of my loans within 5 years out of residency. Another thing that helped is drinks here are ~20$ per drink, and 1 drink does nothing to me and too many is too expensive, so i just dont go drinking. saved a lot of money.

 

[SurfingDoctor]

I'm over a decade out of medical school and still feel guilty when I spend more than $30, despite going to a private schools and having federal loans.

Having life-long financial responsibility and understanding the value of a dollar is not a bad thing...

 

[mymembernames]

live frugally and you'll pay it off within a few years. i paid off 80k loans in residency on residency salary in a high cost of living area. i didn't spend any money on vacations (stayed home). i'm expecting to pay off rest of my loans within 5 years out of residency. Another thing that helped is drinks here are ~20$ per drink, and 1 drink does nothing to me and too many is too expensive, so i just dont go drinking. saved a lot of money.

Is it true that if you pay more than the minimum on REPAYE it will disqualify you from the interest subsidy?

 

[anbuitachi]

Is it true that if you pay more than the minimum on REPAYE it will disqualify you from the interest subsidy?

no idea.. im not on repaye

 

[mymembernames]

Anyone know if we can do REPAYE and also make extra payments to qualify for the $2500 interest tax deduction while in residency?

 

[Bea5T]

Consolidate your federal loans with a federal consolidation loan right after graduation. Check to see if your residency is at a 501 (c)3 hospital. 73% are. Sign up for income-based (IBR) repayment for federal loans and pay it throughout residency. If you are at a 501 (c)3 hospital, your payments will count toward the Public Service Loan Forgiveness (PSLF) program. Say residency + fellowship is 7 years and you were dutifully paying. You have 3 years left of monthly payments as an attending, then your federal debt will get wiped away. Just make sure you work at a 501 (c) 3 (i.e. nonprofit) hospital during residency and as an attending. Also make sure that you submit the certification form (verifies you work at non-profit hospital) at least annually to Fedloan.

So now you've made 120 (doesn't need to be consecutive) payments. Congratulations, the government just forgave a couple hundred thousand dollars in debt. Oh, and yes, live like a resident until the debt is wiped away. Then buy your Tesla.

EDIT: If you're worried that your payments will skyrocket when you're an attending because of an IBR plan. Yes and no. Yes the payment amount will increase, but not beyond monthly amount expected for the standard 10-year repayment plan (IF YOU PICK THE RIGHT IBR PLAN, READ THE FINE PRINT). Meanwhile, in this scenario you get to skip out on 7 years of payments. Pretty cool, eh?

Ya...this hasnt happened yet and has a good chance of being capped.

Also, I believe if you are employed by a private group(like many EM docs, medicine docs etc) your payments DO NOT count despite working AT a non profit hospital

 

[group_theory]

It's doable - depends on time frame, plus how much of you take home pay you want dedicated towards student loan repayment (and not housing, food, transportaion, etc)

*lots of numbers. Relevant numbers are in red and bold.

Just some calculations - assuming $280k loan (not taking into account capitalization), at 6.6% interest

Payoff in 3 years - monthly payment $8594. Total interest $29k
Payoff in 5 years - monthly payment $5492. Total interest $50k
Payoff in 10 years - monthly payment $3194. Total interest $103k

https://studentloanhero.com/calculators/student-loan-payment-calculator/

Average physician salary (take with a grain of salt)
Pediatrician - $230k
Family Medicine - $241k
Hosptialist (IM) - $269k

Physician Starting Salaries by Specialty: 2018 vs. 2017 | Merritt Hawkins



Free Paycheck Calculator - Hourly & Salary | SmartAsset.com
Expected MONTHLY take home pay (assuming married filing jointly with 1 kid, 2 federal exemptions, 18k into 401k)
*I'm keeping this very simple - maxing out 401k, not including any health plan premiums, HSA/FSA, etc. KEEP IT SIMPLE.


Pediatrician
Los Angeles, CA

Gross Paycheck	$19,167
	Taxes	28.18%	$5,401
	DETAILS
	FICA and State Insurance Taxes	5.53%	$1,060
	DETAILS
	Pre-Tax Deductions	7.83%	$1,500
	DETAILS
	Post-Tax Deductions	0.00%	$0
	Take Home Salary	58.46%	$11,206

Austin, TX

Gross Paycheck	$19,167
	Taxes	20.26%	$3,883
	DETAILS
	FICA and State Insurance Taxes	5.03%	$964
	DETAILS
	Pre-Tax Deductions	7.83%	$1,500
	DETAILS
	Post-Tax Deductions	0.00%	$0
	Take Home Salary	66.89%	$12,820

Family Medicine
Los Angeles, CA

Gross Paycheck	$20,083
	Taxes	28.96%	$5,816
	DETAILS
	FICA and State Insurance Taxes	5.38%	$1,081
	DETAILS
	Pre-Tax Deductions	7.47%	$1,500
	DETAILS
	Post-Tax Deductions	0.00%	$0
	Take Home Salary	58.19%	$11,686

Austin, TX

Gross Paycheck	$20,083
	Taxes	20.93%	$4,204
	DETAILS
	FICA and State Insurance Taxes	4.91%	$985
	DETAILS
	Pre-Tax Deductions	7.47%	$1,500
	DETAILS
	Post-Tax Deductions	0.00%	$0
	Take Home Salary	66.69%	$13,394

Hospitalist
Los Angeles, CA

Gross Paycheck	$22,417
	Taxes	30.65%	$6,871
	DETAILS
	FICA and State Insurance Taxes	5.07%	$1,136
	DETAILS
	Pre-Tax Deductions	6.69%	$1,500
	DETAILS
	Post-Tax Deductions	0.00%	$0
	Take Home Salary	57.59%	$12,910

Austin, TX

Gross Paycheck	$22,417
	Taxes	22.40%	$5,020
	DETAILS
	FICA and State Insurance Taxes	4.64%	$1,040
	DETAILS
	Pre-Tax Deductions	6.69%	$1,500
	DETAILS
	Post-Tax Deductions	0.00%	$0
	Take Home Salary	66.27%	$14,856