Strategies in paying back student loan debt--what is everyone doing?

[residentdoc8]

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For those who took out recent student loans (so for those who know about the HIGH interest rates, no stafford subsidized loans, etc.) AND have 400K in student loans BEFORE starting residency- what is your strategy for paying back your loan? I think I know all the options available, but PSLF and IBR are not stable enough to count on. Standard 10 year payment would eat up 80% of my potential income....so i'm asking HELP to see what others are doing?...besides praying! Maybe there is something i'm missing besides living in poverty for 10 years to pay back loan that we've all worked HARD for! Any earnest answers would be appreciated!

 

[sazerac]

IBR (or the newer, similar PAYE) is stable enough to count on while you are a resident.

Beyond that, you could switch to the 25 year extended payment plan if you find the 10 year standard plan payments oppressive.

 

[dpmd]

IBR is the way to go, with a plan to pay extra whenever possible (since your interest is otherwise just going to continue accruing and will eventually capitalize). You don't need to bank on PSLF (probably a good idea not to), but you will not be able to make a standard repayment on residency salary. I am not sure if the extended repayment would be in your reach as a resident either. IBR caps things at what should be a reasonable payment. If you are able to live frugally enough to have extra every so often (maybe you have lower than usual expenses, or get a gift of money) send it in too. Every little bit that you can keep from capitalizing (doubt you will actually be paying down principal) will help in the long run.

When you get a better paying job resist the impulse to let your spending match your income. You don't have to live like a pauper, but you can end up with a lot left over to attack loans with if you keep spending down.

 

[residentdoc8]

How long does consolidation take to go through? How about IBR (I heard up to 3 months)? Can you process IBR and then consolidate loans afterwards?

 

[Lesley]

I paid my student loans long ago, so what I prefer at this time is not relevant to my situation. However, I really don't like IBR. It just doesn't feel right. The thought of paying back on a loan that's balance is ballooning in value because 10% of my income may not be enough to pay the interest on the note bothers me. Hypothetically, not knowing exactly what your interest rate is, using a Fin aid loan calculator, for a loan balance of $400,000 at 7.8% interest the 10 year payment is $4,800 but a 30 year is $2,800, approximately. Personally, I would think it wiser to choose the 30 year option and pay as much extra every month as you can. At least your balance is not increasing. Just my opinion. There is nothing easy or fun about paying back these large loans. Period. The only good thing is when it's paid and behind you and that time will come if you are as disciplined and patient in your financial life as you are at your schooling. Best Wishes.

 

[dpmd]

I paid my student loans long ago, so what I prefer at this time is not relevant to my situation. However, I really don't like IBR. It just doesn't feel right. The thought of paying back on a loan that's balance is ballooning in value because 10% of my income may not be enough to pay the interest on the note bothers me. Hypothetically, not knowing exactly what your interest rate is, using a Fin aid loan calculator, for a loan balance of $400,000 at 7.8% interest the 10 year payment is $4,800 but a 30 year is $2,800, approximately. Personally, I would think it wiser to choose the 30 year option and pay as much extra every month as you can. At least your balance is not increasing. Just my opinion. There is nothing easy or fun about paying back these large loans. Period. The only good thing is when it's paid and behind you and that time will come if you are as disciplined and patient in your financial life as you are at your schooling. Best Wishes.

The idea behind IBR is that it can be difficult to afford the higher payments (during residency at least). If I had a 400K loan in residency, my salary would have left me with about $100 a month to live on (not accounting for taxes-that would have probably left me in the negative). The IBR payment of 228 would have been much more appropriate, and as I earned more money each year the increase in payment would have been affordable. I was lucky to have a working spouse during med school and residency so not only did I have to borrow less, but I was able to make more than standard repayment on my higher interest rate loans and am only left with my old loans at 1.625% which I am making the minimum payments on.

The trick is to try to keep spending low and send any extra money in, but first you need food/ shelter/transportation. The decision most people are making is to do IBR or to do forbearance. I would argue that even the modest reduction in interest gained by doing IBR plus any extra payments possible is worth the lifestyle difference the couple of hundred dollars a month payment would mean.

 

[Lesley]

"The trick is to try to keep spending low and send any extra money in....."

That is absolutely the trick to get any loan paid as quickly as possible. Not so much a trick as a long term exercise in discipline and patience though.

You chose a standard repayment plan and paid extra principle. An extended repayment plan with the option to pay additional principle without penalty, I feel, is next best to the option you chose.

The extended plan could be a 30 year grind, but it could be less. The borrower has some control over his or her destiny. I think that adds an important element. Not only are you rewarded for your extra payments with a shorter loan term, but you make extra payments at your discretion.

The crux of this choice comes down to deciding if it is even financially possible to do a standard or extended repayment plan. If not, IBR it is, or it could be IBR just because it feels right to the borrower.

Certainly a lot of people must be struggling with this choice. It's a lot to think about. Good Luck.

 

[residentdoc8]

The whole point of IBR is to be able to afford payments during Residency- then afterwards, it's a gamble if the borrower wants to do the 25 yr payment plan under IBR to eventually have the balance forgiven but taxed. It all depends on the situation- I wish I were lucky enough to have someone help me out with these loans!

 

[Lesley]

If you intend doing a standard or extended payment plan after residency, do you really benefit much by doing IBR over forbearance during residency?

This is a good thread from SDN on this topic: http://forums.studentdoctor.net/showthread.php?t=725145

 

[Igor4sugry]

How long does consolidation take to go through? How about IBR (I heard up to 3 months)? Can you process IBR and then consolidate loans afterwards?

If you get your loans into IBR and then consolidate the new consolidated loan will come out of IBR (and into standard repayment) and you will need to re-apply for IBR (that was my experience). Also when you consolidate you may end up with a different lender than your original loans were with.

IBR application depends on who the servicer is. Its the slowest with the government (DirectLoans) they say up to 2months, but more like 4 weeks. The fastest are private companies (SalieMae, GreatLakes), in up to a week.

 

[dpmd]

If you are intending doing a standard or extended payment plan after residency, do you really benefit much by doing IBR over forbearance during residency?

With forbearance unpaid interest capitalizes, so then you get to pay interest on your interest. My understanding is that with IBR it does not capitalize.

 

[Lesley]

Thanks. I just found this info too.

https://www.aamc.org/services/first/pha/48728/pha_assumptions.html

 

[Igor4sugry]

With forbearance unpaid interest capitalizes, so then you get to pay interest on your interest. My understanding is that with IBR it does not capitalize.

With IBR interest does not capitalize and also your interest on subsidized loans is covered for 3 years.