Student Loan Forgiveness

[DJspreadsheet]

No fellow is going to make as little as 220K a year. If you pay the minimum IBRor PAYE payment you won't pay down your principal one iota in 20 years or even cover the accrued interest for the guy graduating with 340K in student loans. Rather they'll balloon to about 800+K over the 20 years and then you'll get stuck paying 40 percent(maybe more-who knows what the top tax rate will be in 20 years) in income taxes all in one year. Plus you would be paying a minimum of 20K dollars a year in payments for years 10-20. I can assure you the math is NOT in your favor to earn an attending salary of 220K minus many taxes for one year versus a fellows salary of 60k for one year minus a lower rate of taxes. Warren Buffet couldn't get you those kinds of returns in 20 years. Not to mention, some fellows make double(hopefully me included very shortly).

If fellowship gets you double, sure it's worth it. But if it doesn't change your salary (possible) or even reduces your salary (hello pediatrics), then it's not financially sensible. No matter how you look at it, making 220k is better than 60k for your bank account.

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[gurudoc]

In short, read about negative amortization. Not that you should pay the minimum(although there is argument to do so) under IBR and PAYE for the guy with 340 K. For starters, the interest would never capitalize for that guy for the life of the loan once it was consolidated the first time. So at 8 percent(it would likely be less) you're dealing with an effective interest rate of 3.1 percent by the time you realize the forgiveness at the end of the loan plus and pay the tax on the income. If you invest that money wisely for 20 years then sure you could come out better financially then you would if you didn't invest it wisely or paid it down thus losing capital in year one to earn interest at 5 plus percent. I for one would much rather have that monkey off of my back in year 10 though and know that what I invested is what I invested and uncle same wasn't going to hit me up for 400 K in taxes in 16 or 17 years on income I technically never saw thus forcing me to save an additional 2500 a month to cover that during my entire working career(or at least the 16-17 years after residency).

 

[gurudoc]

If fellowship gets you double, sure it's worth it. But if it doesn't change your salary (possible) or even reduces your salary (hello pediatrics), then it's not financially sensible. No matter how you look at it, making 220k is better than 60k for your bank account.

You could be right on Pediatrics if it reduces your salary to do a fellowship(I really hope this isn't true for anyone but maybe). I wouldn't know enough about Pediatrics fellows salaries to say. I guess perhaps supply and demand comes in here. Lots of sick kids(pediatricians needed a lot) but not lots of sick kids needing specialists? Maybe.

 

[DJspreadsheet]

You could be right on Pediatrics if it reduces your salary to do a fellowship(I really hope this isn't true for anyone but maybe). I wouldn't know enough about Pediatrics fellows salaries to say. I guess perhaps supply and demand comes in here. Lots of sick kids(pediatricians needed a lot) but not lots of sick kids needing specialists? Maybe.

It's primarily because peds subspecialists have to get jobs in academia (PP isn't an option). I've heard of peds cards getting 90k salaries. I'm not going into peds.

 

[gurudoc]

Also, if you want to do pediatrics, you could always just go to work for a hospital and do PSLF. So most of this discussion isn't applicable as it was for the residencies that don't qualify for PSLF. I do fear that I will be paying off someone else's loan but I love her so its ok. I'll just move to BFE and make more money.

 

[gurudoc]

God Love the person making 90 K after Undergrad, Medical School, Residency and Fellowship. I don't know that I could get out of debt on that Salary.

 

[gurudoc]

Much less get two people out of debt.

 

[DJspreadsheet]

In short, read about negative amortization. Not that you should pay the minimum(although there is argument to do so) under IBR and PAYE for the guy with 340 K. For starters, the interest would never capitalize for that guy for the life of the loan once it was consolidated the first time. So at 8 percent(it would likely be less) you're dealing with an effective interest rate of 3.1 percent by the time you realize the forgiveness at the end of the loan plus and pay the tax on the income. If you invest that money wisely for 20 years then sure you could come out better financially then you would if you didn't invest it wisely or paid it down thus losing capital in year one to earn interest at 5 plus percent. I for one would much rather have that monkey off of my back in year 10 though and know that what I invested is what I invested and uncle same wasn't going to hit me up for 400 K in taxes in 16 or 17 years on income I technically never saw thus forcing me to save an additional 2500 a month to cover that during my entire working career(or at least the 16-17 years after residency).

The remaining question is can that tax bill be discharged via bankruptcy. May seem strange throwing that hail mary, but 400k ain't nothing to sneeze at. Presumably by then you'd already have made your big purchases and bankruptcy may not have much sting.

 

[DJspreadsheet]

God Love the person making 90 K after Undergrad, Medical School, Residency and Fellowship. I don't know that I could get out of debt on that Salary.

Yeah it's wild.

 

[gurudoc]

The tax debt at that point is dischargable by bankruptcy and they are not allowed to take into account under current law the values of any assets in tax deferred retirement accounts. Feed those IRA's and 401K's just in case. Not saying you should ditch out on the bill as lord knows our Govament needs the money to support their spending fix but you never know what kind of shape a divorce or two and some chart support will leave you in down the road. Life's little curves...