The Financial Options Thread

[Cello]

Hey all,

My other thread was a text-based summary of the traditional dental school repayment option (direct stafford loan + Grad PLUS and typical repayments), the PhD route, and the HPSP / military route.

The idea behind this thread is to be a summary statistical glance at the main financial options based on research I'm doing for my own financial options. I figure, why should future predents have to reinvent the wheel if all of the data can be compiled into one thread on this excellent resource (the studentdoc forums). I'll try to make all updates to this first post based on any comments (like the last thread) so that future readers can easily find the good information everyone is bound to share.

All Excel sheets are attached and have been improved thanks to other posters' great comments and suggestions. Thanks everyone!

******************************************IBR******************************************​

Eligible loan types:

• Everything except for Grad PLUS loans to parents, private loans, or consolidation loans.

Advantages:

• Only 15% of your discretionary income must be paid towards the loans.
  
• During the first three years, if your payments don't cover the interest then the government makes up the difference. That means your loan won't go up during the first three years.
• Having more kids means that you reduce your monthly payment slightly (approximately $74 per child).
• You will never pay more than the 10 year standard repayment option.

Disadvantages:

• Paying only 15% is going to leave you way behind your growing interest for any loans despite the first three years of government assistance in keeping the principal loan from increasing.
• The repayment period is 25 years, which is longer than the 20 years of PAYE or the 10 year standard loan repayment option.

A brief primer on the following statistical rundowns:

• 1 kid @ 3 years out of d-school, 2 kids @ 5 years out, and 3 kids @ 7 years.
• Salary of $100k from years 1-3, $110k from 4-5, $120k from 6-7, $130k @ 8, $140k @ 9, $150k from 10-12, $160k from 13-14, $170k from 15-16, $180k @ 17, $190k @ 18, $200k from 19-20, $210k from 21-22, $220k from 23-24 and $230k @ 25 years.
• Three scenarios: $200,000, $300,000, and $400,000 loans.
• Making ONLY minimum 15% payments.
• I calculated all statistics at 6.8% (I know they are lower right now, but I also didn't account for the 7.9% Grad PLUS rate so it should hopefully balance out a bit).

The rundown @ $200,000:

• Your final loan amount at 25 years is: $38,591
• The total interest you'll pay is: $239,793
• Your estimated tax liability at 25 years: $106,362
• The total cost of your loan is: $439,793

The rundown @ $300,000:

• Your final loan amount at 25 years is: $443,620
• The total interest you'll pay is: $726,753
• Your estimated tax liability at 25 years: $266,753
• The total cost of your loan is: $1,026,753

The rundown @ $400,000:

• Your final loan amount at 25 years is: $803,973
• The total interest you'll pay is: $1,147,807
• Your estimated tax liability at 25 years:$409,453
• The total cost of your loan is: $1,647,807

****************************PAYE****************************​

Eligible loan types:

• Direct Subsidized Loans (undergraduates only)
  
• Direct Unsubsidized Loans
• Direct PLUS Loans made to graduate or professional students
• Direct Consolidation Loans without underlying PLUS loans made to parents

Advantages:

• Only 10% of your discretionary income must be paid towards your student loans.
  
• The repayment period is only 20 years instead of IBR's 25 years.
• You will never pay more than the 10 year standard repayment rate.
  
• Based on family size, so having more kids reduces the amount you must payback each month (by about $50 per child).
• The same interest benefit which applies to IBR also applies to PAYE. Your principal loan will not increase your first three years out of school because the government makes up the difference if your interest exceeds the total payment amount.

A brief primer on the following statistical rundowns:

• 1 kid @ 3 years out of d-school, 2 kids @ 5 years out, and 3 kids @ 7 years.
• Salary of $100k from years 1-3, $110k from 4-5, $120k from 6-7, $130k @ 8, $140k @ 9, $150k from 10-12, $160k from 13-14, $170k from 15-16, $180k @ 17, $190k @ 18, $200k from 19-20
  
• Three scenarios: $200,000, $300,000, and $400,000 loans.
• Making ONLY minimum 10% payments.
• I calculated all statistics at 6.8% (I know they are lower right now, but I also didn't account for the 7.9% Grad PLUS rate so it should hopefully balance out a bit).

The rundown @ $200,000:

• Your final loan amount at 20 years is: $245,967
• The total interest you'll pay is: $337,740
• Your estimated tax liability at 20 years: $176,602
• The total cost of your loan is: $537,749

The rundown @ $300,000:

• Your final loan amount at 20 years is: $552,179
• The total interest you'll pay is: $686,753
• Your estimated tax liability at 20 years: $297,863
• The total cost of your loan is: $986,753

The rundown @ $400,000:

• Your final loan amount at 20 years is: $821,457
• The total interest you'll pay is: $980,664
• Your estimated tax liability at 20 years: $404,497
• The total cost of your loan is: $1,380,664

A quick note on using the Excel files:

• To change the principal loan amount you need only enter the amount into cell B2 and let Excel take care of the rest.
  
• If you plan to borrow less than $224,000 you should change the interest rate in columns C2->C21 (PAYE) or C2->C26 (IBR) to 0.0541 to reflect the current 5.41% interest rate on direct subsidized loans.
  
• If you want to adjust the number of children you have then you can do so on column N. Remember that your kids count as children for 18 years!

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[gn4]

great thread

 

[tandem7]

I know I posted on the other finances thread, but I think it bears repeating. I'm starting dental school after paying down a majority of my law school debt--the remaining debt I have is fixed at 1.85% for life, so I'm just paying the minimum due until it's completely paid off, since it's a better decision for me to keep money in an investment account that accrues at a higher rate at this point.

However, I graduated law school in 2005 with an amazing, large firm job making a nice six digit salary. I was one of the lucky ones. My annual salary was close to the amount I owed in law school debt--and the interest rates were all incredibly low at the time. I assumed that I would easily pay it off, but it wasn't so easy. After you factor taxes (state/federal/local/social security/medicare), you'd be lucky to have even 60% of your total salary. On top of that, retirement accounts (which you should maximize early in your career), living expenses, food, requirements for professional accreditation/networking, etc. all take a toll. I soon found out that, even though I felt like I was doing a good job at not living too extravagantly while earning in the top 2%, I did not feel like I was living the life of a "six digit earner"--especially after I also had to pay my loans back which was more than a monthly mortgage bill. Frankly, I had months where I struggled.

The moral of the story is that no matter how much you make, you need to save money first before you start "living the lifestyle" and be diligent with how you spend money. Just because you anticipate you will make lots of money in the future does not mean that you should take out all the loans you can now--believe me, you will have to suffer the consequences in your early years of practice. When I look back at my law school loans, I could have easily saved 60K or more in taking out loans (which in and of itself mean over 100K after you account for interest), by just taking out less than the max in living expenses and working during breaks. Please be prudent with your finances---don't let the banks make more money off of you than they have to!

 

[Glimmer1991]

Okay, everyone, here's my question. I'll freely admit that I'm not very knowledgeable about loans or loan repayment options--all I know is that I want to minimize my debt! I am trying to learn, though.

Say you had loans at around 100-150k for all 4 years combined. Are the various repayment options worth it, or is it better to just pay off your loans the old-fashioned way?

I am looking at about 70-100k in loans combined. With both my and my boyfriend's income, I was just planning on trying to pay them off as quickly as possible in 3-5 years.

 

[TheWeeIceMan]

Good lord, those total cost of loan numbers.

 

[Ostertag]

Okay, everyone, here's my question. I'll freely admit that I'm not very knowledgeable about loans or loan repayment options--all I know is that I want to minimize my debt! I am trying to learn, though.

Say you had loans at around 100-150k for all 4 years combined. Are the various repayment options worth it, or is it better to just pay off your loans the old-fashioned way?

I am looking at about 70-100k in loans combined. With both my and my boyfriend's income, I was just planning on trying to pay them off as quickly as possible in 3-5 years.

It's most likely better to pay off the old fashioned way in your situation.
Unless you have an investment option with a better return than your student loan interest rates.

 

[IsaacYankem]

Okay, everyone, here's my question. I'll freely admit that I'm not very knowledgeable about loans or loan repayment options--all I know is that I want to minimize my debt! I am trying to learn, though.

Say you had loans at around 100-150k for all 4 years combined. Are the various repayment options worth it, or is it better to just pay off your loans the old-fashioned way?

I am looking at about 70-100k in loans combined. With both my and my boyfriend's income, I was just planning on trying to pay them off as quickly as possible in 3-5 years.

Pay that back the "old-fashioned" way. 5 years without a sweat, you'll be free and clear.

 

[tbond5]

How about those of us that will have about 300k-400k of dental school debt with a house and dental practice on top of it?

 

[tandem7]

The thing is, as I posted above, it is much harder than you might think to pay them off in 5-10 years. Last I checked, we do not have any subsidized loans in dental school--that means that the interest starts accruing while you are in school--all that interest that accrued gets ADDED to the principal when you graduate, and then you must pay at least 5% on the total new principal EVERY YEAR! Even if you are lucky enough to make 150K right out of dental school, once you take out the taxes and other fees, you will be lucky if you net 6-7K a month--so that 6-7K a month would have to pay for food, shelter, gas, retirement, other expenses--just keep this in mind.

 

[Cello]

Thread edit information: I fixed some typos on the PAYE stuff and more importantly adjusted the interest rate on both IBR and PAYE to reflect the current loan climate (from 6.8% to 6%). Fortunately, this saved around $200,000 in total loan repayments over the lifetime of the loan which is no small chunk of change. Also, I reduced the $200,000 loan to a 5.41% interest rate because you should be able to borrow up to $224,000 in direct subsidized loans which is currently @ 5.41%. The combination of these two changes had a drastic effect on the total loan repayment amount when the loan is $200,000 or below.

The thing is, as I posted above, it is much harder than you might think to pay them off in 5-10 years. Last I checked, we do not have any subsidized loans in dental school--that means that the interest starts accruing while you are in school--all that interest that accrued gets ADDED to the principal when you graduate, and then you must pay at least 5% on the total new principal EVERY YEAR! Even if you are lucky enough to make 150K right out of dental school, once you take out the taxes and other fees, you will be lucky if you net 6-7K a month--so that 6-7K a month would have to pay for food, shelter, gas, retirement, other expenses--just keep this in mind.

You're right. Dental students qualify for up to $224,000 in direct unsubsidized loans for dental school at an interest rate of 5.41%. That means that if you borrow more than that amount, you'll have to make up the difference with the Grad PLUS loans which have a higher interest rate (currently 6.41%). You are correct that neither loan type is eligible for deferment.

Also, to add to what you said here, it's important to remember that while you are carrying this massive debt it will be very hard to secure a loan for anything else including a car, a home, or even a dental practice.

Okay, everyone, here's my question. I'll freely admit that I'm not very knowledgeable about loans or loan repayment options--all I know is that I want to minimize my debt! I am trying to learn, though.

Say you had loans at around 100-150k for all 4 years combined. Are the various repayment options worth it, or is it better to just pay off your loans the old-fashioned way?

I am looking at about 70-100k in loans combined. With both my and my boyfriend's income, I was just planning on trying to pay them off as quickly as possible in 3-5 years.

In your case, with $100k in loans you'll be able to borrow at the 5.41% interest rate (assuming the rate doesn't change in the next four or five years).

Here is your rundown @ $100k for IBR.

• You pay off your loan @ year 14.
• Your total interest paid is roughly $54,000
• The total cost of your loan is $100,000 + $54,000 = $154,000

For PAYE it is as follows @ $100k.

• Your remaining balance is: $1,066
• Total interest paid is: $79,628
• The taxes you'll pay on your final balance is: $422
• The total cost of your loan is: $179,628

It seems that either option will work for you, but IBR looks to be the better option overall. You can use the Excel docs I attached and just change the loan amount in cell B2 to whatever you want. You will want to set the interest rate to 0.0541 on cells C2->C21 (PAYE) or C2->C26 (IBR).

 

[Glimmer1991]

You do qualify for up to $224,000 in direct subsidized loans for dental school fortunately at an interest rate of 5.41%.

Wait... we can get subsidized loans? For some reason, I thought that both you and your parents had to fairly poor to receive such a loan. However, like I said, I'm pretty confused.

 

[tandem7]

Wait... we can get subsidized loans? For some reason, I thought that both you and your parents had to fairly poor to receive such a loan. However, like I said, I'm pretty confused.

I was under the same impression--that subsidized loans aren't even an option for grad schools any more. This US News article also says the same thing: http://www.usnews.com/education/bes...13/grad-students-to-lose-federal-loan-subsidy

 

[arlmay]

There are no subsidized loans for graduate/professional schools as of 2012

 

[tandem7]

Straight from the horse's mouth--the US Government--they don't even provide an option for subsidized loans for grad students: http://studentaid.ed.gov/About/announcements/interest-rate

 

[Cello]

Yes, you're right it is the Perkins loan which is subsidized, not the federal direct loans. Perkins is limited based on financial need (which is what Glimmer was saying I believe) and carries a fixed interest rate of 5% for up to $60,000 on a graduate loan. I'll make necessary changes to the thread to reflect that fact, thanks you three!