Thoughts on Student Loan Repayment Programs

[moodle]

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Hey guys,

Like everyone on this thread, I too am worried about mounting medical school debt. When it's all said and done, I am probably looking at around $400,000 of student loans (undergrad, grad school and med school) constituting a mix of stafford and GRAD Plus loans....

In the midst of all of this hoopla, I looked at loan repayment programs. As some of you may know, there are repayment options if you choose to go into rural medicine or primary care etc...but since I'm not really interested in either fields, I won't qualify. But I found this unique Federal student loan repayment program called the "Income Based Repayment" program (IBR for short)

http://studentaid.ed.gov/PORTALSWebApp/students/english/IBRPlan.jsp

The monthly repayment rates are not really based off of your student debt, but in fact based off of how much you make. Here is the formula....

(Gross Income After taxes - 150% of Federal Poverty Level for family size) * 15% = Yearly Loan payment amount

For example, if you make $150,000/year (after taxes) and subtract 16,335 (150% of federal poverty level for single adult) you get $133,665. Multiply $133,665 by 15% = $20,049. Take $20,049 and divide by 12, and your monthly payment becomes $1,670.

If you have 400,000 debt at primarily 7.9% interest rate, the standard 10 year repayment plan is $4831 per month! Thus making the IBR plan a much easier option to payback your debt.

You can also work in the public sector and as part of the IBR plan, have your loan ridden off after 10 years of public work

One important note....the IBR plan is based off of a 25 year repayment schedule. If you do not payback all your debt in 25 years, whatever is left is completely ridden off. Obviously you'll be paying back more interest using the IBR plan, but the monthly payments can be more easier to handle...

Also important to note, the IBR plan as of today is based off of 15% of your income minus the federal poverty level. After July 2012, it is lowered to 10%. So the above calculations for an individual making $150,000/year is lowered to $1,113 instead of $1,670.

The only time you will disqualify for the IBR plan is if your yearly after tax income is so high, that your IBR monthly payments actually become more than the standard 10 year monthly repayment plan. In this case, you disqualify if you make $600,000/year after taxes (based off of $400,000 in loans).

I wish I don't have to go into all this debt, but as an CA applicant, all CA public schools have rejected me 🙁 and so I need to look for private or public OOS schools. I know there are scholarships out there and military options as well, but this is another interesting option that, I think, needs more attention.

Your guy's take?
Thanks!

 

[moodle]

BTW, here is a link to the current federal poverty level guidelines based off of family size:

http://www.familiesusa.org/resources/tools-for-advocates/guides/federal-poverty-guidelines.html

 

[235788]

do a ROAD specialty and you will not have a problem. If possible go to a state med school to save some money.

 

[MT Headed]

I think you have some monkey math going on here... probably with the assumption that your school loans ought to be paid off in 10 years.

This topic gets discussed a lot in the financial aid forum. The general conclusion is that
(1) when you are an attending, your salary is so high that you don't qualify for IBR anymore, so you revert back to the standard repayment plan
(2) depending on thhis magical 'my loans will be automatically paid off in 10/25/whatever years' is a complete pipe dream. Taxpayers will not be willing to make multiple hundred thousand dollar giveaways to one of the wealthiest segments of society.

In the end, it's a cute program that keeps interest payments in residency (when you make only $50K) reasonable. Other than that, don't count on any other benefits from the program.

 

[moodle]

I think you have some monkey math going on here... probably with the assumption that your school loans ought to be paid off in 10 years.

This topic gets discussed a lot in the financial aid forum. The general conclusion is that
(1) when you are an attending, your salary is so high that you don't qualify for IBR anymore, so you revert back to the standard repayment plan
(2) depending on thhis magical 'my loans will be automatically paid off in 10/25/whatever years' is a complete pipe dream. Taxpayers will not be willing to make multiple hundred thousand dollar giveaways to one of the wealthiest segments of society.

In the end, it's a cute program that keeps interest payments in residency (when you make only $50K) reasonable. Other than that, don't count on any other benefits from the program.

I don't think it's a pipe dream, honestly. Here is the FAQ pdf for IBR:
http://studentaid.ed.gov/students/attachments/siteresources/IBR_QA_FINAL_20111207.pdf

On page 2, it tells you when you can and cannot qualify for IBR. If your 10 year monthly payments are less than that of the IBR plan, you do not qualify.

Also, on page 1 it tells you that your loans can be part of the public loan service program where you only make 120 monthly payments (10 years).

Here is the link to the calculator

http://studentaid.ed.gov/PORTALSWebApp/students/english/IBRCalc.jsp

You're right, I did some funky math up above and I stand corrected. Using the calculator, you disqualify for the IBR plan if your yearly after tax income is above $400,000 on $400,000 of loans at 7.9% (not $600,000 as I stated in my original post, I apologize).

But other than that, it doesn't seem to be much of a pipe dream. I'm just curious MT, why do people think these programs won't be around for doctors? ..... There is no income cap per se on the IBR plan (unless you pay more under IBR than under the 10 year repayment plan).......

 

[NickNaylor]

I would be hesitant about assuming these programs are going tobe available in the future given the political climate. Counting on these programs is a bad idea.

 

[Starlightembers]

Question: If one is in the financial position to do so, what if one enrolled in IBR; but continued paying what they would had they not been doing IBR (ie, paying "extra")? If I understand everything correctly, then this would still allow one's loans to be ridden off after 25 years (10, if working for a non-profit); however, if IBR were to become unavailable, one would not be behind their peers who choose not to pursue IBR. Would this not be the ideal situation?

 

[MT Headed]

Your loan payments will start when you finish school and start residency. Most residents, with a salary of $50K, are in no position to be making full payments on these loans. If you can, more power to you.

Fundamentally, the humongous balloon payment where your loans are forgiven at the end of the term, is simply a political promise. How many people have had their loans written off? Nobody, because this program is too new.

Is there a contract that the government signs that guarantees that the loans will be forgiven? No. It is a promise and nothing more. There are several political cycles between now and when you might be able to collect on this promise.

If the loan forgiveness is ever implemented, taxpayers in a bankrupt country are going to be paying hundreds of thousands of dollars per physician in a gigantic cash giveaway to the top 5% earners in the nation. It will not look good. And let's face it, the political trend of the US government is to reduce payments to physicians, not increase them.

IBR is a wonderful program for attenuating loan payments while in residency. Anything else, if it exists at all, will be a nice bonus but not something to count on.

 

[moodle]

I would be hesitant about assuming these programs are going tobe available in the future given the political climate. Counting on these programs is a bad idea.

Your loan payments will start when you finish school and start residency. Most residents, with a salary of $50K, are in no position to be making full payments on these loans. If you can, more power to you.

Fundamentally, the humongous balloon payment where your loans are forgiven at the end of the term, is simply a political promise. How many people have had their loans written off? Nobody, because this program is too new.

Is there a contract that the government signs that guarantees that the loans will be forgiven? No. It is a promise and nothing more. There are several political cycles between now and when you might be able to collect on this promise.

If the loan forgiveness is ever implemented, taxpayers in a bankrupt country are going to be paying hundreds of thousands of dollars per physician in a gigantic cash giveaway to the top 5% earners in the nation. It will not look good. And let's face it, the political trend of the US government is to reduce payments to physicians, not increase them.

IBR is a wonderful program for attenuating loan payments while in residency. Anything else, if it exists at all, will be a nice bonus but not something to count on.

Nick and MT make great points. Those forgiveness programs are promises and there are no guarantees. Who knows what later congresses might do?. But making reduced payments while in residency and as a starting physician will definitely help. I've looked around the FinAid forums (doesn't seem like many people visit there compared to Pre-Allo) and they have some good info.

I don't know, but it's food-for-thought. The US going broke isn't really going to help us in the end. After all, the Direct Subsidized Loans for Grad students were recently eliminated for 2012 and beyond, so this might be an omen of things to come.

 

[organdonor]

Nick and MT make great points. Those forgiveness programs are promises and there are no guarantees. Who knows what later congresses might do?. But making reduced payments while in residency and as a starting physician will definitely help. I've looked around the FinAid forums (doesn't seem like many people visit there compared to Pre-Allo) and they have some good info.

I don't know, but it's food-for-thought. The US going broke isn't really going to help us in the end. After all, the Direct Subsidized Loans for Grad students were recently eliminated for 2012 and beyond, so this might be an omen of things to come.

Couldn't have said it better myself.

 

[bonoboMD]

Couldn't have said it better myself.

sorry, where are the FinAid forums located?

EDIT: found it! http://forums.studentdoctor.net/forumdisplay.php?f=30

 

[EBTrailRunner]

I thought I'd add that I don't think the Public Service Loan Forgiveness Program, which is what's being referred to, is restricted to those entering medicine. It's for anyone entering a public service job.

 

[Brachyury]

I think you have some monkey math going on here... probably with the assumption that your school loans ought to be paid off in 10 years.

This topic gets discussed a lot in the financial aid forum. The general conclusion is that
(1) when you are an attending, your salary is so high that you don't qualify for IBR anymore, so you revert back to the standard repayment plan
(2) depending on thhis magical 'my loans will be automatically paid off in 10/25/whatever years' is a complete pipe dream. Taxpayers will not be willing to make multiple hundred thousand dollar giveaways to one of the wealthiest segments of society.

In the end, it's a cute program that keeps interest payments in residency (when you make only $50K) reasonable. Other than that, don't count on any other benefits from the program.

Nope--not even close: when you enter IBR, you are in IBR even if 10% of your monthly income exceeds the 10-year initial calcualted cap, and if this happens, you repayment is capped at 10% of adjusted pre-tax income

I would like to point out IBR had bi-partisan support and was signed into law by President Bush.

IBR was created for several. First, instead of addressing or proposing ways to control the rapid growth in the cost of higher education, IBR was extolled as a less-political, more neutral alternative. Second, due to the rising cost of higher education, there was--and still is--fear that indviduals will be more reticent to enter low paying fields that require a substantial investment in education (i.e. social work, librarians, teachers, etc). Finally, before IBR, phsycians and other health care providers were able to have an economic hardship deferrment for their entire residency, however, IBR was created to replace this program for residents.

My point is that loan foregiveness may dissapear, but IBR is not going anywher. Also, the governemnt generally grandfathers-in individuals in economic policies/program: i.e. if you are in IBR with the intention of public loan foregiveness, and the government scraps the program, it is unlikely you will be excluded from loan foregiveness assuming you complete the full ten years of service and payment

 

[Local Native]

I thought I'd add that I don't think the Public Service Loan Forgiveness Program, which is what's being referred to, is restricted to those entering medicine. It's for anyone entering a public service job.

The problem is that we won't see who really qualifies for the 10-year-forgiveness because the first year of eligibility will be around 2017. At this point we can just speculate that if you work for an academic hospital or VA hospital that you may be eligible but it's all guesswork.

 

[EBTrailRunner]

The problem is that we won't see who really qualifies for the 10-year-forgiveness because the first year of eligibility will be around 2017. At this point we can just speculate that if you work for an academic hospital or VA hospital that you may be eligible but it's all guesswork.

I brought up this point during a Fin Aid session at a school I recently interviewed at and they didn't have a solid response. I'm at a loss for when exactly you officially enter the program. I wonder whether there's a point during one's medical education at which you can be grandfathered into the program.

 

[MT Headed]

Nope--not even close: when you enter IBR, you are in IBR even if 10% of your monthly income exceeds the 10-year initial calcualted cap, and if this happens, you repayment is capped at 10% of adjusted pre-tax income

What you say directly contradicts what the federal government says about its IBR plan. See specifically item #15 (plus further explanations in 16 and 17): http://studentaid.ed.gov/students/attachments/siteresources/IBR_QA_Final2-2011.pdf

As an attending physician, if you followed the IBR plan your loan payments, as a fraction of an absolutely enormous salary, would be absolutely enormous. They would be far and away above the sorts of loan payments you would have made if you had never joined the IBR in the first place. In this situation, the government is not going to force you to make the ridiculously large IBR payments. You simply go back to paying off your loans at the normal, lower, non-IBR monthly amount. In fact, with your attending's salary you won't have a financial hardship and you won't qualify for IBR anyway.

I never said IBR is in danger of going away. It is a practical method to extract a little cash from poor residents, as opposed to the previous forbearance method where no cash was collected at all. I am confident that IBR is here to stay.

What is highly in doubt is not IBR, but rather these additional political promises that someday far in the future the federal government is going to start cutting checks for hundreds of thousands of dollars to physicians who are making hundreds of thousands of dollars a year (and have been doing so for many years) as some sort of goodwill charity program for the economically disadvantaged practicing physician.

 

[Brachyury]

What you say directly contradicts what the federal government says about its IBR plan. See specifically item #15 (plus further explanations in 16 and 17): http://studentaid.ed.gov/students/attachments/siteresources/IBR_QA_Final2-2011.pdf

As an attending physician, if you followed the IBR plan your loan payments, as a fraction of an absolutely enormous salary, would be absolutely enormous. They would be far and away above the sorts of loan payments you would have made if you had never joined the IBR in the first place. In this situation, the government is not going to force you to make the ridiculously large IBR payments. You simply go back to paying off your loans at the normal, lower, non-IBR monthly amount. In fact, with your attending's salary you won't have a financial hardship and you won't qualify for IBR anyway.

I never said IBR is in danger of going away. It is a practical method to extract a little cash from poor residents, as opposed to the previous forbearance method where no cash was collected at all. I am confident that IBR is here to stay.

What is highly in doubt is not IBR, but rather these additional political promises that someday far in the future the federal government is going to start cutting checks for hundreds of thousands of dollars to physicians who are making hundreds of thousands of dollars a year (and have been doing so for many years) as some sort of goodwill charity program for the economically disadvantaged practicing physician.

I see where we did not meet eye-to-eye. When you start IBR, the government says "Ok, you have 200k in debt, if you started a 10 year repayment plan, it will cost 350k over 10 years to pay it off." Thus, you monthly payment will never be greater than (350,000)/(120) = $2,916. When 10% of your adjusted pretax income is greater than @2,916, you are required to pay $2,916, not 10%. At this point, you are still in IBR, but your payment is set at the 10-year repayment cap; you are NOT forced out of IBR into a 10-year repayment plan.

So, let's look at an example. If you are a RadOnc making 350k a year whose poverty adjustment is 15k and you have 20k in pre-tax investments and savings, 10% of your monthly payment would be ((350-15-20)*.1)/12 = $2,625, so you would pay the IBR ammount of $2,625, not the ceiling of $2,916. If you income were $400k, your payment would be ((400-15-30)*.1)/12 = $3,042, so you would pay the ceiling of $2,916 instead

 

[SFO-IST]

if you did IBR with 400k of debt, your loans would baloon up so that you'd be paying close to 1,000,000 by the time you paid it all off. Keep in mind that unlike PSLF, IBR is TAXABLE income. so you're stuck with a huge tax bill for the ballooned money that was just "forgiven". Finally, as others have pointed out, Obama has come and lowered IBR to 20 years @ 10%, but whose to say some republican won't come around and kill the program for physicians?

I took a look at the promissary note for the loans. all it says is "this loan is eligible for IBR and PSLF". It makes no promises as to the terms and conditions of what IBR and PSLF are.

 

[DrBowtie]

I brought up this point during a Fin Aid session at a school I recently interviewed at and they didn't have a solid response. I'm at a loss for when exactly you officially enter the program. I wonder whether there's a point during one's medical education at which you can be grandfathered into the program.

You never enter a PSLF program. You make 120 payments while employed at a qualifying job and then you apply for the program to discharge the remainder. Since making those 120 payments isn't a negative for the student, and you are never formally in a program, I don't think there would be any grandfathering.

 

[ensuii]

Whether or not your loan will be given off at the end of 10/25 years is a moot point IMO. I guess it'd be nice but if you avoid specialties on the low end of the compensation spectrum (FM/Peds) and have a good plan for how and when you're going to pay the money back, you shouldn't have a problem. I think it's only worrisome if you have some grandiose idea of having Ferrari's or BMW's the first day after you finish residency.

I think it kindof sucks for premeds in the sense that you have to be okay with taking on the debt without necessarily knowing what specialty you want to go in to. Paying back 300k in debt is a lot more daunting when you realize you can't be happier in any other field except pediatrics. Add to the fact that at 22, you're not necessarily expecting to have the expenses you have when you're in your early 30's (ie, mortgages, car payments, kid's college funds, etc) and you can potentially find yourself in a very dicey situation financially. My advice to OP: don't fret over IBR/PSLF forgiveness right now. Worry about keeping your debt as low as possible. If your debt is going to be 250k+, be certain that there's nothing aside from medicine you'd rather do. At that point you just have to try to do your best in classes, let life figure itself out in terms of what specialty/practice situation you'll be in and try to lead as modest of a lifestyle as possible. If you budget well, you should be able to pay back your student loans. It might mean not being able to go on very many vacations and not driving that 100k car but at the very least you'll have a standard of living that's very comfortable.