Jul 16, 2017
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Ok so here is the deal. I am a traditional US MD grad brand new IM attending with $250,000+ in federal student loan burden. The plan was originally/has been to pay minimum monthly payments (which were $0 during first 2 years of residency) under PAYE (Pay As You Earn), get an employed position with a nonprofit, and have the balance forgiven at the end of 10 years through PSLF (public service loan forgiveness).

I recently had a job offer from a local 50 bed hospital that included $75,000 of what was termed by the hospital CEO as "loan repayment." I informed him of my above plan and that based on my income, family size, and PAYE with PSLF status that while this was generous, it actually wouldn't benefit me at all to apply it to my loans. He basically cut me off at that point and said something along the lines of well as soon as you submit documentation of your loans to me directly, I directly write the check to you and then we don't monitor it after that. The conversation left me with the impression that other than a couple words on the checks memo line, and documentation that my student loans exist, there would be no other specific agreements or direction for the sum, i.e. I won't be signing anything along the lines of "under penalty of perjury or death I agree to apply this directly to the principal of my federal student loans within 30 days so help me god." There is nobody above or equal to the CEO at this hospital, he pulls all the strings. There are enough other criteria that I am pretty confident I will be accepting this position regardless of this specific issue.

so now the question is, what should I do with the money? I've got a wife, 2 kids, and a mortgage that could use some or all of it, but without it we won't be living in the gutter.

Option 1- safe play would be to apply it directly to student loans. this would see a good size chunk of my education debt erased but wouldn't change my monthly payment or for how long I make it. It wouldn't benefit me at all, it would benefit the American taxpayer when it comes time for forgiveness under PSLF but I don't think I am THAT patriotic

Option 2- hedge my bets and put it in a separate account to hopefully draw some interest until I can verify my loans were forgiven in 7 more years. If it ever came up, I could immediately apply it to principal of the loans. I guess if I worried about getting in trouble somehow because I didn't apply the money to my loans then maybe this wouldn't be any better, but thats why I'm posting about this on an internet forum. This would be some insurance if the PSLF system were abolished or significantly altered. It would be tough with a wife 2 kids a mortgage and one car that will need replacing sooner rather than later to look at an account every day with that kind of balance just sitting there! I briefly thought about drawing up some paperwork something along the lines of depositing the money into my general use accounts but papers showing its a loan to myself or it makes payments to me every month but then my head hurts and I go lay down.

Option 3- just treat it like I would any other cash and basically disregard any reference to loans. This is the option my buddy favors but he's also the least financially savvy person I know. This comes with the theoretical possibility that the hospital (or maybe feds i guess?) come after me and say well you got that huge sum of money for loans why didn't you apply it?! Which could come soon or at time of loan forgiveness, although the likelihood of this seems minimal given all the winking and nudging the CEO gave me as above.

Would appreciate your thoughts on the matter.
 

Raryn

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The way this is structured, it's not loan repayment. It's a sign-on bonus. What terms does it have? Typically this sort of thing is you must work there X years for it to be forgiven, or X% is forgiven each year, etc. Regardless, the hospital will never ask for it back unless you break those terms.

Assuming the terms are reasonable and you're not planning on quitting anytime soon, treat it like you would any other cash. Use it towards a house down payment. Or towards retirement savings. Or whatever. If you truly have a job that qualifies for PSLF, there's no reason to use it towards loans.

(That said, as an IM attending, you'll be putting 10% of your income down yearly for the next 7 years even for PSLF. How much gets forgiven depends on your level of debt/interest rate/salary, but don't be surprised if it isn't THAT Much).
 

Mad Jack

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Ok so here is the deal. I am a traditional US MD grad brand new IM attending with $250,000+ in federal student loan burden. The plan was originally/has been to pay minimum monthly payments (which were $0 during first 2 years of residency) under PAYE (Pay As You Earn), get an employed position with a nonprofit, and have the balance forgiven at the end of 10 years through PSLF (public service loan forgiveness).

I recently had a job offer from a local 50 bed hospital that included $75,000 of what was termed by the hospital CEO as "loan repayment." I informed him of my above plan and that based on my income, family size, and PAYE with PSLF status that while this was generous, it actually wouldn't benefit me at all to apply it to my loans. He basically cut me off at that point and said something along the lines of well as soon as you submit documentation of your loans to me directly, I directly write the check to you and then we don't monitor it after that. The conversation left me with the impression that other than a couple words on the checks memo line, and documentation that my student loans exist, there would be no other specific agreements or direction for the sum, i.e. I won't be signing anything along the lines of "under penalty of perjury or death I agree to apply this directly to the principal of my federal student loans within 30 days so help me god." There is nobody above or equal to the CEO at this hospital, he pulls all the strings. There are enough other criteria that I am pretty confident I will be accepting this position regardless of this specific issue.

so now the question is, what should I do with the money? I've got a wife, 2 kids, and a mortgage that could use some or all of it, but without it we won't be living in the gutter.

Option 1- safe play would be to apply it directly to student loans. this would see a good size chunk of my education debt erased but wouldn't change my monthly payment or for how long I make it. It wouldn't benefit me at all, it would benefit the American taxpayer when it comes time for forgiveness under PSLF but I don't think I am THAT patriotic

Option 2- hedge my bets and put it in a separate account to hopefully draw some interest until I can verify my loans were forgiven in 7 more years. If it ever came up, I could immediately apply it to principal of the loans. I guess if I worried about getting in trouble somehow because I didn't apply the money to my loans then maybe this wouldn't be any better, but thats why I'm posting about this on an internet forum. This would be some insurance if the PSLF system were abolished or significantly altered. It would be tough with a wife 2 kids a mortgage and one car that will need replacing sooner rather than later to look at an account every day with that kind of balance just sitting there! I briefly thought about drawing up some paperwork something along the lines of depositing the money into my general use accounts but papers showing its a loan to myself or it makes payments to me every month but then my head hurts and I go lay down.

Option 3- just treat it like I would any other cash and basically disregard any reference to loans. This is the option my buddy favors but he's also the least financially savvy person I know. This comes with the theoretical possibility that the hospital (or maybe feds i guess?) come after me and say well you got that huge sum of money for loans why didn't you apply it?! Which could come soon or at time of loan forgiveness, although the likelihood of this seems minimal given all the winking and nudging the CEO gave me as above.

Would appreciate your thoughts on the matter.
There are strong signs that PSLF will not exist by the time you want to cash in, and that, if it does, it will be capped. Don't bank on it, basically, and watch your debt balloon if you do. The trouble with PSLF is that it requires a congressional appropriation of funds to go through, and in this climate, well... That is unlikely to happen. Pay your debts, or be prepared to deal with the aftermath of what happens when you don't and you have compound interest building for ten or more years.
 
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Raryn

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There are strong signs that PSLF will not exist by the time you want to cash in, and that, if it does, it will be capped. Don't bank on it, basically, and watch your debt balloon if you do. The trouble with PSLF is that it requires a congressional appropriation of funds to go through, and in this climate, well... That is unlikely to happen. Pay your debts, or be prepared to deal with the aftermath of what happens when you don't and you have compound interest building for ten or more years.
[citation needed]

Typically when the government changes programs like this they grandfather in people who are already participants. For this specific case, the PSLF is actually directly written into every single master promissory note the government has filed with a borrower since 2007, so it's highly unlikely they're going to be able to change it for existing borrowers. At least not for those who've already started making payments.

Even when the Obama administration explicitly proposed a cap, they stated the limit would only apply to people who are new borrowers.
 

Mad Jack

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[citation needed]

Typically when the government changes programs like this they grandfather in people who are already participants. For this specific case, the PSLF is actually directly written into every single master promissory note the government has filed with a borrower since 2007, so it's highly unlikely they're going to be able to change it for existing borrowers. At least not for those who've already started making payments.

Even when the Obama administration explicitly proposed a cap, they stated the limit would only apply to people who are new borrowers.
Trump’s Bid to Axe Public Service Loan Forgiveness Would Sever Lifeline, Opponents Say

The simple fact is, the PSLF program occupies an interesting area in which a group that does not funds can guarantee the forgiveness of loans despite not having a fixed appropriated budget. Legally, this means their commitment is meaningless. I'm drunk, so I can't dig up the articles I've perused in the past, but they agree with my friends in the legal field in saying that PSLF is essentially nonbinding.
 
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Raryn

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Trump’s Bid to Axe Public Service Loan Forgiveness Would Sever Lifeline, Opponents Say

The simple fact is, the PSLF program occupies an interesting area in which a group that does not funds can guarantee the forgiveness of loans despite not having a fixed appropriated budget. Legally, this means their commitment is meaningless. I'm drunk, so I can't dig up the articles I've perused in the past, but they agree with my friends in the legal field in saying that PSLF is essentially nonbinding.

Took me a second to get to the article due to a paywall, but this paragraph stands out to me:

"Despite Abraham’s worries, experts say the language in Trump’s budget proposal suggests that the program’s elimination would only apply to new federal loan borrows after July 2018. Those already in the program and current law students funding their tuition with federal loans would still be eligible, though Congress could pursue further changes that roll the program back or cut it altogether for existing borrowers, supporters warn."

The last caveat is there, true. But there's not even an existing proposal to remove it from people already in the program, and even if there was, it would be legally questionable.
 
D

deleted480308

Took me a second to get to the article due to a paywall, but this paragraph stands out to me:

"Despite Abraham’s worries, experts say the language in Trump’s budget proposal suggests that the program’s elimination would only apply to new federal loan borrows after July 2018. Those already in the program and current law students funding their tuition with federal loans would still be eligible, though Congress could pursue further changes that roll the program back or cut it altogether for existing borrowers, supporters warn."

The last caveat is there, true. But there's not even an existing proposal to remove it from people already in the program, and even if there was, it would be legally questionable.
I remember half the country saying a fine for not buying insurance was legally questionable and yet here we are....

I would find it risky to bank one's entire financial plan on plsf
 
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Mad Jack

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I remember half the country saying a fine for not buying insurance was legally questionable and yet here we are....

I would find it risky to bank one's entire financial plan on plsf
Basically this. Banking on PSLF is a gamble that could lead to complete and total financial ruin if the government doesn't hold up their end of the bargainand you start with enormous amounts of debt. Do you trust your family's future to Congress? I don't.
 
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Jul 16, 2017
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So it is technically a loan which would be forgiven over a period of 7 years so the tax burden is split over that period of time.

To those above saying not to bank on PSLF, would that mean you would apply the entire balance to your 250,000 loan burden? I'm all about delayed gratification but Jesus Christ it's like you are just pissing that money away. It's not enough money to reduce your payment, heck it's probably not even enough to make your current payment cover all the accruing interest so it's going to keep growing anyway. and that would be counting on not only PSLF going away but also the forgiveness clause of PAYE. You may call it a gamble to count on PSLF but at least that means that money gets to make a noticeable difference in my life rather than gamble on definitely not enjoying the money, 2 federal programs falling through, and additionally gamble that without this money I am otherwise so bad at managing money that I would be unable to afford the ongoing payment because it is not like they are going call the debt due in total no matter what happens to the forgiveness programs.
 

WholeLottaGame7

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So it is technically a loan which would be forgiven over a period of 7 years so the tax burden is split over that period of time.

To those above saying not to bank on PSLF, would that mean you would apply the entire balance to your 250,000 loan burden? I'm all about delayed gratification but Jesus Christ it's like you are just pissing that money away. It's not enough money to reduce your payment, heck it's probably not even enough to make your current payment cover all the accruing interest so it's going to keep growing anyway. and that would be counting on not only PSLF going away but also the forgiveness clause of PAYE. You may call it a gamble to count on PSLF but at least that means that money gets to make a noticeable difference in my life rather than gamble on definitely not enjoying the money, 2 federal programs falling through, and additionally gamble that without this money I am otherwise so bad at managing money that I would be unable to afford the ongoing payment because it is not like they are going call the debt due in total no matter what happens to the forgiveness programs.

Sounds like they are just going to cut you a check, and then it goes into your bank account, and then their money mingles with your money, never to be differentiated again, so use it however you like.

You haven't really given us enough info to help you effectively. What is the interest rate on your loans? What is your salary? Able to max out retirement accounts? Wife work or stay at home? Wife loans?

I don't know enough to say whether PSLF will still be around in 10 years or not, but more importantly, you might not be at a job that qualifies in 10 years. What if you don't like this job and a better job opens up?

You might find this article by WCI helpful: Student Loans vs Investing

Take home is this at the end:
"1) Pay off high interest debt. Any credit cards or consumer debt at 8% or higher should be paid off ASAP. Honestly you should have never accumulated this. Live like a resident until it is gone.

2) Invest in tax-protected accounts. If you are a resident max out your personal and spousal Roth IRAs. If an attending, max out your 401K, SEP-IRA, HSA and any other retirement account that allows you full marginal tax rate deductions.

3) Pay off non-deductible loans between 5% and 8%. These include most current student loans.

4) Consider investing in other accounts that offer a tax break, such as 529s (kid’s college accounts), UGMAs, and backdoor Roth IRAs if your circumstances merit.

5) Invest in risky assets in a taxable account (stock mutual funds or investment properties).

6) Pay off loans with after-tax rates of 3%-5%. These include most mortgages.

7) Pay off loans with after-tax rates below 3%.

8) Invest in safe assets in a taxable account such as CDs, bonds, and savings accounts. If these types of assets return to historic norms (4-5% returns) instead of their current 1-2% returns, then it is okay to invest in these prior to paying off very low interest debt.

9) Don’t carry any debt into retirement. Losing the safety net of on-going employment income makes this a risky affair. It’s one thing to get foreclosed on when you’re 30. It’s entirely different when you’re 70."
 

NotAProgDirector

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So it is technically a loan which would be forgiven over a period of 7 years so the tax burden is split over that period of time.

To those above saying not to bank on PSLF, would that mean you would apply the entire balance to your 250,000 loan burden? I'm all about delayed gratification but Jesus Christ it's like you are just pissing that money away. It's not enough money to reduce your payment, heck it's probably not even enough to make your current payment cover all the accruing interest so it's going to keep growing anyway. and that would be counting on not only PSLF going away but also the forgiveness clause of PAYE. You may call it a gamble to count on PSLF but at least that means that money gets to make a noticeable difference in my life rather than gamble on definitely not enjoying the money, 2 federal programs falling through, and additionally gamble that without this money I am otherwise so bad at managing money that I would be unable to afford the ongoing payment because it is not like they are going call the debt due in total no matter what happens to the forgiveness programs.

I am super confused by this. You have $250K in debt. Assuming 7% interest (which would be pretty terrible) and a 10 year repayment plan, that's just under $3000/month. Not fun, but presumably as a new IM attending you're making $200K a year = $16K a month. Sure you'll have taxes and all that, but this is affordable. Can you buy a McMansion in addition? Of course not. But if you could live on a resident's salary, you can live on a faculty salary and pay off your debt.
 

IlDestriero

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Betting that the government is going to green light huge debt write offs on the loans of professional people making 4-20 times the average family income isn't a smart bet. It's the lowest hanging fruit of all, and probably would GET them more votes in the next election.
Pay what you owe and get on with your life.


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