Tuesday, March 31, 2009

Loan Repayment (during residency)

Please know I could be WAY off with my thoughts/ideas/conclusions - I tend to rant and expect the worst - I also gathered some of my information from message boards which are in no way a reliable or accurate source!
Okay I think I may, (and I emphasize may) have figured it out... This has seriously been so frustrating. I know I posted before that I you could forbear your loans for the entirety of residency but since then I have heard a number of conflicting things. On various boards (namely iMSN) they keep talking about this new 15% rule. Various MS4s (fourth year medical students) who have been through their loan exit interviews have been saying that there is no more deferment/forbearance and that it has been replaced by this new 15% rule. Well after a few weeks of various inquiries and searches I have found this article.
To my now limited understanding the government has eliminated economic hardship forbearance. The economic hardship forbearance was nice because all residents qualified due to their modest incomes and it allowed residents to make NO payments their first three years of residency; also during this time interest did not acquire (or if it did I think the government paid it). After these three years of economic hardship forbearance were up residents could simply defer their payments if they wished and interest would continue to acquire on their loans.
Now this new plan does not allow residents to forbear at all and they can either defer and interest acquires (which I guess can be dangerous because interest continues to acquire and can capitalize and whatnot) or enter repayment. (This is the part where the information is even more sketchy are less reliable)
So if you ask me these new plan stinks! Consider that a $200,000 loan debt is quite normal for the average medical student. A 10-year repayment plan at the 6.8% interest rate amounts to.....
$2,300 a month
The average residency salary is around $42,000 - this leaves a resident with approximately $500 a month to live.... (I'm not sure if you can put medical school loans on longer terms).... so obviously if a resident doesn't want to defer and have interest accrue and capitalize their only option (unless they have a sugar-daddy/momma or another massive source of income) is Income Based Repayment (IBR/the 15% rule). So this 15% rule looks pretty good... for a minute.... and if your not married to someone with student loan debts...
If your married (I was told that) your spouse has to sign onto this agreement and the problem can be that you are stuck paying 30% of your income (15% of both of your incomes towards each loan). While I am not sure if this is accurate - I was also told that an option to avoid this is to file separate taxes. (Which then causes you to lose out on several tax benefits - resulting in a different cost). But with the separate taxes then you would only each pay 15% of your own loans? I dunno this is all confusing stuff. While I would have no problem paying 15% of Drew's residency salary during his residency, I don't like the idea of having to pay 30% of both of our salaries, especially if we live in an expensive city. Based on my unscientific, uneducated, calculations, even if I was hypothetically making a meager $40,000 salary we could still be responsible for $2,000 a month payments ($80,000 * 15% then divided by 12 months). Then again I would hope the 15% rule is only based on take home pay, rather than before taxes salary.
Perhaps we can defer but still make optional payments? I just don't like the idea of having to pay a large payment every month. Good thing I have more than a year to figure (worry about) this thing out!
And since I was trying my hardest to find everything wrong with IBR I forgot to mention that the another advantage of it is that (again I think) that if your payments are still less than the rate that interest is acquiring then the government pays that interest. So I guess my final conclusion is that this IBR plan may not be a bad plan for single/unmarried residents but I think it could potentially be bad for married couples who both have student loans.
If you stayed with me this long - thanks for your patience... please leave comments or email me if you have more accurate information/corrections! Thanks!


Melisa said...

Girl, you know more than me! I'm trying to live in an ignorant bliss...

Jaidi and Justin Clayton and Family! said...

Now my husband is in 3rd yr Med School, so I am not sure how it all works. But my husbands students loans that he got a forbearance on from undergrad (he took a year off btwn undergrad and Med school) have been accruing interest since he graduated. It has been my understanding for as long as I have known about student loans that any subsidized loans will have interest not billed to the student until they are not longer in school. Once they are out of school, regardless or making payments, or forbearance, or deferment, the interest goes to the student loan balances.

Again, not 100% sure, but that is the way I have understood the Loans as long as I have worked with them.

TheFamousStacie said...

Okay, so, this is why I don't work! It just doesn't make financial sense for me to have a job. I have a master's degree that is getting little to no use as I stay home with the kids.
I am currently fighting with the loan companies to get deferrals and forbearances. I get hung up on because I am not my husband, while my husband is working 80+ hours in surgery claiming he has no time to deal with it.
With so many people asking for deferals, etc... some of the companies that gave us private loans are claiming that they do not have to adhere to the 15% and that they reserve the right to collect on the loans if they want to.
It is terrifying. AND they are do not all come due one day in the year. I have had to create a separate color coded calender to mark ALL the dates (about 17 to 25 different dates) in the year that my hubby has loans coming due so that I can stay on top of the deferral and forbearance paper work. It is an absolute nightmare.

John said...

Good Stuff! Doesn't This looks like an awesome place to begin your academic program! The True Blue Campus at St. Georges University.

Anonymous said...

You've got the math wrong. You can plug all the numbers in at www.ibrinfo.org.

You CAN extend loan terms for medical students if their debt is over a certain amount (sorry, I don't know the amount).

While residency deferment (economic hardship) has gone away, forbearance is still an option for those who don't have the means to pay their loans.

None of the above applies to private loans at all. Hope this helps.

Anonymous said...

I agree with the Anonymous poster. My husband and I finished med school about 5 years ago and were able to do the hardship deferment and then the forbearance. Because of all this generosity on the part of our government, everyone felt pretty great about their futures...we bought homes on no money down, we started families...bought cars, and so on...the subsequent med school classes did the same, and when the economy went downhill, you guys were unknowingly caught in the middle of it all...with children, possibly houses, and now this awful debt situation. You do deserve some help with this...unfortunately most of the US does not feel sorry for doctors at all...
We paid off our debts as soon as we could, it took about 4 years out of residency to do it. If you make this a priority early, you will be happy you did. Those monthly payments get really annoying as reimbursements get worse.

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Anonymous said...

You got the math wrong. 15% of his income to pay for his loans and 15% of your income to pay for yours is equal to 15% TOTAL income not 30%.