Do it right; so you need No forgiveness-Part II

5 reasons I manage debt actively

instead of hoping for forgiveness in 20 years.

 

1. Getting forgiveness is a hassle (each year you have to reapply for it. Rules and disclaimers are bound to change.)
2. The projected forgiveness amount is the maximum possible. So guess who comes up with the difference? YOU. It is your debt, of course whatever that’s not forgiven is yours to fulfill.
3. The projected forgiveness is based on the poor resident’s income of 50k and progressively a little higher, far less than the income of an attending physician ($189,000-$519,000*.) Which means, when you become an attending, you will definitely see a larger chunk than $832 disappear from your take home pay monthly.
4. Lastly, who pays for your forgiveness. Hard working tax-payers. Do you really want to let your debt grow so out of control that you need a bail out form the tax payers?
5. 20 years is a long time of making “minimum” payment and hoping the rest of your debt will vanish into thing air. Not exactly, the forgiven amount is considered income, you pay taxes on it. $343,624 forgiven debt is an additional income on top of your annual attending income! That’s heck of tax bill!

 

Many seek forgiveness

in 10 years via PSLF.

 

PSLF: public service loan forgiveness is a 120 month repayment program where your debt is forgiven after 10 years of making IBR/minimum payments while working for non-profit organizations. 

Many with long residency training like myself (I have 6 years to become a fully boarded specialized radiologist,) put all their hope in PSLF. I wouldn’t. There are consulting firms that will convince medical students/ residents that the projected loan forgiveness is a “saving” or “good deal” or “free money.” This logic makes me sick to my stomach only because I nearly fell into the trap myself.

During my last year of medical school, I investigated these student debt management consulting firms myself. At one point, I  saw my last year of medical school as my last chance to grab some free money that everyone has been enjoying all the years I wasn’t taking out student loans. I came close to taking out maximum amount of student loan (for a down payment for my 1st home and celebrating graduation.)

But as I repeatedly questioned these consultants, I realized how bizarre the entire logic was. The logic is the more you borrow, the more you owe, the more you will be forgiven! As some of my classmates excitedly told me, “I will borrow as much as I want right now (100-120k per year), live comfortably as a student, go on vacations and buy cars. Even though I will rack up a large student loan, it’s no skin off my back, because I’ll be forgiven after paying “minimally” for 10 years. In the end, I would have gotten a bunch of free money.”

 

 

Nothing is free;

you just pay for it in ways you have not foreseen.

 

1. While majority of hospitals are non-profit organizations, most private physician groups are CONTRACTORS and not employees of the hospital. So to get PSLF, up coming attending physicians have to limit their job searches to Non-profit W-2 employee positions .
2. The government is talking about CAPPING PSLF (@ 57k) or worse eliminating the PSLF. While optimists say it won’t happen for awhile, I advise that you avoid the risk of getting the rug pulled from under you.
3. During the 120 payments, if you are fortunate to land a true NON profit job that is fulfilling for you, the more you make, the more you will pay monthly. Do you want to face the dilemma of making more and paying more vs. making less and paying less? That’s the perpetual higher income, higher liability conundrum of income and taxation. Do you really want to add another layer of complexity and uncertainty to your finances?
4. I noticed many doctors working for non-profit organizations lament about how their counterpart in private practice makes 3 times as much as they do. They see that the grass is much greener on the other side. In contrast, those who veered away from PSLF often pay their debt down rapidly instead of dragging out the 240 repayment plan on IBR/PAYE. Doctors in for profit organizations/private groups make more and pay their debt off aggressively because they recognize how quickly their debt can snow-ball out of control @ the high interest rates.

 

Truth is: Neither group’s grass is green.

 

1. The PSLF group lament about how little they make.
2. The private doctors lament about how much they pay.
3. Why not be in the 3rd group and minimize your debt from the get go?
4. Even if the damage has already been done, IE. you already 300k in student debt and just started your 50k annual salary as an intern. You can still actively minimize and manage your debt and grow your asset while in residency.

 

So take your head out of the sand.

 

Watch, minimize, and actively manage your ~300k-400k student debt NOW (regardless where you are in your income spectrum) because it is snow balling like crazy as you plug away in your 80+ hrs work week.

Even if you are fortunate to have ONLY 100k or 200k debt burden, you need to do something about it now, not after you finish school or after residency.

I strongly advise against taking IBR or PAYE approach as it is literally a negative amortization situation, where your payments barely even cover interest, and interests just roll into principles and you get larger and larger debt burden as you make payments.

Do it right;

 you won’t need forgiveness. 

Although the best time to do it right is before or during medical school, it is never too late.

More posts will follow and provide tips on actively minimizing your student debt burden in all stages of your career: as student, paid trainee, or ultimately paid authority.

*Physician pays found on http://www.forbes.com/sites/jacquelynsmith/2012/07/20/the-best-and-worst-paying-jobs-for-doctors-2/.