What to do with Sign-on "loan" ?

[jfoxcpacfp]

Vagabond MD wrote:

Ms. Fox,
There is no such thing as a free lunch. Maybe that did not teach you that where you got all those letters after your name. They did teach me that lesson, time and again, during my training.

Hospitals know how to manipulate physicians, and “free money” is a tool for doing so. The emotional move is to take the “free money”.

18 months into the contract, you will be presented with a new contract, with 20% less pay and new responsibilities. Sure, you could walk away (unless your non-compete is tight, then you will have to fly away, 100 miles away…). You will put up some resistance, and they will remind you how well they treated you by giving you “free money” and show you some bogus metrics that prove you did not live up to expectations. They will smile while having discussion.

Then, you will remember the “free money”that is tied up in CD ladders (a hassle to redeem them), or in your house, or in your Vanguard account. You are not going to gut your nest egg, pay cap gains tax AND disappoint these nice, smiling people that are offering you a new contract.

Free money, my ******************!

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Well, good for you. Would you really say to your new employer, "Keep your money, I prefer to take $30k less per year on the off chance I might have to pay it back because I couldn't handle my spending compulsion!!!"? I'm sure they would be thrilled while at the same time questioning your financial acumen.

I really don't care about all of the "what if" scenarios. Maybe they will happen, maybe not. But $30k per year is a given and I would be doing my client a disservice by saying "Don't take it! What if (xyz) happens and you just couldn't handle your reaction???" My job is to analyze and advise. If the 'what if' occurs, then we'll deal with it. But $30k (yes, free) is a lot to pass up just because you are afraid you cannot handle your emotions. CD ladders were a simple illustration and a way to even out the interest. Suit yourself as to how you let the $$ sit. I deal in reality, not emotions. It's not too difficult to opine when you don't have any skin in the game.

[The White Coat Investor]

I'm with Johanna. It's free money (well, better described as earned income.) If you're super paranoid put it in an Ally Bank savings account making 1% and only take $30K a year out to invest or pay off your mortgage or whatever. Then if you leave, you just write a check with the rest back to the hospital. Turning it down is leaving $30K a year of your salary on the table.

[EH]

We have a sign on loan at my work place too. It's one of the nice low ~1% interest ones but doesn't repay until years 4-5-6, so yours sounds pretty good! I agree it is basically free money, especially if it is being repaid yearly. I kept mine in cash until I had worked there for a bit and knew that it was a good fit and I was going to be around for the long term. I was also planning on using it for a downpayment for a house, so didn't want to invest it anyway. It is taxed when it is repaid with the rest of my salary, so really not looking forward to that! I bought my house and salary has continued to go up significantly yearly - sure bad things could happen and it could screw you over, but it sounds like you know and like the place so would be worth the risk.

[Raj]

Thanks everyone. I will take the first 75k now and decide about the rest in a few months into work.

 

[Hatton]

I agree with vagabond. New docs are very vulnerable to hospital administrators.  There is no free money.

[VagabondMD]

Will Santa Claus be delivering the "free money" or is it the Easter Bunny's turn to deliver it this year? ?

[VagabondMD]

Okay, let's try this from another angle.

What if they offered a contract for $300k, for two years, but if you did not resign with the Hospital after the first contract was up, the second year would be only $210k, and you would have to pay the money that you have received on your last day of work?

My point is not to leave the money on the table, but to negotiate to get the strings attached removed. They have already allocated the "free money" to the position but have placed it in a structure that binds you to them. If you liberate the "free money", it will truly be free.

I have seen hospitals and groups utilize these techniques to manipulate MDs coming out of training. For a skilled Hospital CFO, we are suckers for the no-so-free "free money" and are willing to believe that it's free.

If you are going to take the sign on, I would suggest a clause that the sign-on bonus is forgiven if a subsequent contract is not offered by the employer, and a reasonable floor for future contracts. More to the point, have an experienced employment attorney review the contract.

 

[Zaphod]

EH wrote:

We have a sign on loan at my work place too. It’s one of the nice low ~1% interest ones but doesn’t repay until years 4-5-6, so yours sounds pretty good! I agree it is basically free money, especially if it is being repaid yearly. I kept mine in cash until I had worked there for a bit and knew that it was a good fit and I was going to be around for the long term. I was also planning on using it for a downpayment for a house, so didn’t want to invest it anyway. It is taxed when it is repaid with the rest of my salary, so really not looking forward to that! I bought my house and salary has continued to go up significantly yearly – sure bad things could happen and it could screw you over, but it sounds like you know and like the place so would be worth the risk.

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What do you mean it is taxed when it is repaid? Loans nor their repayments are not taxed, thats what makes these offers so compelling. How are they planning to do that?

[EH]

When the loan is forgiven it is counted as income and is taxed accordingly. I don't think there is any way around that.

[Raj]

Vagabond MD wrote:

Okay, let’s try this from another angle.

What if they offered a contract for $300k, for two years, but if you did not resign with the Hospital after the first contract was up, the second year would be only $210k, and you would have to pay the money that you have received on your last day of work?

My point is not to leave the money on the table, but to negotiate to get the strings attached removed. They have already allocated the “free money” to the position but have placed it in a structure that binds you to them. If you liberate the “free money”, it will truly be free.

I have seen hospitals and groups utilize these techniques to manipulate MDs coming out of training. For a skilled Hospital CFO, we are suckers for the no-so-free “free money” and are willing to believe that it’s free.

If you are going to take the sign on, I would suggest a clause that the sign-on bonus is forgiven if a subsequent contract is not offered by the employer, and a reasonable floor for future contracts. More to the point, have an experienced employment attorney review the contract.

 

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Vagabond MD i agree that the ideal contract would not have any strings attached to it. You seem to be a good negotiator. I admit i am not. I should be. I tried to break free of the loan but couldnt.

Other places where i interviewed offered me 10k-20k as sign on "bonus". At one place the recruiter always called it a bonus till i got my contract, and it was actually a 25 k loan with the exact same interest rate. Btw I had negotiated for over a month to get this "bonus" increased from 10k to 25k. You are absolutely right the administration and the recruiters are cheeky and not our friends.

My base salary at this place is higher by 30-40K than base + sign on bonus at other places i interviewed. The contract locks my base salary for 2 years. They do extend the time period of base-salary if need be, but none of the physicians in my speciality have needed it. The last new physician to join exceeded her base-salary in 8 months into the contract. Her contract is exactly the same as mine. I feel good about the contract over all. I compared 3 different contracts myself, did not see major differences except this loan. Thus asked the question here. Hey i trust this forum more than any lawyer or financial advisor. 

Johanna, i looked up CD rates at different banks, none offer more than 2.15% (>50,000 deposit, >5 yr lock in). You mentioned an interest rate of 3.5%, if i may ask, how did you get that number.

[Raj]

hatton1 wrote:

Why is the hospital doing this? Is it possible to talk to others who were offered this deal? The hospital in my area that offers stuff like this is the inferior one and most people relocate once their contract is up. Always remember that hospital administrators have a different agenda from you. They may wine and dine you but don’t mistake that for friendship

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Hatton, the hospital wants to keep as many physicians from leaving as possible. The turn over at this place is relatively high as not everyone can withstand the snow/cold at this place. I guess i am a mutant and actually liked the place and people during fellowship. Only time will tell if i like it as an attending.

This type loan is pretty standard for this hospital, the amount differs by speciality. My speciality gets offered the one of the highest loan. But i do know some people have left after 2-3 years, and they did not care about the loan.

[Dicast]

I'm with WCI, Johanna, I would take the money but remember the only way to keep it from being a hook is to keep it someplace that you can have access to it at all times.  I'm sure the hospital wants you to put it some place that is inconvenient to retrieve it from as Vagabond has said.  I would consider just taking it, putting it in Ally, Discover Bank or one of the other high yield online savings accounts and just leave it there.  You could move money out for investments as long as you left enough to cover the remaining loan/interest.  I don't see why you'd leave it on the table if you can restrain yourself from making it a problem.

[jfoxcpacfp]

Raj wrote:

Johanna, i looked up CD rates at different banks, none offer more than 2.15% (>50,000 deposit, >5 yr lock in). You mentioned an interest rate of 3.5%, if i may ask, how did you get that number.

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Out of the Bank of Thin Air :-) When I said "current interest rate" I was referring to the rate the OP gave, not market rate. I simply used that figure as an illustration to even out the payback. We typically use high quality corporate bonds in ladders and I don't pay attention to CD rates. Sorry for the confusion - I could have bothered to check, couldn't I?!?

[Zaphod]

EH wrote:

When the loan is forgiven it is counted as income and is taxed accordingly. I don’t think there is any way around that.

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Then its not really a loan then, just deferred income of some strange sort (effectively, tax wise its just like income). Makes it worth less than its face value. This is why it'd be great if you could just convince someone to take off 30k/yr from your salary instead, before you receive it to pay it back.

[VagabondMD]

Raj wrote:

Vagabond MD wrote:

Okay, let’s try this from another angle.

What if they offered a contract for $300k, for two years, but if you did not resign with the Hospital after the first contract was up, the second year would be only $210k, and you would have to pay the money that you have received on your last day of work?

My point is not to leave the money on the table, but to negotiate to get the strings attached removed. They have already allocated the “free money” to the position but have placed it in a structure that binds you to them. If you liberate the “free money”, it will truly be free.

I have seen hospitals and groups utilize these techniques to manipulate MDs coming out of training. For a skilled Hospital CFO, we are suckers for the no-so-free “free money” and are willing to believe that it’s free.

If you are going to take the sign on, I would suggest a clause that the sign-on bonus is forgiven if a subsequent contract is not offered by the employer, and a reasonable floor for future contracts. More to the point, have an experienced employment attorney review the contract.

 

Click to expand…

Vagabond MD i agree that the ideal contract would not have any strings attached to it. You seem to be a good negotiator. I admit i am not. I should be. I tried to break free of the loan but couldnt.

Other places where i interviewed offered me 10k-20k as sign on “bonus”. At one place the recruiter always called it a bonus till i got my contract, and it was actually a 25 k loan with the exact same interest rate. Btw I had negotiated for over a month to get this “bonus” increased from 10k to 25k. You are absolutely right the administration and the recruiters are cheeky and not our friends.

My base salary at this place is higher by 30-40K than base + sign on bonus at other places i interviewed. The contract locks my base salary for 2 years. They do extend the time period of base-salary if need be, but none of the physicians in my speciality have needed it. The last new physician to join exceeded her base-salary in 8 months into the contract. Her contract is exactly the same as mine. I feel good about the contract over all. I compared 3 different contracts myself, did not see major differences except this loan. Thus asked the question here. Hey i trust this forum more than any lawyer or financial advisor. 

Johanna, i looked up CD rates at different banks, none offer more than 2.15% (>50,000 deposit, >5 yr lock in). You mentioned an interest rate of 3.5%, if i may ask, how did you get that number.

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If the only thing that I have done is make you open your eyes a bit wider regarding the "free money", I have accomplished something. It is not "free"; I am sure that you will earn it. Many, perhaps most, docs would blow the loan in homes, cars, loan repayments or whatever, and will be in a weaker negotiating position for Year 3. Just be cognizant of the fact that it is being used as a tool for them to have the upper hand over you when the next contract comes around.

If you can live with that, I am good with it. Good luck!