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Med Student Question: Bank on PSLF or Pay Up Front

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  • Med Student Question: Bank on PSLF or Pay Up Front


  • #2
    We're roughly in the same place. Wife graduated in 2016. We're in REPAYE. I think most people would say to definitely be careful when considering owing family that much money. Only you can make that kind of call. I'll say that I took out a loan from my dad (25k, so not nearly as much), and it's been no sweat. Have paid back about half in a lump sum, and have our bank accounts linked to automatically transfer a set amount each month until it's paid off. But if your deal goes south for whatever reason, then that extra 6% or so in interest may seem like chump change compared to a broken relationship. YMMV.

    As far as actually paying off the loans (about 217k right now), our plan (thanks to some ideas kicked around on WCI) is to just contribute money to a taxable account that we would otherwise use to pay off the loans. If PSLF works then great, we have a taxable account we can continue to contribute to after maxing out all of our tax advantaged retirement space. If PSLF goes belly up then great, we have a huge chunk of money to throw at FedLoan. It probably won't be enough to knock out all of our student loans, but should make repaying the rest of it a breeze.


    • #3

      I am a fellow and still learning the financial ins and outs. There are more experienced people on this forum. However, I will give you my take for what it is worth.


      I too am skeptical of the PSLF so I refinanced after I got married. I also am of the belief that we as physicians should not get PSLF for my own odd ethical reasons, but that is besides the point...


      However, if I were in the fortunate position to have a family member be so generous, I would seriously consider the offer (with a very critical eye). However, I think it is important to have a candid discussion about the term of the loan, monthly payments etc. For their protection (assuming it is not your mom or dad), I would actually make sure it is legally binding so that they have legal recourse in the event that you decide to not pay (although it is unlikely you would do this). The other more morbid issue is: what happens if you die or become disabled? Statistically that is low likelihood but this provides no protection for the person who loans you the money. Is it worth it to take out a life insurance policy and make them the beneficiary? I do not know. But I bring up this to illustrate that a financial agreement like this can be more complicated than it appears on the surface. It sounds like someone who loves you is being very generous and it is a wonderful thing, however, you need to sit down and work through the details if you decide to actually go through with this. Are they financially independent? Can they really afford this lump sum interest free loan? Will you be able to deal with being indebted to this person?


      My visceral reaction is to stay away from family/friend loan situations as tempting as it may be. I must concede that no one in my family has any semblance of wealth like this where I would be assured that the money given to me was obtained legally. A perspective bias if you will. Be very very very cautious if you do proceed.


      If paying down the debt thru RePAYE and utilizing PSLF, I will pay ~125k over 10 years with ~185k forgiven.
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      Sounds great in theory. I am a skeptic though. What happens if you want to get married to another high income earning professional? People who have more experience with the PSLF/REPAY/IBR etc would offer better advice. WCI has good articles about student loans too.

      Prior to my family member’s proposal, I had been planning on negotiating a salary and signing bonus that make it worth my while to go into private practice vs. working another 4 years in academics to finish PSLF.
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      Things will change a lot throughout residency and fellowship. My plans as an MS4 were drastically different than they are now. I have become very dissatified with the environment in academia in my field. Even if they paid me more than I will make in a community hospital based practice, I couldn't stomach another 5 years listening to all the "brilliant" doctors in academia casting disparaging remarks about the "simple" community doctors and hospitals or people without as many publications on their CV. The elitism really bothers me.


      • #4

        graduating in May with ~200k debt,
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        I will be done with training in 501c3’s after 6 years (TY + radiology residency + fellowship).
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        These are the two key sentences. Your loan is only $200K ( compared to the 400K loans we read here). You will be going to a high paying specialty. Do you want to risk all that for just a $75K amount saved, which in your later years might be small change.

        I would recommend just refinancing and paying it off. If the relative is a close one ( like a parent) then take the loan, put it in writing and start paying even at the fellowship stage. You can moonlight and make additional income that will go towards the loan repayment. By the end of year one as attending you might be debt free.


        • #5

          Your loan is only $200K ( compared to the 400K loans we read here). You will be going to a high paying specialty.
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          By the end of year one as attending you might be debt free.
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          Kamban brings up a very good point. To give you some perspective, my wife and I will be debt free from my $200k student loans by the end of my fellowship (ends 6/2018, PGY-5).


          PGY-1: Not married, she's still in pharm school. Income $49k. Enrolled in IBR.

          PGY-2: Not married, she's in pharm residency. Income $51k + her $44k (finances not combined though). Enrolled in IBR. Condo burned down so had 13 months of low cost of living because we had to move back in with parents temporarily. Blessing because I was able to knock out some low hanging fruit with expenses decreased to food, mortgage only. Would've been able to pay more but my wife really wanted to pay for our wedding herself as a point of pride.

          PGY-3: Married. She is pharm attending. Finances combined. Income $160k. Refinanced $80k variable Sofi (wife as cosigner), $80k fixed DRB.

          PGY-4: Married. Income $165k. Focused payments on Sofi loan (mathematically dumb, but I felt uneasy having her on the hook if I were to die. Not a wise choice retrospectively).

          PGY-5: Married. Income $170k. Refinanced again through Laurel Road into variable 5 year current interest 2.74% with remaining balance on all loans $45k. Low rate was based on my contract for attending job. They were willing to defer any payments until I started that, but we will be able to pay it off.


          It will feel great to go into practice debt free. I was actually not going to pay it off ahead of schedule because of the low interest rate but my wife wants to. Your specialty is much higher paying than mine. If you do what WCI says and live like a resident into attending years, you could easily pay off your entire loans in a year. In a HCOL and high income tax state we paid off $100k in ~12 months on household income $165 (pre-tax). You will easily be bringing in 2-3x that as an attending if not more (not my field).