School Loan Assistance in Contracts Help

[KLR]

I am a big fan of the White Coast Investor and all its followers!  Without this source as a reference, I would be lost (and probably way worse off financially).  Anyway, My husband is about to be a 2nd year family medicine resident (only a three year residency).  We are fortunate that he wants to do rural family medicine and that student loans being paid off as part of a contract is a norm within the subfield.  Currently he is seriously talking with an employer which is offering $200,000 student loan forgiveness for a four year contract.  Something to note we will receive $50,000 each year and if we decide to break the contract before four years, we will pay back the loan and some interest.  The organization mentioned that they generally like to pay the loan by tacking the additional money to your paycheck each month (or whatever pay period they follow).

We personally plan on paying back the school debt aggressively (reasonably think it will take 2-3 years once he is an attending).  We currently have about $220,000 in student loan debt.  Both of us not having any experience in this area (personally I have no background in the healthcare field but did read a few books on physician contracts that the White Coat Investor recommended), I am having trouble figuring out if this method hurts us or if we should try to negotiate a different payment model (maybe in a lump sum after each completed year?).  Any insights into employer student loan repayment experience or best practices on contracts negotiation would be much appreciated.

[jfoxcpacfp]

Could you negotiate for a loan forgiveness package? i.e. you get $200k in the beginning as a loan and $50k would be forgiven (and taxed to you) each year. That would leave you on the hook for less if your hubby didn't stay the full 4 years. You would be able to save interest on the loan, also, by paying a chunk in advance instead of monthly.

[Bott1637]

You need to see what they are going to require regarding proof of the loans.  You wouldn't want to aggressively pay off that 200k in two years if it would mean they quit paying toward the loan for the last two years.  I can get money each year for my first five years of employment but each year I have to submit something showing I still have the loans and that they are in good standing.  They then write me what amounts to a bonus check taxed like any other income.  I can do whatever I want with it.  I was not allowed to negotiate how I would get the money as usually the organization has to do it a certain way for their tax purposes.  But you can ask for whatever you want.  The worst thing that can happen is they say no.  As you said you're in high demand given interest in rural FP.  I doubt there's much tax difference from getting it in lump sum versus monthly.  Lump would help ensure you then send it right toward your student loans I suppose rather than be tempted to spend it elsewhere.  Going into rural FP I'd be asking for a stipend the rest of residency in addition to the loan forgiveness.

[KLR]

Thanks Johanna, I'll definitely consider it!

[KLR]

Thanks Bott1637!  I have a feeling that this organization is probably the same in the sense that they have a specific payment process for tax purposes.  I will definitely make sure we understand if there is loan proof involved for each year.  In terms of a residency stipend, I already know it's part of the package

[tabor]

I am in a similar situation negotiating my first contract out of residency.

Here is what the prospective employer told me.

We are working on your draft employement agreement. In regards to the student loan forgiveness, we have three different options that are available to you.

Paid as a lump sum payment within a reasonable time after you start. This is forgiven on a monthly amortization schedule over the course of three years (thus if your employment terminated before the end of the three years you would owe back the remaining amount).
Paid in equal installments over a defined period of time and you receive each installment at the beginning of the year. The installment amount is then forgiven on a monthly amortization schedule for the course of that year (thus if you left mid year, you would owe back the remaining amount for that installment)
Paid in equal installments over a defined period of time and you receive each installment at the end of the contract year. In this scenario each installment is already earned and you would not be at risk of a pay-back if you terminated your employment.

Any thoughts on advantages and distorted each?

[Tim]

“you get $200k in the beginning as a loan and $50k would be forgiven (and taxed to you) each year. “

Johanna, usually compensation is taxed when received. When mixing $200k cash payment and releasing a repayment obligation, does that really eliminate the employer/employee tax liability?

Hypothetically, four years salary could be paid, and taxes paid over four years. Extreme example, but the wording would need to be very specific. Have you actually used this or example wording?

OP, make sure you have taxes withheld or estimated payments. Net funds available to pay down.

[SLC OB]

Tim wrote:

Johanna, usually compensation is taxed when received. When mixing $200k cash payment and releasing a repayment obligation, does that really eliminate the employer/employee tax liability?

Click to expand...

That is not my experience.

It is often done as a "loan" with a "Forgiveness" which is when the taxes occur.

You could do the loan of $200K like Johanna suggested and forgive it yearly.

I more so see hospital paying the loan in monthly installments over say 3 years and then forgiving it over the next 3-5 years, which is the term of you needing to stay there.

[ZZZ]

How doesmthis job's total comp compare to others you're considering?

[EMPAC623]

i am just a PA here but I too do rural ER coverage at critical access hospitals and get yearly student loan payments.

 

First Job I was given $12,000/year for student loans. Seemed awesome as each month id get a check for$1,000, put it towards my loan then they required monthly "proof of deposit", so Id email payroll a print out of the payment clearing on my loan site. Easy Peasy. Fasttrack to tax time and I was given out of the blue a 1099 for $12,000 that I never prepaid taxes on. So, that was fun. The next year I asked them to include it in my first paycheck of each month. It was taxed, took home approx $650 of it each time and would still have to pay the $1,000 a month and provide proof, as they are giving me "$1,000 a month towards your loans". (They dont understand taxes I suppose but I digress). basically got free money each month and overpaid my loans anyways.

 

New job now, same situation but am now 1099, and get $25,000/year and have to provide proof each month of $2,083.33 payments to my loans. I still pay over but again, after SE/Taxes and such its not really $2,083.33 its closer to 60/65 of that so just something to think about. If they give you $50,000 a year you could ask for $4,166.66 to be added to one paycheck a month but after taxes you'll be essentially getting $2,500 extra a month but have to make the $4,166.66 payments still.

 

So either $50,000 upfront or monthly just be prepared to show proof for the full monthly price when after taxes you're only getting 60%.

[EMPAC623]

If you take option 1 the lump sum you better stay the full contract. No one wants to get say $200,000, then hate your job and owe $100,000 to get out halfway thru

[jfoxcpacfp]

Tim wrote:

“you get $200k in the beginning as a loan and $50k would be forgiven (and taxed to you) each year. “

Johanna, usually compensation is taxed when received. When mixing $200k cash payment and releasing a repayment obligation, does that really eliminate the employer/employee tax liability?

Hypothetically, four years salary could be paid, and taxes paid over four years. Extreme example, but the wording would need to be very specific. Have you actually used this or example wording?

OP, make sure you have taxes withheld or estimated payments. Net funds available to pay down.

Click to expand...

Agree with SLC_OB. Even though the payment might be a lump sum of $200k, it is recorded as a receivable from the recipient and, thus, not taxable until forgiven. This method follows the journal entries as opposed to the actual cash flow.

[Tim]

Employee needs to understand some significant parts of your $200k upfront suggestions.

1) This is a Loan.
2) The aspect that has been discussed is earning the loan forgiveness through employment. (plus you will owe Income taxes)
3) What will be the event of default and repayment terms? Interest rates and payment due dates will potentially have a large impact.
For example, disability can have a student loan repayment rider. If you already paid the original student loan, would your employer loan be covered?

You are assuming some risk taking a loan, more so taking it all upfront simply because you might have difficulty refinancing if things don’t work out. That greatly limit you from a liquidity standpoint.

[tabor]

What did you end up choosing and what did honorable along the way?