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400k debt, anesthesia fellow, seeking guidance

Home Student Loan Management 400k debt, anesthesia fellow, seeking guidance

  • Avatar DCdoc 
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    Status: Physician
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    Joined: 06/14/2016

    @michael: not according to the details OP provided. None is forgiven. It’s an actual loan and they start taking it back immediately.

    I wouldn’t invest it. It’s not your money. They expect it back. I would put it in a 2.5% interest account. That will earn you money (which you’ll owe taxes on) but it’s better than nothing. Maybe $1800 or so during the first year. I never turn down free money.

    #205123 Reply
    Avatar fatlittlepig 
    Participant
    Status: Physician
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    Joined: 01/26/2017

    Hello Everyone,

    I’m an anesthesia fellow preparing myself for the world beyond training, and I would be tremendously grateful for any financial advice you can give me.  I’ve just started perusing this website and am finally starting to grow my minuscule fund of financial knowledge.  I’m currently an anesthesia fellow with 400k medical school debt with an average interest rate of 6.8%.  I’ll be working in academic anesthesia and will be earning approximately $320k/year.  Part of my contract includes a $75,000 interest free loan in addition to a $10k moving bonus, all of which will be added to my first paycheck.  I’ll need to move to new city (this summer), buy a car, and furnish an apartment.  I’m single.  I have a couple specific questions:

    1.  Should I continue with Public Service Loan Forgiveness?  I’m currently in my 5th year of training and have made income based repayments in a timely fashion for the duration of my training.  I understand that the matriculation rate is laughably low and I’m assuming that this probably won’t work, but in the rare circumstance that it does happen, I don’t want to miss out on potentially hundreds of thousands of dollars forgiven.  I was considering making income based repayments, and investing the difference between standard repayments and income based repayments into a mutual fund.  If PSLF doesn’t pan out, I’ll use the amount saved in the mutual fund to pay off my loans.  I have another 5 years to go.

    2.  What do you recommend I do with my $75,000 interest free loan?  I was considering using $25-35k for car and apartment furnishings, and investing the remaining $40k in a mutual fund (rather than pay off my student loans, for the same reasons as above).

    Any other advice you could give me would be sincerely appreciated.  Thank you very much!

    Click to expand…

    hey buddy, here’s what i would do ignore everyone telling you not to take the interest free loan

    you will not spend 10K on moving, you will spend 1-2K

    you will take the interest free monies and moving expenses and pay off 85K of your student loans, now instead of 400K you owe 315K

    you will buy a reliable cheap car, civic or corolla

    you will pay 7K or more to loans per month minimum.

    do all of your 401K, roth maxes.

    Fatpig

     

     

     

    Avatar ZZZ 
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    Joined: 06/18/2018

    Find a nonacademic job. Make more money. Refi to lower rate.

    PSLF will only ‘save’ you 290k, which will get taxed, so call it 180k. For that you’ll need to eat a higher interest rate and stay at a lower paying academic job for 5 years. Making an extra 80k or more a year in PP would make your financial life better.

    If you’re academic or best, dot your i’s and cross your t’s for loan forgiveness. Take the 75k paycheck advance but don’t spend it on dumb stuff. Live frugally and max out all your tax advantaged savings options from day 1. Save in taxable beyond that. Moonlight if you can.

    Make it your mission to have enough set aside by year 5 to pay off your loans if PSLF doesn’t work out, or to pay the big tax bill if it does.

    #205132 Reply
    Avatar Gamma Knives 
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    Status: Physician
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    Joined: 06/25/2017

    Find a nonacademic job. Make more money. Refi to lower rate.

    PSLF will only ‘save’ you 290k, which will get taxed, so call it 180k. For that you’ll need to eat a higher interest rate and stay at a lower paying academic job for 5 years. Making an extra 80k or more a year in PP would make your financial life better.

    If you’re academic or best, dot your i’s and cross your t’s for loan forgiveness. Take the 75k paycheck advance but don’t spend it on dumb stuff. Live frugally and max out all your tax advantaged savings options from day 1. Save in taxable beyond that. Moonlight if you can.

    Make it your mission to have enough set aside by year 5 to pay off your loans if PSLF doesn’t work out, or to pay the big tax bill if it does.

    Click to expand…

    PSLF is not taxed. What do private practice anesthesiologists make? $320k right out of training seems pretty decent to me but I don’t know the field. If you have an academic job that you think you will be happy at then I would stick with PSLF plan. If you can find a significantly higher paying private practice job that will be money ahead (refinance your student loans and pay them off quickly if you go pp). Naturally, it depends on what your career goals are. If you go PSLF make sure that your payments are qualifying and keep good records.

    The advantage of taking the $75k advance could be that your marginal tax rate may be lower this year as half of the year you are making a fellow salary. However, I am not sure how comfortable I would be putting it in an investment more risky than a high yield savings account / money market at least until you know if you like the job. If you hate the job and want to leave it is nice to have the money to pay them back and walk away.

    Don’t go crazy on furniture with your advance.

    #205186 Reply
    Rogue Dad, M.D. Rogue Dad, M.D. 
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    Status: Physician
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    Joined: 03/07/2016
    Even though the OP is calling this an “interest free loan,” it is the same structure as every signing bonus/“loan repayment“ that I was offered for employed positions. I ended up taking one of these jobs which offered a signing bonus plus “loan repayment“ upfront and it is incrementally forgiven each pay period over three years. I agree that investing this money in the setting of a $400,000 loan balance is likely not the best move. However, it seems that just sticking this into a high-yield savings account is the other extreme.

    Click to expand…

    In this scenario the OP described his employer actually deducting $2k from each monthly paycheck after he starts employment, so I don’t think this counts they are basically garnishing his wages to pay back his loan.  That’s different than for each month he stays he can subtract $2k from his loan debt w/o actually paying it back, which is what you are describing.

    I see no advantage to taking this loan — it will make you stay with them and that’s it.  Doesn’t sound like you need the cash.  Your first paycheck will cover everything the $10k signing bonus does not.

    http://www.RogueDadMD.com

    An alt-brown look at medicine, money, faith, and family

    #205290 Reply
    Avatar fatlittlepig 
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    Status: Physician
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    Joined: 01/26/2017

    Even though the OP is calling this an “interest free loan,” it is the same structure as every signing bonus/“loan repayment“ that I was offered for employed positions. I ended up taking one of these jobs which offered a signing bonus plus “loan repayment“ upfront and it is incrementally forgiven each pay period over three years. I agree that investing this money in the setting of a $400,000 loan balance is likely not the best move. However, it seems that just sticking this into a high-yield savings account is the other extreme.

    Click to expand…

    In this scenario the OP described his employer actually deducting $2k from each monthly paycheck after he starts employment, so I don’t think this counts they are basically garnishing his wages to pay back his loan.  That’s different than for each month he stays he can subtract $2k from his loan debt w/o actually paying it back, which is what you are describing.

    I see no advantage to taking this loan — it will make you stay with them and that’s it.  Doesn’t sound like you need the cash.  Your first paycheck will cover everything the $10k signing bonus does not.

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    LOL, what are you talking about he doesn’t need the cash. Did you forget about the fact that he owes 400K at 7% interest.

    His employer basically will pay a chunk of his loans interest free, and he pays them back slowly over several years, it’s a no brainer.

    #205293 Reply
    Lithium Lithium 
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    Status: Physician
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    Joined: 02/15/2016

    This is not a no brainer. If you quit before this loan is paid off, you do not get any credit for the excess FICA taxes you pay. Now, mostly for OP if he exceeds the SS limit on his income anyway, this boils down to Medicare taxes. I’m guessing OP will earn close to 200k even before this interest free loan, which means marginal Medicare tax is 2.35%. That’s a year’s worth of interest.

    #205311 Reply
    Avatar fatlittlepig 
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    Status: Physician
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    This is not a no brainer. If you quit before this loan is paid off, you do not get any credit for the excess FICA taxes you pay. Now, mostly for OP if he exceeds the SS limit on his income anyway, this boils down to Medicare taxes. I’m guessing OP will earn close to 200k even before this interest free loan, which means marginal Medicare tax is 2.35%. That’s a year’s worth of interest.

    Click to expand…

    with that kind of debt, you do what I said and you stay at the job until the 75 is paid off, and you pay down student loans also, after 3 years will be in a much better place.

     

    #205312 Reply
    MPMD MPMD 
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    Status: Physician
    Posts: 2060
    Joined: 05/01/2017

    Find a nonacademic job. Make more money. Refi to lower rate.

    PSLF will only ‘save’ you 290k, which will get taxed, so call it 180k. For that you’ll need to eat a higher interest rate and stay at a lower paying academic job for 5 years. Making an extra 80k or more a year in PP would make your financial life better.

    If you’re academic or best, dot your i’s and cross your t’s for loan forgiveness. Take the 75k paycheck advance but don’t spend it on dumb stuff. Live frugally and max out all your tax advantaged savings options from day 1. Save in taxable beyond that. Moonlight if you can.

    Make it your mission to have enough set aside by year 5 to pay off your loans if PSLF doesn’t work out, or to pay the big tax bill if it does.

    Click to expand…

    Really important point here is that PSLF forgiveness is NOT taxed. The 25 year Mike Meru plan is. If the OP is right that his PSLF repayment would be $290k on $400k loan balance he would have to be a mental patient not to go for it.

    I’m sorry @zzz but I think this is really bad advice. The OP has a decent paying academic job and is 5 years from a huge PSLF benefit. Going to PP and skipping PSLF is horrible advice.

    #205339 Reply
    Liked by wa2106
    Avatar ZZZ 
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    It’s not taxed, I stand corrected.

    So now he gets 290k forgiven (hopefully) after working at the uni for 5 years.

    Still bet he’d come out ahead in 5 years getting a PP job, re-fi the loans to a lower rate, and pay it down.

    #205364 Reply
    Liked by MPMD
    MPMD MPMD 
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    Joined: 05/01/2017

    It’s not taxed, I stand corrected.

    So now he gets 290k forgiven (hopefully) after working at the uni for 5 years.

    Still bet he’d come out ahead in 5 years getting a PP job, re-fi the loans to a lower rate, and pay it down.

    Click to expand…

    He might yeah but if he wants to do academics this is potentially a very sweet deal.

    It’s a combo of relatively high loan balance, relatively long training, and a relatively low salary.

    #205447 Reply
    Avatar Tim 
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    Status: Accountant
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    “He might yeah but if he wants to do academics this is potentially a very sweet deal.”

    He pays $290 after tax. Total of $400 means only $110 forgiveness. That’s about $20k per year for 5 years.
    Not so sweet if he doesn’t have a really strong preference.

    Academic comes with a price.

    #205450 Reply
    MPMD MPMD 
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    Earnest refinancing bonus

    “He might yeah but if he wants to do academics this is potentially a very sweet deal.”

    He pays $290 after tax. Total of $400 means only $110 forgiveness. That’s about $20k per year for 5 years.
    Not so sweet if he doesn’t have a really strong preference.

    Academic comes with a price.

    Click to expand…

    I hadn’t personally run his #s but here’s what he said: “According to my PSLF calculator, if I continue on REPAYE my total forgivable balance would be around $290k

    Quick and dirty w/ PSLF calc looks like REPAYE is about 2500/mo x 12 x 5 = $150,000 in payments to blank out $400k loan.

    How is this not a good deal? Am I missing something? I admit freely I am not the world’s expert on loan repayment.

     

     

    #205479 Reply
    Avatar Tim 
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    Status: Accountant
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    Joined: 09/18/2018

    “ If the OP is right that his PSLF repayment would be $290k on $400k loan balance he would have to be a mental patient not to go for it.”

    I must be an idiot. I took a loan balance and subtracted $290 repayment. 🤗 my bad. Apologies, whatever the numbers show, I guess forgiveness is what it is.
    Sometimes $60k per year isn’t enough. It stops after 5.
    You point of wanting the academic is the greatest advice. Neither makes him crazy.

    #205492 Reply
    Liked by MPMD
    Lordosis Lordosis 
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    Status: Physician
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    Joined: 02/11/2019

    PSLF is tax free? Why is everyone saving for the “tax bomb”. Did I just miss the memo?

    “Never let your sense of morals prevent you from doing what is right.”

    #205493 Reply

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