Student Loan Repayment

[flash390]

I have tried to research this topic myself, but overall I cannot quite understand the entire the situation and what I should do from here. I hope some of you will take the time to read through my entire post and give me advice or at least point me to places that I can read more about options. I thank you in advance.

My situation. I am 25 years old and a 4th year medical student about to graduate and head to residency. I will be 26 years old when I graduate and have accumulated quite a bit of debt. By the time I graduate I will have the following break down for student loan debt. $50,000 subsidized federal loans. $160,000 of unsubsidized federal student loans. When I graduate those two will be sitting at 6.8% interest. I also have a loan from Wells Fargo for $23,0000 at 9% interest (this was a huge mistake, but we all learn from them). I still have to take out another $10,000 from somewhere to pay back the credit card debt and the funds my parents put up to allow me to interview for my residency. This will also cover my relocation expenses for residency and a much needed vacation between Medical School and Residency.

My first question is what would be a good option to take out additional loans (I could apply for student loans) from an independent loan source to fund the last $10,000? I no longer can apply for federal student loans. I made the mistake of taking out a terrible loan from Wells Fargo and have had to pay the interest throughout school and do not want to make that mistake again.

My next questions are multi-factorial. First I am heading into a 3 year residency. For those that do not know I will make around $50,000/year during those 3 years. After that I will make considerably more money, but need to get through those 3 years. I generally live very cheap and plan to during residency, but I do not see it to be feasible to keep up with the interest on my loans and be able to put towards retirement, make an emergency funds, and have at least a little money to spend on some hobbies. My thoughts were to do the income based repayment (IBR) at least during residency.

My questions are the following.

Is there a other programs I should look into to start paying back my loans? I am going into Emergency Medicine so I do not meet the requirements to get any of the federal primary care repayments that they offer.

Past that I am confused on how IBR works. From my understanding once you enter IBR federal loans get consolidated into one loan that you start paying on. My question is what happens to the independent loans? For me that would be the $23,000 from Wells Fargo and the $10,000 that I still need to borrow. Do those become consolidated with the rest or do I need to pay those independently?

Sorry for the long post but after spending 8 years in school I really have not had to deal with this problem until now. I appreciate any advice or places that I can read more to understand this process. Thank you!!

[kyoko]

Education in the medical field is extremely expensive. I was checking to see if you are eligible for any scholarships instead of digging into deeper debt, but it seems like the latest you could be eligible is when you enter into the 4th year... Since you're already in your 4th year and near graduation, I am not sure if there is anything available. But you may want to look around... as there may still be hope.

As far as the consolidation and IBR, private loans can not be consolidated so you will have to pay them independently. They are normally higher interest, and you already have a $23k private loan at 9%, so I am not sure if it is a good idea. Is it for repaying your credit card and your family? Do you have to have it right now? Since you are going to make about $50,000 while in residency, can't you pay back as you go?? I am just wondering...

[flash390]

Kyoko thank you for answering my question about the IBR. I figured private loans would not be consolidated and I would have to pay on them, but I figured I would check.

As far as my questions I believe I do need a loan now. The reasons are because I had to put $2000 on my credit card to be able to interview for my residency (the whole process was over $8500). My parents helped me foot the rest of the bill with the idea that I would pay them back. The other problem is I will not start residency until July 1st and essentially am a student only till the end of April. Being that my student loans are only budgeted out till May 1st I will need to cover 2 months of rent plus relocating. I also want to take a vacation as I have not for 4 years and probably won't for another 3 unless I do this now.

I feel that I can pay back the private loans once I get a paycheck, but again that won't be for another 6 months or so. But yes medical education is very expensive. At least the only loans I will have once done with school are student loans.

[disneysteve]

I'm also a physician. I graduated with $102,000 in debt back in 1993 so I know where you're coming from.

As someone on the other end of this process, the best possible advice I can give you is to slash your expenses to the bone. You want a vacation? It better be within driving distance and involve a Motel 6. You want a hobby? It better be one that generates some side income like selling used books on half.com.

The good news here is that very shortly, you'll have a decent income of 50K. Plus, during residency you'll probably have the opportunity to pick up extra shifts for additional income. Once you are done residency, you'll absolutely be able to do that either at your own hospital or even at a local urgent care center where you'll make $70-90/hr most likely.

The other best advice I can give is to keep living the broke student lifestyle after you complete your training and throw every possible dollar at your loans. They may have 25-year repayment schedules but your goal should be to repay them in 5-10 years tops. If you can live on 50K now, you can live on 50K even when you're making 150K for a few more years. Don't buy into the whole "doctor lifestyle".

[flash390]

Thanks Steve I agree with you completely. My goal is when I actually get out of residency is to live the same style as a resident until I have the loans paid off. The problem is with residency because the interest alone would really not allow me even the bare essentials of rent, food, gas, ect.

Also the vacation includes driving and camping so it will be cheap. The biggest problem is finding some funds to pay off my interviews in the best way I can.

[disneysteve]

The problem is with residency because the interest alone would really not allow me even the bare essentials of rent, food, gas, ect.

Can't your loans be deferred until after residency? I'm pretty sure I didn't start repayment on most or all of my loans until I was done training. I did pay interest to prevent it from being capitalized (which saved me thousands of dollars) but actual payments started when I entered practice.

[flash390]

Steve that is the problem. Keeping up on interest would be pretty tough. Sure I guess I could do it, but it would be a serious hardship.

Simply paying interest (around $1,500/month) would leave me around $1500/month for all expenses including rent, food, gas, car payment, ect. From my rough calculations I probably wouldn't be able to make it. That is why I want to do IBR which makes my payment only $500/month. Yes I realize interest will build up on my loans.

My honest plan is once I am done with residency is to continue to live like I have a $50,000/yr paycheck minus kicking in some extra for retirement and throwing the rest to pay off my loans. I have done some calculations and would think I could pay off the debt in 3-5 years.

This is somewhat getting off topic from the two main questions I had. 1) Is IBR my best bet for residency and 2) What would be the "best" loan I could take out to cover what I have estimated the $10,000 I need. I definitely realize this is a ton of debt and taking on more is not the best situation, but I was not in the position that my parents could help pay for 4 years of college and 4 years of medical school.

[savingmama]

My husband is a physician too and we went through all this. In residency we were able to defer all our loans (We only had government loans, no private). We did accrue interest on our unsubsidized loans and for a couple years also on our subsidized. We didn't worry about the accumulating interest during residency. Our goal was to live within our means during residency and to not accumulate any more debt and of course no credit card debt (and this was while my husband was supporting a family of four.) I would make it your priority to live within your means and work on your private loans as much as you can during residency...defer your government loans if possible. If you have to enter repayment, do IBR. We did this during fellowship and our payments were only $40 a month.
Most ER doctors start moonlighting in their second year (this is what we saw, not from personal experience), so if you start your first year making the $50,000 enough to live on and make the necessary payments on your loans, then once you get a bump in income, definitely use that to attack private loans.
And the $10,000 you need this school year, is it for interviews? I thought that there was additional loan money available in fourth year for such things. Have you talked to the financial aid office?

[flash390]

Savingmama, thanks for the reply. It is nice to get responses from you and disneysteve who have had some of the same experiences as I have had. The whole reason I posted this was to get some different opinions.

First, yes there are loans available for interviewing, but they cap out at $3000 according to my financial aid office. I applied and received those loans.

Let me complain a bit here. The past 3 months I have had the following expenses. I went on 12 interviews for residency (this is a complicated system not like most job interviews so I needed to do all 12 interviews). With flights, hotels, taxis, and rental cars I spent $7095. One part of my boards was $1200, an 8 hour drive to the city (only offered in 6 cities) , and 2 nights in a hotel. Chicago also blessed me with a $100 ticket for turning right on a red when I shouldn't have. The other part of my bored exam cost me $650. This totals approximately $9,000 in the past 3 months. Like I said I can only get $3000 in federal loans to cover that leaving me with $6000 to pick up the tap. To put it in perspective I usually have $5000 in loans after my tuition is paid off to cover 4 months of all my expenses (rent, food, ect.) I only say this just because I feel like I need to justify that I do not live an extravagant lifestyle.

As far as moonlighting, this is a possibility. Every program seems to allow it half way through 2nd year. There are certain stipulations to this as well. For example most places require you to score above the 50% on inservice exams to even be considered. There are also other problems to moonlighting such as getting malpractice insurance, finding places, not breaking the duty hour laws, and most importantly feeling comfortable being "the doc". I would love to moonlight as it pays some great $$$, but I have problems with it. If I didn't feel comfortable with moonlighting I would not do it. The reason is that I would not want to bring my family member into an Emergency Department to see a provider that would normally be overseen by provider that actually had full training. So moonlighting to me cannot be guaranteed.

[flash390]

So that got a bit off topic. I want to be very honest and to the point right now.

First I do not know where I will be come this summer and part of that is not up to me. It is confusing, but google Medical School Match and Wikipedia has a good rundown that will make you more confused. At that point I will need to start repaying my loans. Lets say that is an even $250,000 at say 7% interest. I will get to the point again and say that for the next 3 years (residency) I will make $50,000/yr with some raises every year. After those three years I will be an actual full fledged physician (i.e. no further training unless I do a fellowship but we won't go there). At that point a modest estimate is an income of $250,000/year.

I don't want to live like a king but during my residency I would like to have some some cash. For example I would like to replace the twin bed I have been sleeping in for the past 20 years, buy a pair of cross country ski's, and even replace the front tire to my mountain bike that was stolen. I kid a bit, but I literally haven't bought a single thing over $100 that did not pertain to school for the last 4 years. I would like to change that a bit. I have looked into the options. I could defer my loans completely and let the interest accumulate (my calculations would leave me around $325,000-$350,000 in debt) after 3 years. I could pay all the interest and live on ramen for 3 more years and end up $250,000 when I get out of residency. I also could do IBR, which I am leaning towards, and end up somewhere in the middle. This is more of a rhetorical question because it seems like I have a handle on this and there doesn't seem to be a better option. If someone has ANY other options I hope you voice them.

My main question is how I can get the last $10,000 that I need. I do need this because as I stated before I had to spend $9000 in the last 3 months on interviews, bored exams, and a traffic ticket. Only $3000 is reimbursed and I still need to pay a couple months rent and maybe relocate. Again I have $6000 that was borrowed to me by my parents. They are both retired and really do not have much money. It was huge that they could even borrow it to me and make me put minimal on credit cards, so I need to pay that back. My question if anyone knows it is where I can look to make the smallest impact in the future. This is my main question. My financial aid office has been less than helpful and just told me to look at loans from private places.

Sorry I am incapable of making a short post and appreciate those who have responded or are still reading. Just looking for general advice and the BEST loan option. Medical School is a terribly expensive process and over 4 years I had 0 hours of lecture on personal finance/business. On a bright note it is so cold tonight they told me to stay home tomorrow. Bless the midwest!

Also any books that any of you would suggest to read on personal finance i.e. investments, retirement, ect. I have some time on my hands and need to get more educated on this overall.

Thanks,
Matt

[savingmama]

For an additional loan I think the best thing to do is to look private and shop around. I think you mentioned using Wells Fargo before and have heard others use that too. I also have heard of Discover bank giving loans (we got offers every year my husband was in residency). Are there any low credit card interest rates that you can use for a period of time first, and then seek a private loan.
Med school finances suck. Once you are enrolled you have to pay a lot of expenses that are non negotiable (Tuition, exams, books, all those interview costs). I totally get it. Med school debt can be a burden as you repay it but the one good thing is that the debt did not come from extravagant living so that will be a plus when you enter residency. You are about to enter a new phase where you will make an income and there is no tuition cost (Now there will be some board and exams you will need to pay for later out of pocket, so plan for that!) Fortunately you won't have to do a fellowship so interview costs are done (my husband did a fellowship so we had to pay for interview costs again). Your focus in residency needs to be making a budget a starting to build up an emergency fund (6 months of must haves), preparing for extra costs (like board exams) and then starting to payback a small portion of loans. Do not fall into the mind set of "I am a doctor, I have worked hard and I deserve to buy such and such a car or go on nice vacations every year." Yes, you are a doctor and have worked hard, but you don't make good money yet (and once you do, you will have student debt that needs to be paid). There are definitely people that fall into the mindset "I am going to be a doctor or I graduated med school" and spend too ridiculously and it is a long road. I have talked to people that said the only way you can survive residency is by going into credit card debt. So not true! Just the fact that you are on these boards to me tells me that you have the desire to not make that happen but instead try to start eliminating debt. Good for you. I promise it feels so good to start making an income and getting to grow your net worth from a negative. My husband finished his complete training just a year and a half ago (he did five years residency and one year fellowship and has been out a year and a half). It was so nice during his first year for us to finally have a positive net worth again. We are choosing to live closer to his fellowship salary and save money toward a down payment.
As far as budgeting books/ ideas for residency I liked "all your worth" and dave ramsey has some great points too (of course I disagree that your focus in residency should be paying off all you debt. But things like living frugally and getting an emergency fund are key!)And you asked about if you can ever replace your twin bed. I say of course but I would say don't make it automatic (meaning "I finally make money so now I can buy x, y and z that I have been holding off on.) Instead I would create a budget for your new income (ie rent, debt repayment, basic cost of living categories, savings for the boards) and I would also set aside a category for "buying furniture/ things that I have put off buying". The amount of that is determined by how much you put in your other categories (that is why I recommend the book all your worth because it helps you determine how to break down your finances).
Good luck with the match. I hope all goes well and if at all possible you get matched to a great program with a great cost of living area. We are from California but were fortunate enough to match in the Midwest where our dollar stretched farther.
Oh one other thought. We chose to always defer but then we did make some payment once a year to our student loans. So if you are worried about your expenses and opt not to make any payments to your government loans during the year, that doesn't mean you still can't make a payment or two throughout the year as extra money comes in (i.e. maybe a tax return or a third month paycheck).

[flash390]

savingmama first congrats on being out of residency and fellowship, it is incredible how much that process is a team effort with spouses, significant others, family and friends.

Also thanks everyone for the responses! I sat down and made a budget today and feel much better about where I will sit financially once I hit residency. I also got some really good news today.

First I got approved for a loan from Wells Fargo. My parents are more than willing to cosign on the loan and I can get it at 6.49% (lower than the federal rate) and can choose to either pay the interest or defer for residency. Budgeting it I am confident that I can at least pay the interest. Not only that but once I do match for residency I can consolidate my other $23,000 loan with the new loan bringing my interest rate from 9% to 6.49% on the other $23,000. I was told that Wells Fargo was all about risk and showing a match to residency brings down the risk on my loans.

The second part of good news. I found out that as a graduate student there were some fees my school was charging me that I was not supposed to be paying. I applied to get the funds back and got a cool $3568 in my account. I paid the $1256 I had on my credit card before I had to pay a dime of interest on it. I called my bank and asked how much I owed on my car, which was $959, and went in and paid it off. I now fully own my 2007 Toyota Corolla. I got a sense of pride driving out of the bank knowing I fully owned my car. With only 105,000 miles on it hopefully I can get another 5-6 years out of it at least. I wrote a check to my parents for $1,300 so I could take out less on this next loan. I used the rest to take 2 of my friends out to dinner for driving me to and from the airport during my my interview season which saved me a ton of time and money.

I do still have a lot of student loan debt but feel that out of all the debt this is probably the best. The good things are that I took out the last $8500 I will ever have to take out for school. After this last borrow I can look foreword to paying down debt from here on out instead of accumulating it. I also look foreword to starting residency with absolutely 0 debt outside of my student loans. Not a dollar owed on my car and $0 on my credit cards. So far I have learned a lot from this forum and will stick around to learn more about mortgages and retirement saving as I come across those hurdles.

I have most of my budget figured out for when I start residency this July. The only part I have to figure out is my rent which I can fill in when I match and find out where I am going on March 21st!

Thanks all,
Matt