Your school debt is at ridiculously low fixed rates. It is not very likely that you will be able to easily borrow money at rates lower than that in future. Make the minimum payments find better place to put the money to work for you.
EvilCapitalist said: Your school debt is at ridiculously low fixed rates. It is not very likely that you will be able to easily borrow money at rates lower than that in future. Make the minimum payments find better place to put the money to work for you.
He is worried about his wife's rates though that are at 4.75 and 6.8% which are both pretty high, especially compared to his 2.9% HELOC, but I am assuming that the HELOC is tied to prime rate which obviously isn't fixed.
juliox
Senior Member
posted: Nov. 2, 2009 @ 12:17p
another thing to consider is that the HELOC interest is most likely tax deductible, whereas the student loan interest is capped at a $2500 deduction which phases out relatively low on the income scale
ppatin
Focused.
posted: Nov. 2, 2009 @ 12:19p
Since your HELOC is at a variable rate I would strongly advise against using it to pay down your wife's debt. Pay off her higher interest loan as quickly as possible but don't fret about it too much. A medical degree is one thing that's worth going into debt for, and once she finishes her residency the two of you will have a huge combined income and paying the loans off quickly will not be a problem.
Even at fixed 6.8% her debt is at lower percent they will likely be able to borrow at this point or at any time in the near future.
The only "good" prudent way to do this is to see if a bank will give him or her an installment loan with a fixed rate lower than the 6.8%, which is highly unlikely.
rjdoc74
Member
posted: Nov. 2, 2009 @ 12:21p
He is worried about his wife's rates though that are at 4.75 and 6.8% which are both pretty high, especially compared to his 2.9% HELOC, but I am assuming that the HELOC is tied to prime rate which obviously isn't fixed.
Correct. HELOC is at 2.49% actually and is not fixed. There is always an option to fix it though. I had to fix a $40K loan about 2 years ago and the locked rate was around $7%. If Fed keeps interest rates at around 0 for the next year or two, I could be in good shape. But I may be screwed if they dramatically increase interest rates over a short period of time. I am concerned because of articles like this:
Hey Guys: My wife and I are BOTH going to be rich doctors and don't know how we can pay off our $100k of student loan debt that has an average rate of 3%. Our combined income is $300k that will go to $500k in 3 years when she finishes her residency. I think we are hopelessly in debt! OHNOES!!
rjdoc74
Member
posted: Nov. 2, 2009 @ 12:21p
another thing to consider is that the HELOC interest is most likely tax deductible, whereas the student loan interest is capped at a $2500 deduction which phases out relatively low on the income scale
Yes, thanks for pointing that out.
rjdoc74
Member
posted: Nov. 2, 2009 @ 12:24p
tripleB said: Hey Guys: My wife and I are BOTH going to be rich doctors and don't know how we can pay off our $100k of student loan debt that has an average rate of 3%. Our combined income is $300k that will go to $500k in 3 years when she finishes her residency. I think we are hopelessly in debt! OHNOES!!
Great insite from a senior FW member.
And, btw, there going to be no such thing as rich doctors anymore. TRUST me on that one .
dreyfus
Senior Member
posted: Nov. 2, 2009 @ 12:27p
Some lenders will put the loan into forbearance if you can demonstrate financial hardship, which you obviously can, so I say you give that a try.
Obama4Prez
Senior Member
posted: Nov. 2, 2009 @ 12:28p
rjdoc74 said: tripleB said: Hey Guys: My wife and I are BOTH going to be rich doctors and don't know how we can pay off our $100k of student loan debt that has an average rate of 3%. Our combined income is $300k that will go to $500k in 3 years when she finishes her residency. I think we are hopelessly in debt! OHNOES!!
Great insite from a senior FW member.
And, btw, there going to be no such thing as rich doctors anymore. TRUST me on that one .
Not if the AMA has anything to say about it.
rjdoc74
Member
posted: Nov. 2, 2009 @ 12:31p
Not if the AMA has anything to say about it
This is off topic, but AMA is weak (worthless?) organization. It has no political power and less than 20% of US doctors belong to it (I do not).
tripleB said: Hey Guys: My wife and I are BOTH going to be rich doctors and don't know how we can pay off our $100k of student loan debt that has an average rate of 3%. Our combined income is $300k that will go to $500k in 3 years when she finishes her residency. I think we are hopelessly in debt! OHNOES!!What's the point of your post? The OP asked a perfectly legitimate question. He is not bragging or complaining but is simply stating the facts and asking for educated opinions. What exactly is objectionable about it?
ppatin
Focused.
posted: Nov. 2, 2009 @ 12:38p
rjdoc74 said: And, btw, there going to be no such thing as rich doctors anymore. TRUST me on that one .
Oh come on, your household income is around $300k/year and it is going to increase significantly once your wife finishes her residency. That sounds pretty rich to me.
BTW, I realize that physician's incomes aren't what they used to be and some doctors (primary care physicians and general surgeons come to mind) are really getting screwed over. I also don't begrudge doctors their money, anyone who gets excellent grades in college and then goes through four years of medical school and several years of residency/indentured servitude deserves to make a good living. Your claim that rich doctors are a thing of the past is a little obnoxious though.
tazzy531
Senior Member - 4K
posted: Nov. 2, 2009 @ 12:39p
geo123 said: What's the point of your post? The OP asked a perfectly legitimate question. He is not bragging or complaining but is simply stating the facts and asking for educated opinions. What exactly is objectionable about it?
It's TripleB. You should learn by now to discount most of his posts.
rjdoc74 said: Any ideas? Which strategy would you choose?At a minimum, I would use the HELOC to pay off her $44K 6.8% loan. Prime rates would have to rise pretty dramatically for your after-tax interest rate on the HELOC to greatly exceed 6.8% (which is not tax deductible in your case, since you are over the income threshold). Even if the prime rate rises very quickly, by the time it reaches 10% or so (which would be the rough equivalent of the non tax-deductible 6.8% that you are paying now), you will have the money to quickly pay it off.
As for the $33K loan at 4.75%, that's a much closer call that depends on the rest of your financial situation. With the 4.75% loan, there isn't necessarily a right or a wrong decision, as the loan amount is relatively small and your interest rate arbitrage opportunity is fairly limited.
ppatin said: Your claim that rich doctors are a thing of the past is a little obnoxious though.Those things always depend on your perspective. When you consider the amount of time, dedication and effort that's required to get to a point of actually making real money as an MD and compare it to many other professions that offer similar or much greater compensation with a lot less effort, it's very easy to come to the same realization as the OP.
In the interests of full disclosure, my wife is a resident and we are surrounded by doctors, both residents/fellows as well as attendings.
geo123 said: At a minimum, I would use the HELOC to pay off her $44K 6.8% loan. Prime rates would have to rise pretty dramatically for your after-tax interest rate on the HELOC to greatly exceed 6.8% (which is not tax deductible in your case, since you are over the income threshold). Even if the prime rate rises very quickly, by the time it reaches 10% or so (which would be the rough equivalent of the non tax-deductible 6.8% that you are paying now), you will have the money to quickly pay it off.
As for the $33K loan at 4.75%, that's a much closer call that depends on the rest of your financial situation. With the 4.75% loan, there isn't necessarily a right or a wrong decision, as the loan amount is relatively small and your interest rate arbitrage opportunity is fairly limited.I agree with this course, except, using the same logic, I'd pay off the 4.75% loan as well. As noted, with your income(s), you'll be well placed to pay off the HELOC in a year or two.
rjdoc74 said: Not if the AMA has anything to say about it
This is off topic, but AMA is weak (worthless?) organization. It has no political power and less than 20% of US doctors belong to it (I do not).
Oh dear God, I don't even know where to start thrashing this one, so I will just punt... and remind anyone who ever posts another "poor people whine too much" thread to refer to this thread.
I'm posting this on the wall of shame for the division that works on the Physician's Fee schedule. Maybe now that they know the AMA is powerless, they can actually get a proposed rule finalized without having 300+ rifle shots from Congress.
Here is my situation. I am a young physician (been out of training for over a year) with around 80K education debt consolidated at 2.85% (this becomes 1.85% after first 36 payments); my payment for this loan is $350/month and I am planning on taking full 20 years to pay this. My wife is in residency (3 years to go) and she was not as lucky with medical school debt; she has 2 loans, one $33K at 4.75% and another $44K at 6.8 (both are government loans). Obviously, I'd like to pay down her debt ASAP, but I don't have $80K in cash to pay it of at the moment (I may in a year or two). I do have access to a $250K home equity line of credit which is currently at 2.49% variable APR (no debt on that). Our combined current income is around $300K.. 300K gross assume 35% tax rate make 195K net 350 month for your loans =4200 call income 190K wife owes 77K at rates above what you can get in interst right now 190K-77K =113K You and wife can easy live on 113K or way less for a year and get those loans fully paid off by paying all your extra cash into the highest one and then the lower one. I bet you can do it in less then a year even. Those are not such horribly high rates as to stress over 6-8 months of debt at the rates
lindylady said: Those are not such horribly high rates as to stress over 6-8 months of debt at the ratesI don't think that the OP is necessarily stressed out over the student loans. He is simply trying to figure out the most optimal repayment strategy, which is exactly what he should be doing.
rjdoc74
Member
posted: Nov. 2, 2009 @ 1:18p
geo123 said: rjdoc74 said: Any ideas? Which strategy would you choose?At a minimum, I would use the HELOC to pay off her $44K 6.8% loan. Prime rates would have to rise pretty dramatically for your after-tax interest rate on the HELOC to greatly exceed 6.8% (which is not tax deductible in your case, since you are over the income threshold). Even if the prime rate rises very quickly, by the time it reaches 10% or so (which would be the rough equivalent of the non tax-deductible 6.8% that you are paying now), you will have the money to quickly pay it off.
As for the $33K loan at 4.75%, that's a much closer call that depends on the rest of your financial situation. With the 4.75% loan, there isn't necessarily a right or a wrong decision, as the loan amount is relatively small and your interest rate arbitrage opportunity is fairly limited.
Great advice. Thanks.
ppatin
Focused.
posted: Nov. 2, 2009 @ 1:23p
geo123 said: ppatin said: Your claim that rich doctors are a thing of the past is a little obnoxious though.Those things always depend on your perspective. When you consider the amount of time, dedication and effort that's required to get to a point of actually making real money as an MD and compare it to many other professions that offer similar or much greater compensation with a lot less effort, it's very easy to come to the same realization as the OP.
In the interests of full disclosure, my wife is a resident and we are surrounded by doctors, both residents/fellows as well as attendings.
If making money is your only goal then medicine isn't the best field to go into (unless you're the kind of superstar who does well enough in med school to get into a dermatology residency) but someone who's making $300k per year shouldn't be making comments about how rich doctors are a thing of the past.
At 300K/yr talk to a financial/tax advisor instead of taking free internet advice or pick up a simple "Finance for Dummies" book for $29.99. Or maybe go to a local college and take a basic Excel class on formulas. Then make up numbers or project what interest rates will do and see what the projected payments and interest will be.
Sometimes the highly educated and highly specialized have an EPIC fail on everyday finances, tax law, and math.
Here's a hint
6.8 >>>>>>>>>>>> 2.49 -(2.49 *.33)
(6.8*.33)+6.8 = X
Fill in the blank: marginal tax rate, student loan interest rate, current heloc, real tax rate
I think the variable HELOC is too dangerous. 6.8% seems awful, but it is really not that bad historically. Not bad enough, anyway, to take a risk on the HELOC spiking Carter style. (It's what $100/mo over the life of the loan difference for gov't rate vs heloc). Different advice if you think you can pay off the HELOC in a couple of years. If that is the case, I would do that. Also, can you get a fixed HELOC. Otherwise, I would just throw money at the 6.8 loan and then throw it at the 4.75 loan. Pay your personal loan off over 20 years.
geo123 said: rjdoc74 said: Any ideas? Which strategy would you choose?At a minimum, I would use the HELOC to pay off her $44K 6.8% loan. Prime rates would have to rise pretty dramatically for your after-tax interest rate on the HELOC to greatly exceed 6.8% (which is not tax deductible in your case, since you are over the income threshold). Even if the prime rate rises very quickly, by the time it reaches 10% or so (which would be the rough equivalent of the non tax-deductible 6.8% that you are paying now), you will have the money to quickly pay it off.
As for the $33K loan at 4.75%, that's a much closer call that depends on the rest of your financial situation. With the 4.75% loan, there isn't necessarily a right or a wrong decision, as the loan amount is relatively small and your interest rate arbitrage opportunity is fairly limited.
That's a questionable idea. If you believe that the interest rates are going to remain low or go down more the unconsolidated student loans can be refinanced to that rate with ZERO questions.
ppatin said: ...someone who's making $300k per year shouldn't be making comments about how rich doctors are a thing of the past.He isn't making $300K a year. His wife is still in residency, so she is making about $50K/year and he is making about $250K/year. He is a sub-specialty surgeon, so when you consider the insane hours, the slave-like compensation during residency (if you break it down by hourly compensation, residents often make less than the minimum wage while working 60-80+ hours a week) and the amount of time that he was forced to endure it, in a lot of people's eyes $250K/year doesn't exactly make him rich, especially if you anticipate MD specialist salaries to go down in the future.
While there is no question that $250K/year is decent money, there are lots and lots of occupations out there that allow you to make more money with much less of an effort. If that's your perspective, then it's easy to come to the conclusion that he isn't even close to being rich. Upper-middle class, perhaps, but hardly rich.
We've had these types of discussions on FW before. There are plenty of people throughout the world who would consider the conditions of people in the US living below the poverty line to be rather well off and would gladly trade places with them. Again, these types of conclusions always depend on the context.
Here is my situation. I am a young physician (been out of training for over a year) with around 80K education debt consolidated at 2.85% (this becomes 1.85% after first 36 payments); my payment for this loan is $350/month and I am planning on taking full 20 years to pay this. My wife is in residency (3 years to go) and she was not as lucky with medical school debt; she has 2 loans, one $33K at 4.75% and another $44K at 6.8 (both are government loans). Obviously, I'd like to pay down her debt ASAP, but I don't have $80K in cash to pay it of at the moment (I may in a year or two). I do have access to a $250K home equity line of credit which is currently at 2.49% variable APR (no debt on that). Our combined current income is around $300K.. 300K gross assume 35% tax rate make 195K net 350 month for your loans =4200 call income 190K wife owes 77K at rates above what you can get in interst right now 190K-77K =113K You and wife can easy live on 113K or way less for a year and get those loans fully paid off by paying all your extra cash into the highest one and then the lower one. I bet you can do it in less then a year even. Those are not such horribly high rates as to stress over 6-8 months of debt at the rates That's what I thought too. Cut down your unnecessary expenses. You are doctor doe snto mean you can splurge on every aspect of life, at least not for now.
Hey being fresh out of school with a sizable debt is fear inducing. There is no shame in that. You have no idea what sort of family they came from. They might be the first group ever taking on something that seems so overwhelmingly huge in terms of debt. Still, those rates are pretty low and no reason to be so concerned. Do not, do not take your school debt and make it secured. Even if it's a private loan, you are going to have a lot more luck dealing with them in the future should something unfortunate occur then you ever will with anyone financing via your house. Pay it down aggressively each month with your income.
On a side note, I am not sure I agree with only paying down her loans either. Don't get me wrong. I do believe in love, and value of another partner, but I would lean more towards paying off your debts on a more equal basis. If something happened between you two down the road, she would walk away with no debt and you would be just starting to pay down yours.
geo123 said: ppatin said: ...someone who's making $300k per year shouldn't be making comments about how rich doctors are a thing of the past.He isn't making $300K a year. His wife is still in residency, so she is making about $50K/year and he is making about $250K/year. He is a sub-specialty surgeon, so when you consider the insane hours, the slave-like compensation during residency (if you break it down by hourly compensation, residents often make less than the minimum wage while working 60-80+ hours a week) and the amount of time that he was forced to endure it, in a lot of people's eyes $250K/year doesn't exactly make him rich, especially if you anticipate MD specialist salaries to go down in the future.
While there is no question that $250K/year is decent money, there are lots and lots of occupations out there that allow you to make more money with much less of an effort. If that's your perspective, then it's easy to come to the conclusion that he isn't even close to being rich. Upper-middle class, perhaps, but hardly rich.
We've had these types of discussions on FW before. There are plenty of people throughout the world who would consider the conditions of people in the US living below the poverty line to be rather well off and would gladly trade places with them. Again, these types of conclusions always depend on the context. While I completely agree with the context part, the context here is the "FWF forum members". IMHO, within this context, 300k per year is rich!
Nessy said: Hey being fresh out of school with a sizable debt is fear inducing. There is no shame in that. You have no idea what sort of family they came from. They might be the first group ever taking on something that seems so overwhelmingly huge in terms of debt. Still, those rates are pretty low and no reason to be so concerned. Do not, do not take your school debt and make it secured. Even if it's a private loan, you are going to have a lot more luck dealing with them in the future should something unfortunate occur then you ever will with anyone financing via your house. Pay it down aggressively each month with your income.
On a side note, I am not sure I agree with only paying down her loans either. Don't get me wrong. I do believe in love, and value of another partner, but I would lean more towards paying off your debts on a more equal basis. If something happened between you two down the road, she would walk away with no debt and you would be just starting to pay down yours.
If I was betting on defaulting on my loans. I'd rather have the student loans paid off by the house.
Student loans cannot (generally) be whiped away... except by death.
$300K combined income with taxes, malpractice insurance, and student debt is simply not rich. And, MDs make poor financial decisions and are often have credit issues just like everyone else. I wish I could tell you of the people making over $1/2 mill a year who were living totally on credit cards waiting for the EOY bonus to make them whole. Lastly, we do not know where the OP lives.
Also MDs are getting caught in this economic mess as many (not the OP) expanded the practice or went off into a joint venture only to find that spending (even for health care) have changed.
And in EVERY profession I have seen where individuals sacrifice years for future pay, when the future pay comes they EXPLODE with getting their pent up needs satisfied.
The OP would be wise to move the highest student loan over to a heloc and hit it with everything he has to pay it off ASAP. These low rates are a blessing and saving 4-5% whether it be from 12% to 7% or 7% to 2% is nice money for doing very little. With his family income having a 0% CC or emergency funds on his hip for protection should not be a problem.
BUT, i would not do both of wife's loans at once. The highest first and then the second.
ppatin said: rjdoc74 said: And, btw, there going to be no such thing as rich doctors anymore. TRUST me on that one .
Oh come on, your household income is around $300k/year and it is going to increase significantly once your wife finishes her residency. That sounds pretty rich to me.
BTW, I realize that physician's incomes aren't what they used to be and some doctors (primary care physicians and general surgeons come to mind) are really getting screwed over. I also don't begrudge doctors their money, anyone who gets excellent grades in college and then goes through four years of medical school and several years of residency/indentured servitude deserves to make a good living. Your claim that rich doctors are a thing of the past is a little obnoxious though.
i think being rich is relative . op might have a different view of being rich . there can be no limit to your wants .
ppatin said: Since your HELOC is at a variable rate I would strongly advise against using it to pay down your wife's debt. Pay off her higher interest loan as quickly as possible but don't fret about it too much. A medical degree is one thing that's worth going into debt for, and once she finishes her residency the two of you will have a huge combined income and paying the loans off quickly will not be a problem.
I'd pay off her 6.8% loan with money borrowed from the home equity line of credit. HELOC isn't going to execeed 6.8% in the next year or two.
rjdoc74Pay off her loans using home equity line of said: credit and keep fingers crossed that interest rate does not go through the roof.Something "bad" happens, and you can't make the payments.
With the HELOC, worst case, they take away your house, and you're now homeless *and* in a "bad" situation.
With the student loans, worst case, you receive forbearance and your interest is capitalized.
Sure, 6.8% sounds big, but it's close to the long term average of the prime rate. And, you can keep your house.
michal1980 said: Student loans cannot (generally) be whiped away... except by death.
And why would you need them whiped away? You know what you do if you can't pay them, you call them up and tell them you can't pay them and put them on deferrment, or forebearance or a dozen other things most former students qualify for. Hell, if you do non-profit work you can get part of them written off. Do you know what happens if you call up a bank and tell them you can't make a payment on your line of credit? Or that you decided to spend a year volunteering your time abroad. Hey I am sure you disagree with me and think houses are a great piggy-bank, you and a lot of people who thought it was a great idea to change unsecure debt into a secure (credit cards, student loans, etc).
David Friedman: "Of all the craft unions that exploit licensing, the most important is the American Medical Association, which is not usually considered a union at all. Physicians are licensed by the states, and the state licensing boards are effectively controlled by the AMA. That is hardly surprising; if you were a state legislator, whom could you find more qualified to license physicians than other physicians? But it is in the interest of physicians to keep down the number of physicians for exactly the same reason that it is in the interest of plumbers to keep down the number of plumbers; the law of supply and demand drives up wages. Physicians justify restricting the number of physicians, to others and doubtless to themselves as well, on the grounds of keeping up quality. Even if that were really what they were doing, the argument involves a fundamental error. Refusing to license the less qualified 50 percent of physicians may raise the average quality of physicians but it lowers the average quality of medical care. It does not mean that everyone gets better medical care but that half the people get no care or that everyone gets half as much.
Some of the restrictions the AMA has advocated, such as requiring applicants for medical licensing to be citizens and to take their licensing examinations in English, have a very dubious relationship to quality. They look more like an attempt to prevent immigrants from competing with American doctors. It is interesting to note that during the five years after 1933 the same number of physicians trained abroad were admitted to practice in this country, as during the previous five years, despite the large numbers of professional people fleeing here from Germany and Austria during that period. This is striking evidence of the power of organized medicine to limit entry to its profession. How does the AMA control the number of doctors? Refusing to license doctors after they are trained would create a great deal of hostility among those rejected; that would be politically expensive.
Instead, it relies mainly on the medical schools. In order to be licensed, an applicant must be a graduate of an approved medical school; the states get their list of approved schools from the Council on Medical Education and Hospitals of the AM A. For a medical school, removal from the list means ruin. In the 1930s, when doctors, like everyone else, were suffering the effects of the Great Depression, the Council on Medical Education and Hospitals wrote the medical schools, complaining that they were admitting more students than they could train properly. In the next two years, every school reduced the number it was admitting. Since then the AMA has become less obvious in its methods, but the logic of the situation has not changed."
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