Tag: student loans

The Amazing Leverage Residents Have That No One Realizes

Alright, so you’re working at least 80 hours a week and get four days off a month, woohoo! Doesn’t sound like a whole lot of leverage, does it?

What I want to talk about today is the Physician Mortgage, and why it’s such a great tool, not only to allow flexible purchase of a home, but also to help newly minted MDs have a shot at the American Dream before they become attendings a decade later (again, looking at you, general surgery & IM residents with future fellowships).

What’s a Physician Mortgage and How Does it Work?

There are a few key differences from a Physician Mortgage vs. traditional mortgages. Namely:

  • Can have a very high (up to 100%) loan to value ratio. This is the amount borrowed over the cost of the home. If you finance 100% of a purchase, you have the potential for zero down on your home.
  • Typically, banks charge borrowers PMI (an additional monthly fee called Private Mortgage Insurance) to protect the bank in case a borrower defaults when the loan to value ratio is above 80%. This is why you often hear of “20% down” when purchasing a home. With a Physician Mortgage, there isn’t any PMI payment, even if you bring less than 20% of the cost of the home to the transaction.
  • Borrowers are evaluated based on a number of factors, from credit score to employment, and in particular, what’s their monthly income to debt ratio. Since many residents graduate from medical school with large loans – these loans would normally be considered when determining a borrower’s income to debt ratio. For Physician Mortgages, student debt isn’t typically included in the calculation, making it easier to qualify for a home loan.

That’s the list! In short, a Physician Mortgage allows residents to leverage their future (hopefully high) income and secure a loan for a home mortgage at rates quite similar to a conventional (non-physician) 30 year term loan with little to nothing down. You can use your meager residency income (and high student debt) to get banks to give you a loan with favorable rates – how’s that for a physician benefit?

If you’re curious, the other loan product that’s quite similar to physician mortgages are VA Home Loans – available to those that have served in the armed forces. They’re very similar to physician loans, and they also have good refinance terms – I haven’t found a refinance product for physicians that avoids paying PMI. If you’re a veteran, check out this option as well. The WSJ (paywalled, sorry) recently published an article about VA Loans no longer having loan limits – good for high cost of living areas.

This Sounds Great, How do I Get a Physician Mortgage?

There are a number of banks that offer this specific product – The White Coat Investor has a great resource to find physician mortgage providers in your state. Make sure you shop around and get a few different quotes – it doesn’t take a terribly long time, and getting the lowest interest rate you can will help you save over the life of the loan.

From the experience The Surgeon & The SurgeonSpouse had with the physician mortgage, it worked quite well for helping us to purchase a home. We ended up putting 0% down and keeping our savings in our investment accounts. What I haven’t mentioned but also is critical – what’s the cost of living where your residency is?

Photo by Scott Webb on Unsplash – If the white picket fence is your thing…

I Live in a High Cost of Living Area – Help!

I hate to break it to you, but you might be SOL in this case. There are a number of factors to consider when evaluating whether it makes sense to buy a home while in residency.

  1. How long is your residency?
  2. How expensive is your area?
  3. Do you want to own a home?

The New York Times has a great tool that can help you compare the cost of renting vs. the cost of buying to see which makes the most financial sense. Of course, if you want to buy a house and you’re dead set on it – use the physician mortgage to help you out!

We were fortunate that The Surgeon’s residency is in a relatively affordable market, and could purchase a home within a year of The Surgeon starting her residency. My plan is to live in the house through residency and then ideally rent the home out in fellowship and beyond, turning our first home into an income generating investment.

With Great Power Comes Great (Financial) Responsibility

There are some great benefits at your disposal, like the Physician Mortgage, now that you’re a resident. Before you buy a house, you’ll want to make sure you get your financial house in order. There are a number of great tools that can help you get a holistic view of your financial health. If you have a lot of credit card debt, for example, you’ll likely want to address that first before making the plunge and buying a home, which adds another large monthly outlay to your balance sheet.

Use the physician mortgage to buy a home and build equity while also being able to deploy your funds to other areas with higher potential return – like a retirement account!

Did you buy a house while in residency? How did it go? Drop a note or ask a question in the comments!

-SurgeonJourney

White House Budget Proposals and Loan Forgiveness, What’s the Deal?

Budgets and Bills and Politics…

Loan forgiveness. It’s a big deal, not only for those trying to qualify for PSLF, but it’s also a hot topic on the campaign trail for the Democrat Presidential Primaries. Various candidates have offered different terms on loan forgiveness for both graduate and undergraduate education.

The current administration has offered proposals to limit or eliminate Loan Forgiveness, particularly with their current budget proposal for the 2021 fiscal year. Here’s why this isn’t that big of a deal (yet) and why you, dear reader, shouldn’t be overly concerned:

  1. White House budgets are pure politics – this is their idealized version of what the budget will look like.
  2. Congress – the House and Senate respectively, are the ultimate bodies that create and pass budget legislation. The White House can influence the budget, but that really depends on party composition in the House & Senate, and also how much political capital the White House wants to spend to get what they want.
  3. Since budgets start in the House, and the House is currently Democrat controlled, it is less likely that Loan Forgiveness Programs will be dramatically altered.
  4. There have been Loan Forgiveness modification proposals over the past decade, but they haven’t ever become a part of a voted upon bill. Notably, there have been proposals to both expand and decrease the scope and coverage of loan forgiveness for medical professionals.

If you’re curious, here’s the exact text of the Fiscal Year 2021 White House Budget that refers to Loan Forgiveness (page 41). It’s really pretty vague in reality. Take a look at the last sentence, which ostensibly, is referring to doctors.

Protects Students and Taxpayers from Growing Student Loan Burden. The Budget protects students by eliminating default for impoverished borrowers and providing expedited loan forgiveness for undergraduate borrowers who make 15 years of responsible payments. In addition, the Budget protects graduate and parent borrowers from racking up crushing debt, often never repaid to taxpayers, by instituting sensible annual and lifetime loan limits. In addition, the Budget closes loopholes currently allowing high-earning graduate-degree holding borrowers to avoid repaying their student loans, leaving taxpayers holding the bag.

Now if you take a look at the actual budget line items at the end of the budget document (page 114), there is an actual PSLF call out. Note that figures are in millions:

screenshot of budget snippet from White House proposal

In Conclusion…

In my opinion, given the current composition of Congress, I don’t see a dramatic change in Loan Forgiveness ocurring. While there can be changes made through the executive branch, drastic changes really need to be passed into law via bills from the House and Senate making their way to the desk of the President.

What is on the horizon, however, is a much larger population of medical professionals with large Federal Loan balances that will begin to qualify for PSLF. Record keeping has improved since the program was first implemented and I believe that this will be the first real test of whether the PSLF program will live on. As larger and larger sums will be forgiven, there will be increased scrutiny of the forgiveness programs.

Have questions or want to leave some thoughts? Drop a note in the comments!

-SurgeonJourney

During Medical School: Managing Debt and Living Costs

So you’ve chosen a medical school, enrolled, and are happily studying through first year and loving anatomy lab. How do you manage your expenses and loans while in school? Excellent question, dear reader, and this builds on the previous post in the series that provides a high level summary of securing student loans.

Every person has a unique financial and life situation – perhaps you have a partner and are sharing living expenses. Are they in school? Are they working? Do they make a comfortable amount and are you close enough such that they can support you while you’re in school?

What kind of loans do you have, private or public?

From the perspective of managing loans while in school, both private and public loans generally allow you to defer making payments while you’re a full time student. Note however, that your loans will continue to accrue interest whether or not you’re making payments. Because you’re fully focused on school, it doesn’t make sense to make payments until after you’ve graduated. I’ll go into detail about ways to manage your public and private loans once you’ve graduated from medical school in a future post.

Managing Expenses – Find a Roommate!

Here’s where having the discipline to focus on keeping a budget will save you in the long run. By using one (or more) of these tools, you can get a perfect picture of your monthly income and expenditure, and carefully plan out what you’ll need each semester.

If you don’t have a partner that you’d consider sharing expenses with, there are additional options you have to save on housing costs. Check with your fellow classmates to see if they’re looking for roommates – do make sure you’re compatible living together. If the idea of living with a fellow med student is like bringing work home with you, see if you school has other graduate programs. Like med students, students in other grad programs are typically focused, high achieving, and might make an ideal roommate or three.

Ultimately, shacking up with a roommate for a few years while in school isn’t the worst thing you can do. It’s a great way to save on your largest expense outside of med school tuition and can reduce your need for loans.

Budget for Larger Expenses

As you progress through medical school, remember the long game. By the time you become an attending, (if you’re in the US), your superlative education will include:

  • Four years of undergrad
  • Four years of medical school
  • at least 3 years of residency
  • TOTAL: 11 YEARS after high school

If you’re like the Surgeon and planning on a surgery sub-specialty, that’s a seven year residency (including research). Tack on roughly two years of fellowship. Say you’re interested in becoming a Thoracic Surgeon. That’s a 17 YEAR ride after high school – buckle up.

My point with this isn’t to scare you, but to realize that your high income years (at this point) are about a decade away, the decisions you make regarding finances early on can save you much later in the long run. Remember, life is a marathon, not a sprint.

During medical school, larger expenses might include mandatory testing (like STEP exams), vacation (responsibly), transportation (keeping your car alive), and in your fourth year: residency interviews. Loans are certainly one way to manage these expenses. But another, perhaps more prudent option, would be budgeting and planning for these expenses ahead of time.

What Should YOU Do?

In the end, I can’t tell you what to do. I know what worked for The Surgeon and me, and I’ve seen what can work for others. Ultimately, it’s about being responsible with your financial decisions, closely evaluating living arrangements and expenses, and keeping your mind and body healthy for the long run.

It’s also great to instill these habits early, so that once you are making a bit of an income (at least adding to the positive side of the ledger) in residency, you can work on saving. Keeping those habits into your attending years will have you set up to be debt free while maximizing your financial potential for your life time!

What questions about expenses and budgeting do you have while in med school? How to make ramen more tasty? Adding an egg and some leafy greens can really kick up a ramen pack on the cheap.

-SurgeonJourney

Part 1: Med School Loans and How to Find Them

Accepted to Med School, Now What?

Congratulations! Your hard work through your undergrad years has paid off – that GPA and MCAT score and your summers spent doing research and shadowing have prepared you for the next four years, studying to become a doctor. As the glow fades from your monumental achievement, reality set in as you must figure out how to finance this expedition. (If you found this post by accident and you don’t require loans for medical school, go have a mai-tai and then come back for other info).

Let’s jump into the different ways one can pay for school. You’ll likely have information from the medical school you plan on attending to secure funding to pay for tuition and living expenses. You can skim through this section if you took loans out for undergrad. Keep in mind, the type of loan you accept will alter the different repayment options you can choose down the road. This decision, though seemingly minor, can have a large impact on a doctor’s financial situation for potentially decades.

Once you accept an offer, get your checkbook out – typically there’s a deposit required to hold your spot, and the school will provide resources to you for financial assistance depending on your situation. In my anecdotal experience, it seems that these Financial Aid offices can be anywhere from mildly helpful to possibly committing willful malfeasance. Your mileage may vary. Nevertheless, there are a TON of resources to talk you through the different options.

Since this blog is focused largely on surgeons with a residency of at least five years (my surgeon is in the greater than five year category), plus an additional one or two (or possibly three) year fellowship, I’ll focus on the decisions you need to make that will allow you to qualify for PSLF. I should note, also, that there are some longer residency + fellowship combos with medicine specialties that make this information helpful (cardiology, for one).

What’s PSLF? I’m Glad you Asked!

PSLF is an acronym for Public Service Loan Forgiveness, and the Consumer Financial Protection Bureau has a great summary of the program:

The Public Service Loan Forgiveness (PSLF) Program forgives the remaining balance on your federal Direct Loans after you make 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying public service employer. 

–consumerfinance.gov

So, what does that mean? Let’s break it down:

  • Federal Direct Loans
    • This means that the US Department of Education (and Betsy DeVos) is your lender. Basically you’re securing your loan directly from the Department of Education.
  • Qualifying Monthly Payments, 120 of them
    • Meeting the required payment each month as specified by your payment plan is all you need to do here. If you are attempting to qualify for PSLF, you should choose FedLoan as your servicer – they’re the only loan servicing operation that will manage PSLF.
  • Qualifying Repayment Plan
    • This is where some real value can come into play with the PSLF program. Federal loans can qualify for a number of different repayment plans, I’ll dig into this with lots more detail in a post dedicated to PSLF, but know for now that it can dramatically decrease your monthly payments to as little as $0.00.
  • Working Full-time
    • At least 40 hours a week. If you’re a general surgery resident, this will be less than half your week (unofficially; of course your week is officially 80 hours).
  • Qualifying Public Service Employer
    • In nearly all cases, as a resident you’ll be employed by a non-profit – 501(c)(3) – organization affiliated with your teaching hospital and have nothing to worry about here. (I’ve heard reports that Kaiser in CA does have their physicians, including residents, employed by a for-profit entity; I’ll do some more research on this).

So there it is! Work ten years for a non-profit while meeting the payment required each month and the remainder of your loan will be forgiven (principal and interest TAX FREE!) by good Ol’ Uncle Sam.

Too much of a good thing?

I have heard that there is brewing interest in Congress to institute caps on forgiveness, but for now there aren’t any. At the time of this post, it’s still safe to go for PSLF as a med student. If there are changes, most speculate that existing borrowers won’t be affected – depends how the US Treasury is looking.

Photo by Ricardo Rocha on Unsplash

Loan Decision Time

I digressed a bit with the PSLF intro, but let’s get back to paying for med school – it’ll all fit together, I promise. Once you get over the sticker shock, put together a rough budget of your expenses you think you’ll have each year, broken down by semester – there are lots of guides online for this, so I’ll just create an example here:

By Semester:Cost:
Tuition$25,000
Miscellaneous and spurious fees$4,000
Living costs: Housing ($1000/month), Food ($400/month)$8,400
Total (per semester):$37,400

Depending how frugal (or not) you are, you’ll be spending at least $70,000 per year between tuition and living expenses.

Getting that Cheddar, Public or Private?

Two main options are private and public loans. In order to qualify for PSLF, you must use a public loan. After submitting a FAFSA form, you’ll likely be approved for two federal loans, Direct Unsubsidized and Direct PLUS. The former are capped at $40,500 per year, though Direct Unsubsidized Loans don’t have any strict requirements, like credit checks, and come with a pretty reasonable fixed interest rate.

You might be wondering what’s the difference between Unsubsidized and Subsidized Loans – I sure did when I first saw it. It has to do with how the interest on your loan is handled. For Subsidized Loans, the kindly U.S. Department of Education will pay the interest accrued while you’re in medical school. They do come with more restrictions than unsubsidized loans and are based on financial need. You’re responsible for the interest accrued on unsubsidized loans while you’re in school – if you choose not to pay interest while you’re in school, it will capitalize (your interest accrued gets added to the principal) on your loan.

If you find yourself needing more than $40,500 per year in loans, and you very well might, Direct PLUS loans are your next stop. These do come with more requirements, like a credit check, and may have more restrictions for borrowers with an adverse credit history.

SurgeonJourney’s Suggestion

From my perspective, I didn’t fully understand how PSLF worked until my spouse’s last year of medical school. By that time, we had maxed out the Direct Unsubsidized option every year and covered the rest of tuition with private loans. Were we to do it again, I would likely try to take out all public loan options for the purpose of PSLF.

We were fortunate that while my spouse was in school, I was working a full time job at a software startup, which certainly eased concerns for living expenses. I know that not everyone will have this situation, so it’s important to know your loan options and also focus on managing your expenses wisely. There are some great budgeting tools out there I’ll cover in later posts.

Let me know your thoughts and questions in the comments!

-SurgeonJourney

Managing Federal Loans and Qualifying for PSLF, a Practical Guide

Loan decisions start as soon as an aspiring doctor receives their acceptance to medical school. After the wave of excitement passes, assuming you don’t have a trust fund, the next question is invariably: how am I going to pay for this education? Navigating loan options is complex and confusing – having first hand experience (well, via my spouse), I’m here to help!

This is going to be a multi-part series focusing on different phases in the progression of loan acquisition, spending, and eventual payoff or forgiveness.

Med School Loans: A Series

With the rising cost of medical school – even for state schools, it definitely is important to evaluate payment options and consider your residency and speciality wisely. Each of these decisions will have an impact on your future finances, from the type of loans you choose to your income as an attending. The length of residency and potential fellowship you choose will also affect which loan forgiveness and payment plans you will qualify for if you have federal loans.

We’re going to start at the beginning, right after you accept an offer to attend medical school. From there, each segment will focus on a different phase of the medical education and training process, culminating in graduation from residency and fellowship.

Along the way, we’ll look at different ways to manage student loans for medical school. If you have any questions, comments, or suggestions for this series – let me know in the comments!

-SurgeonJourney