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Loan repayment advice from those with experience


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Hiya folks. I am a PA student, but hope my question is appropriate for the PA professional sub-forum. I will be graduating in several months and have - what I believe to be - a monumental amount of tuition to pay back between my wife and I. I could use some experienced advise. I've heard practicing PAs say, "just make the minimum payment, it's not worth being poor and stressing over tuition." Personally, I want the tuition gone as quickly as possible. I don't want to be shackled by this for the rest of my life. My goals are currently as follows: 

  • Work in a rural area where cost of living is cheap
  • Attempt to live at around $30k / year in expenses
  • Try my damnedest to work for a primary care employer who participates in an HRSA loan repayment program
  • Possibly join the military reserves for an added amount of loan repayment benefits
  • Return every single remaining cent to my grad plus and stafford loans so I can move on with my life

With this combination, I don't see why I couldn't be applying $50 - $100k per year towards tuition repayment. Maybe I'm being idealist. Can anyone provide some insight? Is my thinking erroneous? Is this overly-ambitious? Thank you in advance...

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I'm sure others can weigh in that have succeeded in putting a lot on their loans right after school but I think this is way too idealistic.  I am 1 year out from school, live cheap and am just making the payments (on a 10 yr repayment plan) monthly.

 

First of all, if you want to live on 30K and put 50-100K towards loans you need to bring in 80-130K AFTER taxes.  Impossible.  MAYBE if you got loan repayment and joined the reserves....    You might also be able to reach this working like a dog.  I work two jobs as a new grad but still won't net 80K after taxes (probably more like 65-70K). 

 

I also found that I neglected a lot of things while I was in PA school (health, car maintenance, my wardrobe, etc) that once I had a salary needed funding.  As well as making up for 2+ years of not saving for anything (retirement, rainy day fund, etc).

 

This might be doable if you live poor and don't save a cent towards anything else.  Personally, I chose to keep contributing towards my IRA and savings account rather than put it all towards student loans.  And it's nice to have fresh brakes and tires on the car......

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Thanks much for the reply. In the state I currently live in, there are a good share of HRSA sites with a score of 13 or above, which means I'd receive $50k of untaxed loan repayment every two years on top of a competitive salary, if I manage to land a participating job. That puts $80k after taxes within reach. I guess the other thing I didn't mention is the possibility of the wife working and contributing, though jobs are a bit more scarce when in rural areas. Either way, I feel like $50k per year towards tuition is possible. $100k is probably insane. :)

 

But I guess circumstances aside, I still don't understand the sentiment of folks who advise students on making minimum payments until the cows come home. What is the benefit of this? Also, I realize a PA salary will kick me into a tax bracket I haven't experienced before, but doesn't a fair amount of that come back at the end of the year when going broke paying off loans? Like, say I actually managed to pay off $50k in a single year... wouldn't the vast portion of my yearly taxes be returned?

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Guest Paula

Find a job on a reservation that offers loan repayment program.  I believe they are still available.  I was fortunate to land a job in a HRSA area (on a rez) and got a state loan repayment that paid 75% of my loan.  I paid my loan off fully in three years  BUT......I only had $22,000 to pay off.   I cannot fathom the debt some PA students take on and the stress it must play in getting that first job and negotiating a decent salary.

 

The real issue is do not try to keep up with the Jones and I think you have that nailed already.  But a decent car and wardrobe are a necessity.  DogLoving PA has good advice, too.  

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Minimum payments until the cows come home... that's pretty accurate.  You'll be better off doing that if someone else is going to pay your loan. With the way the student loan bubble is, there's a decent chance that the entire system will collapse, but who knows where that will lead.

 

The way to get out of debt... is to get OUT of DEBT.  Live below your means, prepay as much principal as you can afford.  Don't count on anyone else to pay for you.  Pay off your highest interest debt first. If you decide to have a credit card, only use it as pseudo-cash and pay it off in full every month.

 

Works for me.  I should be completely out of PA school debt by 2.5 years out of school--in other words, spending about as much time repaying school as I spent IN school.  But oh yeah, I paid off all my other college-level work a decade or two prior to PA school.

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Minimum payments until the cows come home... that's pretty accurate.  You'll be better off doing that if someone else is going to pay your loan. With the way the student loan bubble is, there's a decent chance that the entire system will collapse, but who knows where that will lead.

 

The way to get out of debt... is to get OUT of DEBT.  Live below your means, prepay as much principal as you can afford.  Don't count on anyone else to pay for you.  Pay off your highest interest debt first. If you decide to have a credit card, only use it as pseudo-cash and pay it off in full every month.

 

Works for me.  I should be completely out of PA school debt by 2.5 years out of school--in other words, spending about as much time repaying school as I spent IN school.  But oh yeah, I paid off all my other college-level work a decade or two prior to PA school.

Me too.  Paid off my own first undergrad loan in the early 80s, then met my husband and acquired his college loans by marriage and it took us 15 years to get his paid off.  Whew!  There is an advantage to being an old PA student. 

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I am in a similar place. A bit closer to you to grad and with about 170 in loans. I post this number as someone who did some CC, worked full time through undergrad, went to cheap undergrad and PA schools and always lived below my means. This number is not hard to obtain because PA school for two years is 60 plus cost of living at least another 60 and then undergrad which has been accruing interest another easy 40. And I also have met PAs with a much heavier burden than mine.

 

As someone who has done a ton of research I will give you a straight forward answer. If you check your after tax earnings even at a good paying job you will quickly realize either now or after you start paying bills that hustling for 3-4 years to pay off your loans is simply not doable if your debt burden is similar to mine. If it is under 100k then it may be doable. You will meet many older PAs especially on this forum who paid off in three years but their debt burden was a joke compared to mine or likely yours.

 

50k loan repayment through a grant is the only realistic shot. However these jobs are competitive even the ones in areas no one wants to live and even then the grant is no guarantee. However that and Indian health service are options.

 

I was given an estimate of a 20 year plan. The total paid for that was actually less than a 10 year plan and obviously monthly payments much lower. At the end of the day I feel this is the way to go. You can be miserable for five years and still you won't be debt free. So consider just chucking away 600-700/yr for 20 years (what I was quoted which comes out to the same I'd pay if I paid it all off in 3-5 yrs) and work where you want. As I was told you won't be 74 years old wishing you'd work more. Enjoy your life and let it go. Feel free to ask or pm me any questions.

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Also, I realize a PA salary will kick me into a tax bracket I haven't experienced before, but doesn't a fair amount of that come back at the end of the year when going broke paying off loans? Like, say I actually managed to pay off $50k in a single year... wouldn't the vast portion of my yearly taxes be returned?

Sadly, there it's no tax deduction or credit for paying off loans. A few decades ago, loan interest was deductible, but no longer, except for mortgages. You can apply every red cent you make toward paying off loans if you want but that won't change your tax burden. But, congratulations! Now that you will be a PA, and especially if your spouse works, the government considers you to be very well off. You have now joined the ranks of prime targets for taxes.

I paid my loans off at the minimum rate for twenty years. It isn't stressful. Just set up auto payments and forget it. The only caveat is that if you took out any VARIABLE rate loans, you might want to focus on paying those back because, if interest rates spike, you could get gored and rates are likely to increase from today's historic lows.

Sent from my Kindle Fire HDX using Tapatalk 2

 

 

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Sadly, there it's no tax deduction or credit for paying off loans. A few decades ago, loan interest was deductible, but no longer, except for mortgages.

Not sure how long ago you are talking about, but currently you ARE able to claim interest paid on student loans. Your lender sends you a form of all interest paid for the year and you claim that. The form is called a 1098-E form... saves me a bunch!

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AGI will need to be below 75k to qualify.

 

Topic 456 - Student Loan Interest Deduction

You may be able to deduct interest you pay on a qualified student loan. Generally, the amount you may deduct is the lesser of $2,500 or the amount of interest you actually paid.

The deduction is claimed as an adjustment to income so you do not need to itemize your deductions on Form 1040, Schedule A(PDF).

You can claim the deduction if all of the following apply:

  • You paid interest on a qualified student loan in tax year 2013
  • You are legally obligated to pay interest on a qualified student loan
  • Your filing status is not married filing separately
  • Your modified adjusted gross income is less than a specified amount which is set annually, and
  • You and your spouse, if filing jointly, cannot be claimed as dependents on someone else's return

 

A qualified student loan is a loan you took out solely to pay qualified higher education expenses. See Publication 970Tax Benefits for Education, and the Form 1040 Instructions (PDF) to determine if your expenses qualify.

If you file a Form 2555 (PDF), Form 2555-EZ (PDF) or Form 4563 (PDF), or if you exclude income from sources inside Puerto Rico, refer to Publication 970 instead of the worksheet in the Form 1040 Instructions.

If you paid $600 or more of interest on a qualified student loan during the year, you will receive a Form 1098-E (PDF), Student Loan Interest Statement, from the entity to which you paid the student loan interest.

For further information about this deduction, including how to determine when the deduction is phased out, refer to Publication 970,Tax Benefits for Education.

 

http://www.irs.gov/taxtopics/tc456.html

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According to the criteria you can claim student loan interest payments if your modified AGI is less than a certain amount.  That amount changes from year to year.  For the 2013 tax year it was around $70,000.  So if you made less than $70K last year, made student loan payments and met the other requirements listed you can claim the interest on your taxes.

 

If you made more than $70K or don't meet the other criteria listed you can't make the claim.

 

As PAs generally earn more than $70K a year the student loan interest credit generally doesn't apply.  For a new grad, if the timing works out and you manage to earn less than whatever the amount is set by the IRS for that year, you can apply it on your taxes.  But for the vast majority of us it's just not an option.

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Thanks for all the replies, folks. I wish someone had revealed a PA secret to loan repayment success, but alas, tuition repayment sounds like it's going to be a huge PITA. I hadn't heard about the student loan interest deduction. As a married person, my combined AGI is $155k, which might actually be achievable if I understand the credit correctly (assuming we will make less than $155k combined, which will most definitely be the case). I talked to recruiters with navy and air force reserves today and both said that don't even do loan repayment, so there goes that. Crossing my fingees that some other form of loan repayment crops up. Thanks again for the feedback and letting me whine a little bit... 

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You will meet many older PAs especially on this forum who paid off in three years but their debt burden was a joke compared to mine or likely yours.

With all due respect, mine's not a "joke", but yours certainly is a tragedy.  The way I kept my debt low as an older PA--and my program was $70k PLUS living and travel expenses for a family of five--was to roll my 401k into an IRA and spend out of that.  I'm still $300,000 behind where I would have been if I'd stayed in my previous career.

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With all due respect, mine's not a "joke", but yours certainly is a tragedy.  The way I kept my debt low as an older PA--and my program was $70k PLUS living and travel expenses for a family of five--was to roll my 401k into an IRA and spend out of that.  I'm still $300,000 behind where I would have been if I'd stayed in my previous career.

 

I will never be able to retire either.   Never had much of an IRA until started working as a PA 10 years ago.  I'm trying to beef up the retirement funds but think I may end up living down by the river....... in a van.

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No offense intended to anyone. 70-100k is by no means a joke but as someone with double that Id gladly accept that with a smile on my face. I also have met a small amount of students with over 200 debt who probably envy my situation. My comment was intended to those with 30-50k debt who like to say they paid off their debt in three years through hard work which is just not an option for the current generation of PAs who put themselves through school.

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Sorry for multiple posts am on phone and can't edit. In my first post it should say 600-700 a month which is 8400 yr or 170 over 20 years which again is same amount (since the rest is forgiven) if I hustled to pay off in 5 years. And payments would be less if I was married or had kids.

Keep in mind that student loan forgiveness is taxable and added to you income the year it is forgiven. Example: let's say at the end of 20 years your taxable income is 80k/year and your total loan forgiveness is 100k, taxable income for that year is now 180k .... Makes for quite a nasty tax bill. Also, making a payment as low as 170/month on 170k won't cover the monthly interest accrued on the loan, meaning that when loan forgiveness comes, your grand total will be much higher than the original 170k you started with.

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WhippyFlagellum - 

 

I was as eager as you to pay off my loans when I graduated - I had it all mapped out how I could do it in 5 years... but it has turned out to be a lot harder than expected.  You may still be able to do it.  And I probably could too with working 2 jobs and putting EVERY single spare cent towards my loads.  But I am in my late 30's and finally realized that spending another 5 years not saving for retirement was going to hurt me more.  And ironically, I also think it is easier if you are single.  My fiance doesn't want to spend 5 years living like a pauper.  We are frugal people in general but living on ramen and peanut butter and jelly just doesn't appeal to him.  Lol.  Nor can we squeeze into a shoe box apartment to save money.  My loan payments on just the 10 year plan are significantly more than our mortgage.  This is coming out of PA school with ~140K in loans (ALL from PA school).  As others have pointed out, a lot depends on your actual loan amount, cost of living, age, whether you have children (we have 4 dogs), etc. 

 

I had a lot of people try to talk me into paying over 20 years but there is no way I can stomach the thought of paying that much interest!  Loan repayment if you can get it, will obviously significantly help.  I may still chase that option in a few years.

 

Good luck.

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Keep in mind that student loan forgiveness is taxable and added to you income the year it is forgiven. Example: let's say at the end of 20 years your taxable income is 80k/year and your total loan forgiveness is 100k, taxable income for that year is now 180k .... Makes for quite a nasty tax bill. Also, making a payment as low as 170/month on 170k won't cover the monthly interest accrued on the loan, meaning that when loan forgiveness comes, your grand total will be much higher than the original 170k you started with.

I read somewhere that there are times when the loan forgiveness is not taxed. I think it was on a government sight and if I remember correctly, military and rural locations were among those that are sometimes tax exempt. In any case, with my debt, my 10yr payment IBR will be about $500-700/month. That will leave a significant forgiveness amount if I qualify at the end. I'm ok with saving a little extra each month to pay the taxes on that and have my debt gone in 10 years vs paying nearly $3000/month at my age with significant family obligations. But that's a great point about taxation on loan forgiveness!

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Another option you may have is to make your payments a little more frequently. 

 

Take your monthly student loan payment and divide that in half.  Take that amount and make a payment every two weeks.  For example, if your monthly payment amount is $1500, pay $750 every two weeks. 

 

This will do a couple things.  At the end of the year you'll have made the equivalent of 13 monthly payments.  As interest on the loans accumulates daily you'll have also paid down some of the interest owed faster than you would have had you made one payment a month.  That can help save you at least a little bit long term over the life of loan repayment.

 

Just another idea to throw out there to consider in paying off one's loans.

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