Monday, October 15, 2007

Changing the Rules: Making a Financial Deal With the Devil

If you don't know by now, you've probably been living in a cave. The government has changed the rules for economic hardship deferment, effectively forcing most medical residents and fellows to begin paying back portions of enormous student loan burdens while still in residency. As with all changes in policy, we have to ask ourselves the question: "who benefits?"

In this particular case, the answer is simple. Lending companies love this. Yes, some of those loans may get paid off a little earlier, costing the company money. However, this is more than made up for by the fact that residents will effectively lose the ability to go after high interest loans first. Those Grad Plus loans just got a lot more profitable. Also, there's always some advantage to money up front.

However, none of this really gets the point across. All across America, students are writing their congressman and the lending companies are lobbying their respective representatives. The pendulum will swing back and forth, leaving many victims, many of which will probably be innocent taxpayers who do not have any outstanding student loans. All of this illustrates an important point: NO DEAL THAT YOU MAKE WITH THE GOVERNMENT IS SAFE, AS THE GOVERNMENT CAN SIMPLY CHANGE THE RULES. We're all just fighting to be the squeakiest wheel in this whole charade in order to be screwed over the least.

In the scheme of things, the new system isn't necessarily bad for all future medical residents. It is probably better for the average taxpayer, who might very well be subsidizing the interest on some Pediatric Cardiothoracic Surgery Fellow's student loan from his freshman year of college under the old system. The new system will force residents to make the difficult choice to cut back on their already meager lifestyles and atleast stop the financial bleeding. As most residents are not financially saavy and way overestimate their future incomes, this new system may make life a little bit more livable when the whole training process finally comes to an end, atleast diminishing the impact of the 6.8%-8.5% interest rates that have been plagueing the student since the last student loan change a couple of years ago. It may also have the benefit of stopping the ever expanding fellowship system from moving on into infinity, which may finally make it possible again to not spend 10 years in post graduate training to get a decent job on the other side. Funding super-subspecialization at taxpayer expense is frankly, a waste. It forces everyone to pay for a physician that becomes progressively less valuable to the majority of people.

The increasing supply of subspecialists is actually driving everyone's income DOWN. Each individual subspecialist is less valuable, and a generalist is progressively less valuable as his skills fall progressively farther behind some subspecialist in every aspect of his generalist work. God forbid anyone actually try to finish medical school, residency, and then start practicing anymore. Stopping this system with a little bit of repayment in residency and fellowship training may actually be GOOD for most physicians income in the long run.

However, for those of us who are already buried under significant debt, this should come as a reminder of how unfair the system is. Dealing with federal programs is risky. Regardless of whether the new rules make sense or not, the fact that they apply retroactively to all loans already taken is chilling. When I borrowed, I was under the impression that I could defer due to hardship while in residency. Right or wrong, that is the deal that I thought I made. Those that are pushing for a change back to old system are hardly going to get a lot of sympathy from the general public with demands that they shouldn't pay back 15% of income above 150% of the poverty line on money that they owe. This is not the inherint problem. The problem is the quicksand that is student loan repayment. Let people make informed decisions. If they want to start lending money with the new requirements for payback, let it apply to new loans given to new students, who understand what the rules are from the beginning.


Blogger Grodge said...

How many years of residency does the deferment last now with the recent rule change?

When I was in residency 15 yrs ago, we had 4 yrs of deferment. I knew one guy who changed from FP after two yrs and transfered into a 4 yr OBG residency, which meant had to pay back loans for the last two years.

He was highly regarded and a local practice offered to make the payments for him if he agreed to work for them upon finishing. Are any of these deals available today for residents in training?

11:14 PM  
Blogger MiamiMed said...

There is no automatic deferment. Before the change, there was a hardship deferment, in which if your payments were greater than 20% of your income, you could defer for up to 3 years. There is now NO deferment.

There is a forebearance that can be granted, in which individuals can put off payment. Loans are however, technically due, and Subsidized loans accrue interest, and all interest rates rise as if in repayment.

There is also the new plan, in which individuals have to pay back 15% of income above 150% of poverty for family size. I probably would have borrowed under this provision anyway. What bothers me is the fact that I borrowed with the option to defer, and they then changed the rules after I borrowed.

There are some support programs for where individuals can get money in residency. These are somewhat limited in my understanding. They are also largely relegated to primary care specialties. Of course, I'm not quite there yet, so anyone who knows more can chime in. I'm talking about what I've heard second hand.

7:54 PM  

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