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For new residents: better to keep student loans or pay everything off with LOC?


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Given the higher interest rate of student loans (both federal and provincial I believe) compared to the LOC that med students have access to, I would assume that it makes sense to pay off everything ASAP after graduation using the LOC. However, I've been told that there are certain grants/tax benefits you're eligible for if you have a student loan balance, and this might offset the difference in interest. I haven't been able to find much info about this, except that you can claim 15% of interest you pay on student loans as a tax deduction (but I think the OSAP/federal rates are more than 15% higher relatively speaking than the LOC rates, so it doesn't seem like this is worth it). Can anyone shine some light on this?

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25 minutes ago, bearded frog said:

The best answer will be to schedule a consultation with MD management or similar financial firm who can look at your portfolio and with intimate knowledge of the pros and cons of each type of debt and be able to give you personalized advice. MD, at least, is free.

they can help but I would suggest also working through this on your own. MD Financial have useful things, although speaking from experience you need to be careful - they are just another corporate profit centre (now owned by Scotia). They aren't special in any way really and historically have done a lot of damage. They are only "free" because they are trying to rope you into high cost investment plans down the line which is their primary profit source historically. 

1 hour ago, jehube said:

Given the higher interest rate of student loans (both federal and provincial I believe) compared to the LOC that med students have access to, I would assume that it makes sense to pay off everything ASAP after graduation using the LOC. However, I've been told that there are certain grants/tax benefits you're eligible for if you have a student loan balance, and this might offset the difference in interest. I haven't been able to find much info about this, except that you can claim 15% of interest you pay on student loans as a tax deduction (but I think the OSAP/federal rates are more than 15% higher relatively speaking than the LOC rates, so it doesn't seem like this is worth it). Can anyone shine some light on this?

usually math wise it make sense to pay it off although I have to compute it each year. The tax savings don't equal (even closely) the interest savings you get by putting it on the LOC. In some cases - relatively rare there stay in Ontario plans that make sense but you have to be 100% sure you will remain in Ontario post residency and that is actually rather limiting for the savings there :)

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I think it would also depend on which province you're in since a portion is provincial. For example, Manitoba has no interest on student loans! BC and Saskatchewan are at prime, while Alberta and Ontario are Prime+1. Since you mentioned, OSAP, I'll assume you're in Ontario. The Federal rate is also prime.

If you shift your loan burden on your LOC, there's less room there for unexpected costs such as kids, spouse going back to school, wedding, or doing an extra fellowship or two. So saving a bit on interest would come at the cost of decreased financial flexibility with reduced amount of credit available in your LOC. If you're doing something that has a long training period and doesn't have a great job market, the extra flexibility would be something that I'd deem more important than reducing your interest payments.

Doing a graduate degree during residency could also help you get interest free status on government loans(I think, not 100 percent sure though). Something you couldn't do with your LOC.

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Thanks for the replies all. Yes this is in Ontario. I know someone from MD Financial could be helpful, but they're inevitably going to be biased and as rmorelan said I think this aspect is simple enough to figure out on my own.

I've also heard about certain grants available depending on where you do your residency, but I'm assuming this is only for rural areas. I will be doing a 5 year residency in an urban area so as far as I understand, I will not be eligible for any of these grants and I should just pay everything with my LOC in that case? I agree there's some value to having more room on your LOC, but I still have quite a bit available and would prefer to pay less interest instead.

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I recommend pay it off with LOC. Banks are happy to increase your LOC up to 300K if you really need it. I find it's bit of a springboard to establish business relationship with a bank, so when you start practice and need bigger loan to set up an office or get business accounts or buy a house with mortgage etc, they already have a good credit history with you and your "loyalty" as a resident becomes an asset in your negotiations for perks and lower rates etc.

Although I recommend you join the physician independence FB group and read about the different banks, some are better than others, some are not recommended, sometimes favorable rates can be negotiated by different advisors etc. 

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Federal portion of loan is now 0%. you can check the proportion of federal/provincial on your NSCL account. For ex. mine is 90% federal. My opinion is it does not makes sense to use LOC to pay of loan right now. I am planning to just leave my loan as be and not even pay the principle, I would consider this "free" debt right now (still provincial interest but it amounts to 90$/year). I will use the savings to put into TFSA/or whatever else you want. I called the NSCL today and you can just ask to be put into "interest only" payment plan so you aren't forced into a payment plan to start paying principle. No eligibility criteria just need to call again every 6 mo to extend the interest only period.  I would consider consolidating into LOC once 0% interest program runs out. As people have said above if you plan on using a forgiveness program do not consolidate into LOC. https://www.canada.ca/en/services/benefits/education/student-aid/grants-loans/repay/assistance/doctors-nurses/eligibility.html

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23 minutes ago, stefan said:

Federal portion of loan is now 0%. you can check the proportion of federal/provincial on your NSCL account. For ex. mine is 90% federal. My opinion is it does not makes sense to use LOC to pay of loan right now. I am planning to just leave my loan as be and not even pay the principle, I would consider this "free" debt right now (still provincial interest but it amounts to 90$/year). I will use the savings to put into TFSA/or whatever else you want. I called the NSCL today and you can just ask to be put into "interest only" payment plan so you aren't forced into a payment plan to start paying principle. No eligibility criteria just need to call again every 6 mo to extend the interest only period.  I would consider consolidating into LOC once 0% interest program runs out. As people have said above if you plan on using a forgiveness program do not consolidate into LOC. https://www.canada.ca/en/services/benefits/education/student-aid/grants-loans/repay/assistance/doctors-nurses/eligibility.html

Really good to know, wasn't aware of this. Looks like federal interest rate is set at 0% until at least Sept. 30, 2021, which might be extended depending on COVID.

When paying down the principal to NSLSC, are you able to specify that you only want to pay the provincial portion? I haven't seen this option when paying student loans in the past.

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On 4/23/2021 at 7:01 AM, clash_of_ideas said:

Also if you end up practicing in a high need area there are various debt forgiveness programs 

This - FM and Psych residents, and those that are attendings working rurally can often get debt forgiveness for GOVT loans (not private Locs)

Also, some provinces are zero % interest already for provincial portion(such as Manitoba AND British Columbia) and now Federal is 0%.  So it makes no sense for anyone to discharge their GOVT student loans now. Pay the minimal amount.

 

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9 minutes ago, jehube said:

Really good to know, wasn't aware of this. Looks like federal interest rate is set at 0% until at least Sept. 30, 2021, which might be extended depending on COVID.

When paying down the principal to NSLSC, are you able to specify that you only want to pay the provincial portion? I haven't seen this option when paying student loans in the past.

I am not sure, as I have not entered the repayment period yet (graduating med school just now). I am planning to call NSLC in a few months to find out. 

It is actually frozen at 0% until March 31 2023 per an email from my advisor. 

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14 minutes ago, JohnGrisham said:

This - FM and Psych residents, and those that are attendings working rurally can often get debt forgiveness for GOVT loans (not private Locs)

Also, some provinces are zero % interest already for provincial portion(such as Manitoba AND British Columbia) and now Federal is 0%.  So it makes no sense for anyone to discharge their GOVT student loans now. Pay the minimal amount.

 

I was aware of the rural debt forgiveness program, but are you saying there are programs for FM and Psych residents working in urban areas? Where are you seeing that information?

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33 minutes ago, jehube said:

I was aware of the rural debt forgiveness program, but are you saying there are programs for FM and Psych residents working in urban areas? Where are you seeing that information?

As in, FM and Psych residents often have access to rural rotations during their residencies and are able to then get loan forgiveness, depending on your province.

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29 minutes ago, 5th time the charm said:

if you are on FB, I suggest joining this group :

physician financial independence group

you will get some valuable info in this group and this question has been asked on there 

Yeah it looks useful, it looks like you need your CPSO number to join though which I don't have yet as I am just starting residency.

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8 minutes ago, jehube said:

Yeah it looks useful, it looks like you need your CPSO number to join though which I don't have yet as I am just starting residency.

there on residents on there- you can message them and ask if you can send it along when you get it ? I forgot to mention it is the Physician financial independence (Canada) group- I forgot the Canada part ,  and also take a look at looniedoctor.ca for some additional information :) 

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3 minutes ago, 5th time the charm said:

there on residents on there- you can message them and ask if you can send it along when you get it ? I forgot to mention it is the Physician financial independence (Canada) group- I forgot the Canada part ,  and also take a look at looniedoctor.ca for some additional information :) 

I just asked the admin- they said yes you can join without it and just do your best to answer the screening questions so they know this is a legit request 

its also open to med students 

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11 hours ago, JohnGrisham said:

As in, FM and Psych residents often have access to rural rotations during their residencies and are able to then get loan forgiveness, depending on your province.

How many rural rotations would you have to do a year to be eligible for this?

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On 4/29/2021 at 11:52 PM, Redpill said:

How many rural rotations would you have to do a year to be eligible for this?

Only 400 hours are needed for FM residents, which is usually accomplished within the 2 mandatory blocks required for most FM programs across the country.

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  • 2 weeks later...

Definitely do not consolidate your loans on to your LOC if there's a good chance that you'll be eligible for some form of debt forgiveness.

Furthermore, you can apply to have your payment period extended to, and therefore make smaller payments throughout residency and to leave a larger sum in the loan to be covered by those debt forgiveness opportunities (for example, if you're going to make use of the rural debt forgiveness program that pays $8k annually up to $40k, you would want to keep as much $ as possible in your federal loan to have it covered by the debt forgiveness program rather than pay it off quicker out of pocket/LOC). 

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Are there any opportunities for 5-year residents? I have 84K in OSAP loans (8k provincial, rest federal). My payments start November and 3.45% interest is accruing on my provincial component right now ($0.84/d) - which is not bad compared to my LOC ($6/d).

 

Just wondering if there is anything I can be doing? Or it seems like when I start making that residency salary to start making my mandatory payments?

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On 5/12/2021 at 11:44 PM, RicardoKaká said:

Are there any opportunities for 5-year residents? I have 84K in OSAP loans (8k provincial, rest federal). My payments start November and 3.45% interest is accruing on my provincial component right now ($0.84/d) - which is not bad compared to my LOC ($6/d).

 

Just wondering if there is anything I can be doing? Or it seems like when I start making that residency salary to start making my mandatory payments?

I was told by my advisor at MD Financial to contact the NSLSC and request to change the amortization period from the standard 10 years to 15 years. This will make your payments more affordable during residency if you need that room in your budget! It does mean more interest long term, but you can play catch up after residency if you want.

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On 5/12/2021 at 11:44 PM, RicardoKaká said:

Are there any opportunities for 5-year residents? I have 84K in OSAP loans (8k provincial, rest federal). My payments start November and 3.45% interest is accruing on my provincial component right now ($0.84/d) - which is not bad compared to my LOC ($6/d).

 

Just wondering if there is anything I can be doing? Or it seems like when I start making that residency salary to start making my mandatory payments?

Given the heavy skew towards federal which is interest free until March 31, 2022, I would just do exactly what @Persephonesaid and extend the amortization period for now. You don't need to "contact" NSLSC - you should just be able to reduce the payment on the online portal.

When it comes time that the federal portion starts accruing interest, I would then do a "Revision of Terms" to make interest-only payments for 6 months (renewable once for a total of 12 months). Note that this is different than the Repayment Assistance Program which most residents won't qualify for based on income. Alternatively, you can also start your Revision of Terms right in November if you really want your payments to be low for a year, but then you'll go up quickly after Revision is done and federal starts getting interest again.

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10 hours ago, lolz3 said:

Given the heavy skew towards federal which is interest free until March 31, 2022, I would just do exactly what @Persephonesaid and extend the amortization period for now. You don't need to "contact" NSLSC - you should just be able to reduce the payment on the online portal.

When it comes time that the federal portion starts accruing interest, I would then do a "Revision of Terms" to make interest-only payments for 6 months (renewable once for a total of 12 months). Note that this is different than the Repayment Assistance Program which most residents won't qualify for based on income. Alternatively, you can also start your Revision of Terms right in November if you really want your payments to be low for a year, but then you'll go up quickly after Revision is done and federal starts getting interest again.

The NSLSC site tells me my loan isn't eligible for customization and so there are no options on the online portal for me to extend the amortization period, hence why I was told to contact them, for a little context.

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