Physicians are feeling pressure due to rising student loans burdens, lower compensation expectations and shrinking health care reimbursements. These factors can distract from their primary motivations for pursuing a career in medicine – helping others, contributing to advancements in the medical field, and promoting health in their communities.
Not all physicians are lucky enough to land a job that offers a loan forgiveness program. For those who have longer roads ahead, here are 5 ways physicians can help themselves repay their loans with as little difficulty as possible:
1. Consolidate Your Student Debts Into a Single Loan
Student loans rarely come in a single disbursement. Med school takes years, and most students end up carrying more than one loan, each with its own separate payment amount and monthly deadline.
The Federal Direct Loan Program allows debtors to consolidate what they owe into one loan and negotiate more affordable payments. Debt is usually consolidated during the grace period following the final full semester of coursework.
2. Refinance Your Private Student Loans
Renegotiating private student loans can be a frustrating process riddled with double-talk and hidden fees. To combat this, new services geared towards today’s debt-ridden, tech-savvy post-collegiates are making loan refinancing more palatable with friendlier online portals and mobile apps.
There are no shortage of options. In addition to the big players -- Sallie Mae, Wells Fargo and Great Lakes, among others -- startup loan consolidators such as Earnest and SoFi provide leaner alternatives for professionals with student loan debt.
After refinancing your loan, this tool from Bankrate helps to calculate the period of time until a loan is entirely paid off at the current rate payments are being made.
3. Qualify for a Student Loan Forgiveness Program
The average starting salary for physicians in family practice was $161,000 in 2013, but many didn’t end up making that much. Younger physicians and medical residents who make less than $80,000 - $115,000 per year may save money by opting into an income-driven loan forgiveness plan, according to data from the U.S. Department of Education. These include:
• Income-Contingent Repayment (ICR) Plan: Started in 1993, ICR calculates monthly student loan payments based on personal income and loan balance. After 25 years of payments, any remaining balance is forgiven. For most physicians, this older plan will lead to higher payments over a shorter time span.
• Income-Based Repayment (IBR) Plan: Introduced in 2009, IBR payments are limited to 15 percent of monthly disposable income above the poverty level over a span of 25 years. This plan generally offers a lower monthly payment than the income-contingent plan.
• Pay as You Earn (PAYE) Plan: The newest forgiveness plan, available only to recent graduates, PAYE limits monthly payments to 10 percent of monthly disposable income above the poverty level for 20 years.
With these programs, physicians who work for a public service organization, such as a county hospital, can have their student loan forgiven after 10 years (120 payments).
Although these plans are great for physicians who have lower compensation, income increases over time may raise payments above those of the standard plan. In such a case, a physician may want to consider another round of consolidation or refinancing.
4. Improve Your Investment Profile
Your educational debt is just one part of your financial portfolio. Improving other factors that affect its overall condition will help equip physicians to manage their student loans:
• Repairing your credit. If you missed a few credit card payments while studying for exams, you are not alone. A low credit rating, however, will affect your ability to get a lower rate when you refinance the loan. Treat your student loan like it’s a mortgage. If for some reason you must miss a payment, notify your lender as soon as possible to schedule a temporary deferment or forbearance.
• Taking out insurance. Live long enough, and big expenses will pop out of nowhere. Disability insurance to ensure a continual income stream, and a student loan protection rider can prove valuable in the case of a disability.
• Applying for medical residency finance. Medical residency deferment offers several years of reprieve before the need to start paying back loans. Some lenders offer a line-of-credit at low interest rates, which allows physicians to avoid racking up high-interest credit card debt during the final stretch of residency when money often dries up.
• Using a credible cosigner. Students with good credit often avoid using cosigners, but one with a with a strong credit profile can help them get easier approval. More importantly, this enables them to negotiate a better loan rate, which could ease the financial burden for many years to come.
5. Try a Non-standard Loan Repayment Solution
Many states, including Texas, offer incentives for physicians to work in underserved areas. The U.S. military offers a financial assistance program including a grant and monthly stipend for medical residents for those who join as residents.
New lending platforms offering alternative funding, debt consolidation and even financial advice provide physicians even more ways to pay their student loans.
Peer-to-peer loans allow consumer investors to park their money with lenders such as Prosper and Lending Club, who then make loans to consumer debtors. Crowdfunding options, including Pigit, Commonbond and Zerobound, let physicians exchange community service for student debt relief.
Committing to work in a health shortage area is another way to get federal loan forgiveness and benefit others while doing so. The AAMC (Association of American Medical Colleges) has published an all-inclusive list of each state and program offered on their website.
A Hard Road Ahead for Today’s Graduating Physicians
More physicians are feeling their dream of owning a private practice slipping away as hospital groups, appealing to the financial insecurity of joiners to the profession, recruit them into large organizations as rank-and-file employees. With mounting student debt payments, the regular paycheck is tempting.
Medical students graduating in 2014 left school with an average debt of $180,000. Running the numbers, the total outlay on a 20-year medical school loan repayment program (including interest) will reach $377,000, with monthly payments ranging between $1,400 - $2,200 per month.
To complicate the mix, upcoming changes in student lending rules and rising interest rates are about to increase the loan burdens of physicians even further. Now is the time to plan a path toward student loan repayment before the gradual rise in rates continues.
If you would like to explore other ways to ease your medical student loan burden, may we suggest:
- • For more on ways to repay your med school loans, read International Fellowships & Programs to Help You Pay Student Loans.
- • For more on how to manage your finances as a physician starting out, read Finances After Residency: 4 Strategies to Implement With Your First Paycheck.