Student Loan Management Tips For Young Doctors
Medical school pays off big for the vast majority of doctors who stay in medicine for their entire careers. But that doesn’t mean that medical school debt and student loan balances are fun. According to the New American Education Policy Program, the average medical school graduate begins his or her career with college debt in excess of $161,772.
Essentially, that’s a mortgage payment for a decent house in many markets across the country. But it’s one that will pay off many times over as long as you remain in good health and you’re able to practice your chosen profession – even in some of the lower-paying medical fields.
But meanwhile, you’ve got to service the debt. If you’re running into trouble, or you anticipate having trouble making your medical school and other college debt payments, here are your options:
1. Sign onto one of the various ‘income-based repayment’ plans available for those with federal student loans. These programs, including IBR, Pay As You Earn (PAYE), and the new Revised Pay as You Earn program allow you to fix your payment as a percentage of your income. If you start the program while you’re making a relatively low income as a resident, it should be quite manageable – and if you play your cards right, you can keep that low payment even after your income increases as you reach the attending physician stage of your career.
Make 10 years of on-time payments at that low payment level and you may well qualify to have any remaining balance forgiven.
2. Find employers who will help you with student loan payments. Many health care companies are looking to attract younger physicians and are sweetening their compensation packages to include assistance with student loan repayment. This is especially true of employers seeking to recruit doctors to work in rural areas and other challenged areas with doctor shortages. Many state and city agencies provide some form of assistance with student loan payments, though details vary. However, some of these programs will repay up to $25,000 in loans per year over a 2 to 4 year contract. Here’s a list of 68 programs that will help repay student loans for doctors who qualify.
3. Ask for a forbearance. This is the ‘nuclear option.’ For most of you, going into forbearance is not a great move, especially early in your career, when your student loan balance is still relatively high, because the interest on the entire outstanding balance will continue to accrue. The larger your balance, the more this is going to hurt. The tyranny of compound interest will haunt you for many years to come. Of course, every situation is different, and for a few of you going through exceptionally severe hardships, it may be the only option. But get out of forbearance as soon as you possibly can.
4. Refinance. Refinancing can be a reasonable option for some with higher interest private loans, or if bankruptcy is potentially on the horizon, because while you can discharge private debt in bankruptcy, you normally can’t do that with federally guaranteed loans (though if your jurisdiction imposes a means test on Chapter 7 filings few physicians will qualify).
Among the downsides to refinancing federal loans is you lose access to a number of flexible payment options that are available from federal loan servicers that may not be available from a private lender. You also put whatever collateral is at stake at risk. For example, if you took out a home equity line to get a lower interest rate on student loans, and you can’t pay as agreed, the lender has the right to foreclose on your home.
5. Negotiate a signing bonus. A recent survey by The Medicus Firm found that new physicians frequently receive a signing bonus averaging over $24,000, with outliers up to $150,000. In fact, more than 85 percent of the slots they filled involved a signing bonus. That money can help you jump-start your student loan repayment plan quickly. Or you can invest it, if you believe you can invest it at a higher rate than your after-tax student loan interest rate.
6. Ask your employer to start a student loan repayment program as an employee benefit. An increasing number of employers are setting up student loan repayment platforms to facilitate employer matching payments or to arrange outright direct employer payments to student loan servicers. Firms are finding that employees with high levels of education debt aren’t very responsive to 401(k) matches they can’t afford to max out, and are looking to attract millennial doctors, lawyers and other professionals. Be aware that student loan repayment assistance, like sign-on bonuses, is taxable as income. Vendors like Tuition.io, a Santa Monica, California startup, are now facilitating these programs for employers.
7. Check your disability income insurance policy. If you’re having trouble working full-time as a physician because of an injury or illness, and you own disability income insurance, your insurance carrier may be able to replace a significant portion of your income. Indeed, that’s what it’s there for. If you don’t already have a privately-owned disability insurance policy, consider getting one in place right away. As a young physician, your health and ability to work as a physician for many years to come is your greatest financial asset for the vast majority of you reading this.
At Doctor Disability Insurance, we understand that you have had to make sacrifices to get to where you are. We are committed to helping you protect your most valuable asset: your ability to earn an income.
Doctor Disability Insurance, Inc. is an innovative, one-stop service that makes disability insurance shopping quick, affordable, and easy to understand. Physicians save time and money by comparing plans and prices from multiple insurance companies. The site provides free quotes from leading names in the disability insurance industry along with friendly and knowledgeable customer support. The best values in the insurance industry are located in one place and are available any time doctors are ready, including late at night and on weekends.
Based in San Clemente, California, President and CEO Charles Krugh is a Certified Financial Planner with more than 15 years of experience working with people in the medical industry.
Call us toll free at 866-899-7318 to speak to one of our disability insurance professionals.