As you might imagine, doctors exit their education with a lot of student loan debt. This debt load is exacerbated with the elongated timeframe between graduation and becoming a practicing physician. These intervening years are extremely important for managing debt over the long haul.
What is the average student loan debt for doctors?
According to the Association of American Medical Colleges (AAMC) doctors come out with a significant amount of student loan debt. One of their recent reports (2021 All Schools Summary Report) shows medical students coming out with an average of 200K in student loans. My professional experience shows it is not uncommon to encounter graduates with significantly higher amounts.
What are the best strategies for doctors to pay down their student loans?
Doctors will generally take one of two pathways in dealing with their student loan debt. The first is payoff outright. The second is loan forgiveness in its many forms, most notably Public Service Loan Forgiveness (PSLF). Luckily, most doctors will make a very respectable income after training is complete. In other words, they have options other borrowers do not in terms of payoff. This does not mean, however, that mistakes will not be costly. In fact, since doctors are working with larger loan balances, missteps can easily cost thousands.
First, let us discuss the payoff option. This is a typical path for doctors who will not work in government, military, or nonprofit settings. This would include doctors planning to work for a for-profit physician’s group and/or bypassing programs like PSLF. For doctors considering payoff, one thing to consider is how to ramp up income either 1) quickly or 2) through a specialty. Many on this track consider refinancing at lower rates, if possible. Also, see if your employer will make payments on your student loans as a part of your benefits or compensation package.
What should I do with my student loans during residency?
For doctors considering student loan forgiveness, residency is a very important period for planning. Why? Because doctors have lower incomes during this training period ($50-60K). It is easy to get a mandatory forbearance from a servicer, but residents have the option to consolidate student loans after graduation and start making qualifying payments toward PSLF at lower incomes. If in an Income-Driven Repayment Plan (see next section), lower incomes mean lower payments and therefore, greater loan forgiveness after 120 qualifying payments for PSLF. Granted, residents must maintain qualifying employment (a nonprofit organization or state hospital, for instance) but this is certainly a strategy to consider. If you take this pathway, be sure to submit PSLF forms regularly to track and confirm progress toward forgiveness.
What are the best Income Driven Repayment (IDR) plans for doctors?
Generally speaking, resident doctors looking to benefit from PSLF have two primary IDR plans to research: PAYE vs. REPAYE. Each has its own advantages and disadvantages. REPAYE has a great interest subsidy but requires the reporting of joint income (a disadvantage when certifying income for an IDR plan) with no cap on monthly payments. On the other hand, PAYE allows for the filing of separate tax returns for reporting income and has a cap on monthly payments. As you can see, the right IDR plan choice will depend on your specific situation and your plans after residency as an attending physician. In my humble opinion: it pays to speak with someone who knows what they are talking about before making the decision on which IDR plan to pursue.
Even better, borrowers on an IDR plan have the advantage of “double-dipping” by lowering their AGI through common financial planning strategies for retirement and health. In other words, contributing to certain tax-advantaged accounts can lower AGI which will also lower student loan payments. Make sure to work with your CFP® or CPA to explore more.
Are there other loan forgiveness programs for doctors?
Yes. PSLF is not the only loan forgiveness program for doctors to consider. The military (Army, Navy, Air Force) has great programs for doctor loan forgiveness. Other programs include the National Institutes of Health (for research careers) and the National Health Service Corps (Indian Health Services, licensed primary care clinicians, and substance abuse clinicians). Don’t forget lucrative state-based loan assistance programs (see this website for a directory from the AAMC).
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Disclaimer: Gradmetrics LLC is a college planning company and does not claim to provide financial advice on investment products. Refinancing federal loans causes the borrower to lose access to income-based repayment plans as well as other incentive programs like Public Service Loan Forgiveness. Gradmetrics LLC is not a debt settlement or debt relief company. We do not provide tax or legal advice.