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  • Writer's picturePhysicians Financial Design

A Physician’s Guide to Student Loan Strategies

Updated: Oct 10, 2022

Introduction

My dad likes to tell people that the smartest thing I’ve ever done is marry a doctor. And while I agree with him that marrying my wife was the smartest thing I’ve ever done, I also remind him that I didn’t actually marry a doctor. I married a broke college student who was about to take on four years of med school debt and then go work for peanuts in residency for four years. Financial journeys like ours are what distinguish the young doctor from just about any other young professional and often creates a unique financial challenge in the form of student debt. With that said, it’s no wonder that when I asked a group of residents to share their most important financial questions with me so that I could answer them on The Money Malpractice Podcast, almost every question swirled around the topic of student loans.


According to the AAMC, the median four-year cost of tuition and other expenses for medical school at a public institution is around $250,000, while private colleges come in around $330,000. And this doesn’t even account for any undergrad debt that could have been accumulated! It’s no wonder that I see so many young physicians come to me with hundreds of thousands of dollars of debt! And it’s also no surprise that a debt elimination strategy is one of the foundational pieces for most financial plans that we put together for physicians. In this article, I will summarize the conversation from the latest episode of The Money Malpractice Podcast – where I asked a group of young doctors at a local residency to hit me with their questions and I promised to answer them all on the podcast!


Q: Will I qualify for President Biden’s $10,000 Federal Student Loan Cancellation initiative?

Keep in mind that this announcement is still hot off the press and most details have not emerged yet. However, it appears that the biggest variable determining whether you qualify will be your income. We don’t know yet if this refers to your previous year’s income or what you’ll earn this year. For someone who recently transitioned into an attending position, this can make a big difference. However, if you are a resident, you can probably safely assume you will fall under the income cap of $125,000 per individual or $250,000 per household. Also, if you formerly received a Pell Grant, you may be seeing relief of $20,000 of your debt balance. If you are on an Income-Driven Repayment Plan (such as IBR, PAYE, or REPAYE) you may see a credit show up in your account automatically because the USDE already has your income data. For other borrowers, we are expecting to see an application become available at the beginning of October. Once we know what that looks like, I’ll be sure to provide an update! As a side note, there is some chatter that this Executive Order may be challenged in court, so be sure to tune in to the podcast for updates as they come available.


Q: Do you recommend PSLF (Public Service Loan Forgiveness)?

PSLF can be a great strategy for eliminating your student debt. A significant aspect is that a physician of any specialty and in any region of the US (other than Texas and California) can qualify unlike many other programs. It’s important to keep in mind the three things that are required to qualify for the program.

  1. You must make 120 qualified payments (the equivalent of 10 years of monthly payments).

  2. You must work full time (30+ hours) for a qualified employer (a 501(c)3, a government agency, or other non-profit public health organization) CLICK HERE to find out which employers are qualified.

  3. You must fill out the annual employer certification and application forms properly.

Understanding how the program works is essential if you plan on pursuing this program as part of your overall financial picture. Keep in mind that this program requires 10 years of payments and the standard loan repayment schedule is 10 years, so if you are not on an Income-Driven Repayment Plan, then you won’t have any loans left to forgive at the end of your 10 years. For this reason, physicians who were (or currently are) a resident or fellow for a qualified employer can use these training years to count toward the program as long as they were making payments along the way. Also, if you have a significant amount of debt, you may still qualify for an IDR Plan based on the formula that the USDE uses to calculate your payment.


Q: If pursuing PSLF, when do you recommend starting the process?

If you have a plan in place to pursue PSLF, it’s usually best to make sure you take advantage of your lower income earning years during your training. Keep in mind that the PAYE and REPAYE Plans will lower your monthly payments, but still count as a qualified payment towards your 120 payments required. However, if you wait until your income jumps to make regular payments, then your payments will be higher and you will end up paying more over time until your 10 years of payments have been complete.


Q: If not pursuing PSLF, when should I start repaying my student loans?

Unfortunately, the answer to this question is the typical “it depends” response we financial planners often rely on. As I mentioned in a recent episode of The Money Malpractice Podcast, everyone’s financial plan will be different, but the question of “when” needs to start with a “why”. All of your financial decisions should be structured around your life’s ambitions, keeping in mind that your money is your tool for accomplishing them. So with that said, I recommend that we review your situation together and come up with a strategy that fits your long-term goals. The conversation is free, so you might as well!


Q: Are the PAYE Plan (Pay As You Earn) or REPAYE Plan (Revised Pay As You Earn) a good idea?

The more effective question here might be, “Are PAYE and REPAYE a good strategy for eliminating my debt?” I believe there are two ways to tackle that question. The first is to point to the previously referred upon strategy that an Income-Driven Repayment Plan is essential for the PSLF Program to have any kind of benefit, so without the PAYE or REPAYE Plans, PSLF would be pointless. Outside of the PSLF strategy, the answer again would depend on the balance between your current and long-term goals. If your student debt is overwhelming compared to your current income, then it may be a necessary step to help you get through your training years, but remember that you are only delaying the inevitable (and paying more interest along the way) if you wait to pay back your loans.


Q: Are there any other loan forgiveness programs out there?

Yes! Depending on your specialty, you may qualify for the NHSC Loan Repayment Program. This is mostly designed for providers in rural communities. To apply for the program, you’ll need to show that you are working for (or intend to work for) a qualified employer. These employers must take the initiative to apply to the program as well, but most are happy to oblige because it will make them a more attractive destination for providers. So, what happens if you are accepted into the program? You will receive a check for up to $100,000 to be used towards your student debt! There are a few different sub-programs within the NHSC Loan Repayment Program, so you’ll need to know which ones you qualify for before you apply. Each has their own requirement for how long you’ll have to work at a qualified site, but the longest is 3 years, so it may be a more efficient option than the 10-year PSLF requirement depending on the size of your debt balance. In addition, many states offer their own Loan Repayment Programs as well, so I would recommend checking with your state to see if this is an option for you. And of course, since I’m pretty familiar with the process, I’d be happy to walk you through the details if you have more questions.


Don’t be afraid to ask for help!

I hope you’ve found this conversation about student loan repayment strategies helpful. If you have any other questions or would like to get more details on any of the topics discussed today, please don’t hesitate to shoot me an email (bzimmer@physiciansfd.com) or schedule your free financial review by clicking on the big yellow button at the bottom of this page.


Next time on the podcast, we will cover all the non-student loan related questions that I received from our group of residents, including questions about asset protection, tax reduction strategies, and what to do with that nice big signing bonus!


Thanks for reading! For more articles geared toward young physicians and their money, click here or check out The Money Malpractice Podcast on any of the major platforms.


Until next time…KEEP SAVING LIVES AND KEEP SAVING MONEY!


Disclosures

• RichMark Private Wealth Management. LLC is registered as an investment adviser with the State of Michigan, and only transacts business in states where it is properly registered, or is excluded or exempted from such requirements.

• Content should not be viewed at personalized investment advice. Market events and other factors may affect the reliability of the potential outcomes. Simulated growth is purely hypothetical and does not represent actual performance.

• Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client's portfolio.

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