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A Doctor's Guide to Student Loan Repayment.

$180,723 - What does this number represent?

Your total salary from PGY-1, PGY-2 and PGY-3 combined? Close but no.

The cost of your first Tesla after you graduate medical school? Teslas are not that expensive (yet) but good guess.

That is the average amount of medical school debt for freshly-minted physicians in 2015 according to the Association of American Medical College (AAMC).

With PGY salaries ranging from $50,000 to $60,000 this may seem like a math equation that does not add up; however, we know that first medical contract will drastically increase your salary.

Especially with increasing costs and a decline in reimbursements due to the Medicare and Medicaid pay cuts in 2015 from the Affordable Care Act, student loan repayment should be a major part of any physician’s financial planning. After 12+ years of schooling, the last thing you want to be worried about are financial issues!

So what do you do?

Start by Getting Organized

Find out exactly what you owe in student loans. List your loan providers, interest rates and loan amounts.

If we stick with that $180,723 and add a 6% interest rate with a 10 year repayment plan, you will be paying $2,006 per month. Now that number may not sound all that bad based on your new contract but let’s be honest, that is not a small number! Keep this in mind when shopping for that new home or sexy car right after graduation. If planned correctly, you will have plenty of time to buy your dream home(s) and have a garage full of beautiful cars.

It’s now official, you added up all your loans and you owe $180,723 (magic how that adds up!). How the heck do you pay these back? Let's go over your options.

Option: Refinance Your Student Loans

Your goal here is to get any of your private loans consolidated. This is NOT recommended for Federal loans; you lose a lot of repayment options including two very important ones, Income-Based Repayment (IBR) and Pay As You Earn (PAYE). Consolidating should allow you to get a lower interest rate and help get your private loans organized. A lower interest rate could save you thousands of dollars throughout the life of your loans.

Shop around for the best rate, and a high credit score also helps a lot with that interest rate!

Consolidating Private Loan Providers: First Republic Bank (Over $60K), CommonBond, So-Fi and Earnest

There are plenty of other options out there as well, be sure to shop for the best rate.  Also check out Studentloanhero.com, a great site to help analyze possible providers.

Option: Income-Based Repayment & Pay As You Earn

Income-Based Repayment (IBR) and Pay As You Earn (PAYE) help ensure that any career path is affordable by allowing medical residents and physicians to cap monthly student loan payments at either 15% (if started borrowing before July 2014) or 10% of your discretionary income.

After 25 years of IBR or 20 years of PAYE, your remaining federal educational debt is forgiven (key word is federal, not private loans). There is no limit to the amount of student loans that can be forgiven, so medical students stand to benefit the most.

Important: If you work as a physician in the government or non-profit sector for 10 years, your loans may be forgiven, thanks to the Public Service Loan Forgiveness (PSLF) program. The key is to make sure they are Direct loans and make 120 (10 years) payments based on an income based repayment plan.

Forbearance: Medical residents who do not wish to begin repaying their loans during residency have the option of going into forbearance. With forbearance, no payments are required, however, interest continues to accrue and the federal government no longer pays interest on the subsidized portion of a borrower's loans. Also, interest may be capitalized under forbearance, making this a more expensive option for borrowers.

Let’s use an example: Assuming you have $183,000 in federal loans and you use Forbearance during residency (3 years) and then after residency you go to a standard repayment plan.  Your monthly payment would be $0 per month in residency (forbearance) and then go up to $2,700 per month for the next 10 years. When it’s all said and done, you would have paid total of $329,000 which includes $146,000 of interest.

Option: Signing Bonus!

Full disclosure: I am a huge Indianapolis Colts fan so let use a fun sports fact for this example. In 2004, Peyton Manning signed a HUGE 7-year contract with a signing bonus of $34.5 million (correct, that is only the signing bonus).

Why does this matter to you? It is time to get your signing bonus!  Now, I don’t think it will be the same as Peyton’s bonus, but that’s okay!

Many hospitals/employers are offering signing bonuses to physicians as an incentive to work for them.

Modern Medicine Network says that bonuses are becoming more popular due to the shortage of primary care doctors. The range is between $24,000 and $150,000. Imagine what a $75,000 bonus could do for you. Not to mention, it could pay off nearly 42% of your loans!  Don’t buy the Tesla!

Make sure you read your contract; this should be a true bonus and not something that you slowly get from paycheck to paycheck. 

Option: Join Uncle Sam and the Military

I bet you didn’t see that one coming! We all know that the military will pay for college tuition, but I bet you didn’t know they also pay a large stipend AND a grant while in residency.

Here is an example from the Navy Financial Assistance Program (FAP)

  • Join as a medical resident and get an annual grant of $45,000 on top of your residency income. You can use that grant for debt repayment each year. Let’s assume a four-year residency; you would get $180,000 in extra income during residency. You could use that to pay off the vast majority of your medical school loans!
  • On top of the $45,000 grant, you will get a monthly stipend of $2,179 to help with living expenses for up to 48 months. Add that to an average resident’s salary of $50,000-$60,000 and you have the ability to take care of any other debt you may have or start investing!

Typically you will have 3-5 of active duty depending on your agreement and specialty. You would enter as an officer and treat the brave men and women who serve our county!

Option: Working in a Health Shortage Area

The AAMC (Association of American Medical Colleges) has published a comprehensive list of each state and program that offers federal loan forgiveness programs on their website. This includes the public service loan forgiveness program and scholarships for those in the medical field.

A few are only for those new to medical school. You can apply if you are a resident or looking for your first job as a physician.

Many residents and medical professionals believe it’s difficult to get scholarships while in medical school or to find significant repayment options outside of residency. With some solid research (start at the AAMC website), you can find numerous opportunities!

You didn’t spend 12+ years in school/residency to pay back loans for the rest of your life. Get these loans paid off, and start to enjoy the income you deserve!