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It's no secret that early-career physicians today have mountains of debt after medical school. A debt load of roughly $200k is now the average for physicians who graduated from a public medical school in 2017, while their peers who matriculated from private or osteopathic programs often carry balances above $300k. Exacerbating the issue of med school debt is the fact that interest rates for doctors transitioning to practice today average nearly 7%.
Increasing physician debt levels and available federal and state repayment and forgiveness options have dramatically changed the economics of becoming a physician, and these factors are beginning to impact career decisions. As a young doctor today, it's imperative that you understand not only the basics of loan repayment, but which med school debt repayment programs complement or conflict with your economic profile as well as your career trajectory. The article was drafted to help you understand the marketplace today so that you can make informed decisions as you progress through training and into practice.
Probably the most generous med school debt forgiveness program you can leverage today is Public Service Loan Forgiveness (PSLF). Enacted by Congress in 2007, it offers tax-free loan forgiveness for anyone directly employed by a Federal, State, or local government organization, or directly by a 501c(3) non-profit for 10 cumulative years if you are also using a qualified repayment plan over this time.
For many medical school graduates who begin using an Income-Driven repayments plan during their training, this program offers a much lower out-of-pocket cost than the amount borrowed. Residency and Fellowship typically are considered "public service" (90%+ of teaching hospitals are qualified employers), and the IDR plans make economic sense during that time anyway. As a result, an increasing number of physicians today are...and perhaps should be...seeking PSLF-qualified job opportunities post-training to help pay off debt after medical school.
But due to an evolving legislative climate, recent and proposed changes may impact the appropriate action plan to maximize PSLF, and understanding the marketplace is critical to maximizing your savings opportunity.
An overlooked, and critical, consideration is what we call the "PSLF Salary Equivalent." While we understand that in some cases non-profit employers may offer lower salaries than competing for-profit groups, student loan savings should be factored into the economic analysis of any PSLF qualified job, which can often make non-profit roles more economically attractive in the years that PSLF is available. In one case study, for the six years following a four-year training term, the non-profit salary was worth an additional $72k per year in salary, comfortably surpassing the for-profit offer in hand.
In order to maximize this unique opportunity to pay off debt after medical school in today's marketplace, a borrower must be strategic in managing their loans from medical school graduation, and remain informed and strategic throughout training to maximize savings.
If loan forgiveness isn't an option, an alternative strategy for paying off med school debt is refinancing. Simply put, refinancing refers to taking out a new loan with a lower interest rate from a private lender or bank, and using the proceeds to pay off the original student loans... a strategy that in many cases can save many physicians tens of thousands of dollars.
The refinancing marketplace has evolved rapidly over the past few years, with the products, rates, and list of participating banks constantly changing. It's important that you understand the current marketplace, or have a reliable advocate who can assist with the process and help determine when refinancing med school debt is suitable.
DWOQ offers FREE refinancing suitability analysis and marketplace advocacy for physicians wondering if lower rates are available, and refinancing will provide greater savings than any of the federal programs. You can learn more and register here.