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New law ends loan deferment program

The AMA wants Congress to reinstate the plan to protect residents from unexpected loan repayments.

By Myrle Croasdale, amednews staff. Nov. 5, 2007.

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A new education financing law has many residents questioning how they will manage to start paying back their medical school debt while continuing to train as physicians.

On Sept. 27, President Bush signed into law the College Cost Reduction and Access Act, eliminating a widely used loan deferment program that allowed many residents to delay making loan repayments for three years without accruing interest.

Although the Assn. of American Medical Colleges does not know how many first-year residents took advantage of the deferment option, about two-thirds were eligible for the program that compared salary and debt size to determine whether a resident could afford repayments for the year.

The new law ended that deferment program Oct. 1. A new repayment plan created in the legislation is not slated to start until July 1, 2009. It is unclear what will happen to residents with deferments now that the program is closed, experts said. They may have to start making payments right away or they may be able to continue deferring their payments for the 2007-08 academic year. Either way, with no program in place for the 2008-09 academic year, a resident, regardless of salary amount, who owes $130,000 would have to repay $1,878 a month during that time or go into forbearance, according to the AAMC. Under forbearance, residents don't make loan payments; but they accrue interest on the borrowed money that they will have to repay later.

Once the new program is in place in 2009, that typical first-year resident making $43,000 would see payments decrease to $350 a month.

Kimberly Ruscher, MD, a surgical resident at the University of Connecticut in Hartford with $150,000 in debt, will feel the change. She did not expect to start paying back her loans until she was in practice. Now she says she would have to start making payments while in fellowship training.

"This is a gigantic problem for me, and it's gigantic for medical students and residents across the country," she said. "The rules have been changed on us midstream."

All residents will continue to have one way to delay paying back their loans before completing training -- going into forbearance. Instead of being able to wait three years before using the forbearance option, residents would have to go that route earlier, accruing even more interest on already-large loans. Forbearance is an option throughout residency, but not necessarily fellowship. The practice may end, depending on the fine print on individual loans.

The American Medical Association is concerned that the new financing law will strain residents' finances immediately. Association officials sent a letter to Senate Majority Leader Harry Reid (D, Nev.) asking that the economic hardship deferment program be reinstated and that residents be included in the deferment definition. Barring those changes, the AMA asked that Congress allow the economic hardship deferment program to last until the new income-based repayment program starts in 2009.

The AMA says payments of $350 a month will be too much for many residents. The American College of Physicians also announced its opposition to the new law.

In addition to creating an immediate concern for young physicians in training, the financing changes create another barrier for attracting future medical students, said Chris DeRienzo, a fourth-year medical student at Duke University in Durham, N.C., and an AMA board trustee.

"If you have to pay off the debt right after graduation, this may cause students [considering medical school] to look in other directions than medicine as a career. I don't think this is something America and our patients can afford," said DeRienzo, speaking on behalf of the AMA.

Some rethinking residencies

Dr. Ruscher planned to use deferment and forbearance options to get her through five years of general surgery, one year of public health and one year of a subspecialty fellowship.

Without the economic hardship deferment option, she will go into forbearance a year ahead of schedule. Her loans have forbearance time limits that would then run out when she enters fellowship training, forcing her to make payments she could not afford. "I may not able to do a fellowship," Dr. Rusher said.

It would end her career plans to be a gastroenterologist or a plastic reconstructive surgeon. "My loans are the elephant in the room," she said. "You don't talk about it with people, but it affects every long-term decision you make."

Dr. Rusher is not alone in rethinking her future under the new loan repayment structure.

Jay Bhatt, a fourth-year student at the Philadelphia College of Osteopathic Medicine, has $150,000 in loans and is reconsidering where he may apply for internal medicine residencies. "San Francisco has a very strong program ... but it's tough to look there because the cost of living is so high," Bhatt said. Since the new law passed, programs he was looking at in the South, Southeast and Northeast are more attractive because of the lower living expenses.

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