Medical Residency Personal Finance

Top tips for developing a med school loan repayment strategy


With how high med school debt can be, developing a strategy for paying back your loans can help make handling that debt more manageable. Here’s what physicians in training need to know to develop a sensible repayment strategy.

Paul Garrard, founder and president of student loan consulting group PGPresents, has more than 30 years of experience in student financial aid and higher education. AMA Wire® spoke to Garrard, who recently presented at the 2015 AMA Annual Meeting, about the best ways to develop a repayment plan and which repayment plans  to consider if you’d like to qualify for public loan forgiveness.

AMA Wire: You work with thousands of medical residents and fellows who have questions about student loan repayment. What is one of the main questions or concerns you hear from them?

Garrard: The most frequent question or concern we get is whether or not they should try to take control of their own debt during residency or rely on the federal government for help through one of the forgiveness programs, most notably Public Service Loan Forgiveness (PSLF).

AMA Wire: What do physicians in training need to know about PSLF?

Garrard: The eligibility requirements for PSLF match up well for many medical school graduates, at least during residency, regardless of their ultimate career plans. PSLF is available to borrowers who have Direct Loans (federal loans directly from the government) and make 120 payments with an Income-Driven Repayment Plan like Income Based Repayment (IBR) or the newer version called Pay As You Earn (PAYE) while they work at least 30 hours per week (certainly not a problem for residents) for an eligible non-profit employer. 

[Here’s] how this plays out for many medical residents: First, they already have Direct Loans since the government now makes all federal loans and has for years. Second, many residents cannot afford repayment under any plan other than IBR or PAYE. And third, many teaching hospitals are non-profits. 

So this pretty much guarantees several years towards PSLF eligibility while they are residents, whether they are ultimately interested in public sector work or not, as long as they start making payments [toward the 120 payment requirement]. This is why we tell all medical school borrowers we work with that the decision about pursing PSLF likely comes toward the end of residency or fellowship when hopefully they have multiple job offers. 

They simply “start the clock” towards [PSLF] eligibility [by making payments] during residency.

AMA Wire: What are the drawbacks of starting these repayment plans during residency?

Garrard: The challenge comes in that for many residents, their required minimum payment under these income plans is often so low that it doesn’t come close to covering the interest due on the loans because of how much they borrowed. [This] results in the balances growing even more during residency and fellowship. 

AMA Wire: How can residents approach loan repayment?

Garrard: Many residents we work with can afford to be at least a little aggressive and pay more each month, but they don’t want to as long as PSLF is part of their repayment strategy because they would be paying down their potential forgiveness amount. So they make their minimum payments and watch their balances grow, all the while hoping PSLF will be there for them later. 

Others take the approach of still using IBR or PAYE for a manageable payment, but they overpay on their worst loan any time they can and thus try to take control of their debt. 

We think the latter is a very common repayment strategy, and [it is] certainly a sound one.

AMA Wire: Any tips for how medical school graduates should go about figuring all this out?

Garrard: At a minimum we suggest at least three things for figuring out an effective repayment strategy:

First: Borrowers need to know what they borrowed, who services their loans (companies like FedLoan Servicing, Great Lakes, Navient and Nelnet) and when their loans come due. 

The National Student Loan Data System lists all a borrower’s federal loans and also provides information on loan servicers. Most loans come due about six months after medical school. Step No. 1 is really quite simple, and many recent graduates are finding that all their loans are already with one loan servicer, which negates one of the reasons to consolidate. Borrowers who have other loans not listed on NSLDS (such as private loans) can check their credit report for similar information.

Second: We suggest they take a good look at their own repayment objectives. Do they want to aggressively pay down their debt whenever they can, or do they want to make minimal payments, at least in residency and fellowship, perhaps with an end game of maximizing their potential forgiveness under PSLF?

We always encourage medical residents to review their repayment objectives on a regular basis. We have worked with many borrowers who started out making minimum payments in residency, perhaps with an eye towards PSLF, only to land a job in the for-profit sector after residency that they really wanted, which effectively took PSLF “off the table.” [This] resulted in a new repayment objective geared towards aggressive repayment.

Third: The final step is to pick a repayment plan that will help them meet their repayment objectives with a required monthly payment they can comfortably afford, again remembering they can aggressively pay later if needed with no penalty.

IBR and PAYE are popular with medical residents and fellows because they allow affordable payments when the debt level greatly exceeds income. However, we always encourage borrowers to look at other options as well and to “back into” IBR and PAYE. In other words, they should not assume they cannot afford another more aggressive plan from the start, especially if their debt is relatively low and they have access to other resources, perhaps courtesy of a spouse or partner. There are calculators that can help with this third step, and loan servicers should be able to help as well.

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