How to manage your student loan debt

In a recent study, Medscape reported that more than 20 percent of physicians will still be carrying medical student loan debt into their mid-40s. When you look at the numbers, it is easy to see why this is the case. 

The average cost of medical school is staggering, with public schools averaging more than $200,000 in total costs and private schools averaging more than $275,000. Once they enter residency, most physicians have to defer any med school loans for three to five more years. With interest accruing over this time, the total amount of debt climbs each year.

Physicians are certainly compensated well upon completion of residency. The benefits of these high salaries, however, are mitigated quickly when you factor in student loan repayments of $2,000 or $3,000 monthly. 

It is important that physicians take control of their debt if they hope to prosper financially. Here are some pointers on managing and reducing your debt burden.

Confront the amount you owe

The Association of American Medical Colleges reports that the average medical school debt for the class of 2015 was more than $180,000. When paid with interest over the long term, this amount can end up costing some physicians more than $400,000. 

Physicians sometimes cope with debt by simply ignoring it as it accumulates. Though this may work when you are a student, as you move into residency and begin repayment, you have to understand your options and decide how loan repayment will fit into your budget.

You will have the opportunity to select a repayment duration for your loans. A longer duration requires lower monthly payments but results in more interest over time, and vice versa for a shorter duration. You will most likely need to take the lowest monthly payment option if you rely solely on your own salary as a resident. 

Once you begin earning the salary of a full-time physician, however, choosing the lowest payment option may be unnecessary—and it’s unadvised given the resultant interest and tax payments. Regardless of the repayment strategy you choose, confronting your debt at the onset of your earning is crucial.

Pay extra toward your debt each month

Budgeting is key to keeping yourself financially fit and on pace for retirement. Even when you begin making a few hundred thousand dollars per year, you will need to account for every penny. 

There are many services you can use to set yourself up for financial success. A certified financial planner is one that can be extremely beneficial as you figure out how to navigate your loan repayment. Hiring a financial planner to get deep into the numbers and forecast different financial scenarios will most likely save you money in the end, not to mention the stress of managing your own finances.

As you lay out the framework of your budget, set aside some extra money each month to provide a cushion after you have budgeted for your expenses. Putting this extra money (or at least some of it) toward your loans can speed up the repayment process. For example, if you pay an extra $500 per month over a 15-year payment plan, you can knock off an extra $90,000 in that time—on top of the amount you’ve already paid through your required monthly payments. 

For most physicians, this would amount to about a fourth of your entire student loan burden (after interest accumulation) being paid off sooner than you had scheduled.

Take advantage of loan forgiveness options

If you do not want to take on the burden of thousands of dollars of debt or want someone to help ease your debt burden while you pay it off, you have a few options. The first is military service—in exchange for serving as a physician, you can get your medical school costs entirely paid for. 

This is a good option for physicians who are interested in serving and have the flexibility to move often. Plus, if you take this route, you’ll earn an annual stipend during residency.

Another option for reducing your debt burden is to participate in the Public Service Loan Forgiveness Program (PLSF) or the Indian Health Service (IHS). These programs require you to work for a designated amount of time in a health shortage area, and, in exchange, they pledge a certain amount of loan forgiveness each year (up to a certain number of years).

For example, you may have $30,000 of your loans forgiven for up to five years, resulting in $150,000 of your loans being repaid on top of what you pay out of your own salary. Similar to military service, this type of loan forgiveness requires the physician to be willing to live somewhere that is most likely unfamiliar, so it is important to consider whether it’s more important to you to live in a certain location or to pay off your debt faster.

Negotiate for employer student loan payment

Your opportunities for loan repayment are not strictly limited to government programs. Many employers are now offering loan repayment as incentives to get physicians, especially new ones, to sign with them. 

This is a benefit you can negotiate in your contract. It’s similar to the PLSF in that you typically promise to work for a number of years in exchange for annual loan repayment. This is a good option for those who intend to stay in a location for an extended period and find that the workplace meets their needs.

Accumulating significant debt is inevitable for many physicians. Though it’s stressful to think about paying it off, you have options to ease your burden.

Whether it is sitting down with a professional to hash out your repayment plan or participating in a debt forgiveness program, there are avenues through which you can pay down your debt and secure your financial freedom.

Ideally, you will also keep a pulse on your loans throughout your medical education and training and, as much as possible, minimize the use of loans for unnecessary expenses.