Closing the gap

Physicians share how they’re handling home buying, family starting and retirement planning along with the reality of student loan debt.

By Marcia Horn Noyes | Feature Articles | Winter 2015

 

Seth Eisdorfer, M.D.

Seth Eisdorfer, M.D., an anesthesia fellow at Children’s Hospital Colorado, purchased a home by using a physician-loan program that his wife discovered.

As if life decisions aren’t difficult enough, it’s no secret that indebted graduates find that the added weight of student loans can make their choices about what comes next in their lives all the more arduous.

That holds even more true for new physicians—especially those who delayed decisions about home purchases, retirement planning, marriage and starting families in favor of finishing training first.

The growing student debt obligation, which now stands at $1.2 trillion, has been painted in some media as “America’s coming student loan apocalypse.” Some graduates not only play “kick the can” down the road on loans, but also on crucial life milestones. For new physicians, the crushing debt load may even alter long-term decisions about practicing medicine.

But hope is on the way.

Several companies have discovered the need for products and solutions that ease the monetary burdens faced by new physicians.

By creating innovative solutions around the issues of debt, physicians are better able to close the gap between their dreams and reality. Knowing what’s available can help you more easily move into your first job, start a family, begin saving for the future, and participate in the economy while putting your full focus on your patients.

It also helps to know you’re not alone. Read on for how other young physicians are planning to make their futures bright.

Making the house call

One thing unique to physicians is the length of their continued education even after they graduate medical school. This length of training time extends the Income-Based Repayment (IBR) option for recent medical school graduates. According to the American Association of Medical Colleges (AAMC), on average, a medical student making a little over $50,000 as a resident now pays just over $400 a month with IBR, regardless of their student loan debt. That’s no more than a car loan, so where’s the catch when qualifying as a new borrower for a home loan?

A traditional home mortgage must take into account the full student loan debt and thus assume a full monthly payment, which can often exceed $1,000 per month.

Most student borrowers rarely qualify for a mortgage through those traditional channels, and renting becomes the default option.

One company working to provide a way for doctors to get into a home of their own is PhysicianLoans (physicianloans.com).

Tal Frank, president of PhysicianLoans, the specialty division of Tower Mortgage Corporation, says their family business started in 1993 when three disparate things happened near the same time. His mother, then president of the company, closed a loan for a physician client using a precursor to a true physician loan. At the same time, Frank’s younger brother was in medical school while Frank attended Ohio State and also worked for the mortgage company.

“One day, my marketing professor said something that just clicked with me: ‘Above all else, you must understand the power of serving a niche,’” says Frank. “Once we saw how this particular loan went, we then actively pursued special mortgage financing that accepted the IBR student loan financing.” The loans started out at five percent of their business and gradually grew. Frank says that physician loans now account for more than 95 percent of total revenue.

“A true physician loan is a portfolio loan, and there’s no secondary market for those—meaning they are not sold back and forth like other mortgages,” explains Frank. “Many banks want to get into this space, but they can’t do a large volume of portfolio business, because it must sit on their books.”

Frank says those who use PhysicianLoans fall into two categories: those who are graduating medical school or residency, and those who have finished residency and are now practicing.

Physicians within these two groups typically need special financing because they don’t have cash for down payments and have much more student loan debt than those in other professions.

Seth Eisdorfer, M.D., a fellow at University of Colorado Department of Anesthesiology working at Children’s Hospital Colorado, is one such doctor. Even though he graduated from Colorado College without undergraduate loans, his debt after graduating from the University of Miami Miller School of Medicine totaled about $260,000. At the time of the interview, Eisdorfer had not begun repaying that loan.

“My government loans are still in forbearance, but if I were to estimate, I’d say the monthly payment would be around $2,200 per month,” he says. Once he became an attending physician, Eisdorfer purchased a home, saying it was less of a nail-biting experience than he thought. “I wasn’t sure I’d be able to afford a home, but I found out about PhysicianLoans through my wife, who had more time to research what options were available to us.”

Years ago, a graduate student or resident had only a few options for buying a home: a subprime loan with no money down and higher interest rates; a parent as a cosigner; or a parent bought the home and the physician repaid the parent.

“Very few options were available because a newly practicing doctor rarely had the down payment stipulated in the Fannie Mae and Freddie Mac guidelines,” Frank says, and explains that though special financing did exist long ago, he says it was not widely used.

Another physician who has benefited from specialized physician home loans is Aaron King, M.D., a family medicine physician with BHS Physicians Network in San Antonio. He worked through a local bank to buy a starter home right out of medical school. “We got 100 percent financing with zero down; otherwise we couldn’t have purchased it, because we had no savings,” King says.

Raphiel Heard, M.D.

Raphiel Heard, M.D., purchased a home during medical school with help from family–and now rents it out to students while he completes residency in a different state.

Virginia Commonwealth University resident Raphiel Heard, M.D., purchased a house with the help of family while still in medical school at LSU Health Science Center in Shreveport, Louisiana.

“From medical school, I only carried forward roughly $165,000 to $175,000 in debt—definitely lower than the national average, but that’s probably due to the lower tuition rates where I went to medical school,” he says.

Now, while in residency, Heard rents an apartment in Virginia and has turned his Shreveport home purchase into a business venture where he acts as a landlord for other medical students who rent his house. Though Heard held some uncertainty about purchasing the home, he says that concern was put to rest by the knowledge that better salaries would be available a few years down the road.

In fact, Frank says statistics prove that for physicians with very good credit, their likelihood of defaulting on a mortgage is slim to none. “The same can’t be said for other occupations,” he says.

Frank says other factors contribute to the case for providing physicians with special home mortgage financing, even though those same physicians may be saddled with huge student loan debt:

  • Physicians won’t typically find themselves unemployed at any point in their careers.
  • If physicians maintain good credit undergraduate through medical school, that trend tends to continue.
  • Physicians who have good credit show a higher level of responsibility.
  • Physicians tend to take a job and remain a part of the community for a long time.

Says Frank: “The Association of American Medical Colleges tracks the repayment rate of their students, and medical schools have the highest level of repayment compared to other occupations.”

Saving for the future

Two-time world heavyweight boxing champion George Foreman once said: “The question isn’t at what age I want to retire; it’s at what income.”

According to John Collins, managing director for Waltham, Massachusetts-based GL Advisor, a company that provides student debt advice to professional graduates, a lot of young physicians think they can’t participate in retirement plans until they make a dent in their student debt. “However, we can assess which programs are the best options for helping them relieve their debt burden while saving for retirement. It’s definitely part of the equation,” says Collins.

GL Advisor got its beginning at Harvard Business School when the company’s founder took a class that covered debt markets and how investors are paid. The GL Advisor founder raised a dissenting view that student loans are handled differently than typical debt and therefore should be treated in a different way. The company now advises clients on various consolidation tactics and repayment programs, and company leaders are in hot demand as speakers at medical schools.

Caleb McCall, M.D., is an Internal Medicine resident with Jefferson University Hospitals. “While doctors’ earnings eventually make up for their relatively much lower salaries in residency, many residents are focused on just starting to pay loan debts as soon as they can instead of using their income to buy a house, a car or thinking about saving for retirement along with their non-physician contemporaries,” McCall says.

McCall’s medical school roommate agrees. “Just as I haven’t paid off loans, I’ve also not saved for retirement,” says Heard. “I don’t have a lot of experience in investing, and I wonder how steep that learning curve will be.”

Heard says that other engineering-type friends have been saving for retirement for the past seven or eight years, so “I’ll have to aggressively pursue the same while simultaneously paying off debt.”

“I suspect that most physicians don’t start saving for retirement until after the age of 40,” Dr. Aaron King says.

Tal Frank says physicians are pretty much at a high negative net worth at least until their early 30s to mid-30s. “The difference with them is that the doctors who manage their financing can dig themselves out pretty quickly,” explains Frank. “Even at the low end of the pay scale, a doctor can make $120,000 to $180,000 right out of residency.”

Eisdorfer says that day is right around the corner for him, but when compared to his friends that went the engineering or legal route, he’s way behind the eight ball. “I’m 35 years of age and I’ve only been saving for retirement for 10 months,” he says. “I’ve seen the numbers. As I start saving for retirement now, I know that friends who have been putting $1,000 a month away from the age of 25 will have more money than I will at retirement age.”

With this ring, I thee wait

In a 2013 American Student Assistance (ASA) survey, 29 percent of respondents said they had put off marriage as the result of student loans, while 43 percent indicated that student debt had delayed their decision to start a family.

“Debt may likely play a factor in delaying any decision I might make about marriage in the future,” says Heard.

The economic insecurity prompted by student loans extends far beyond marriage into decisions about children.

Anesthesiology resident Eisdorfer had his first child during residency, while King and his wife, who is also a physician, have decided to postpone having children until her medical school debt has been repaid.

The current ASA survey shows that about 41 percent say they can’t afford to have kids and pay off student loan debt at the same time.

Overcoming the debt burden

McCall says that loan debt can be quite crippling on physicians.

“I know quite a few people that stay in medicine after residency for only one reason—they are saddled with debt. Some doctors would explore other careers if they had the chance,” McCall says.

“Some doctors finish residency and immediately begin buying a few things and start having fun after years of doing without. In a few years, they may have more toys, but are in no better shape financially,” says Tal Frank. “With each year, life gets more expensive. But if physicians adhere to a budget from the beginning, they can be completely debt free by the time they are 40.”

Marcia Noyes is a frequent contributor to PracticeLink Magazine.

 

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