As a student debt advocate for graduate health professionals going on 10 years, I’ve seen myriad changes in the student loan marketplace in recent years. Today, there are more than 10 federal repayment plans available, including several income-driven repayment (IDR) plans that offer affordable loan payments and potential forgiveness, most generously through an increasingly-utilized Public Service Loan Forgiveness (PSLF) program.
We’ve also seen the growth of a private refinancing marketplace and more than 75 federal and state loan repayment programs to those who work in select rural or underserved areas for specified amounts of time.
In addition to the federal and private options available, physician employers are increasingly offering their own student loan benefits in the form of upfront bonuses for student loan repayment, annual repayment and, most recently, “contribution” platforms that pay down student debt monthly.
Physicians today are finishing up medical training with an average of over $200,000 in debt, and many of you are carrying twice this amount. So how do you make sense of all these repayment and forgiveness options to ensure you’re maximizing your savings opportunities?
Federal loan forgiveness
The average medical resident earns slightly more than $50,000 per year, and the average monthly payment on a 10-year Standard plan at $250,000 in debt is around $2,800 per month. It’s clear to see then why payment relief is needed during training. This relief often best comes in the form of one of the federal Income-Driven Repayment (IDR) plans. These plans offer reduced payments along with generous interest and forgiveness benefits.
There’s a “fork in the road” often reached when you’re transitioning to practice, because until you know you no longer qualify for federal forgiveness and earn enough income to pay down debt more ambitiously, refinancing your loans to a private lender is often not appropriate.
In a majority of projections I run for graduates who qualify for the PSLF program, after 10 years of qualified employment including residency and fellowship, the amount paid is $150,000 or more less than what they borrowed.
Note that residency and fellowship programs are typically nonprofit and PSLF-qualified, so borrowers are able to count these years toward the 10 required for PSLF.
Employees at for-profit organizations and independent contractors do not qualify for PSLF. Some employers in these situations may offer upfront or monthly student loan repayment as a benefit. Refinancing is almost always appropriate if available, but a borrower’s underwriting profile will ultimately dictate how competitive rates will be.
Nonprofit and public service employers
Employees at nonprofit organizations and in the private sector uniquely qualify for PSLF. Approved by Congress in 2007, this program provides a path to tax-free loan forgiveness for anyone directly employed by a federal, state or local government organization, or directly by a 501c(3) nonprofit.
PSLF “salary boost”
But not all nonprofit employees should be pursuing PSLF. If the payments required in an IDR would pay off all eligible federal loan debt in 10 years, there’s no benefit and refinancing would be appropriate.
A critical consideration is what we call the “PSLF Salary Boost.” In a sample candidate analysis, we calculated that for the six years following a four-year training term, a nonprofit employment offer was worth an additional $72,000 per year in salary when the reduction in payments from PSLF was contemplated. (Determine your “boost” with the free tool at bit.ly/3506Hrf.)
Federal and state repayment programs
The AAMC publishes a comprehensive list of available federal and state loan repayment programs at bit.ly/39n3k1a.
It’s important to note that PSLF can also be used if a federal or state repayment program qualifies and doesn’t eliminate all of your debt, but there is an overlap of benefit in that the repayment amounts reduce debt positioned for forgiveness through PSLF.
Some employers will offer upfront money or annual payments (such as $20,000 per year for up to five years) to be allocated toward student debt, which is considered taxable income. Increasingly common are “contribution” plans, where an employer makes a pre-determined monthly payment to an employee’s student debt servicer. Proposed legislation may allow both employer and employee to receive a tax break when a student loan benefit is offered, and I’d expect this type of offering to grow exponentially if such legislation is passed.
You won’t know what student loan benefits might be available to you if you don’t ask!