Today’s doctors are starting their careers with more debt than any other previous generation. This is partially due to a sharp increase in tuition, but it is also due to the changing demographics of medical students. Today, more medical students are married with children and are already living a pricier lifestyle than when they begin their schooling. Balancing this lifestyle with a large amount of debt may seem overwhelming. If the debt is from a federal loan, developing a strategic approach to repayment can ensure you are one of the many physicians that manages to repay your debt in a timely manner.

Federal Loan Repayment Programs
It is not uncommon for a physician’s monthly student loan payment to exceed $3,000. This payment is crippling for a new doctor with a modest resident salary. That is why it’s important to find the right repayment plan for your unique situation. A standard repayment plan assigns a fix payment amount that will have your debt repaid in 10 years or less.  This plan can be unaffordable for a physician with six-figure debt. Luckily, you have options. Many physicians with federal loan debt have turned to income-based repayment (IBR) plans or pay as you earn (PAYE) plans. With these plans, payments are determined by your income, therefore lowering initial payment amounts.

•    Income-Based Repayment (IBR): Loan payments are kept to 15% of discretionary income. This means your payment starts out lower than payments under the standard 10-year plan, but the payment amount changes as your income changes. You eventually pay more interest than you would with a standard plan, but if you have not repaid your loan in full after 25 years, any outstanding balance is forgiven.

•    Pay as You Earn (PAYE): Loan payments are kept to 10% of discretionary income. Like the IBR plan, your initial payments are low, but as your income increases, so do your payments. You pay more in interest over time, but if your loan is not repaid in full after 20 years, any outstanding balance is forgiven. Unlike IBR plans, to qualify for PAYE, you must prove that you have a partial financial hardship.

Forbearance
•    When it comes to balancing finances, some doctors have gone the route of forbearance. With forbearance, you can cease payments or reduce your monthly payment for up to 12 months. This is ideal for individuals serving in a medical or dental internship or residency program when debt is high and income is low. Interest will continue to accrue over those 12 months, so if you put any amount towards your loans during that time, it greatly reduce the amount you pay over the life of the loan.

Public Service
•    Another option is to combine public service with an IBR or PAYE plan. The National Health Service Corps (NHSC) offers many programs around the country in which a portion of your student loans are repaid in exchange for a service commitment. Approved sites can be both urban and rural and are typically high-need, underserved areas. Contracts vary, but a typical agreement is two years. For example, the Indian Health Service (IHS) provides up to $20,000 a year in debt repayment programs in exchange for providing services to American Indians and Alaska Natives.

Large amounts of debt are nothing new for medical school graduates. Studies show that the majority of physicians are paying off their debt promptly. There is also evidence to show that physician’s salaries are expected to stay strong, allowing for repayment of high debt amounts.

If you are concerned about confronting your debt, just follow a few simple tips.
 

1. Choose the right repayment plan for your unique situation.
2. If your payments are unaffordable during your residency, consider deferring payments or forbearance.
3. Look at creative solutions such as public service in exchange for loan repayment.

There are pros and cons for each strategy, but remember, it’s never too late to implement a financial plan. Talk to a financial advisor to discuss your goals and make sure you are on a path to meet them.