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A Doctor’s
No-Nonsense Guide
To Student Loans
More than 45 million American have student debt, including many doctors
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Introduction
Total student loan debt has increased dramatically in the last few decades. In 1995, the total federal student loan balance stood at $187 billion1. Since then, the balance has increased 766.3%2, or 45.1% annually to $1.617 trillion3.
Since 1980, the total cost of four-year public and private college has nearly tripled4, even when accounting for inflation. Federal support has not kept up with these dramatically rising costs. While Pell Grants once covered almost
80%5 of the cost of a four-year public college degree, it now covers under a third.
This debt burden weighs heavily on more than 45 MILLION borrowers, preventing many from building wealth and achieving financial freedom.
For most future doctors, taking on debt is a necessary part of the career path. Between 76% and 89%6 of medical students graduate with debt, according to the Education Data Initiative. Dentists7 and Veterinarians8 experience student debt at similar levels.
Medical, dental and veterinary school costs are following the upward trend. According to a report9 from the Association of American Medical Colleges, medical education costs have been rising at double the rate of inflation. The EDI reports that the average medical student graduates with $241,600 in total student loan debt10.
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Student Loans Post-COVID
For millions of federal student loan borrowers, the COVID-19 pandemic brought a temporary reprieve from the burden of loan repayment through an extended forbearance period. Though repayment was set to resume several times from 2020 and 2023, repeated extensions meant borrowers didn’t make payments for over three years—until October 2023.
The Forbearance Period:
In the early days of the pandemic, the U.S. government introduced the CARES Act, which provided immediate relief for federal student loan borrowers to mitigate financial strain caused by COVID-19.
This relief came in the form of an automatic forbearance period, which temporarily suspended loan payments and set the interest rate to 0% from March 2020, through September 2020. Subsequently, the forbearance period was extended eight more times.
After the Supreme Court struck down Biden’s student loan forgiveness plan, the White House and Congress came to an agreement that the student loan payment pause would end after August 2023, with no further extensions. Interest began accumulating on September 1, and payments resumed in October.
Following the Supreme Court’s ruling against student loan forgiveness, the White House released a new income-driven repayment plan to provide some relief to borrowers.
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Income-Driven Repayment (IDR) Plans
Today, roughly 8.5 million11 federal student loan borrowers are enrolled in an income-driven repayment (IDR)12 plan, representing about a third of all borrowers in repayment. Many doctors use these programs to ease the stress of repaying their loans, while working toward forgiveness.
An Overview:
Income-driven repayment plans set your monthly student loan payment at an amount that is intended to be affordable based on your income and family size, according to the Federal Student Aid13 website. The current plan options are:
SAVE Saving On A Valuable Education
– Formerly REPAYE (Revised Pay As You Earn Repayment Plan)PAYE Pay As You Earn Repayment Plan
IBR Income-Based Repayment Plan
ICR Income-Contingent Repayment Plan
Each plan calculates your monthly payment based on a percentage of your discretionary income, which you pay for a set number of years. Once you complete the total length of payments, the remaining balance is forgiven. To learn more about IDR plans and see how different repayment options would benefit you, visit StudentAid.Gov.
The Newest Plan:
Introduced in summer 2023, the newest plan14, Saving on A Valuable Education, a revised version of REPAYE, includes these changes:
- Raising the amount of income that is considered non-discretionary income from 150% to 225% of the poverty level.
- Not charging borrowers with unpaid monthly interest, so no borrower’s loan balance will grow as long as they make their monthly payments—even when that monthly payment is $0 because their income is low.
- Married borrowers will not be required to include their spouse’s income in their payment calculation, if they file taxes separately.
- Simplifying enrollment by providing an optin for borrowers to allow the Department of Education to automatically pull their income information each year, removing the need to recertify their income annually.
Though the benefits of these changes are most significant for low-income borrowers with solely undergraduate loans, doctors will still be positively impacted.
Physicians, dentists and veterinarians can reap the benefits of these changes through strategic decisions that can lower monthly payments or help along the way to Public Service Loan Forgiveness. Additionally, the simplification of the enrollment and recertification of income into income-driven repayment could help doctors and doctors-in-training save time and effort.
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Public Service Loan Forgiveness (PSLF)
Public Service Loan Forgiveness (PSLF) is an option for getting rid of substantial debt, but there are benefits and drawbacks of this program. If you are considering taking advantage of PSLF, understanding these factors will better prepare you for what is ahead.
The PSLF program15 offers forgiveness of qualified federal student loans after 120 on-time payments while employed full time at a 501(c)(3) non-profit or government employer. This can be a great option for those in significant student debt, especially those already considering public service employment.
The majority of PSLF applications16 are rejected. This is not because the Department of Education is denying those who earned forgiveness but because those applying do not meet the requirements.
To be sure you obtain PSLF, follow these requirements:
Employed full time by a U.S. federal, state, local, or tribal government or not-for-profit organization (federal service includes U.S. military service)
Direct Loans consolidate other federal student loans into a Direct Loan
IDR Repay your loans under an income-driven repayment plan
120 Qualified Payments does not have to be consecutive
Benefits of PSLF:
REAP SIGNIFICANT FINANCIAL BENEFITS
The financial benefits of PSLF are the most significant advantage, especially for those with high student debt levels. PSLF can erase a majority of your initial debt balance tax-free.
GET A HEAD START IN RESIDENCY
Many residency programs are 501(c)(3) organizations which allow physicians to start making qualified payments as soon as their residency begins. Through income-driven repayment, residents can make low monthly payments during their years in training.
Depending on your family size and income, you may even qualify for $0 monthly payments while in training. By the time you finish residency, you will only have a few more years to fulfill the requirements.
To increase the number of qualifying payments you accrue in residency, start planning during your final year of medical school. All student loans are put into an automated 6-month deferment following graduation, however you can call your loan servicer and decline this deferment. This means you can add the first 6 months of your residency as $0, or nearly $0, monthly qualifying payments.
EASY CHOICE FOR 501(C)(3) EMPLOYEES
For those already planning to work for a 501(c)(3), participating in the PSLF program is an easy decision. Employment by these organizations doesn’t have to be consecutive, simply 120 months cumulatively. It should also be noted that you can apply for PSLF and get credit for qualifying payments retroactively.
Drawbacks of PSLF:
LIMITED EMPLOYMENT OPTIONS
As previously mentioned, those eligible for PSLF have to work full-time for a non-profit or government employer. Finding a qualifying employer can be especially difficult for dentists and veterinarians and for the medical specialties that are typically private practicebased or aren’t commonly found in nonprofits.
PRIVATE LOANS AREN’T ELIGIBLE
Only direct federal loans qualify for PSLF. This means private loans or loans refinanced with a private lender cannot be forgiven. Be completely sure you do not want to pursue PSLF before you refinance your loans as you cannot later qualify for this program after you have refinanced with a private company.
MANAGING FEDERAL LOAN SERVICERS
As with many government programs, working with the program’s servicers can be tedious and there have been numerous complaints18 about the administration of PSLF. You will have to complete annual forms19 and be sure your payment count is being tallied correctly. You will want to keep meticulous records because even a single month of extra payment unnecessarily could cost thousands of dollars.
GIVE UP HIGHER INCOME
Nonprofit and government jobs often pay less than private practice employers. Paired with the 10-year time commitment, you may benefit more by taking a higher income and paying the loans yourself. Discuss with a financial planner who understands doctors and PSLF in order to determine what is best for your personal and professional needs.
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Student Loan Refinancing
Student loan refinancing means a private lender pays off your existing loan, then gives you a new loan with new terms. This can provide an individual with a longer repayment term — with lower monthly payments — or it can mean the individual pays less over time from a lower interest rate (or both!).
Refinance:
Refinancing your student loans can be incredibly beneficial. Every situation is
different; these scenarios demonstrate how it could help:
- You qualify for a lower interest rate than your current one. Interest rates are determined in different ways. For federal student loans, interest rates are set once per year for the different loan types. Private student loans or student loan refinance are determined by the loan company themselves. A private student loan rate can be dependent on things like credit score, total debt, or income level. If you are able to refinance your loans at a lower rate than your current loans, you may want to consider refinancing.
- You have a variable interest rate, but you want a fixed interest rate. Some private student loans have variable interest rates that could increase based on market trends. Refinancing to a fixed interest rate could create a more predictable interest expense that won’t change during the loan.
- You want to reduce your number of monthly payments. If you have multiple monthly student loan payments, you may want to simplify your bills into just one monthly payment through refinancing.
Avoid Refinance:
Student loan refinancing can be beneficial to many but should be avoided in some cases. These scenarios demonstrate why you should avoid refinancing student loans:
- You are considering Public Service Loan Forgiveness. If you plan to or are working at a nonprofit, government agency or other qualified employer in pursuit of PSLF, you should not refinance your federal student loans as this automatically disqualifies you from forgiveness.
- Your new interest rate would be higher. If a lender offers you a higher interest rate than your existing one, it would likely be more beneficial to not refinance.
- You are or will in the future use an income-driven repayment plan. Refinancing federal student loans prevents you from using income-driven repayment plans20 like Pay-As-You-Earn or Income-Based Repayment.
Refinancing Factors:
Loan terms can make a big difference when refinancing your student loans. If you choose a shorter loan term, your interest rate will likely be lower, but your monthly payment will be higher. Different lenders use different metrics to determine your eligibility and interest rate. Lenders may consider:
CREDIT SCORE
Credit score is often the most important factor in being approved for and determining rate for student loan refinancing.
INCOME
Lenders assess income to determine if you have the financial stability to repay your loan and won’t fall behind on payments during a time of financial stress.
DEBT-TO-INCOME RATIO
Your earnings may be compared to your debt to determine if you have enough to repay your loan.
LOAN BALANCE
Certain lenders will only refinance loans up to a certain amount.
COSIGNER
Cosigners are required for certain borrowers who lenders may consider higher risk. This could limit your options.
your monthly payment would be $941.28.
To see how loan term will affect your loan rate and monthly payment based on
your loan balance, see our Student Loan Refinance Calculator21.
When It’s Time To Refinance:
Once you’re ready to refinance, you’ll need to obtain your loan payoff statement. Here are two steps to find your loan payoff statement.
FIND YOUR STUDENT LOAN SERVICER
Student loan servicers are the companies that take your payments, send you monthly statements, and are responsible for sending you tax documents at the end of the year. You may have one or multiple servicers.
You also may have public or private loan servicers, depending on how your education was financed. To add more confusion, these servicers sometimes sell your loans, so you could have started with one servicer and been moved to another.
Your new refinancer will need to know all of your loans and have a payoff amount statement from each of your student loan servicers.
If you have publicly held loans, you can go to studentaid.gov, and click on “View Details” under the My Aid section of your Account Dashboard.
Privately serviced loans do not appear on studentaid.gov, so you will need to know who
you have been making payments to. If you have set up auto-pay, you can check your bank statements or look for contact information on the monthly statements your servicer has sent you.
Note: Your loan payoff amount may also include unpaid penalties or fees, if you owe any.
Why does my loan payoff amount change?
Your loan payoff amount—otherwise known as the 10-day payoff amount—is the amount your new bank will pay your current lender to refinance your loan.
Two reasons: daily interest accrual and clerical time. Your loan payoff amount isn’t the same as your “current balance.” Interest accrues daily on your loan, so your new lender will need to ensure the amount paid off is accurate in the near future—10 days in the future, to be exact. On average, it takes that amount of time for your new servicer to process paperwork, distribute a check, and close out your current loans.
OBTAIN YOUR LOAN PAYOFF STATEMENT
Your loan payoff amount is one part of what your new servicer needs. In total, they need the following, in the form of a loan payoff statement:
Your Total Loan Payoff Amount
Good-Through Date (i.e., 10 Calendar Days Ahead)
Your Account Number, Or Numbers
Any Individual Loans And Their Payoff Amounts
Instructions About How To Pay Off Your Current Servicer
Your current servicer has this data and is obligated to give it to you upon request.
Requesting this information will not change any aspect of your current loan, including your payment plan, IDR, or PSLF eligibility. Many lenders will not make it easy. Most require a phone call, and you may have to be insistent. You can also request that this letter is sent to you electronically (by e-mail or online messaging portal), so you will not have to wait for one to arrive in the mail.
Some servicers enable access to this information via an online user account portal. If yours doesn’t, then it will take a phone call. We’ll repeat it here—your servicers are obligated to give you this information, and to send it to you electronically.
Federal Loan Servicers:
AES (800) 233-0557 to receive your payoff statement
CORNERSTONE (800) 663-1662 to request your payoff statement
FEDLOAN SERVICING (PHEAA) (800) 699-2908 for an email copy of you a payoff statement
EDFINANCIAL/HESC (855) 337-6884 to request a payoff statement. You can find the amount by selecting “Make a Payment” from the “Home” page of MMA. Click on “Payoff Quote” under the “Payment Amount” field and select “10 Days In The Future”.
AIDVANTAGE (800) 722-1300 to request your payoff statement
MOHELA (888) 866-4352 to request your payoff statement. You can find your 10-day payoff amount by logging in to your account, selecting “Payoff Calculator” under “Payment Assistance.” Choose “Mail” for your payoff method, and set a payoff date “10 Days In The Future”.
NELNET (888) 486-4722 to request your payoff statement. You can also request your payoff amount through your Nelnet.com account. In the “Payment Amount” section, select “Payoff Quote”.
OSLA SERVICING login to your account to find contact information to call the servicer for your payoff amount
ECSI (866) 313-3797 to receive your payoff statement
Private Student Loan Servicers:
SALLIE MAE 800-4-SALLIE for your final payoff statement
SOFI request your payoff amount through your online account at sofi.mohela.com
EARNEST email [email protected] or call their service line
CITIZENS BANK (866) 259-3767 to receive your payoff statement
COMMONBOND (888) 538-7378 to receive your payoff statement from Firstmark
DISCOVER PRIVATE STUDENT LOANS (800) 788-3368 to receive your payoff statement
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Managing Private Or Refinanced Student Loans
Tips For Paying Back Your Current Private Or Refinanced Student Loans:
1. Understand Your Loan Terms
The first step in repaying private or refinanced student loans is to familiarize yourself with the terms of your loan agreement. Understand the interest rates, loan duration, and any potential penalties for late payments or early repayment. Knowing these details will enable you to create a realistic repayment plan and avoid any unexpected surprises down the road.
2. Create A Budget
A well-structured budget is a fundamental tool for managing your finances effectively. List all your sources of income and track your expenses to identify areas where you can cut back.
Allocate a portion of your monthly income toward loan repayment, ensuring that you meet the minimum payments to avoid penalties. By sticking to a budget, you can prioritize loan repayment while still meeting your other financial needs.
3. Prioritize High-Interest Loans
If you have multiple student loans held by private lenders, one option is to prioritize paying off those with the highest interest rates first. Tackling high-interest loans early can save you in interest expense in the long run and accelerate your overall debt reduction. Focus on making additional payments towards the principal of these loans to chip away at the debt faster.
Tips For Refinancing Private Or Previously Refinanced Student Loans:
Refinancing student loans can be a smart financial move if done strategically. Here are some essential tips to consider when refinancing your student loans:
1. Improve Your Credit Score
A strong credit score is crucial for getting the best refinancing terms (i.e. lowest rate). Work on improving your credit by paying bills on time, reducing credit card debt, and correcting any errors in your credit report.
2. Compare Multiple Lenders
Don’t settle for the first offer you receive. Shop around and compare refinancing offers from multiple lenders. Look for competitive interest rates, loan terms, and repayment options that suit your financial goals.
3. Consider Fixed vs. Variable Rates
Choose between a fixed interest rate, which remains constant throughout the loan term, and a variable rate, which may fluctuate with market changes. Fixed rates offer stability, while variable rates at times may start lower but carry the risk of increasing over time.
4. Evaluate Repayment Terms
Look for lenders that offer flexible repayment terms, such as different loan durations and monthly payment options. Longer repayment terms may result in lower monthly payments but could lead to higher overall interest costs.
5. Check for Prepayment Penalties
Avoid lenders that charge prepayment penalties. This way, you can pay off your
refinanced loan early without incurring additional fees, allowing you to save on interest.
6. Customer Service and Support
Look for a reputable lender that offers excellent customer service and support. A responsive and helpful lender can make the refinancing process smoother and address any questions or concerns that may arise.
7. Understand Refinancing Impact
Before committing to refinancing, thoroughly understand the terms and conditions of the new loan. Assess how it will affect your monthly budget, long-term financial goals, and overall debt management strategy. A very important point is that once you refinance a federal loan you cannot go back to the federal system.
8. Maintain Good Financial Habits
Even after refinancing, continue to practice responsible financial habits. Make consistent, on-time payments, avoid unnecessary debt, and keep monitoring your credit score to stay on track towards financial success.
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One Thing Financial Planners Wish Doctors Knew About Student Loans Debt
There is plenty of information and advice accessible on the internet about student loan debt, but we asked three financial planners what is one thing they want to share with doctors about student debt. Answers have been edited for brevity and clarity.
Benjamin Bush, CLU, ChFC
Managing Partner at Northeast Sequoia Private Client Group22
The one thing I think that I would like for them to understand and try to appreciate is that student loans are an investment. Student loans are an investment in your ability to have a not just a little bit higher income but a much larger income on average. Yes, you have to pay them off, but that ability to have an
increased income through your education was an investment. As long as you manage that system correctly, it’s going to pay off for you in
spades.
Also, I wish they just knew all of the options available. Without financial education, most of them are getting online. They’re trying to find what they can do and piecemeal or talk with other physicians, but there are a lot of professional resources out there to help manage student loans.
Knowing all the refinance options that are available in the marketplace is also huge. There’s a whole subset of people that have no idea that they can refinance their student loan debt out of the federal loans. I just think the lack of knowledge and understanding of the entire system is troubling. Frankly, we’re talking about kids taking on loans, starting when they’re 17, 18 years old for the next 8 to 12 years without understanding any of the parameters, rules or options around them.
I wish they knew that there are a lot of resources available and often those resources are not expensive or could be free that can help them navigate this conversation so they’re not doing it on their own and trying to figure out the entire American financial system on a trial and error basis.
Josh Lantz, CRPC®
Chief Investment Officer & Financial Advisor at MD Financial Advisors23
Know that there are other programs besides PSLF. A lot of doctors are unaware that there are state sponsored programs for example. Many states provide these programs. They tend to lean more primary care but not always.
The other thing I would mention is a lot of doctors are very ambitious and want to get done with these debts so fast that they get too aggressive with the loan pay-down. They take a five year note when they really should do a 7 or 10.
So, they go into practice, they get that five-year note, and they get bigger payments because those payments are condensed into five years. Suddenly, they have kids, the bills go up, and they’re paying for the nanny.
And they’re over their skis, and they can’t afford things. What’s the first thing they’re going to cut? Well, it’s the retirement savings, so they wait to save for retirement. And that just prolongs how long they’re going to have to work. In many cases, it means that they don’t have enough for retirement later on in life.
Meredith Jones, DVM, CSLP®
Associalte Financial Planner at Vincere Wealth24 & Veterinarian
The biggest one is that student debt doesn’t have to affect your career decisions. No matter how much debt you have, there is a plan out there that is going to work for you. There’s a lot of really comprehensive and valuable help out there for people who are looking for a student debt repayment strategy.
There’s a lot of value to meeting with a student loan consultant or meeting with a financial planner familiar with student loans. It’s 100% worthwhile to talk with an expert about your student loans so you’ll have peace of mind that you’re on the right plan.
You may spend a few hundred dollars to have a consultation like that if it’s just for student loans, or if you’re meeting with a financial planner, then it may be more. I’ve heard stories from student loan consultants of folks who saved tens of thousands of dollars by meeting with a consultant because they were actually not on an optimal plan for their student debt.
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Student Loans Can Be Tricky
Navigating the world of student loans can be daunting, but with the right information and understanding of your options, you can make informed decisions about financing your education.
Reminder: Education is an investment in yourself, and with careful planning, you can set yourself up for success in both the short and long term.
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