Federal student loan payments have now been paused for over two years. This lack of payment obligation has caused borrowers to use different strategies when handling the temporary extra funds. We asked three financial planners what they are seeing within the doctor community during this time.

Read what Meredith Jones, DVM, CSLP®, associate financial planner at Vincere Wealth and veterinarian, Benjamin Bush, CLU, ChFC, managing partner at Northeast Sequoia Private Client Group, and Josh Lantz, CRPC®, chief investment officer & financial advisor at MD Financial Advisors, experience with their clients.

Answers have been edited for brevity and clarity.

What is going on with the student loan payment pause and how are you seeing your doctor clients handle this?

MJ: It started in March 2020, and it continues to be extended. We don’t know when it’s going to end exactly, because it’s kind of a moving target. Now it’s not going to start up until 2023 at least, potentially later in the year, or it may get extended again.

As far as how doctors are handling it, it depends on what their career goals are, their financial situation, and what their student loan repayment strategy is. For those who are trying to pay off their student debt in full, a lot of them are just adding as much money toward the student debt as possible, so that they can get it paid off quickly while the interest is zero.

Some of them, while the payments are on pause, are using that money that they would have put toward their loans and are either saving it toward another financial goal or they’re investing more. 

Some folks who are not as mindful have probably incorporated it into their spending money and are not paying as much attention to the fact that eventually the loan payments will restart.

BB: While [the pause] is helpful from a financial standpoint as it allows for additional cash flow, it’s also starting to ultimately create a cash flow crunch because unless they are putting away every dime that they would be putting into student loans, they’re establishing other types of behavioral investments in terms of increasing what they’re able to spend. 

It is very hard to retract out of those things. I’m seeing some doctor clients being very responsible, but for the vast majority it is very difficult because they are free and clear with a lot of cash flow that wouldn’t otherwise be on their balance sheet.

Some of them are enjoying some lifestyle changes, while others are taking advantage and really starting to build a robust savings and investment strategy to increase liquidity. 

So, we are continuing to approach it with clients. We have an opportunity to make a change prior to them turning those federal loans back on. 

We should probably be proactive rather than reactive because you’re still going to have to pay with one exception, public service loan forgiveness. You know, they’re continuing to give credit towards those loans. And so, their timeline is shortening, which is helpful.

JL: My take on it is the $10,000 forgiveness—or $20,000 with a Pell Grant—is all jammed up in the courts, and it’s probably going nowhere. The forbearance extension was a backdoor way for the administration to provide student loan relief. As of right now, they’ve said, “We’re going to give 60 days notice if this gets resolved in the courts, but if we don’t hear anything by June 30th, then 60 days from there.”

That means for a lot of doctors, they’re not going to pay until August 30th on these loans. If they have federal loans, they’re not paying, they don’t have interest, and it counts towards PSLF if they’re in that program.

For the doctor community, they’re much more excited about this and it’s much more meaningful financially than getting $10,000 in forgiveness because for a lot of them, they’re saving $2,500 a month in payments that they would have been paying for those months. Now that’s extended longer. So big relief for the doctor community for sure.

If a doctor is not applying for PSLF should they be making payments right now?

BB: It has to be directly correlated with what their broader financial strategy is. 

If your financial strategy includes being able to invest in things like other businesses, whether that’s silently or actively in the medical field or opportunities outside of medicine, then we will probably look at what opportunity builds up liquidity during this period of time to execute on those opportunities, rather than being in a super rush to pay the federal government back for loans that they’re not charging us right now. 

Money is entirely emotional and psychological. So, if I come across a client that even if logically it doesn’t make sense to necessarily pay down the debt, but it’s who they are; it’s embedded in their DNA, then it’s an anti-debt conversation. I’m going to say to them: paying off debt is never bad. Let’s make sure we’re taking advantage of this period of time where we can just continue to drop principal and therefore reduce your long term interest. 

Many of our clients that are a little bit more dynamic, somewhat entrepreneurial, want to take advantage of the freed cash flow to build up liquidity and go execute on other opportunities.

JL: They really should seek out help from an adviser because it’s really case by case. But, in most instances, I encourage them to wait to refinance because they got a 0% loan right now, so why switch that to a loan that’s going to have an interest cost associated with that?

That will change when they need to start paying on these loans. A lot of those doctors that are not pursuing PSLF should strongly consider refinancing. Their strategy during this time depends on their financial goals. 

They’re getting a 0% loan, so maybe they use some of those extra dollars elsewhere. Markets are down. When markets go down, expected returns go up, so they could be placing some of those dollars towards markets where maybe they can get long term expected returns that are much higher than the cost of the interest. So maybe that doctor should put money in the market, assuming they have the risk tolerance for it, instead of paying on a 0% student loan.

MJ: If their goal is to pay off their student debt in full and pay it off as soon as possible, then it certainly makes sense to either put as much money as they can toward the debt now or to actually pile it up. Some folks I know are saving the money they would have put toward the debt because right now there’s no interest on student debt, and some are actually investing their money with the hope that it’s going to be even more valuable by the time they have to start repaying their student loans.

If their plan is long-term income-driven repayment (not PSLF) and going for forgiveness, then really putting that money to work in other ways certainly makes sense. If they haven’t started saving for the tax bomb, the tax bill that would be due at the end of forgiveness, they should start saving for that.

Read more about student loans

We spoke to Meredith, Benjamin, and Josh about several other topics surrounding doctors’ student loans. Check out:

• You’re Not Alone: Many Doctors Need Help Navigating Student Loans
• Pros & Cons of Paying Student Loans Off Early, According to Financial Planners
• One Thing Financial Planners Wish Doctors Knew About Student Debt

If you need help navigating your debt burden, there are people who can help. Our Build Your Team program connects you to a financial advisor for free. Don’t face the challenges of becoming and being a doctor alone.