Dr. Michael Jerkins and Dr. Ned Palmer founded Panacea Financial due to frustrations from engaging with the traditional banking sector during our medical training. Combined we have $700,000+ in medical school debt, and along the way experienced life events that forced us to find even more financing. Like many of you, we have become experts on medical trainee debt not because we wanted to, but because we had to in order to chart the best path to financial health.
Student debt has doubled over the last ten years, ballooning up to $1.54 trillion, and becoming the second largest consumer debt type. This places it higher than both credit cards and auto loans. Current students and recent graduates have a much different relationship with student debt than previous generations, which may explain why student debt has recently become more of a pressing issue for voters. It has solidified its position on the forefront of the political consciousness in this country as evidenced by its recent discussion in the run-up to the 2020 presidential election.
Although it may be obvious, it is worth saying that campaign promises or political intentions do not always result in predictable legislative results, but it behooves medical students and those with medical school debt to keep up with the possible impact this presidential election may have on their student debt. This article will look at the ways in which a change in the White House could represent a change in student loan policy. Specifically we examine how Joe Biden winning the presidential election could impact your student loans as that is more likely to represent a major change in the current policy.
For medical students, the amount of money it takes to complete their education is extraordinarily expensive. In a report by the AAMC, the most recent indebted graduates left medical school in 2019 with a median of $200,000 of student debt. In total, medical students borrow $3 billion per year to finance their medical education. Unfortunately, when you are dealing with such large numbers it can be difficult to fully comprehend the true costs, and specifically how this can affect personal finances and opportunities after residency or fellowship. It becomes even more complicated to understand the landscape of student loans as it is largely a federally administered program subject to policies set in Washington DC. And now that politicians are starting to pay more attention to student debt, more changes could be on the horizon.
So what might a Joe Biden presidency mean for your medical school debt?
It is impossible to be completely sure but let’s take a look at four major proposals his campaign proposed on the topic:
Make public colleges and universities tuition-free for students coming from families earning less than <$125,000.
Most educational debt for medical school graduates (around 86%) comes from bills racked up in graduate education which the Biden policy does not affect. However, this proposed policy could save future medical school graduates around $27,000 (or around 14% of their total debt burden). But not all future medical students would qualify for this tuition-free undergraduate education as medical students historically come from wealthy households. In fact, from 1998-2017 around a quarter of all matriculating medical students come from the wealthiest 5% of households (using 2019 data this represents households earning more than $206,000 per year). Even so, around half of medical students may qualify for free undergraduate tuition as their household income meets the Biden requirement of <$125,000. It is worth noting this tuition discount is only applicable to public colleges and universities and not private undergraduate institutions.
Expand forgiveness in PSLF
Many residents, fellows, and attendings are currently enrolled in the Public Service Loan Forgiveness (or PSLF) program that forgives certain federal student debt as repayment for 10 years of work for a qualifying employer generally defined as a non-profit (501c3) involved in “public health”. For those in the program that meet the qualifications and complete the requisite paperwork the hope is that the PSLF program will deliver tax-free forgiveness of their outstanding student debt. But many are worried it will not deliver on its promise, with good reason. Biden has proposed pushing through a previous Senate proposal from Tim Kaine (D-Virginia) that opens up the program to all federal loans and repayment types, and most notably forgives half of the loan balance at 5 years of service with the remaining balance paid off after completing 10 years of service. Many physicians that are 5 years into the program would see a major benefit immediately instead of waiting for the full 10 years of service to see any forgiveness.
Expanded enrollment, reduced forgiveness in PSLF
Loan forgiveness programs still remain popular with medical school graduates, with around 34% expressing interest in PSLF specifically. For future physicians and physicians-in-training that wish to enroll in PSLF however, a Biden proposal could drastically change the potential benefits. Under his plan anyone that works for a qualifying employer would be automatically enrolled in the program and could earn $10,000 per year for up to five years of service (with a maximum benefit of $50,000). Needless to say this represents a huge cut to the potential PSLF benefit for medical school graduates who plan on entering this program.
Increasing value of and eligibility for Pell Grants
Pell Grants, named after Senator Claiborne Pell who helped usher this program in, were created to help low-income students gain access to colleges and universities. The maximum grant for academic year 2020-2021 is only $6,345. According to The Institute for College Access & Success, this only covers around 28% of the total cost for schooling. The Biden team has proposed doubling the value of the Pell Grants and automatically increasing it yearly, tied to inflation. Not only do they propose increases in value but also propose expanding the eligibility for the Pell program. In addition, they propose Pell Grants could be used to cover expenses not related to tuition and fees but could be applied to living expenses as well. This benefit, along with the aforementioned free tuition for undergraduate universities, could ease some of the debt burden to low-income students.
These four proposals put forward by the Biden campaign have the potential to majorly impact doctors in training. Both large expansions, and severe restrictions in PSLF have been proposed, along with sweeping changes to undergraduate education financing. Anyone who has medical school debt, or even plans to take on medical school debt, would be wise to keep up with any upcoming changes, while considering both public options and private refinancing.
Keep following Panacea Financial in the future for updates on this, and many other topics in the physician-financial space.