Medical Residents and Their Struggle to Repay Student Loans

Medical Residents and Their Struggle to Repay Student Loans

Oct 20, 2020 Published by Kathrin O'Neill

When you were about to start your residency, you gave a sigh of relief because you are finally out of school and you no longer have to pay for tuition. You will finally have a job that can pay. However, do not relax yet. This is the real beginning of your journey to financial independence. Besides, you still have an outstanding student debt. As a resident, you are probably not earning enough money to pay your monthly student loan payments. Your debt weighs heaviest on you since you have not yet maximized your income and is dependent on your meager salary. As of the latest statistics, an average medical school debt now exceeds 200,000 dollars, an amount that makes one’s head spin especially if you include the interests.

Do not be disheartened. There are many strategies to be used to discharge you from your financial obligations. Among them are what will be discussed in this article.

The first thing that you should do is not defer or postpone your medical school debt while in residency. It is possible to put off payments on the grounds that you need to adjust first to your new career or you want to use your money first on other needs like a new car. However, this will cost you more in the end. Medical school loans accumulate interest while you are in school and generally enter repayment six months after you graduate. Interests accrue during the time of deferments or postponements and forbearance thus increasing your total balance. Assuming that you had a 6.5 average interest rate and did not make any interest payment during that time and had no subsidized loans, then a large chunk of interest will be added to your balance. The best action is to save on interest by making partial payments during residency. Use deferment and forbearance only as a final recourse. If you really cannot afford full payments during your residency, then register for an income-driven repayment plan.

An income-driven repayment plan is a choice for residents who cannot afford to make full payments. This option limits the monthly payments at a percentage of your income, extend the repayment period up to twenty or twenty-five years, and forgive any remaining balance at the repayment period. There are four federal income-driven plans that are offered for your case.

First, PAYE or pay as you earn program is designed for those who are having great difficulty in paying-off their debt because this lessens your monthly payment to the lowest possible amount. It “caps” loan payments at 10% of the household income that exceeds 150% of the federal poverty guideline based on your family size, adjusts your payment amount annually based on changes to household income and size of household and allows you to stay in the program for up to 20 years. After 20 years, any remaining debt is forgiven but is taxable.

Another choice is the REPAYE or the revised pay as you earn program. It is very similar to PAYE but it offers more generous subsidies. It offers an interest subsidy and pays the entire difference on subsidized loans and half the difference in unsubsidized loans for the first three years. After that, it covers half the difference on both loan types.

Both of these are federal income-driven repayment plans that extend your student loan term, set payments at ten percent of your discretionary income, and forgive any amount remaining after the repayment period.

Another option is the Under Income-Based Repayment (IBR) program wherein the government pays the remaining unpaid accrued interest on your subsidized loans for up to three consecutive years from the date you begin repaying the loans. IBR uses a sliding scale to determine how much you could afford to pay. If you earn below 150% for your family size, you will be paying zero dollars but if you earn more than your payment, it will be limited at fifteen percent of whatever you earn above that amount.

Lastly, the Income-Contingent (ICR) plan is a repayment plan with monthly payments that are the lesser of what you would pay on a repayment plan with a fixed monthly payment over twelve years and adjusted based on your income or twenty percent of your discretionary income which divided by twelve. So, which is better? IBR usually lowers your monthly payment more than ICR does.

There are also other kinds of programs you can apply to reduce the burden of your debt. Try to avail of the Public Service Loan Forgiveness Program (PSLFP). This is a government program that was created under the College Cost Reduction and Access Act of 2007. It aims to aid professionals with federal student loans an easy way out by working full-time in public service.

In addition to this, you can refinance your medical school loans if you have a credit that is good enough to qualify for a lower interest rate. You can apply at Sofi Student Loan Refinance, CommonBond Student Loan Refinance, or Laurel Road Student Loan Refinance. There are numerous refinancing companies you can choose from. Refinancing can save you money while you are earning low wages as a resident, but your balance may be increased once your residency ends.

You will be better off if you apply for a physician signing bonus to medical school debt. A signing bonus or sign-on bonus is money paid to a resident as an incentive to join a hospital. Bonuses are paid on top of a fixed salary or percentage of production or collections. They are given as a part of a compensation package to make it enticing to physicians.

How about making extra student loan payments? For you to get rid of your loan as fast as you can, you can opt to pay an additional amount on top of your required monthly payments. The problem is that you do not have other sources of income and your salary is fixed. With that, you can consider asking for help from your family, especially your parents. They can lend you money without interest and a due date or if they are more generous, they can give you some money as a gift or advance inheritance. If this is not possible, try to find other sources of income.

The best way to come up with extra cash is to get extra work. Yes, you are busy, but you can still squeeze in extra work during your free time until you have finally cleared yourself of debt. There are many online jobs out there that are either short-term or contractual. If you enjoy talking in front of the camera, you might also try blogging and creating your own YouTube channel. You can show other people how it is to be a medical resident, give tips to aspiring doctors, and provide advice on health concerns of people.

Before you spend even a single cent from the paycheck you worked so hard for, always keep in mind that you have one obligation you cannot run away from. That is, you have a humongous student loan to pay. You can lessen the blow of your loan by managing your finances well. Follow these simple financial tips and you will never go wrong:

  1. Manage and pay your student loans. Managing is choosing the right payment plan and paying is developing a strategy to pay off the loan.
  2. Try to live to one’s standard. Once you are a doctor, most people think you are financially well-off so they try to sell you expensive things like your high-end sports cars and luxurious condominium units. Never fall for this when you can barely afford to eat in a modest restaurant. Be frugal and live within your means. Time will come when you can have your heart’s desires.
  3. Talk about your money woes. Talking is cathartic. Be open and honest. After all, you are human.
  4. Better have your own financial philosophy. Knowing what to do with your money gives you clarity and leads you to the road to financial freedom.

There is nothing better than winning your struggle to pay your student loan by keeping living like a resident. You are in the most exciting phase of your career as a physician. A bright future is practically before you. You can surely pay your student loan by being financially literate. Of course, the best strategy for you depends on how well you are doing in your career and your financial priorities. Let us also not forget to take into account your determination, patience, and sense of obligation.