Think About Paying Your Loans During Medical Residency

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Dr. Keisha Endsley McEwen wishes she would have made payments on her student loans during medical residency.

McEwen’s advice to future medical school graduates: “Don’t defer your loans, or at least pay the interest during residency.”

The 36-year-old, who is now an attending physician in obstetrics/gynecology at Emory University Hospital in Atlanta, borrowed more than $200,000 in private and federal student loans to attend the Ross University School of Medicine, a Caribbean school temporarily located in Knoxville, Tennessee, due to Hurricane Maria.

By deferring payments, her student loan balance soared during medical residency. Although payments don’t need to be made during deferment, interest capitalizes on the loan – making the balance even larger.

“Most kids right out of college don’t know what that means to do loans for $150,000, and then actually have to pay that all back plus the interest,” she says.

[Learn how to cut down on medical school application fees.]

In fact, the majority of medical school graduates leave school with hundreds of thousands in student loan debt. Last year, among U.S. medical school graduates who borrowed, the average debt burden was around $191,000, according to a recent report from the Association of American Medical Colleges. The AAMC report found that the average debt load is even higher for 2017 graduates who attended a private med school: around $206,000.

While the earning potential is high among physicians, the years spent in residency are oftentimes marked by low pay. According to PayScale, a medical resident is paid around $51,000 a year on average.

“A lot of people when they’re going through their residency program are struggling with their basic living, and they’re struggling with student loans,” says Steven Muszynski, founder and CEO of Splash Financial, a company that specializes in student loan refinance for health care professionals.

Experts say it’s important to develop a strategy early on to manage debt and prevent ballooning student loan balances. For prospective, current and recent medical students and graduates, here are a few avenues to evaluate.

[See 10 medical schools where grads leave with the most debt.]

• Consider the compensation for certain specialties: Several studies show that medical students are less likely to choose fields with lower salaries if they have a high debt burden. Primary care, for instance, generally has a lower return on investment compared with a surgical specialization. For that reason, some medical students choose high-income specialties, experts say.

McEwen says she considered pediatrics when she was in medical school. “But I remember looking at the salary and remember thinking: How would I pay my loans with that specialty”?

• Know whether Public Service Loan Forgiveness is an option: Medical students can borrow up to $40,500 in federal direct unsubsidized loans annually. With that limit, students often borrow a mix of private and federal student loans to pay for medical school. Multiply that by four years of school, and students can easily borrow more than $160,000 in federal loans.

Public Service Loan Forgiveness, or PSLF, might be an option for some physicians with federal student loans. The program grants relief on certain loan balances after 10 years of work in public service. The years spent in residency qualify for part of the program’s requirements: Being employed at a nonprofit.

[Learn how to tackle the Public Service Loan Forgiveness form.]

“Pretty much every academic hospital is a nonprofit hospital,” says Dr. James Dahle, a practicing emergency physician and author of “The White Coat Investor: A Doctor’s Guide to Personal Finance and Investing.”

“Typically the best path for a resident who is unsure about her future path would choose Revised Pay As You Earn to receive the interest subsidies while keeping the door open for PSLF,” says Travis Hornsby, founder of Student Loan Planner, a consulting firm that provides student loan repayment advice.

Revised Pay As You Earn, known as REPAYE, is one of the payment programs that helps graduates qualify for PSLF; payments are based on discretionary income.

• Determine whether refinancing will reduce costs: Alternative lenders – such as Social Finance Inc., commonly called SoFi; Splash Financial; and Laurel Road offer special refinance products for medical residents.

“Laurel Road – formerly DRB – were the first ones to have a residency product. And most of these are new – in the last few months,” says Dahle.

With these lenders, borrowers can make small monthly payments during residency while locking in a low fixed interest rate.

SoFi allows medical residents and fellows to make payments as low as $100 a month for up to 54 months, for instance. Splash allows borrowers to pay as little as $1 per month toward their loan for up to 84 months of residency and fellowships.

But Hornsby from Student Loan Planner cautions medical residents with federal student loans against refinancing to reduce payments for the short term.

“You’re only talking about making a modulation on your lifestyle by a couple hundred dollars a month. You can find that if you want to – it’s just about priorities,” he says.

While experts agree it makes sense to refinance private education loans with these lenders, they recommend taking a closer look when the loans are federal.

Hornsby says refinancing federal student loans makes sense under two circumstances: “If you have a spouse who is causing your REPAYE payments to be really high, and you don’t have any plans to go for PSLF.”

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