Student Loan Changes For Doctors

On Wednesday, August 23, 2022 President Biden announced a new federal student loan relief plan. Altogether, there are 4 big changes that may affect physicians and other young professionals with federal student loan debt:
 
1. Student Loan Forgiveness. Many people on the far left lobbied the President to forgive up to $50,000 in student loans. They cited evidence that college tuition has skyrocketed in recent years and stated that many of the people who took out loans in undergrad did not fully understand the repercussions of taking out such large debt burdens at a young age. Many teenagers were led to believe that the salary they would make after graduating college would make up for the amount they took out in student loans, which has not been true. However, several people on the far right disagreed. They did not want President Biden to forgive any amount of student loans. They feared that wide-spread forgiveness would worsen inflation and benefit college educated individuals who already make a high income. The President compromised and landed somewhere in the middle.
 
His new plan approves $10,000 in loan forgiveness for individuals making $125,000 or less (and couples with a combined income of $250,000 or less) using 2020 or 2021 tax returns. Individuals who went to college on a Pell Grant (and also make $125,000 or less) will qualify for up to $20,000 in forgiveness. The Biden Administration’s goal is to give added relief to Pell Grant recipients who come from disadvantaged backgrounds. The income cap of $125,000 is in place to ensure that upper class Americans aren’t getting debt relief they may not need.
 
This means that most residents and fellows will qualify for forgiveness. It also means that some attending physicians in lower paid specialties and doctors working part time will qualify. Because this income cap is based on adjusted gross income, not salary, doctors who put lots of money into pre-tax retirement accounts may be able to qualify for forgiveness as well.  
 
This student loan forgiveness plan also states that those who have student loan balances of $12,000 or less when they graduated from undergrad will now have the balance automatically forgiven after they make 10 years of payments (although I doubt this will apply to most doctors)
 
2. Extending the Pause on Student Loan Payments. Many people with federal loans haven’t had to pay on their loans in over 2 years. At some point, those payments would need to be restarted. Unfortunately, many people have gotten so used to not making payments on their student loans that restarting them would be a burden. But it is not just the borrowers that would have difficulty restarting payments. Loan servicers were having issues with administration. By law, your loan servicer would need to warn you months in advance of any payment due and they hadn’t yet started contacting borrowers. Plus, large federal loan servicers like Fedloans were in the middle of switching borrowers to new loan servicers like MOHELA. Long story short, the system was not prepared to start the payments in September and with midterm elections on the horizon, it wasn’t politically favorable to start the payments in the fall either. As a result, the payment pause has been extended. Payments will continue to be paused until December 31st 2022. Federal student loan payments will resume in January of 2023.
 
3. Changing The Way IDR Payments Are Calculated. As it currently stands, income driven repayments (IDR) are when you make student loan payments based on your income (instead of making payments based on the total amount of debt you owe). The thought is that basing the payments on your income will make the payments more affordable for low-income and middle class Americans who have high debt burdens and modest salaries. The amount you pay under these income driven repayment plans ranges from 10% of your discretionary income to 20% of your discretionary income depending on the plan. President Biden’s new student loan plan would change that.
 
The Biden administration has pitched a new income driven repayment plan. With this new plan, those who have student loans from undergrad will have their payments capped at 5% of their discretionary income (instead of 10% of their discretionary income). This will effectively cut their monthly payments in half. Plus, the administration will change what is considered “discretionary income.” Previously, your discretionary income was your Adjusted gross income (the amount of money you pay taxes on) minus the 150% of the poverty line for your state and family size. Now it will change. According to the website, “no borrower earning under 225% of the federal poverty level (which is about $15/hour or less) will have to make a monthly payment. In other words, the amount that is considered “discretionary income” will be changed in a way that benefits the borrower and requires them to pay less money per month. People who make around $15/hour might not have to pay anything at all.
 
4. Preventing Your Student Loan Balance From Growing. Another feature of the new student loan repayment plan mentioned in the proposal is that student loan balances will not grow from year-to-year while in repayment. This is likely the most meaningful change for doctors and young professionals because one of the biggest complaints about student loans has been the high interest rate. It is discouraging to have to take out six-figure student loan debt in medical school and then have the balance grow while you were in training as a resident and fellow. Under the proposed new student loan repayment plan, this will never happen again.

The current proposal is for the government to have a new income driven plan that will automatically forgive the unpaid interest on your student loans (think of it like the REPAYE plan, but better). This means if you are in-training as a physician and you have $250,000 in student loans with an interest rate of 5% on your loans. Your balance will never grow to be more than $250,000. Why? Because the government will pay the unpaid interest. What do we mean by “unpaid interest?” Let me give you an example.
 
If you have $250,000 in student loans with an interest rate of 5% and your income driven repayment amount as a resident is $200 a month then your monthly payments (of $200x12 months) will not even cover the interest that is accruing on your loans. This means that even if you make your payments on time, your student loan balance will grow from year-to-year. With this new student loan repayment plan the government will forgive all that unpaid interest which will prevent your balance from growing year-to-year. Not having your student loan balance grow while you’re in training will save lots of docs tens of thousands of dollars in interest payments. (And basically eliminates the need for any trainee to refinance their loans) This is HUGE.
 
While I’m excited about the changes there are still a few questions and details we need to explore such as:

• How to handle people with undergrad and grad school loans. With the new changes, people with loans from undergrad only pay 5% of their discretionary income. But what will happen to people who have loans from undergrad and grad school? Will they pay 5% or 10%? Will it be a weighted average?

• The overall structure of this new IDR plan. Will high earners be able to make payments based off of the 10-year standard repayment plan? Will married couples be able to exclude their spouses income? Will they remove interest retroactively or just going forward? This all remains to be seen.

 
While there are many questions left to be answered, these changes are considered a step forward in the right direction. Another change would potentially be to put some sort of cap on tuition rates or make college more affordable. You can stay up to date on all the changes by clicking here: https://studentaid.gov/debt-relief-announcement/.

9 Things I Learned When I Signed Up for Public Service Loan Forgiveness

As someone who graduated from medical school with 6-figure student loan debt, I’ve looked into several different loan forgiveness programs that will help repay what I owe. One of the most popular loan forgiveness programs is Public Service Loan Forgiveness (PSLF). Through PSLF, doctors can get hundreds of thousands of dollars in student loans forgiven, tax-free. Although this seems great, when I attempted to enroll in the program last year there were several shocking truths I became aware of quite quickly. Here are some things I learned after enrolling in PSLF: 

1. Not everyone who works for a nonprofit is eligible. In order to qualify for PSLF, you must work for a 501c nonprofit or government institution. Ironically, even if you do work for a non-profit, you still may not qualify. It all depends on your employment classification. If you are classified as an “independent contractor” at an academic institution who only has “hospital privileges” or gets 1099-income instead of W-2 income, then you are technically not a “employee” by that hospital. Thus, you likely don’t qualify for PSLF. If you’re unsure which category you fall in, check how you get paid.

2. You may have to bypass the grace period to start your qualifying payments. When you first graduate you will be automatically placed in a 6-month “grace period.” The good thing about being in this grace period is that you are not required to pay back your loans. The bad thing about the grace period is that this time does not qualify as one of the 120 monthly payments needed to get your loans forgiven. To my surprise, you can’t just waive this grace period to start your qualifying payments. When I contacted the Department of Education, I was told that the only way to bypass the grace period is to consolidate your loans. The consolidation can be done online, but it often takes weeks to process.

3. No digital signatures are allowed, you must sign the form by hand. As a millennial who doesn’t own a printer, I attempted to complete the PSLF employment certification form online and submit it with my digital signature. My application was rejected. In fact, I got a notice from FedLoans a few weeks later stating that my enrollment into the PSLF program was denied because I didn’t provide a “hand signature.” I’m not joking. I literally had to find a printer, fill out the form a second time, sign it by hand, then ask my boss to scan and fax it to them. A few weeks later they told me the application was approved.

4. The certification form takes weeks to process, so upload a copy to your online account. When I finally did get my loans consolidated and resubmit the form with my hand signature, it still took weeks to process. I called Fedloans to see how to expedite the process and was advised to upload the employment certification form to my online Fedloans account. As one can imagine, it takes days if not weeks for them to catch up on all the faxes they receive. Uploading the form directly to your account speeds up the process and they can make a decision faster than if you just fax in the form.

5. The “end date” on the form isn’t really an “end date.” Once I was accepted into PSLF, I received a notice indicating that I was only enrolled into the program for one month. The form showed a start date of 07/2019 and an end date 08/2019. I was confused and frustrated to say the least and promptly called Fedloans for an explanation. The representative assured me that I was still enrolled into the program. Apparently, the Fedloans employees need a way to process the form and then “close out the task.” The “end date” listed on the form isn’t an actual “end date.” It’s the date that your employer signed the form. Why they don’t simply call it a “processing date” or “employer verification date” is odd, but nevertheless, that’s what it says.

6. The payments they calculate may not be correct. A few weeks after notifying me that I was enrolled in the program, Fedloans sent me another notice estimating how many qualifying payments I had. The form listed zero. That wasn’t correct. Although I had just started residency 6 weeks ago, they should have at least recorded 1 payment, especially since I went through the process of consolidating my loans and waiving the grace period. When I called Fedloans to inquire about this issue, the representative said there was an error in updating my loan status from the consolidation but that it would be fixed soon. Ladies and gentlemen, double check your payments and count them yourself.

7. Your number of qualifying payments will not be updated in real time. Fedloans does not track your qualifying payments month to month. Instead, they check the number of payments you’ve made once a year when you re-submit the employment certification form. They then send you another notice with an arbitrary “end date” and update your account with the number of qualifying payments you’ve made up until that date.  Ironically enough, the PSLF program does not require you to re-submit the certification form each year, but doing so is the only way to make sure Fedloans is keeping track of your qualifying payments.

8. You must submit another certification form when you change employers. In order for Fedloans to ensure that you continue to qualify for the PSLF program, you must show proof. I highly recommended that you submit the enrollment certification form each year so they can better track your payments, but it is required that you submit this form each time you switch employers. You have to notify them about the change in your employment status so they can update things in their system and verify that you still qualify.  

9. It could take another 6 months for your loans to be forgiven after all 120 payments are made. Yep, you read that right, 6 months. Once you make the 120 monthly payments, you have to submit a different form called the “PSLF loan forgiveness form.” Unfortunately, it can take another 6 months after submitting the form before a person is notified that their loans have been forgiven or not. Because of this delay, you have the option to stop paying towards the balance of your student loans and go into “forbearance” while you wait to hear back on the status of your forgiveness. You can also just keep sending extra payments and hope for a refund at the end.

To be brutally honest, PSLF has a lot of inefficiencies. I’ve been enrolled in the program for a little over a year and have already had to call Fedloans half a dozen times. To say it’s a hassle is an understatement. Hopefully, it won’t be like this going forward. When all federal student loans were placed into forbearance during COVID, it took them a few months to catch up with processing but eventually they got my payments right without me having to call them every other day. Learning the ins and outs of this program and dealing with its quirks is a bit cumbersome, but the opportunity to get hundreds of thousands of student loans forgiven tax free is too good of a deal to pass up. Keep track of your payments and may the odds be ever in our favor.

5 Things To Do Financially In The Month of July:

July 1st is a big day in the medical world. It’s when graduating medical students start their first day as doctors, and experienced resident physicians get “promoted” with more responsibilities and a pay raise to match. Whether you’re in the medical field or not, the start of July marks the halfway point of the year and can be a great time to re-evaluate your finances and make any necessary changes. Here are 5 things we should all be sure to do in July:

1. Create a spending plan. For the interns who are now getting paid, the residents physicians experiencing a salary increase, or the attending docs that have more money than they ever have before, now is the time to create a spending plan. Going from barely having any money to a steady [large] paycheck can be exciting. However, if you don’t manage your money wisely, you may find that your money is gone sooner than you think or realize that you wasted it on things you didn’t need. Having a spending plan can help prevent this from happening. It’s having a basic outline of the things you need to purchase and reserving money for other things that may be important to you, without going overboard. It’s determining which bills and other costs you need to cover each month (rent, electricity, internet, car insurance, etc) and thinking about how much money you also need to set aside for other things like groceries, gas, personal grooming, etc. The goal is to figure out the max amount you can afford to spend on certain items each month so that you never have an issue paying your bills and have also managed to save money for other priorities and still have some money left over to enjoy.

2. Make sure you have insurance. You can try your best to plan for certain life events and expenses, but you can’t predict everything. For large expenses that we can’t predict, we need to have insurance in place to cover those costs. Although signing up for insurance may not be the most exciting task to complete, it’s absolutely essential. We all need some form of medical insurance to cover basic health expenses, prescription costs, and any hospital bills. We also need long term disability insurance so that we have income security in case we get diagnosed with an illness or get an accident that precludes us from working at our full capacity. Lastly, those with families or other people who rely on their income also need term-life insurance so that their families have a means of financial support if they happen to die before they have become financially independent.  

3. Get a handle on your student loans. Many people have student loans. Physicians who are in residency or young professionals who work for non-profit hospitals and public institutions may qualify for public service loan forgiveness (PSLF) or some other type of student loan forgiveness plan. In order to sign up for this program or ensure that your payments over the last 12 months were properly counted, it is essential that you complete the employer certification form each year. Anyone with federal student loans may also want to consider signing up for an income driven repayment plan like PAYE or REPAYE so that your monthly payments are based on your income instead of a much higher amount that you may not be able to afford. Those who are already enrolled in an income driven repayment plan must complete the mandatory annual recertification to remain in the same plan each year. Once you determine a repayment plan and re-certify any forms, it may also make sense to have your monthly payments automatically withdrawn from your bank account. Many loan servicers will even lower your interest rate if you sign up for these automatic payments.  

4. Pay down your debt. For those who want to build wealth and become less reliant on each paycheck, it’s imperative that you prioritize paying off your debt. Many people accumulated credit card debt in their early twenties or have used credit cards to cover moving expenses, furniture costs, or previous vacations. Other people may have taken out car loans or borrowed money from other sources to make ends meet. Although it may not be feasible to pay all of our debt off instantly, it’s important to come up with a feasible payment schedule to get rid of the debt sooner rather than later. Simply paying the minimum amount each month will cause us to pay a lot of extra money in interest and may really impede our ability to build wealth and financial security. Making a goal of having at least one of our credit cards or loans completely paid off within the next 12 months might be a decent place to start.

5. Start investing. Part of adulting means setting aside money for retirement, creating a savings account and investing money in a way that helps build your net worth. Many people have elaborate investment plans or try to play the exhausting game of picking individual stocks to purchase. While that may work for them, investing doesn’t have to be complicated. You can start by funding your employer-sponsored retirement account and a Roth IRA (or backdoor Roth IRA). Simply choose a percentage of your income you want to contribute towards retirement (ideally, you’d want to start off around 10%) and choose to invest the money in various index funds or a target retirement fund that invests your money in thousands of different stocks and bonds. When I started residency, I prioritized paying off debt and only contributed about 5% to retirement. Once I paid off the debt, I drastically increased that percentage and started fully funding my emergency fund and other savings.

My point? If you want to ensure you’re on the road to financial stability and independence, start by completing the 5 steps above.

Are Student Loans Good Debt or Bad Debt?

As many of us are well aware, the cost of a college education has rapidly increased. In fact, many college graduates finish school with tens of thousands of dollars in student loans to repay. While some people feel as though the price of their degree was worth it, many others aren’t so convinced. Truth is, student loans can be “good debt” for some people and “bad debt” for others. Let’s determine where it falls for you:  

1. Did you actually earn a degree? Many people finish high school and enroll in a college with good intentions to get their degree. Unfortunately, life doesn’t always work out as planned. Due to the rising cost of tuition, work obligations, competing expenses, or family responsibilities, some people may have to post-pone their college dreams. Accumulating student loan debt, without a tangible degree to increase your potential job opportunities and salary can be detrimental to your finances. If you obtained a degree then the student loans may be "good debt." If you didn't then they may be "bad debt." 

2. How much debt do you have? While getting a college degree is a notable accomplishment, it’s important to examine if you did so at a fair price. Some people get scholarships to pay for the entire cost, others have to maximize federal and private loans to cover their basic needs. Where do you fall on this spectrum? The more debt you have, the more you may have to consider whether the debt was worth the added benefit of the degree.

3. Were you able to get a job after graduating? Not all colleges are created equal. Some schools may be better at helping their graduates get jobs than others. Unfortunately, not all degrees are created equal either. Some degrees such as those in engineering or science may be more marketable or have better job prospects than others in language arts or history. If you earned a degree but are struggling to find a job with that degree, then it may be time to question if the loans you took out to get the degree was money well spent. 

4. Does the job you got earn you a decent salary? “Decent” can vary from person to person. The general rule of thumb is to make sure your student loans don’t exceed your [projected] income. For example, if you get a degree in education and the average salary for teachers is $45,000 then your student loans should not exceed $45,000. Some people extend this rule to 1.5x their salary, but usually anything more than can be challenging to pay back. Although these rules may not apply to everyone, having a general guideline can help us ensure that we aren’t borrowing more money than we’ll be able to repay. If you borrowed less than 1.5x your salary then perhaps the student loans were a good investment. 

5. Does the degree you earned lead to other opportunities? Taking out student loans can be about more than getting a degree to increase your pay. Aside from the job opportunities and salary the degree may or may not have afforded you, think about other opportunities. Did the skills you learned with the degree allow you to accomplish a lifelong goal? Did the people you met while getting the degree give you access to lucrative networks and people that can help you going forward? Did it provide you with invaluable life lessons, maturity, or the self-confidence needed to help you gather the courage to go after your goals with reckless abandon?

My point: Obtaining student loans to attend college is something that is commonplace. While the worth of a degree shouldn’t be judged purely on how much money it cost you or the job you obtained afterwards, one must be realistic. If student loans are going to be considered “good debt” then we must ensure they meet a few criteria. We should refrain from taking out much more than our projected salary, use the degree to advance in our careers, and leverage our time in college to obtain access to other invaluable opportunities.

Quick Guide For Managing Loans, Insurances, and Budgets

Of note, this article was originally published on Doximity’s Op-Med for resident physicians.

As resident physicians who work crazy hours, we have a lot on our plate. With so many competing responsibilities, it can be difficult to balance our personal lives with our careers and some things may inevitably fall by the wayside. While there are many things we can put off for another month or even another year, our finances shouldn’t be one of them. Here’s a financial check list of three things you must do to make sure you’re on the right track: 

Have a concrete plan for your student loans

Figuring out what to do with your student loans can seem a bit overwhelming. Here are a few steps to help you navigate through the madness.

1. Decide whether or not to consolidate or refinance your loans. Consolidation is when you combine all your loans into one giant loan and this can usually be done through the federal government. Refinancing is when you combine your loans with a private company outside of the federal government. Refinancing your loans usually allows you to get a lower interest rate on which can save you money over time but it makes you ineligible for several government loan forgiveness programs like public service loan forgiveness (PSLF). Since I’m enrolled in PSLF, I chose to consolidate my loans through the government instead of refinancing them with a private company.

2. Pick a repayment plan that you can afford. If you have federal student loans, you will be automatically enrolled into the standard repayment plan. This plan may require a higher monthly payment than you can afford. If this is the case for you, as it was for me, switch into one of the income driven repayment plans that cap your student loan payment at 10-15% of your discretionary income.

3. Sign up for public service loan forgiveness if your residency qualifies. Enrolling into the program isn’t binding and may give you the chance to get tens of thousands of dollars in student loans forgiven, tax free. Take five minutes out of your day and submit the form to officially enroll, if your resident program meets the qualifications.

Make sure you have insurance

Many of us didn’t think much about insurance in medical school. We probably had health insurance from our parents or our schools and didn’t worry about anything else. Now that we’re out in the “real world,” here are three things to do to make sure we are thoroughly protected in residency: 

1. Verify that you have medical insurance. Even though most of us are young and healthy, we still need health insurance. Whether it’s for yearly checkups, acute illnesses, the birth of a baby, prescriptions, or unforeseen injuries, we have to make sure we’re protected and have an affordable way to cover these costs. As residents, most of us should get free or low-cost coverage through our programs. Just make sure you’re enrolled.

2. Get disability insurance. After taking out loans and spending most of our 20s in school, let’s make sure that our income is protected. If we get in an accident, are diagnosed with an illness, or simply have an injury that prevents us from working to our full capacity, disability insurance will kick in and give us money to replace the income we may have lost. Group disability insurance policies through our residencies usually don’t have enough coverage or adequate protection. I purchased an individual specialty-specific disability insurance policy that will pay out $4,000 a month if I am unable to work at 100% capacity as a resident. The policy will increase and pay out $12,000 a month when I become an attending.

3. Decide if you need life insurance. Life insurance pays money to our families if we were to pass away. While many of us have a life expectancy well into the 80s, life can be unpredictable. If something were to happen to us, we’d want to make sure our family was taken care of. As a resident, many of us have a small life insurance policy from our employers, but if you have a spouse or kids who depend on your income, that group policy may not be enough. You may need to purchase additional term life insurance.

Create a monthly spending plan

As resident physicians, life is much different now than it was when we were medical students. Instead of getting one lump sum of money each semester, we now get paid on a consistent basis. In order to make sure we’re not spending too much money and are actually saving a decent amount for emergencies, paying down debt, retirement, and vacations, it’s imperative that we implement a spending plan. I categorize my spending into 3 buckets: 

1. Things I need to buy, which are necessities like rent, bills, and food.

2. Things I want to buy, which are discretionary entertainment expenses like concert tickets, movies, books, meals at restaurants, or clothes.

3. Things I should buy, which are investments I make to increase my net worth whether that’s by paying down debt, saving money into a separate account, or investing toward retirement.

Simply allot a percentage of your check to each of these three buckets to make sure you’re living within your means and making responsible spending choices. 

To summarize, getting your finances in order doesn’t have to be difficult. Have a concrete plan for your student loans by deciding whether or not to consolidate or refinance your loans, enrolling into an affordable repayment plan, and signing up for PSLF. Next, make sure you have all the insurance you need like medical insurance, disability insurance, and life insurance. Lastly, create a spending plan to ensure that you’re paying your bills, increasing your net worth, and investing in your own self-care. 

How to pay off your loans: Debt Snowball vs Debt Avalanche

Those of us who took out student loans for school or weren’t as diligent about our finances in our younger years, may have accumulated some debt. Now that we have started our careers and are trying to follow a budget, one of the things on our to-do-list is paying off debt (or at least making payments towards it). When it comes to paying down debt, there are 2 main ways to do it: the debt snowball and the debt avalanche.

Debt Snowball:  

With the debt snowball method, you organize your debt by the amount you owe on each loan and prioritize paying off the loan with the smallest amount first. One you pay off the loan with the smallest amount, you use the money you were putting towards that loan and stack it onto what you were paying on the next highest loan until you pay that one off too. You keep stacking payments and paying off loans until all of your debt is gone.

Example of the Debt Snowball:

Let’s say you owed $5,000 on a credit card, had $20,000 left on your car loan, and $40,000 in school loans. With the debt snowball method, you would prioritize paying off the credit card debt first, then the car loan, then your student loans. Specifically speaking, you would make the minimum amounts on all loans (say $100 each) and any leftover money you have (say $500) would go towards the smallest loan (in this case it would be your $5,000 credit card debt). Once you pay off the credit card debt, you would stack the money that went to that debt onto the next highest loan, which in this example is the $20,000 you still owe on your car. Once you pay off the car loan, you would take the money you were paying on that loan and add it to what you were already paying towards your $40,000 student loans. With the debt snowball, you end up stacking money on each payment as you pay off each debt (like you creating a snowball that stacks ice as it rolls).

Why the Debt Snowball works:

Paying off debt is mental. When you see yourself pay off the small loan, you may be even more encouraged to pay off the larger loans and more likely to eventually eliminate all your debt. The disadvantage of this method is that paying off loans with the smallest amounts first may cost you more money overall (since there may be other loans with higher interest rates). Despite this disadvantage, there are many advocates of the debt snowball method. Supporters of the debt snowball say that most people don’t end up paying off all of their debt because they get discouraged along the way. However, when they see themselves pay off one of their loans, they are more likely to pay off additional loans and eliminate their debt altogether. Thier point? People may pay more money overall with the debt snowball method, but they will eventually get it all paid off.

Debt Avalanche:

With the debt avalanche method, you organize your debt by the interest rate on each loan, (not by the amount you owe on each loan). You prioritize paying off the loan with the highest interest rate first (even if you have other loans of smaller amounts).  

Example of the Debt Avalanche:

If you had the same loans from the previous example: $5,000 from your credit card with a 15% interest rate, $20,000 from your car loan with an 5% interest rate, and $40,000 in student loans with an 8% interest rate, then you would organize your loans by their interest rates and prioritize paying off the loan with the largest interest rate first. In this case, you would pay off the $5,000 loan, then the $40,000 loan, and end with the $20,000 loan (as if you are an avalanche that starts at the top of mountain and increases in speed as it travels downward).

Why the Debt Avalanche works:

The advantage of this method is that you end up paying less money overall because you get rid of loans with higher interest rates first. The disadvantage of this method is that oftentimes the loans with the highest interest rates are some of our larger loans. Thus, it may take awhile to actually pay the loan off. It may be harder to feel as though you are making progress towards debt repayment since paying off that first loan could take years. Many people may lose their zeal for paying off debt and get tempted to use that money for other things. Nevertheless, many financial advisors still recommend the debt avalanche for people who are dedicated to becoming debt-free, since it saves them hundreds, if not thousands, of dollars in the long-run.

Which method is better?    

It depends. There are pros and cons to each method so you should choose the method you think you can stick to the best. If you know you are the type of person who needs to see small victories to stay encouraged along the way to becoming debt-free, then perhaps the debt snowball method is right for you. If you are the type of person who is more diligent about paying off debt, doesn’t rely on small victories, and has fully committed to paying off debt in the shortest amount of time, then perhaps you would do well with the debt avalanche method. I myself, have used each of these methods in the past and they both have worked well. For example, I used the snowball method when paying off my car note and credit card bills. I then used the debt avalanche method when paying my student loans.

Which method do you think would work best for you?

The Best Student Loan Repayment Plans for Medical Students and Residents

If you have ever tried to learn about student loan repayment plans you might have felt overwhelmed and confused. Instead of spending days researching information like I did, I’ve created a summary of the different repayment plans in a question-and-answer format with some key takeaways for graduating med students and current residents. 

1. What is the Standard Repayment Plan and who should choose it?  

With the standard repayment plan, you will pay off your student loans in 10 years by making “fixed” monthly payments. This means you will pay the same amount each month regardless of how much money you make. The government will determine your monthly payment by adding all of your student loans (and the projected interest that will accumulate on them), dividing that number by 10 [years], and splitting the amount into fixed monthly payments. 

This is not the ideal plan for graduating med students and residents, especially those with around $200,000 in student loans. Unless you have very little money in student loans, the monthly payments required under this plan will be higher than you can afford on a resident salary. Unfortunately, you will be automatically enrolled into the standard repayment plan if you don’t select a different repayment plan.   

2. What is the Graduated Repayment Plan and who should choose it?

With the graduated repayment plan you will also pay off your loans in 10 years, but your monthly payments are not fixed. Instead, they will start out low, and increase every 2 years, until you have fully paid off your student loans in 10 years.

This is also not an ideal plan for graduating med students and residents. The payments under this plan will still be higher than most residents can afford. Don’t get me wrong, paying off your loans in 10 years instead of dragging it out over 25 years will save you money in interest. However, if you can afford the high payments under this plan and want to pay off your loans in a few years, you could save even more money by simply refinancing your loans with an outside company since they can offer you can even lower interest rate.  

3. What is the Extended Repayment Plan?

Through the extended repayment plan you will pay off your loans in 25 years by making fixed or graduated payments. This plan is for people who don’t qualify for an income driven plan and want to spread their loans out over 20-25 years. It is not ideal for medical students and residents since we qualify for income driven repayment plans during residency.

4. What are the income-driven repayment plans?

The Federal Department of Education understands that some people may have acquired a substantial amount of student loan debt that they may not be able to repay with their current salaries. Instead of handing you a monthly student loan bill that may be higher than your mortgage, these income-driven repayment plans base the size of your monthly student loan payments on your income.

Keep in mind that there are several different types of income-driven repayment plans and that the names may change over time. As of 2024, the 4 types are Pay-As-You-Earn (PAYE), Saving-on-a-Valuable-Education (SAVE) which replaced the Revised-Pay-As-You-Earn plan, Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR).

Most of these plans cap your student loan payment at 5-15% of your discretionary income. Your discretionary income is your income minus whatever the poverty line is for your family size. In other words, if your income is low, your student loan payment will be low. As your salary increases, the size of your student loan payment will increase. After 20-25 years (depending on the type of federal loans you have) your student loans will be forgiven. Keep in mind that many residents and attending physicians will qualify for public service loan forgiveness which forgives their student loans after only 10 years of payments.

5. Should you enroll in an income-driven repayment plan like Pay-As-You-Earn (PAYE) or Saving-on-A-Valuable-Education (SAVE)?

As graduating med students or residents, you should consider enrolling in SAVE, especially if you have at least tens of thousands of dollars in student loans. With the SAVE plan your student loan payment is never more than 10% of your discretionary income, which is ideal for residents trying to make ends meet on a $60K salary. The amount of your income-driven repayment is recalculated each year after you file your taxes.

Of note, if you file your taxes as a graduating med student with zero income, then there is a high possibility your student loan repayment your first year residency will be zero dollars. Having a student repayment of zero dollars will actually count towards one of your 10 years of required payments under the public service loan forgiveness program. If you don’t file your taxes and instead opt for a grace period (the default option) then that time will not count toward public service loan forgiveness.  

6. What are the advantages of the new Saving-on-A-Valuable-Education (SAVE) plan?

SAVE is the new plan that has replaced the old revised-pay-as-you-earn (REPAYE) plan. Although REPAYE and PAYE were similar, SAVE and PAYE are much different. In fact, many many people will benefit from being in the SAVE plan and the PAYE plan is being phased out.

SAVE has many perks like:

• You pay a smaller percentage of your discretionary income. Instead of paying 10%, you now will pay 5% to 10% depending on the percentage of undergraduate vs graduate/medical school loans you have. If you only have loans from undergrad you will pay 5%. If you only have loans from graduate school or medical school you will pay 10%. If you have a mix of both, you will pay between 5% to 10% depending on the ratio of undergrad to graduate school loans you have.

• The definition of discretionary income is different which allows you to pay less per month. Under the old REPAYE plan, the PAYE plan, and the IBR plan the amount you pay per month is your adjusted gross income (AGI) minus 150% of the poverty line for your state and family size. Under the new SAVE plan it is different. With SAVE you pay your AGI minus 225% of the poverty line for your state and family size. This difference allows more of your income to be protected from the student loan calculation resulting in a lower monthly payment. In other words paying 10% of your discretionary income in the SAVE plan will result in a lower monthly payment than paying 10% of your discretionary income in any other plan because the definition of discretionary income in the SAVE plan is different in a way that favors the borrower.

• No unpaid interest gets added to your loan balance. This means that any interest accruing on your loans that isn't covered by your monthly payment will be automatically forgiven. If you’re like most physicians who graduate medical school with around $200,000 in student loans, it’s very likely that your income-driven payments in residency will not even cover the interest that is accruing on your loans. Enrolling in the SAVE plan will prevent that unpaid interest from being added to your loan balance. For example, let's say your monthly payments over the year add up to $5,000 but you have $20,000 in interest being added to your loans each year. This means you have $20,000 in interest minus $5,000 in payments which leaves $15,000 in unpaid interest each year. Under most repayments plans, that unpaid interest would be added to your loan balance causing the amount you owe to increase. Under the SAVE plan, that is not the case. The $15,000 of unpaid interest that wasn't covered by your monthly payments will be automatically forgiven.

• You have the ability to exclude your spouse's income, if you file your taxes separately. Under the old REPAYE plan, you could not exclude your spouse's income when calculating your student loan payment. With the new SAVE plan, you can. As long as you and your spouse file your taxes "married filing separately" instead of "married filing jointly" you have the ability to exclude his/her income from consideration when determining your monthly student loan payment.

7. Who should consider enrolling in Pay-As-You-Earn (PAYE) or Income-Based-Repayment (IBR)?

The SAVE plan is the best option for most people. However, there are 2 advantages of PAYE and IBR that some people may benefit from.

1) The payment cap. PAYE and IBR will cap your payments at the standard 10-year repayment plan level even as your income rises. This means you will pay payments that are either 10% of your discretionary income OR...whatever your payment would be if you enrolled in standard 10-year repayment plan, whichever one is lowest. This may benefit some highly paid physicians who don't want to make payments based on their income and would rather make payments based off the standard 10-year repayment plan. The higher your salary and the lower your student loan balance the greater chance you may benefit from being in PAYE or IBR. Look on the federal website for their payment estimator to see whether PAYE or IBR could save you money.

2) An earlier timeline for IDR Forgiveness. The other advantage of PAYE or IBR is that you have a chance to get your student loans forgiven in 20 years instead of 25 years. Although some people enroll in other student loan forgiveness plans like Public Service Loan Forgiveness (PSLF) which will forgive their loans after making 10 years of qualifying payments, not everyone qualifies for that program. If you do not qualify for PSLF, you are still eligible for the default Income driven repayment forgiveness. With this program, your loans will be forgiven after making 20-25 years of qualifying payments. Everyone in the PAYE plan and many people in the IBR plan will have their loans forgiven in 20 years (instead of 25 years) under this default income driven repayment forgiveness program. Those enrolled in the SAVE plan will have to make 25 years of qualifying payments. There is no forgiveness in 20 years under the SAVE plan.

Of note, PAYE and IBR are very similar. Those who do not qualify for PAYE may want to consider the IBR plan. PAYE plan is being phased out over time. A person should consider PAYE or IBR if they are not going for PSLF and would benefit from making payments based on the standard 10-year repayment plan instead of making payments that are 10% to 15% of their discretionary income. Be aware that the PAYE plan is being phased out over the next couple years.

8. What the heck is Income Contingent Repayment (ICR) and who should enroll in that one?

Income contingent repayment (ICR) is a type of income-driven repayment plan for those with Parent PLUS loans. People with these loans are those who took out student loans on behalf of their kids to help their kids pay for college. My point? This plan is only for those who have Parent PLUS loans. If you aren't sure, check your loan type on the federal student loan website.   

9. Can you change from one student loan repayment plan to another?

Yes. Oftentimes people may choose one of the income-driven repayment plans after they graduate from school, but then change to another type of plan as their salary increases or their life circumstances change. For example, a recent graduate might choose to enroll in SAVE for a few years to enjoy the benefits of the government interest subsidy, then change into PAYE if their income skyrockets so that there is a cap to place on how high their payments can be. Switching was much more common when the old REPAYE plan was in place. Now that there is the new SAVE plan much fewer people need to switch plans but it is still possible.

Trying to get your student loans forgiven? Consider public service loan forgiveness

Public service loan forgiveness got some bad press in the news in the past, but as a physician, I am still enrolled in it. Just in case you have some questions about the program, I’ve answered some common ones below:                                                                                                          

1.     What is Public Service Loan Forgiveness?

Public Service Loan Forgiveness (PSLF) is a government sponsored student loan forgiveness program. If you work in public service for a non-profit organization, academic institution, or government agency and make 10 years of on-time qualifying monthly payments towards your student loans, the government will “forgive” your remaining student loan balance.

This program was designed for public servants like teachers and police officers who have lots of student loan debt but may be unable to pay it off in a reasonable time, partly because the salary they receive working in public service is less than the salary they would have received in a different profession. The goal of the program is to allow people with a passion for public service to pursue careers in that field without saddling them with an eternal burden of student loans.

The great thing about this program is that many health care professionals qualify too. Before you roll your eyes, hear me out. Many doctors, such as myself, obtained an average of $200,000 in student loans during medical school. Then we entered residency where we were mandated to spend 3-7 years earning a government salary of around $60,000 while working 80 hours a week before we could make “the big bucks.” If we choose to continue working in an academic setting or for a nonprofit health system, we qualify for public service loan forgiveness as well.

2.     Wait, isn’t it sketchy?

I’ll admit, there was some bad press about public service loan forgiveness (PSLF) in the past. During that time, people who thought they met the requirements were finally able to apply for loan forgiveness. Unfortunately, many people were not granted this forgiveness and hearing this news scared many people who were depending on this program.

Although this is less than ideal, there are several reasons why previous applicants were unable to get their loans forgiven. When the program first came out, the rules were vague. There was a lot of misinformation about how to enroll and many people who thought they qualified for the program did not actual qualify for it. Nowadays, the requirements for PSLF are much easier to understand. Now that people are more aware of how to properly enroll into the program, many people who have met the qualifications have gotten their student loans forgiven.

3.     Is it wise to depend on this program?  

A few years ago there were some proposals to eliminate PSLF, or potentially limit how much money can get forgiven through it. Many people got worried that the program would change and didn’t want to depend on it. Nowadays, most of that worry has gone away.

The department of education has made several changes to the program that 1) make the rules much easier to understand and 2) have expanded the number of people who qualify for forgiveness.

As of 2024, many many physicians and other professionals with $200,000 or $300,000 or more in student loans have gotten their debt completely forgiven with the PSLF program.

4.     How do you qualify?

According to the website, you need to have direct federal student loans, work full-time in public service via a 501(c)(3) nonprofit or academic institution, and submit 10 years worth of on-time qualifying payments (i.e. Pay the full amount of your student loan repayment each month through one of the income-driven repayment plans).

5.     How do you actually enroll?

Go to the student loan website, complete the PSLF form, and have your employer sign off on it. Your employer can submit it themselves once they sign it electronically, or you can upload the form yourself, if you have your employer sign the form on paper. Once you’ve submitted the form, the federal loan servicer “Mohela” will verify whether you submitted the paperwork correctly and confirm whether you qualify. Mohela is the official servicer of the PSLF program (they took over for the pervious company Fedloans). You must contact Mohela annually to verify all of your payments and re-submit the employer verification enrollment form so that they know you still work in public service for a qualifying organization. If you have a different loan servicer (such as Nelnet, Navient, Great Lakes, etc), your loan servicer will be switched to Mohela as soon as you enroll into Public Service Loan Forgiveness.  

6.     Do you need to protect yourself if something goes wrong?

I understand that going for PSLF is a risk. There is a chance that the government could change the rules of a program that allows relatively high earning doctors to avoid paying hundreds of thousands of dollars in student loans. If you’d like to protect yourself you can consider creating a “student loan investment side fund.”

Instead of using the money you’re saving in PSLF to buy a better car, a larger home, or have a wealthy “doctor” lifestyle, you can save that money. Specifically speaking, you can take money from each check and put it into a high-yield savings account or put money in an account that is invested in a combination of real estate deals, index mutual stock funds, and money market funds. That way, if PSLF changes in the next few years or for some reason you can’t get your loans forgiven, you will have created a nice nest egg of money that you can use to quickly pay off the rest of your student loans.

If the PSLF program stays the same, then you can keep on investing that money and use it to pay for your retirement or your kids’ college education.

Tell me, are you thinking of going for Public Service Loan Forgiveness too?