By Dr. Jim Dahle, WCI Founder

I stumbled across an American Medical Association (AMA) policy recently called “Principles of and Actions to Address Medical Education Costs and Student Debt H-305.925.” In essence, this policy is what the AMA thinks should be done about the cost of a medical education and student loans. I found it to be an interesting read.

People more conservative than me will likely find it to be appalling. As I read it, I was reminded that many doctors see the AMA as a politically liberal organization. Back in the 1960s, a “conservative AMA” called the American Academy of Physicians and Surgeons (AAPS) was started, but given that membership numbers are 271,000 and 7,000, respectively, it's hard to say the AMA isn't the more representative body whether you feel it represents you or not. Either way, I think it's useful to know what the AMA is advocating. There are 26 topics in the policy, and I think they're all worth talking about.

The first line says:

“The costs of medical education should never be a barrier to the pursuit of a career in medicine nor to the decision to practice in a given specialty. To help address this issue, our American Medical Association (AMA) will:”

While I agree with the general sentiment that I would hate to see doctors not become doctors or a particular type of specialist for financial reasons, “never” is a very dangerous word to use, and it is hard for me to get behind a policy that uses it. I'm sure there is some person or situation where cost maybe should be a barrier. At any rate, to think these decisions can be completely divorced from economic reality seems a little naive.

 

#1 Collaborate

“Collaborate with members of the Federation and the medical education community, and with other interested organizations, to address the cost of medical education and medical student debt through public- and private-sector advocacy.”

Hard to disagree with anything there. Who's going to be against collaboration?

 

#2 Expand Contract Programs

“Vigorously advocate for and support expansion of and adequate funding for federal scholarship and loan repayment programs—such as those from the National Health Service Corps, Indian Health Service, Armed Forces, and Department of Veterans Affairs, and for comparable programs from states and the private sector—to promote practice in underserved areas, the military, and academic medicine or clinical research.”

There is no concern about whether these are all good programs and good uses of taxpayer money; it's just a blatant call for more taxpayer money going toward doctors. In fact, we want even more “comparable programs!”

 

#3 Expand NIH Repayment Program

“Encourage the expansion of National Institutes of Health programs that provide loan repayment in exchange for a commitment to conduct targeted research.”

More money, please. Research is great.

More information here:

The Politics of Student Debt Forgiveness

 

#4 NHSC Repayment Expansion

“Advocate for increased funding for the National Health Service Corps Loan Repayment Program to assure adequate funding of primary care within the National Health Service Corps, as well as to permit: (a) inclusion of all medical specialties in need, and (b) service in clinical settings that care for the underserved but are not necessarily located in health professions shortage areas.”

More money, please. Primary care is great and health profession shortage areas are great too, but why stop there?

 

#5 NHSC Policy Consistency

“Encourage the National Health Service Corps to have repayment policies that are consistent with other federal loan forgiveness programs, thereby decreasing the amount of loans in default and increasing the number of physicians practicing in underserved areas.”

Not sure exactly what's alluded to here, but I think the idea is to make NHSC more generous than it is currently.

 

#6 Reinstate Economic Hardship Deferment Criteria

“Work to reinstate the economic hardship deferment qualification criterion known as the '20/220 pathway,' and support alternate mechanisms that better address the financial needs of trainees with educational debt.”

I don't like this one at all. I think deferment is a terrible option for physician student loans. Income Driven Repayment (IDR) programs are a way better option for almost everyone. I might even go so far as to say that deferment and forbearance options should go away completely to keep anyone from mistakenly choosing those strategies when an IDR program is an option.

 

#7 Pre-Tax Student Loan Savings Accounts

“Advocate for federal legislation to support the creation of student loan savings accounts that allow for pre-tax dollars to be used to pay for student loans.”

At first glance, this seems like kind of a cool idea. I envision it like a triple tax-free HSA account but for education. This would be an improvement on the current 529 accounts. The problem with allowing people to pay for things with pre-tax dollars is that it essentially subsidizes the price of that thing. In economics, that which is subsidized tends to increase in demand (and then eventually in price) while that which is penalized tends to decrease in demand. When you subsidize healthcare, more healthcare is consumed. When you subsidize education, more education is consumed. Essentially, when you put stuff like this in the tax code, society is deciding that some things are more valuable than others. That can be a dangerous pathway and one that should be carefully considered. Our current tax code subsidizes retirement, healthcare, business, having children, buying homes, and even education to a certain degree. This would increase that subsidization.

But why not a pre-tax rent account? Or a pre-tax grocery account? Aren't those important, too?

However, I'm not sure the AMA is envisioning it like I am. It's not talking about an education savings account. It's talking about a student loan savings account. Which seems stupid. If you're trying to pay off your student loans, why not just pay off the student loans instead of putting them in a savings account and then paying off the student loans? Or if you're trying to minimize student loans, why not pay directly for the education rather than taking out student loans, funding a savings account, and then paying off the loans? Seems like a half-baked idea to me.

 

#8 Make Student Loan Interest Tax Deductible for Doctors

“Work with other concerned organizations to advocate for legislation and regulation that would result in favorable terms and conditions for borrowing and for loan repayment, and would permit 100% tax deductibility of interest on student loans and elimination of taxes on aid from service-based programs.”

Right now, up to $2,500 in student loan interest is deductible for low earners. None is deductible for high earners. The AMA would like to see that changed, and that part seems fair to me. What's good for the goose is good for the gander. However, there's a lot more here, such as making borrowing/repayment terms more “favorable” and eliminating taxes on aid from service-based programs (like HPSP stipends). I don't know how I feel about this one. Our current federal student loan program (especially with PSLF) is awfully generous now. Making them even more generous may not be the best policy. We've already got students and their families leaving their own money invested while borrowing federal student loans at 8%-9% because the terms are so generous. And I don't think much tax is actually being paid on HPSP, NHSC, and MD/PhD stipends.

 

#9 Encourage Private Sector Financial Aid Programs

“Encourage the creation of private-sector financial aid programs with favorable interest rates or service obligations (such as community- or institution-based loan repayment programs or state medical society loan programs).”

We used to call this sort of thing a salary or a signing bonus that you could use either to pay off student loans or to buy a Tesla. Maybe it's better not to get too cute with it and just let people use the money for whatever they want. Making it so the benefit can only be used for student loans encourages people to take out more student loans. The first law of economics is that people respond to incentives.

 

#10 Support Funding for Medical Education

“Support stable funding for medical education programs to limit excessive tuition increases, and collect and disseminate information on medical school programs that cap medical education debt, including the types of debt management education that are provided.”

I think we're talking mostly about state money here with “stable funding.” When states cut money from their medical schools, the medical schools have to raise tuition. I'm fully supportive of anything that keeps down tuition. Reduce the cost upfront, and we can quit playing all these goofy student loan games on the back end. It's hard to see how more transparency and financial education for students would be a bad thing.

 

#11 Tuition Caps

“Work with state medical societies to advocate for the creation of either tuition caps or, if caps are not feasible, pre-defined tuition increases, so that medical students will be aware of their tuition and fee costs for the total period of their enrollment.”

Again, I'm fully supportive of this, but I have no idea why the AMA thinks state medical societies have any control over this. How about if the AMA works with the AAMC and the schools themselves?

More information here:

The Moral Hazard of Federal Student Loan Policy

 

#12 Get Medical Schools to Care About the Cost of Education

“Encourage medical schools to (a) Study the costs and benefits associated with non-traditional instructional formats (such as online and distance learning, and combined baccalaureate/MD or DO programs) to determine if cost savings to medical schools and to medical students could be realized without jeopardizing the quality of medical education; (b) Engage in fundraising activities to increase the availability of scholarship support, with the support of the Federation, medical schools, and state and specialty medical societies, and develop or enhance financial aid opportunities for medical students, such as self-managed, low-interest loan programs; (c) Cooperate with postsecondary institutions to establish collaborative debt counseling for entering first-year medical students; (d) Allow for flexible scheduling for medical students who encounter financial difficulties that can be remedied only by employment, and consider creating opportunities for paid employment for medical students; (e) Counsel individual medical student borrowers on the status of their indebtedness and payment schedules prior to their graduation; (f) Inform students of all government loan opportunities and disclose the reasons that preferred lenders were chosen; (g) Ensure that all medical student fees are earmarked for specific and well-defined purposes, and avoid charging any overly broad and ill-defined fees, such as but not limited to professional fees; (h) Use their collective purchasing power to obtain discounts for their students on necessary medical equipment, textbooks, and other educational supplies; (i) Work to ensure stable funding, to eliminate the need for increases in tuition and fees to compensate for unanticipated decreases in other sources of revenue; mid-year and retroactive tuition increases should be opposed.”

There is a ton packed into this one, but I love it all.

 

#13 Expand State Loan Repayment Programs

“Support and encourage state medical societies to support further expansion of state loan repayment programs, particularly those that encompass physicians in non-primary care specialties.”

I thought we covered this in #2 and #9. And again, is there an issue with state medical societies not being supportive here? My “state medical society” is basically just the Utah division of the AMA. I found the focus on non-primary care specialties interesting, too. That's the second time the policy did that. It's like someone on the policy committee has a chip on their shoulder that primary care is getting all the goodies or something. Salary surveys would argue against that.

 

#14 Push for More Generous Student Loan Policy

“Take an active advocacy role during reauthorization of the Higher Education Act and similar legislation, to achieve the following goals: (a) Eliminating the single holder rule; (b) Making the availability of loan deferment more flexible, including broadening the definition of economic hardship and expanding the period for loan deferment to include the entire length of residency and fellowship training; (c) Retaining the option of loan forbearance for residents ineligible for loan deferment; (d) Including, explicitly, dependent care expenses in the definition of the ‘cost of attendance'; (e) Including room and board expenses in the definition of tax-exempt scholarship income; (f) Continuing the federal Direct Loan Consolidation program, including the ability to ‘lock in' a fixed interest rate, and giving consideration to grace periods in renewals of federal loan programs; (g) Adding the ability to refinance Federal Loans; (h) Eliminating the cap on the student loan interest deduction; (i) Increasing the income limits for taking the interest deduction; (j) Making permanent the education tax incentives that our AMA successfully lobbied for as part of Economic Growth and Tax Relief Reconciliation Act of 2001; (k) Ensuring that loan repayment programs do not place greater burdens upon married couples than for similarly situated couples who are cohabitating; (l) Increasing efforts to collect overdue debts from the present medical student loan programs in a manner that would not interfere with the provision of future loan funds to medical students.”

Lots packed into here, some of which I like and some of which I don't. Not sure what “(a)” is referring to. As far as I know, the single holder rule was eliminated in 2006 for the loan consolidation process, but maybe it wants to allow student loan holders to move their loans from one servicer to another. I'd support that. I don't like “(b)” or “(c)” for reasons previously mentioned. I think “(d)” would be good policy. I don't think “(e)” matters much, and “(f)” I'm not so sure about. Consolidation is generally a good thing, but all the little games set up around it seem silly. The “(g)” part is possible now, but I think they're talking about letting people refinance their student loans with the federal government, not private lenders. Again, it's basically making the federal student loan program even MORE generous (and putting lenders out of business). That's a political decision about how big of a government you think is ideal. I think “(h)” and “(i)” are great, and “(j)” is talking about the Hope Credit and Lifetime Learning Credit. I thought they WERE permanent (it's been more than two decades), and they're kind of chump change compared to the cost of a medical education. Meanwhile, “(k)” eliminates a marriage tax penalty which seems smart. I think “(l)” is just asking for more money into student loan programs.

 

#15 Fund State Schools Adequately

“Continue to work with state and county medical societies to advocate for adequate levels of medical school funding and to oppose legislative or regulatory provisions that would result in significant or unplanned tuition increases.”

I thought we covered this one under #10.

 

#16 Pay Attention to What's Happening

“Continue to study medical education financing, so as to identify long-term strategies to mitigate the debt burden of medical students, and monitor the short-and long-term impact of the economic environment on the availability of institutional and external sources of financial aid for medical students, as well as on choice of specialty and practice location.”

Hard to argue against studying and monitoring anything. We do a lot of this here at WCI.

 

#17 Help Cap and Reduce Tuition

“Collect and disseminate information on successful strategies used by medical schools to cap or reduce tuition.”

Love this suggestion.

 

#18 Educate Medical Students About Personal Finance

“Continue to monitor the availability of and encourage medical schools and residency/fellowship programs to (a) provide financial aid opportunities and financial planning/debt management counseling to medical students and resident/fellow physicians; (b) work with key stakeholders to develop and disseminate standardized information on these topics for use by medical students, resident/fellow physicians, and young physicians; and (c) share innovative approaches with the medical education community.”

I'm 100% behind this policy.

 

#19 Stop Medicare/Medicaid Decertification

“Seek federal legislation or rule changes that would stop Medicare and Medicaid decertification of physicians due to unpaid student loan debt. The AMA believes that it is improper for physicians not to repay their educational loans, but assistance should be available to those physicians who are experiencing hardship in meeting their obligations.”

I didn't even realize this ever happened, but it's hard for me to get behind public policy that DECREASES access to doctors for Medicare/Medicaid patients. There's got to be a better way to go after loan defaulters than this.

More information here:

We Quit Paying Extra on Our Student Loans (and Why It Feels Dangerous)

 

#20 Protect and Improve PSLF

“Related to the Public Service Loan Forgiveness (PSLF) Program, our AMA supports increased medical student and physician participation in the program, and will: (a) Advocate that all resident/fellow physicians have access to PSLF during their training years; (b) Advocate against a monetary cap on PSLF and other federal loan forgiveness programs; (c) Work with the United States Department of Education to ensure that any cap on loan forgiveness under PSLF be at least equal to the principal amount borrowed; (d) Ask the United States Department of Education to include all terms of PSLF in the contractual obligations of the Master Promissory Note; (e) Encourage the Accreditation Council for Graduate Medical Education (ACGME) to require residency/fellowship programs to include within the terms, conditions, and benefits of program appointment information on the employer’s PSLF program qualifying status; (f) Advocate that the profit status of a physician’s training institution not be a factor for PSLF eligibility; (g) Encourage medical school financial advisors to counsel wise borrowing by medical students, in the event that the PSLF program is eliminated or severely curtailed; (h) Encourage medical school financial advisors to increase medical student engagement in service-based loan repayment options, and other federal and military programs, as an attractive alternative to the PSLF in terms of financial prospects as well as providing the opportunity to provide care in medically underserved areas; (i) Strongly advocate that the terms of the PSLF that existed at the time of the agreement remain unchanged for any program participant in the event of any future restrictive changes; (j) Monitor the denial rates for physician applicants to the PSLF; (k) Undertake expanded federal advocacy, in the event denial rates for physician applicants are unexpectedly high, to encourage release of information on the basis for the high denial rates, increased transparency and streamlining of program requirements, consistent and accurate communication between loan servicers and borrowers, and clear expectations regarding oversight and accountability of the loan servicers responsible for the program; (l) Work with the United States Department of Education to ensure that applicants to the PSLF and its supplemental extensions, such as Temporary Expanded Public Service Loan Forgiveness (TEPSLF), are provided with the necessary information to successfully complete the program(s) in a timely manner; and (m) Work with the United States Department of Education to ensure that individuals who would otherwise qualify for PSLF and its supplemental extensions, such as TEPSLF, are not disqualified from the program(s).”

This part of the policy is packed with ideas, too. I think “(a)” and “(f)” are because some training programs aren't nonprofits and docs are penalized for going to those. Meanwhile, “(b)” and “(c)” are pro-active attempts to avoid a cap. I have mixed feelings on this. As an advocate for doctors, I love that docs can get $400,000, $600,000, or more in student loans forgiven. As an advocate for taxpayers, I'm not sure forgiving $600,000 for a doc making $600,000 a year is an awesome policy. It's hard for me to argue that a reasonable cap ($100,000? $250,000?) is not good policy. Nurses, teachers, cops, and firefighters still get the benefits of public service and doctors get a little something, too. But it happens without all these crazy misincentives that exist right now causing people to borrow at 8%-9% instead of using their own money to pay for medical school. I'm definitely NOT a fan of any sort of income-based cap. We don't need to encourage people to make less money, but I wouldn't necessarily be against a cap on the total amount of lifetime forgiveness (although it would move some money out of the pockets of doctors into the Treasury). I think “(h)” is interesting. You can't make PSLF more attractive AND expect more people to do HPSP, NHSC, and MD/PhD programs at the same time. The more generous PSLF gets, the less anyone is going to use those other programs to pay for school. The other recommendations all seem good.

 

#21 Continue IDR Programs

“Advocate for continued funding of programs including Income-Driven Repayment plans for the benefit of reducing medical student loan burden.”

Short and sweet, but it's interesting that it didn't advocate making IDR even more generous. I mean, payments could be 5% or 2% of discretionary income instead of 10%. Maybe the AMA recognized that these repayment plans are already awfully generous and just keeping the gravy train going should be considered victory enough.

 

#22 Interest-Free Deferment for Trainees

“Strongly advocate for the passage of legislation to allow medical students, residents, and fellows who have education loans to qualify for interest-free deferment on their student loans while serving in a medical internship, residency, or fellowship program, as well as permitting the conversion of currently unsubsidized Stafford and Graduate Plus loans to interest-free status for the duration of undergraduate and graduate medical education.”

This one wasn't worded very well. I think what the AMA wants is for there not to be interest at all on loans until you're an attending, similar to how undergraduate student loans work. I wouldn't necessarily be opposed to that. It seems more straightforward than our current hodgepodge, where interest accrues during school but unpaid interest during residency is waived under SAVE (if SAVE even survives in the courts). But considering that med school + residency + fellowship can be as long as 11 years, don't be surprised if people borrow at 8%-9% (effectively 0%) while leaving their own money invested, especially if they have any hope at all for PSLF. If you make these programs too generous, people will respond to your incentives by altering their behavior.

Consider the undergraduate loan I took out as a freshman in 1993 and paid back in 2010 after 17 years, having paid almost no interest at all because it was waived for college, med school, residency, and military service. Thanks to inflation, about 40% of my student loan was actually a grant. If you include the time value of money, I came out way ahead. I don't think we should encourage that sort of behavior with terms that are too generous.

 

#23 Reduce Education-Related Costs

“Continue to monitor opportunities to reduce additional expense burden upon medical students including reduced-cost or free programs for residency applications, virtual or hybrid interviews, and other cost-reduction initiatives aimed at reducing non-educational debt.”

Seems wise. Virtual interviews have saved doctors a whole lot of money. Let's use technology where it makes sense.

 

#24 Tell People About Free Money

“Encourage medical students, residents, fellows, and physicians in practice to take advantage of available loan forgiveness programs and grants and scholarships that have been historically underutilized, as well as financial information and resources available through the Association of American Medical Colleges and American Association of Colleges of Osteopathic Medicine, as required by the Liaison Committee on Medical Education and Commission on Osteopathic College Accreditation, and resources available at the federal, state and local levels.”

It doesn't do any good to have programs if nobody knows about them, although this may just be another unexpected side effect of an overly generous SAVE/PSLF pathway.

 

#25 Forgive Student Loans

“Support federal efforts to forgive debt incurred during medical school and other higher education by physicians and medical students, including educational and cost of attendance debt.”

We're no longer talking about just PSLF. I think we're talking about mass forgiveness. Again, your feelings about this are going to vary by political persuasion, but I don't think mass forgiveness is good policy. And I don't think all of those taxpayers out there who paid for their own education or who, even worse, didn't go to school because of the cost are going to be very happy about paying for the education of someone who makes 10X what they do.

More information here:

Are Student Loans the New Mortgage for My Generation?

 

#26 Fee Assistance

“Support that residency and fellowship application services grant fee assistance to applicants who previously received fee assistance from medical school application services or are determined to have financial need through another formal mechanism.”

This one isn't a particularly expensive proposal so I don't really care either way, but low-income (<400% poverty line) folks would get more of their application fees waived.

 

The Bottom Line

In short, the AMA is a lobbying organization for doctors, not taxpayers, so I wasn't surprised to see that its policy is for everything that could possibly put more money into doctors' pockets. As an indebted medical student, you might be supportive of every one of these policies. As a taxpayer, there might be a few you don't like so much. I do think the policy provides a nice overview of everything that can be done about the cost of medical education. Now, we all just have to decide which of those ideas is the best to implement.

 

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What do you think? Which of these policies do you like most and least? Which ones are good policies and which ones are just good for doctors?