While I think it is entirely possible to finish an undergraduate education debt-free, that is becoming less and less likely for physicians, dentists, attorneys, and other high-income professionals all the time. This lengthy post is going to cover everything you need to know about managing those pesky student loans from student loan forgiveness programs to the best deals on student loan refinancing. Consider this Student Loans 101. I've divided the post by level of training, which will hopefully allow you to skip to those parts that apply to you. May this post bring some hope to those struggling under the burden of medical school debt.
Table of Contents
- Student Loans 101
- Student Loan Management During Undergraduate School
- Student Loan Management During Medical School
- Student Loan Management During Residency
- What Happens to Loans in Bad Situations
- Should I Really Pay Off My Loans Quickly?
Student Loans 101
Student loans are loans issued to students to pay for their education and associated living expenses. As such, it is considered fraudulent to obtain or use them for any other purpose. Unlike a mortgage or auto loan, these loans cannot be foreclosed on. Nobody is coming to do a craniotomy if you don't pay. However, in exchange for that fact, they have two conditions that make them rather onerous:
- They are offered at rates significantly higher than mortgage rates, especially for graduate/professional school (5-10%)
- They are generally only discharged in the event of death or total disability, NOT bankruptcy
Student loans are divided into two main types—Federal loans (also called Direct Loans) and Private Loans.
Federal Loans
Federal loans generally have lower rates and also have special income-based payment plans and forgiveness plans so the general rule is to max out what you can borrow in the federal loan programs before taking on any private loans. However, some foreign medical schools qualify for federal loans and some do not. Be sure to consult this list before applying and enrolling in a foreign medical school. Caribbean medical schools are notorious for not qualifying for federal loans, although the ones with the highest match rates (St. Georges, Saba, American University of the Caribbean, Ross) do tend to qualify.
Federal student loans can be consolidated. In this process, numerous loans are all lumped together into one loan and the interest rates are averaged and then rounded up to the nearest 1/8th of a point. This is distinct from the process of refinancing (available only with private lenders) where the interest rate is generally lowered.
Private Loans
Private loans are typically taken out by students who have already borrowed the maximum federal loans for the year ($20,500 per year with an aggregate total of $138,500) although some medical schools are not eligible for federal loans at all. They are never eligible for the federal income-driven repayment programs nor the federal forgiveness programs.
Recommended Student Loan Advisors
The decisions you make with your student loans can easily be worth tens or even hundreds of thousands of dollars. Managing them, however, is getting more and more complicated each year with rapidly changing repayment programs. I recommend you use this post as a learning tool and guide but visit with one of our Recommended Student Loan Advisors to make a plan for your unique situation. They know these programs inside and out and are up to date with the latest information to save you the most amount of money.
Student Loan Management During Undergraduate School
Let's start at the very beginning. The truth is that you don't have to borrow for undergraduate school, and I think that very few should. There is a very wide range in the cost of attendance of undergraduate institutions, far wider than the range in the actual quality of the education. By making a few smart decisions and working hard as an undergraduate, most of those who will eventually become doctors can avoid having any undergraduate debt at all. Steps you can and should take in order to finish your bachelor's debt-free include:
- Choose a school you (+/- your family) can afford to attend without borrowing. If you will be receiving no help at all from your family, this may mean attending a state university in YOUR state or even spending a couple of years “doing generals” at a community college.
- Go where you can get a meaningful amount of scholarship money. It's rare that those who are academically talented enough to get into medical or dental school aren't talented enough to get some kind of academic scholarship somewhere, often for full-tuition or even a full-ride. Your part-time job as a high school junior or senior is applying for scholarships.
- Live at home. One of the largest expenses of college is simply your living expenses. These can be cut dramatically by living at home, saving on room, board, and even laundry costs. This might require increased transportation costs, but you'll usually come out way ahead and get better grades anyway.
- Work hard during the summers. Bust your butt working for tips, working overtime, or even working two jobs when you are out of school. It is not unusual at all for an undergraduate student to return to school in the Fall with $10-15K in their pocket.
- Consider a part-time job during the school year. If you're the type of person that's going to be able to handle the academic load in medical school and survive residency, you can handle 16 credit hours of science classes along with a part-time job. Many of your peers in medical school had a job, played on a sports team, AND managed a high GPA and a strong MCAT score. You can do it too, although it might require cutting down on the social activities.
If you do end up borrowing for your undergraduate degree, try to only take on subsidized debt. That way the interest won't be building during medical school and residency. If you will be borrowing for medical school, consider taking out a loan toward the end of your senior year of undergraduate for that purpose. Not only will the interest rate be lower (5.05% vs 6.6% for the 2018-2019 school year) but the first $5,500 will also be subsidized.
Recommended Reading:
Loan Management During Medical School
The best student loan is the one you never take out. There are a number of techniques for lowering the amount of debt you take on for school.
- Choose the least expensive school you can get into in the least expensive cost of living area. It is difficult to live in Washington D.C., the Bay Area, and Manhattan with a middle-class wage. Trying to do it on borrowed money is a good way to ruin yourself financially.
- Consider taking out the maximum loan amount possible as a senior undergraduate student in order to decrease how much you borrow as a first-year medical student. Not only do undergraduate loans carry lower interest rates than graduate school loans, but they are also subsidized.
- Apply to New York University, Columbia University, and any other schools that may offer free tuition in the future.
- Live frugally. Get roommates. Ride a bike. Minimize meals out, vacations, expensive hobbies, and recreational shopping. Buy books and equipment used.
- Take advantage of any possible family resources. Your parents may be in a position to help with their own savings or current cash flow. If married, your spouse should take a job, preferably with the university which may reduce your tuition.
- Apply for scholarships like The White Coat Investor Scholarship.
- Consider “contract scholarships” like the Health Professions Scholarship Program, National Health Service Corps, Indian Health Services, or state primary care programs.
- Don't take out your loans until you have to. Medical school loans are no longer subsidized and begin accruing interest as soon as you take them out. Some students have even taken advantage of 0% credit card offers to further delay the date when they receive their student loans.
- Consider your student loan burden when choosing a specialty. While finances should not be the primary driver of specialty choice, a $600K student loan burden is not compatible with private practice pediatrics.
As you near medical school graduation, enroll in an income-driven repayment program ASAP. Many doctors have regretted their decision to put their student loans into forbearance or deferment.
Recommended Reading:
- Should I Join the Military to Pay for Medical School?
- Parental Help For Medical School
- Financial Tips for Pre-meds and Medical Students
- Hitting a Net Worth of $0 As An Intern
Management During Residency
Upon completion of medical school, it is best to divide student loan management into two categories—private loans and federal loans.
Recommended Reading:
Private Student Loan Management
As a general rule, doctors are going to pay back their private student loans, so minimizing the interest that accrues is key. The best way to do this is to refinance those student loans as soon as you get out of medical school. Four companies now offer “resident programs” where you can lower your interest rate AND enjoy a lower payment than you would otherwise have to make ($0-$100/month.) While that payment doesn't cover the interest accruing on the loan, you will end up paying less interest overall because you will have lowered the interest rate from 6-10% to 4-6%. The following WCI Partners offer special resident student loan refinancing programs:
- Laurel Road $100/month payments
- SoFi $100/month payments
Recommended Reading:
Federal Student Loan Management
Unfortunately, federal student loan management is much more complicated than private student loan management, particularly for residents. This is due to the presence of Income-Driven Repayment (IDR) programs and forgiveness programs.
Income-Driven Repayment (IDR) Programs
Income-driven repayment programs base their payments only on your income and your family size and not on your loan amount or interest rate. These programs are highly beneficial to residents, who literally cannot afford to make “real payments” on their student loans. In some situations, these monthly payments may be as low as $0 but are typically in the range of $100-400 per month. Given that a $200,000, 6% student loan accrues $1,000 per month in interest, these payments typically do not even come close to covering the accruing interest and the loan continues to grow in size during residency.
ICR
Income Contingent Repayment or ICR-A is really more of a legacy program. I don't recall ever running into a doctor enrolled in this program. In ICR-A, payments are 20% of your discretionary income. One advantage it has over the other programs is that you can use it for Parent Plus loans as long as they are consolidated into direct loans.
IBR
Income-Based Repayment (IBR) was a new and improved ICR-A. The main feature was a decrease in payments from 20% to 15% of your discretionary income. It is the only IDR you can use with Federal Family Education Loans (FFEL) although those can be consolidated so you can use PAYE or REPAYE. Interest is not capitalized until you leave the program. Payments are capped at the standard 10-year repayment plan level, even if your income rises as it will for many attendings.
PAYE
Pay As You Earn was a new and improved IBR. It lowered payments from 15% to 10% of discretionary income. To qualify for PAYE, you must have taken out your first federal loan after September 30, 2007, and received a loan disbursement after September 30, 2011. PAYE has some really nice features. First, married folks can file their taxes Married Filing Separately. While this likely increases their tax burden, it may decrease the required payments significantly, which may, in turn, increase the amount of their loans left to be forgiven. Second, like IBR, interest is not capitalized until you leave the program, but even then, the amount capitalized is limited to 10% of the loan balance. Third, just like IBR, payments are capped at the standard 10-year repayment plan level, even if your income rises as an attending.
REPAYE
The newest IDR program, REvised Pay As You Earn (REPAYE), is better than PAYE in some respects and worse than PAYE in others. It maintains that same 10% of discretionary income payment. However, there is no cap on the payments. When you go from being a resident to a high-powered plastic surgeon, your REPAYE payments could be even higher than the standard 10-year repayment plan payments. The forgiveness program associated with the plan (see next section) is also worse. However, REPAYE has one very important feature that none of the other programs have – an interest rate subsidy. This subsidy lowers the effective interest rate for many residents.
Consider someone with $200,000 in loans at 6%. Each month that loan generates $1,000 in interest. If the required payment (10% of discretionary income) is $200/month, then under PAYE $800 would be added to the loan each month. Under REPAYE, only $400 would be added. Basically, half of the interest above and beyond the required payment is waived. This effectively lowers the interest rate for most residents and in some cases, even cuts it in half.
Student Loan Forgiveness Programs
In addition to the more well-known Public Service Loan Forgiveness (PSLF) program, several of the IDR programs have their own forgiveness programs. Remember none of these federal programs have anything to do with private or refinanced loans.
Recommended Reading:
IBR
The IBR forgiveness program requires 25 years of payments, but you may make them while working for any employer or not working at all. There are two issues with this forgiveness program. First, most physicians will have paid off their loans completely in less than 25 years because after they finish training, their payments will be equal to those under the standard 10-year repayment program. Perhaps that would not be the case for a very poorly paid physician with a very high student loan burden, but for most, there just won't be anything left to forgive. Second, the forgiveness is taxable, and after 25 years, the “tax bomb” could grow to as much or more than the original debt, at least on a nominal (non-inflation adjusted) basis.
PAYE
PAYE improved upon the IBR forgiveness program, offering forgiveness after just 20 years. However, it is still fully taxable at your ordinary income tax rate in the year you receive forgiveness.
REPAYE
The forgiveness program under REPAYE is actually worse than PAYE. Although undergraduate loans are still eligible for forgiveness at 20 years, graduate/professional school loans require 25 years of payments for forgiveness, which is still fully taxable. In addition, because payments are NOT capped at the 10-year standard repayment plan amount, you are even more likely to pay off your loans before 25 years, leaving nothing to be forgiven. The cap is one reason doctors going for PSLF will either use PAYE throughout residency and attendinghood, or switch from REPAYE to PAYE after residency. Remember that switching may require you to make one “full” payment as you move between the programs.
Recommended Reading:
- REPAYE Case Studies
- I Switched to REPAYE and I Like It
- How to Enroll in REPAYE Early and Save Thousands in Interest
PSLF
Public Service Loan Forgiveness is the granddaddy of the federal forgiveness programs and the only one most doctors should be looking at. Not only does it offer tax-free forgiveness, but it also offers it after just 10 years of payments. If you make a bunch of tiny IBR, PAYE, or REPAYE payments during your training, you may only have to make 3-7 years of “full” payments as an attending before having the rest forgiven. There is a catch, however. You have to be directly employed full-time by a non-profit (501(c)3) while making all of those payments or they don't count. You also have to make sure you can prove you made all of those payments since the federal student loan servicing companies have a nasty habit of not being able to count payments accurately.
Recommended Reading:
Deferment/Forbearance
Many residents are tempted to put their student loans into deferment or forbearance during residency and/or fellowship. This is almost always a mistake. Nothing makes me cry more than to run into a doctor who should only be 2-3 years away from receiving PSLF who had their loans in forbearance during a lengthy training period. I hate breaking the news to them that they've basically thrown away a benefit worth hundreds of thousands of after-tax dollars. It's like working for a year or two as a doctor without being paid at all. Deferment is slightly better than forbearance for some people, but they are both very similar for most high-income professionals with loans—you make no payments but the debt continues to grow, sometimes very quickly.
Deferments are granted in six-month increments by your loan servicer and subsidized loans don't accrue interest. Unsubsidized loans both accrue and capitalize interest. There are several reasons you can get a deferment, but the main one most residents would use is economic hardship, which is limited to just three years. Other reasons include active duty military, unemployment, and going back to school.
With forbearance, interest accrues on both subsidized and unsubsidized loans. Just think of it as a 12-month pause on payments. For most medical students, it is no less attractive than deferment and it is easier to get. There are two types of forbearance. The first is general, where the lender gets to decide whether to give it to you or not. Typical reasons you may get it are financial difficulties, medical expenses, or a job change. Mandatory forbearance, where the lender MUST give it to you if you ask for it, include residency training, if your monthly payment is more than 20% of your monthly gross income (only good for three years), if you are serving with Americorps or activated through the National Guard (and ineligible or military deferment), or if you qualify for special teacher or Department of Defense forbearance programs.
I tell you about these two programs and give you these links because people wonder about them, not because I think people should actually use them. If you are seriously considering deferment or forbearance, you would almost surely be better off with REPAYE. Not only would your payments count toward possible forgiveness down the road, but they may be as low as $0 a month anyway given the REPAYE subsidy. In REPAYE, if your payments don't cover all the interest, up to half of the interest IS NOT being added on to the loan amount.
Resident Student Loan Management Flowsheet
Let's summarize what to do with your student loans if you are a resident. The sooner you know if you are going for PSLF, the easier your decisions become. If you are single, or the sole earner in a married couple, it can also be very easy. But many people would benefit from getting formal advice from a specialist in student loan management. If you are married to another earner and one or both of you is going for PSLF, consider shelling out $300-500 one-time fee as an intern to get advice. It could save you tens, or even hundreds of thousands of dollars. It is relatively easy for them to identify the red flags that indicate you're doing things wrong and they can help you run the numbers to make the difficult student loan management decisions that involve choosing an IDR program, choosing how to file your taxes, and even choosing whether to use a traditional or Roth IRA or 401(k).
Attending Student Loan Management
In contrast to residency, where student loan management can be very complicated, involving your taxes and even your retirement account contributions, management as an attending is generally very simple.
Paying Off Your Student Loans
Your private loans, which you probably should have refinanced in residency, can be refinanced again and again as long as you can get a lower rate (and you usually can as a new attending). Obviously, refinancing doesn't actually make them go away, but it helps make more of your monthly payments go toward principal instead of interest. The way you make them go away is by living like a resident and dumping a huge sum on them every month. Even half a million in student loans doesn't last long against a five-figure monthly payment assault.
Regarding your direct federal loans, you need to finalize your decision of whether to go for PSLF or not. This is usually relatively easy. If you can answer BOTH of the following questions positively, you should go for PSLF:
- Are you directly employed full-time by a non-profit (501(c)3)?
- Did you make a bunch (it varies but in general 20+) of tiny IBR, PAYE, or REPAYE payments while in training?
If you cannot answer both of those questions positively, refinance your student loans and live like a resident for 2-5 years until they are gone.
Recommended Reading:
- 10 Reasons to Pay Off Your Student Loans Quickly
- How Fast Can You Get Out of Debt?
- The X Factor
- What Does Live Like A Resident Really Mean?
Best Student Loan Refinancing Deals
Here are the best deals on student loan refinancing I've managed to negotiate with the top student loan refinancing lenders:
New Bonus Disclosure
Earnest Welcome Bonus Offer Disclosure: Terms and conditions apply. To qualify for this Earnest Welcome Bonus offer: 1) you must not currently be an Earnest client, or have received the bonus in the past, 2) you must submit a completed student loan refinancing application through WCI link; 3) you must provide a valid email address and a valid checking account number during the application process; and 4) your loan must be fully disbursed. The bonus will be automatically transmitted to your checking account after the final disbursement. There is a limit of one bonus per borrower. This offer is not valid for current Earnest clients who refinance their existing Earnest loans, clients who have previously received a bonus, or with any other bonus offers received from Earnest. Bonus cannot be issued to residents in KY, MA, or MI.
“*Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. If you choose to complete an application, we will conduct a hard credit pull, which may affect your credit score. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.15% effective Oct 10, 2020 and may increase after consummation.”
Refinancing Your Student Loans
The secret to refinancing your student loans is to do it early and often. If you ask your fellow White Coat Investors for their regrets, many say they wish they had done it earlier because it was much easier than they thought. While it may appear intimidating at first, most of the companies will give you an accurate estimate of the rate you will eventually receive in 2 minutes online. You'll need to gather and submit some paperwork, but it's mostly all the same for all of the companies. So once you gather it and submit it to one, it is very easy to submit it to 2 or 3 more (or even all of them.) Then just take the one that offers the lowest rate.
The rates offered to you will depend on your credit score, your debt to income ratio, and your desired loan terms. Unlike the federal government, which loaned you money just for getting into school, these private companies actually want to make a profit. They only want to loan money to people they think will be able to pay the money back. The best way to get the lowest rate is to accept a 5-year term and a variable rate. If you are willing to live like a resident for 2-5 years after residency and pay off your loans quickly, these terms should be acceptable to you. While there is some legitimate fear of rising rates with a variable rate loan, the truth is that rates have to rise dramatically and/or early in the term in order for you to come out behind with a variable rate loan. If you can afford the worst case scenario, I would at least consider a variable rate loan, and run the math under various interest rate scenarios. Think of a fixed rate loan as a variable rate loan plus an interest rate insurance policy. Since you should only buy insurance against financial catastrophes, someone planning to throw $10K a month at their loans every month for 2 years should not pay extra for a fixed rate. Just having a little more of your payment go to interest instead of principal for a few months is not a catastrophe. Even if rates rise early and dramatically, it will likely only delay paying the loan off by a month or two for someone truly committed to getting rid of them.
Some doctors fear to refinance because they are worried about what will happen to them if their income drops, if they die, or if they become disabled. This is a good reason to avoid putting a co-signer on your loans, but if you read the fine print you will see that most of the private companies have some accommodations for these situations. Often they will give you up to a year without payments in difficult situations (although the interest will continue to build.) Loans are also often forgiven at death and sometimes even for disability. Be sure to read the fine print before signing on the bottom line so you know what to expect if any of these unlikely situations happen to you. Even if the company does NOT offer a death or disability plan, realize that purchasing enough term life insurance or disability insurance to cover the loans or its payments is likely cheaper than paying the extra interest in the government programs!
Recommended Reading:
- 12 Things To Know About Student Loan Refinancing
- Refinance and Pay Off or Go For PSLF?
- What's New With Student Loan Refinancing Companies
- Student Loan Refinancing: Real Life Experiences from WCI Readers
Consolidating Versus Refinancing
A lot of people get confused about loan consolidation, and in fact, use the term consolidating when they mean refinancing. Consolidating generally means taking a bunch of loans and making one loan out of them. While that may increase the convenience of management, it does not actually reduce the interest rate. In fact, it may increase it. With federal loans, the weighted average of your loans is taken and rounded UP to the nearest 1/8th of a percentage point. You can consolidate your loans with the federal government, but to refinance them you must go to a private company and lose the benefits of federal loans such as the income-driven repayment programs and the forgiveness programs.
So why would anyone consolidate their loans if it increases your interest paid? Aside from the benefit of only having one loan to manage, the main reason is that you can turn some loans that were NOT eligible for IDR plans and PSLF into loans that are. The classic examples are Federal Family Education Loans and Perkins loans. By themselves, they are not eligible for those programs, but if consolidated into a direct loan, they become eligible. If you fall in this situation and want to use the IDR or PSLF programs, consolidate here.
PSLF as an Attending
Things are a little more complicated for attendings who wish to go for Public Service Loan Forgiveness. These are generally academicians, or at least people who are willing to be academicians for a few years at the beginning of their careers. However, working for the military or the Veterans Administration or other government agencies can also count. There are also a few non-profits out there who directly employ their docs who should qualify for PSLF. Often these jobs pay less than a private practice job, so you need to take into account that sometimes you would be better off with a better paying job and paying off your loans, then going for forgiveness.
The big downside of going for PSLF is that you cannot refinance your loans. Only direct federal loans can be forgiven. So in the event that legislative or regulatory risk rears its ugly head, changing the program, or that you simply change your career goals such that you no longer qualify for it, you will end up paying more interest than you otherwise would have. But for those who stand to get tens of thousands forgiven, I think it is worth running those risks.
In order to maximize how much is forgiven under PSLF, you want to make as many tiny loan payments as possible. That means getting started as soon as possible, and that may be even earlier than you think. The more time you spend in training, the more you stand to have forgiven. If you spend 5 years in a surgery residency, then do a one-year burn fellowship and a one-year trauma fellowship, you may only make three years of “full” attending-size payments, leaving the vast majority of your debt to be forgiven, tax-free.
When going for PSLF, you must continue to make payments in an eligible program. For up to a year after leaving residency, those might still be relatively small payments, further increasing the amount eligible to be forgiven. But eventually, as an attending, you'll be making “real” four-figure payments toward your loans. At this point, IBR or PAYE is generally the best program to be in because of the cap on the payments at the standard 10-year repayment program amount. That means if you were using REPAYE during residency and/or fellowship, you probably want to switch to PAYE. That will require you to make one regular payment (typical $2-3000) as you move between the programs. This is a typically difficult time to come up with cash due to all the competing needs for your limited cash flow, including:
- Saving up an emergency fund
- Down payment on a home
- Moving expenses
- Buying into a practice
- Maxing out retirement accounts
- Roth conversions
However, it is probably worth it. Of course, if you were in a situation in residency where you weren't going to qualify for a significant REPAYE subsidy anyway (usually due to a high earning spouse), you should just use PAYE instead of REPAYE all the way through.
Another major complaint of those going for PSLF is that the student loan servicing companies such as FedLoans provide terrible service. They don't even seem to be able to count payments accurately. This makes it critical that you stay on top of everything. Not only do you need to be an expert at the requirements of the PSLF program (which of your loans qualify, which repayment programs have payments that qualify toward the 120 required monthly payments, and working full-time for a 501(c)3), but you must keep track of all the paperwork, including evidence of every single payment AND a copy of your annual certification forms. Remember, you could end up going to court with the government in order to receive your promised forgiveness. Make sure you have the evidence you need.
The PSLF Side Fund
In addition, you cannot just assume you will receive forgiveness. Not only could the program change (both the Obama and the Trump administration have proposed changes that would basically eliminate its usefulness to doctors) and you not be grandfathered in, but your employment plans may simply change. Going for PSLF does NOT excuse you from living like a resident for 2-5 years out of residency. However, instead of sending those big 4-5 figure payments to Fedloans, you need to send them to yourself. To your investment accounts, to be specific, creating a “PSLF Side Fund.” This way, even if PSLF doesn't happen for you, you're not behind the eight ball.
Hopefully by living like a resident you've been able to max out your retirement accounts AND save this side fund up in a taxable account, and you can simply liquidate the taxable account and use the proceeds to pay off the loans. But even if most of that savings ends up in retirement accounts and you can't (or don't want) to immediately eliminate the loans at that point, at least your net worth will be where it should be.
Recommended Reading:
Attending Student Loan Flowsheet
Let's summarize what to do with your student loans as an attending. Private loans should be refinanced whenever possible and paid off quickly by living like a resident. Federal loans should also be refinanced and paid off quickly unless you are directly employed by a 501(c)3 AND made a lot of tiny payments during your training.
What Happens to Loans in Bad Situations
If you die or are disabled, what happens with your private loans will be dictated by the terms on their promissory notes. Worst case scenario, if you die they are assessed against your estate. Your parents or siblings etc are never responsible for your loans, but your heirs could be indirectly.
In the event of death, your federal loans are discharged. With Parent Plus loans, the loans are discharged if the student OR the borrower dies.
In the event of permanent disability, federal loans are also forgiven. In a temporary disability, however, you may be limited to use of the IDR programs, deferment, or forbearance.
Student loans generally survive bankruptcy, meaning you cannot wipe them out simply by declaring bankruptcy. However, if you can prove undue hardship, you may be able to have them discharged. Defining undue hardship is going to be up to the judge, but I can assure you that if you qualify for it, you're going to be in a terrible place financially either way.
Depending on what happens to your loans at death and disability, consider carrying a little extra term life and disability insurance coverage to make up it.
Should I Really Pay Off My Student Loans Quickly?
Some people with low-interest rate student loans wonder if they should really pay their loans off rather than invest. While it is intuitively attractive to borrow at a low rate and earn at a higher rate, this decision often ignores two factors.
The first is that most people simply don't invest the difference. Behaviorally, it is more difficult to maintain focus on building wealth once you have decided to make minimum payments and end up spending the money instead of investing.
The second is that an investment that provides a rate of return higher than the guaranteed return available by paying off your loans usually involves significant risk of loss. However, if you would like to carry your loans a little longer in order to invest inside retirement accounts, I think that's okay. But I would still plan to have them paid off within five years of finishing training. The financial muscles you develop paying off your loans quickly are the same ones you will use to build wealth toward financial independence afterward. I do not recall ever meeting a physician who regretted paying off her student loan quickly. In fact, most express a feeling of massive relief such as this email I received a few days ago from a two doctor couple who paid off over $700,000 in student loans in 16 months:

You'll feel as good making your last student loan payment as I felt on the summit of Teewinot, with the North Face of the Grand Teton in the background.
This student debt problem is so huge and overwhelming. I had many poor nights of sleep during training fretting about, “How do we pay off this 3/4 million dollar debt?” I feel now an immense stress has been lifted. We can now go forward and make some real decisions about how we want to live out the rest of our lives.
You can slay the student loan dragon. Sit down and get started today. Figure out where you stand; list out your loans by amount owed, payment, and interest rate and add up the total. Then start working on a plan to handle them. You can do it, the entire White Coat Investor Community is rooting for you!
Recommended Reading:
What's Your Investment to Debt Ratio?
Refinance your student loans today!
Get reliable, accurate advice on your student loan situation today!
What do you think? What other information belongs in the ultimate guide to managing physician student loans? Have you paid off your loans? What other advice do you have about them for your fellow White Coat Investors? Comment below!
Holy, longest post every! I feel like I need to take a nap after the work I put in reading that 🙂
Seriously, though, this is a really helpful overview.
In the book that I am writing (for med students, residents, and early attending physicians), I include a flow-sheet for residents, too, but it doesn’t even have forbearance/deferment on there. I went into forbearance on my debt during residency (hadn’t learned this stuff yet) and my loans increased by 150%. Like you, I don’t even think this should be considered an option for the vast majority of residents and fellows.
Watching those large sums accrue debt at 6.8% was painful. Yet, when I was in training REPAYE/PAYE were not even a thing until late in my training. And I am pretty sure only my last year’s loans would have qualified for PAYE because of the time I was in medical school.
Thanks for getting the word out there!
TPP
I think if you don’t mention deferment/forbearance, people will think you didn’t know about it. Forbearance almost seems like the default option because it is the easiest thing to do, but it’s wrong for almost everyone and VERY wrong for those who go for PSLF.
I mention it in the text and why I don’t support it for the vast majority, but don’t include it in the flow chart. But I am also in the revision stage of writing the book (and been there for six months now).
So, who knows what it’ll end up looking like in the end.
Chances are, I’ll probably send it to you to turn into a sea of red corrections anyway 🙂
TPP
No one ever gave me this advice, but I learned it is infinitely better not to consolidate your school loans.
If you do not consolidate, you’ll be able to pay some of them in full. Paying smaller loans in full gives you great credit even if you are slow paying on others. If you consolidate your loans, as you said, you have a monthly loan payment greater than your mortgage payment.
First, be careful not to worship at the altar of the FICO score. The point of personal finance is not to have the best FICO score, it’s to not need a FICO score.
Second, if you don’t make payments that are due, whether they are large or small, you are going to have a big hit on your credit score. The most important factor in having a high credit score is whether you do what you say you’ll do-i.e. make the payments you promised to make.
But sure, I agree with your general point that consolidation is dramatically oversold. What’s the big deal if your account is drafted 4 times for smaller amounts or once for a larger amount? Not much advantage there, especially if your weighted average rate is higher from the “round up to the nearest 1/8th point” feature of consolidation.
But remember refinancing is not the same as consolidation. With refinancing, you get a lower rate, and that’s worth having one big payment.
This post will be useful for sure. I seemed to intuitively always have an aversion to debt. I did almost all of the cost-reduction strategies you listed. I then kept my spending very low for a few years out of residency with the goal of paying off all debt within 2-3 years. That wasn’t easy and it wouldn’t be easy for anyone now, but it is still possible. It helped me create a base for launching financial freedom soon thereafter. For those not doing PSLF, I highly recommend this well-proven path.
It’s getting harder all the time because of the “big squeeze” between a rapidly increasing cost of education and decreasing/flattening income.
Yes, I think it is harder now. But still possible. My debt load was equivalent to about one year of income when I started. Our new partner is starting at $300K with $200K in student loan debt. He refinanced to a lower interest rate, got a $50K loan payment sign-on that he negotiated, and is attacking the rest. Heck, he even rides his bike to work as an attending. I have no doubt that the debt will be gone in 2-3 years.
What to recommend for the medical student with a small loan? What is the standard payback requirement?
There are several “standard” programs from 10 years to 30 years. But a small loan? I’d pay it off very quickly upon finishing residency and maybe even during residency. They’re generally deferred during med school. Does that help?
In some fields/ locations you really can have your cake and eat it too. In our area Hospital employed FPs make well more then their private practice counterparts. Who knows how long that will last.
I was not trusting of PSLF ( and I did not know of the WCI back then) so we decided to just pay them off and finished just shy of 2 years out. However for other FPs or primary care in our area it is a nice opportunity to be able to be hired by a nonprofit and still make a good salary.
One nice thing about what you did is that you’re done 5 years before you’d even qualify for PSLF.
3rd year attending and have worked my loan debt from around 255k to about 68k. Refinance loan at SoFi to 5 year @ 3.125 at around 125k. Took a new position with a new hospital that offers to pay 20k a year before tax for the life of the loan. My question is I can refi again to a 7 yr loan at around 4.9 and this would make my loans cost nothing out of pocket for me. Roughly payment would be about 1k a month which is about after tax what I would be getting from the hospital. The loan I currently have is around 2100 a month. Is the smart play to refi even though the term is longer and interest is higher? PS (Plan to stay with hospital long term)
I saw you said to “Consider tax-deferred retirement account contributions” during residency. I’m curious what the rationale is for this given the relatively low tax brackets during residency. Is it to effectively decrease the payments for income-driven plans?
Exactly. Lowers required IDR payments, potentially increasing REPAYE subsidy and PSLF amount.
I am a new oral and maxillofacial surgeon working in private practice with approximately 400k of student debt in federal loans only. Married with no kids, no house yet, and making approximately 250k/year for the next two years before my income grows exponentially to upwards of 600k +. I am under the impression that my federal loans can not be refinanced. Is this true? If so, what are my options for debt paydown strategy? I am currently in the REPAYE program but due to either reapply or change my repayment terms. Looking for advice on how to best proceed with this huge debt burden assuming I cant refinance.
Not sure you are using “exponentially” correctly, but federal loans can be refinanced with private companies. If you won’t be going for PSLF with your federal loans, might as well refinance them and pay them off rapidly by living like a resident while making $250-600K.
Great article, but I think that it is important to clarify the approach to those certain they are pursuing PSLF. Unlike the traditional approach to debt which is to minimize interest and pay off quickly, pursuing PSLF is very different. Regarding PSLF and PAYE you say, “first, married folks can file their taxes Married Filing Separately. While this likely increases their tax burden, it may decrease the required payments significantly, which may, in turn, INCREASE the amount of their loans left to be forgiven.”
The priority should be on reducing the total amount paid while making the 120 qualified payments, not on increasing the amount of the loan forgiven at the end of those 120 payments. While decreasing your payments will generally result in more forgiven under PSLF, focussing on reducing the amount paid to get to 120 qualified payment allows for simpler decision making. This is particularly helpful when comparing PAYE and REPAYE plans.
Consider a resident physician pursuing PSLF using a PAYE repayment plan married to a non-physician earning $70k . All of his debt is in direct federal loans and qualifies for PSLF. Each year this couple will need to decide whether to file taxes as married filing separate or married filing jointly. While filing separately may result in paying more in taxes it could still be the best option if doing so reduces that years loan payments more than any increase in tax burden. Here the amount paid to gain a year’s worth of qualified payments is much more relevant than the total amount forgiven at the end of 120 payments. This also applies to another key difference between PAYE and REPAYE. Unlike REPAYE, PAYE caps the maximum payment at the 10-year standard repayment level. Let’s consider what happens when the same couple finishes residency. Suppose the physician is entering a high paying specialty with median earnings >$400k. Though it depends on the physician’s total debt load, the physician utilizing PAYE is now paying the capped amount at the 10-year standard repayment level. Had he chosen REPAYE he would likely be making payments greater than the 10-year standard repayment level until he has reached the required 120 payments. Under this scenario the physician has payed less than he would under REPAYE through favorable income calculation based on his tax filing status and the cap on his payment when he begins making attending salary.
I deliberately did not mention the REPAYE interest subsidy. This is because the physician is fairly certain that he is pursuing PSLF. I think this is where thinking about the total loan amount forgiven instead of total paid to reach 120 payments can be troublesome. If the physician is certain that he is pursuing PSLF the interest subsidy is irrelevant since any accrued interest will be forgiven. This scenario assumes that the physician is certain about PSLF. It also assumes a debt level, anticipated attending salary, length of training, and marital situation that makes PAYE a good plan.
As a long-time WCI reader pursuing PSLF here is my approach to thinking about loan forgiveness.
1) Decide if PSLF is right for you. This should be based on the debt load, length of training (since most residency programs are considered qualified PSLF employment), post-residency employment (academics vs. private practice vs. employed vs. employed by 501(c)3), marital status, spouse employment, and willingness to be diligent in certifying employment and qualified payments. Does PSLF make sense with your training and career goals?
2) If you are certain about PSLF, change your mindset. Approach your student loan debt differently than most debt. Your goal is to pay as little as possible toward your loans.
3) Choose the repayment plan that will minimize the total amount paid until the loans are forgiven.
4) Consolidate your student loans as soon as possible. This will let you make more qualified payments when the payments are small and save you from making large qualified payments when you make attending money.
5) Decisions made during the 10 years repayment period should generally try to reduce the total amount paid towards your loans, assuming it makes sense based on your tax filing status and retirement planning. You do not make any non-required or principal only payments on your loans. You use tax-deferred retirement accounts to reduce the income used to calculate your monthly payment. Each year you decide whether to file separately or jointly if married by comparing any loan payment savings to the impact on your tax burden.
6) Live frugally and make sound financial decisions. “Live like a resident” when you finish training.
7) Be diligent about documenting your 120 qualified payments and certify your employment qualifies for PSLF annually.
8) Build your PSLF side fund. This will make it easier to handle stay the course (see step 7).
9) Stay the course as long as PSLF remains an option. It can be intimidating to watch your loan balance grow significantly during your lower income years. However, if you build a PSLF side fund you can feel good by knowing that you are ready to tackle your loans in the unlikely event that PSLF is no longer an option. Imagine how good it will feel the day your loans are forgiven. Overnight, your PSLF side fund has become a fund that can be used to achieve other financial goals.
Pursuing PSLF has the potential to be one of the best financial decisions certain young physicians can make. I am training and career goals make PSLF a valuable option for me. PSLF has the potential to allow me to be debt-free ten years after medical school. During those 10 years, my total payments will be less than the principal on my student loans. Paying off a loan for less than its principal is essentially a loan with a negative interest rate.
Agreed that’s the right way to look at it. Also agreed that PAYE + MFS is often the right path for married folks seeking PSLF.
The one benefit of being in REPAYE and “keeping the debt down with the subsidy” is in case you change your mind or the program changes.
For your point #4 “consolidate your student loans ASAP.” Do you mean to consolidate ALL your loans (even fed ones). I keep hearing conflicting advice as to whether one should:
A) JUST consolidate the “non-eligible PSLF loans” (ex. FFE) or
B) consolidate ALLyour fed loans into one loan for ease of keeping track.
All of my current loans are already eligible for PSLF and now I am wondering if I should consolidate them all together before I start residency in July. Any help would be appreciated.
Also, what do you mean by “This will let you make more qualified payments when the payments are small and save you from making large qualified payments when you make attending money?”
THANK YOU!
No benefit in consolidation for you other than making one big loan and one big payment. Probably will even increase your interest rate slightly.
Great Article. I had a friend that managed his wife’s student loans. The husband made $140k/yr and his wife was a resident making 55k/yr and pursuing a fellowship so they had roughly 7 yrs of resident/fellow salary from her income. Their goal was to go the Public Service Loan forgiveness route so they wanted to get the lowest 120 payments possible. They used the strategy as the article stated making a gross income of approx 200k, They filed married but separate (MFS) for one year, paid about 13k in taxes as a result of that and took her IBR plan payments to 0.00/month as opposed to $1500/month she would have had to pay had they filed married jointly. The next year rolled around and they re-certified for IBR plan quickly under her same “low” income, got the 0.00/month payment plan that would ride out the next 12 months. Then filed an amended tax return for the year prior and got $7,000 back in taxes from the 13k they paid. Its a loophole they used. It may be a strategy you could use when you are in last 2 yrs of residency if you are married and one spouse in making high income. As you know you can file multiple Amended tax returns. They only did one year amended. I wonder if others who are on the PAYE + MFS route could file multiple amended tax returns. It would be significant amounts of money the IRS would refund and I doubt the IRS would like that. This couple only did it once and it worked.
Also, as WCI mentioned. You can change Income driven plans. I spent several minutes on phone the other day with a very helpful a myfedloan.gov who gave me this info. If you are going switch on the
INCOME-DRIVEN REPAYMENT (IDR) PLAN REQUEST form
*Most important. He said a lot of doctors overlook this section and get hit with thousands in interest.
“SECTION 6: BORROWER REQUESTS, UNDERSTANDINGS, AUTHORIZATION, AND CERTIFICATION
I request a one-month reduced-payment forbearance in the amount of. (must be at least $5).”
Make sure you check that box and pay $5 and it will prevent you from being hit with lots more interest.
Yes, I’ve heard of the strategy. Not sure I agree with the ethics of it though. Feels less like a loophole and more like a scam to me.
Jim, What would you call having a neighbor pay for your kids to do chores at his house and vice versa so both of your households could get Roth’s started for your children? Is that a scam too? Your recommended this in other posts . I see that as a good use of loophole.
One man’s deduction is another man’s loophole I suppose.
Comprehensive post from A-Z, the truth about Student Loan Debt. While standard repayment plans for loans are often 120 months (or 10 years), studies have suggested that it takes most borrowers about 20 years to pay off their degrees, with 60 percent of borrowers paying off their loans in their 40s. A wonderful journey.
Ugh….owing student loans in your 40s. I’d hate that. And 20 years? 20 years after I finished residency is my 50s!
Hello,
I am about to finish residency and want to pay off my loans as soon as possible.
What is the best official plan for paying off your loan fast?
Is it just “the standard payment plan” or is there a more clever/useful plan and then the person just makes extra payments over what that plan requires?
Thank you for your time.
If you want to pay them off as quickly as possible, refinance into a 5 year variable rate and throw $10K+ a month at them. Is that what you’re looking for?
Wow thank you so much for your response, and for all the hard work you’ve done to educate people such as myself with your writing.
Correct, I would like to pay them off in 5 years or less.
The variable rate sounds appealing, I will read more of your posts about that.
In the mean time, my REPAYE is about to run out. So variable rate aside, is there any benefit to keeping it on REPAYE now as I’m about to graduate and then decide later? Or should I just let it fall off to whatever fedloan’s standard plan is and not renew REPAYE since I’m going to be making payments well over the standard (which I think will be $4000/month)
Thank you again so much for your time.
If you’re not going for forgiveness, and not getting a REPAYE subsidy, why not refinance?
Hello.
Will definitely refinance but will wait a month until my job starts so I can get a better rate and not require a co-signer.
In the meantime, any benefit in staying on REPAYE or just letting it run out?
REPAYE doesn’t “run out.” Your payments could go up if you certify your income as higher and that could reduce your interest rate subsidy, but it doesn’t run out. If you’re going to refinance in a month, I wouldn’t do anything until then.
Thank you again. I want to clarify because I really value your opinion
I must recertify my REPAYE plan in the next week before the deadline to stay in REPAYE at the lower resident salary payments
If I do nothing before the deadline ie do not recertify, I will automatically be placed back in the standard plan
So just to clarify, when you say you wouldn’t do anything in the next month if I’m going to refinance, by doing nothing do you mean doing nothing and staying in REPAYE (recertify) or do you mean do nothing (do not recertify by the deadline = let the plan go back into standard)
I just want to apologize again for the confusion and taking up your time. Thank you so much for your help
Yes, I’d stay in REPAYE if you can.
Thank you for your articles, but this one in particular! I’ve been copying selections and taking notes to email back to myself. I’m not an MD but I work federally and have just under 6 figures of student debt from a BS and an MS. I:
Work for the federal government
Have Public and Private loans
Cannot afford to make 4-figure monthly payments
Have an IBR consolidating my Pub loans
Have currently only 7 out of 20 payments made to PSLF qualified
Other than slow processing for my qualified monthly payments via ECF certification, FedLoan Servicing has been cooperative with my inquiries on the current statuses of my ECFs, qualifying payments, and loan repayment options. However, I’m worried about not only technicalities that will nullify or stymie full PSLF qualification eight years from now, but also any potential bombs that I should be aware of but am actually not. Should I still consult with you or another student loan advisor on my future financial options?
Sounds like you don’t have a clear plan, so yes, I think it would be worth hiring some advice.
The plan is likely REPAYE to PSLF for the federal loans and refinance and pay off the private loans.
https://www.whitecoatinvestor.com/student-loan-advice/
Not sure why you’re in IBR.
Thank you! VERY helpful and VERY informative, I’m super grateful to my resident buddy who told me about this site, just going into med school now myself, I’m sure I’ll be using this resource plenty.
One note – especially during Junior and Senior year, nobody who wants a GPA that is competitive enough to get them into med school on the first go-round should be working a part time job on top of 16 credit hours of upper level science courses (and the volunteering and research that is unofficially officially required to be accepted to any allopathic school). Unless you’re working for Goddard or Google or Einstein on the next cure for anything, the $10 k you can squeeze out of a part-time job is highly unlikely to pay for itself in the number of years you’ll need to fix up your fracked up GPA. If you really need the money, work part time and school part time is the only way to make it out alive at the senior level…at that point, you should be doing it for the experience more than the money, though, because making your senior studies your full-time job pays off in scholarships, less time living on campus/at home/out of med school.
My two cents, thank you again for this amazing resource! I’ve learned so much in one day…many years to go!
Would it surprise you if I told you I worked while taking 16 credit hours, volunteering, and doing research while on a college athletic team? Sure, my GPA was only 3.7, but apparently that was good enough. It wasn’t every year and it wasn’t all that many hours, but if I could do it while being out of town 3 days most weeks and getting up at 3 am to go to practice, I think most pre-meds probably can.
But I agree, if one cannot both work and study, they should study. I’m just skeptical that there are very many undergrads out there who can’t work 10-20 hours a week without affecting their GPA. Compared to what you will do in med school and residency, 16 hours of science classes is child’s play time-wise. Most undergrads waste at least 10 hours a week just partying.
At any rate, glad the site is helpful to you.
Hi WCI,
Thanks for all your incredible advice. I am a graduating medical student. I have tried to wrap my head around REPAYE during residency and switching to PAYE as an attending vs. refinancing and – not having a clear solution – wanted to ask for your advice.
I have $100k of unsubsidized federal loans with about a 5.8% effective interest rate. I am non-committal about my future career plans but am considering PSLF. My REPAYE payments would be about $356 per month. I have looked into refinancing with SoFi, and they offered 4.25% interest with the $100 monthly payments during residency. My calculations show I would ultimately save more with SoFi than with REPAYE –> PAYE in the event I don’t ultimately go for PSLF.
If I am even considering PSLF, should I just default to REPAYE for now? I guess my question regards the uncertainty due to the pandemic as well. I am hopeful that a new administration/Congress may support student loan forgiveness for frontline workers. I know it is wishful thinking, so I don’t want to factor it too much into my decision. That said, I would think that the extra cash on hand would not be bad during this time. I know I will have a job as a resident, but I will also be moving to an expensive city after my first year for my advanced position. Everything seems in flux, and I am just wondering if having the minimum amount of monthly payments during this time (via SoFi) would be wise.
Thank you in advance!
If you’re thinking PSLF is a possibility don’t refinance.
If you’re single, this is a pretty easy decision-REPAYE. If you’re not, get some advice:
https://www.whitecoatinvestor.com/student-loan-advice/
I would NOT hold my breath hoping for student loan forgiveness for front line workers. I think that’s wishful thinking.
Right now most aren’t refinancing until after Sep 30th anyway.