Repaying Medical School Debt

When she graduated from Temple University School of Medicine in May 2008, Faith Miller Whalen had amassed $250,000 in medical school loans, and still owed $17,000 to her undergraduate school. Meanwhile, her husband, a securities trader, was going through a career change amidst the severe downturn in the markets.

With the help of a private company, the couple secured a loan-deferment for her intern year and worked out a repayment plan. They’ve also rented out their home and are living in a smaller rental place until both careers begin taking off, she says. Big debt loads are nothing new for recent med school graduates.

But today’s young doctors are starting their careers more deeply in debt than any previous generation, and they’re contemplating payments that will last for decades.

The 26-year old Miller Whalen admits it was easy taking on the debt, and much harder now that repayment is looming.

“I just assumed it has to be possible to repay it because everyone else was doing it,” she says. “Now it’s extremely scary and it makes you wonder if you made the right career choice.” The future dermatologist says she expects to be paying off the loans for 20 years.

But experts say there are some ways to dig out of med-school debt without taking a vow of poverty until middle age - even if you didn’t get loan forgiveness as part of signing on with your employer.

Sea of red ink

The median debt load for the 87 percent of medical school graduates who have some debt was $155,000 in 2008, according to the Association of American Medical Colleges, up 11 percent from just one year earlier.

Sharply rising tuition explains much of the increase - the American Medical Student Association says public medical school debt has grown by more than 300 percent in the last 20 years - but changing demographics of medical students and attitudes about debt also contributed to the rising financial obligations of new physicians.

More medical students today are married with children and already had pricier lifestyles when they started training compared to students who trained a generation or two ago, says Paul Jolly, senior director of special studies for AAMC.

Cheap, easy credit terms for all types of borrowing also killed much of the stigma associated with debt, and medical students - along with homeowners, senior citizens, and everyone else - were encouraged to take on seemingly inexpensive debt. Now they’re not sure what to do about it.

“Most medical students aren’t taking a strategic approach to managing their debt,” says Daniel Thibeault, president and cofounder of graduateleverage.com, a lender of federal Stafford and PLUS loans, and private loans (and the company that assisted Miller Whalen).

Many are neglecting relatively basic debt strategies such as accelerating payments of high-interest debt and slowing down on paying off low-interest loans, he says.

Some other ways to lessen the debt bite, experts say:

• Be selective about your numbers. When applying for a loan deferment, many graduates simply photocopy a couple of current pay stubs from their new jobs. Instead, says Thibeault, use your prior year’s tax return to calculate income. For graduates who started a job in July, for example, it will reflect a lower adjusted gross income for the year than extrapolating a pay stub over 12 months.

• Lock ’em if you got ’em. If you’re consolidating federal loans, the sooner you lock in the better because rates today are low, says Thibeault. For details, go to loanconsolidation.ed.gov. Remember to only consolidate variable-rate loans so you can keep your lowest fixed-rate loans from being wrapped into a consolidated higher rate, he says.

• Consider loan forgiveness deals. Loan forgiveness programs offered by the federal government or individual states in exchange for public service can wipe out a lot of debt worries, but only if the terms (such as living in a rural area) are right for you, Jolly says. It makes little sense to spend a fortune on a medical education just to end up in a practice situation you dislike for years, he says. The Website finaid.org offers details on forgiveness programs.

• Watch for new programs. New income-based repayment plans that mix loan forgiveness and a repayment plan according to your income have been available. For details, check out the FinAid! Web site.

• Lower your taxable income. Residents who can afford the income-based repayment plans and have extra income to spare should consider making contributions to tax-advantaged retirement accounts like IRAs. That will get you started on long-term savings while lowering your adjusted gross income, and, hence your income-based debt payments, says Thibeault.

Last resort

If you can’t afford the payments under an income-based repayment plan, you’ll likely need to consider medical residency forbearance, which postpones payment of principal and interest during residency years. But be careful: Unlike traditional deferment, loans in forbearance keep accruing interest while you delay payment, according to lending giant Sallie Mae. For details, read “understanding forbearance” at SallieMae.com.

And it may seem obvious, but staying organized is one of the most important things young doctors can do to keep from being overwhelmed by the figures, Whalen said.

“When it got down to payment time I didn’t know the difference between all my loan terms, and a bunch of the [correspondence] was still going to my parents’ address,” she recalls.

Of course, the best strategy of all is to amass less debt from the start - an unpopular thought only a few years ago that now has gained a lot of traction.

Janet Kidd Stewart is a freelance writer based in Marshfield, Wis. As a contributing columnist for the Chicago Tribune, she writes a weekly, syndicated retirement column called “The Journey” that appears in Tribune newspapers across the United States. She holds a bachelor’s degree and master’s degree from the Medill School of Journalism at Northwestern University. She can be reached via physicianspractice@cmpmedica.com.

This article originally appeared in the September 2009 issue of Physicians Practice.