Still Repaying Student Loans?

January 8, 2009
Owen Dahl

So you're a new physician fresh out of residency, ensconced in your first practice.

So you’re a new physician fresh out of residency, ensconced in your first practice. Great! The only real drag is what to do about those huge, outstanding loan balances.

Or, you’ve been trucking along practicing medicine for a number of years, enjoying interactions with your patients and the clinical challenges they present. Also great! Except for that pesky loan from medical school, gulping too much of your take-home pay.

For either of these two scenarios, there are solutions to managing your medical school debt - some simple, some complex. Personally, I hate debt! If I can find a way to pay off any loan - car, student, especially credit cards, I would do it as quickly as possible.

But student loans from medical school are, granted, a big chunk of change. You need to spend a little time figuring out the best way to handle this important affair. Start by shoring up your knowledge of loan mechanics if you feel a little soft in that department. Then, check out these possible avenues of settling your loan expeditiously:

1. Renegotiate the terms if they feel too onerous. Approach the lender (after thoroughly gleaning important information from the Web site I just mentioned) with relevant facts and figures regarding your work/life situation. Lenders want their money; many are willing to give a little on the terms to get back what’s theirs.

2. Get your employer to help you with repayment, especially a potential employer. This can be a valuable negotiation tool. Employers sometime agree to repay all or part of your loan in exchange for a commitment to stay in the community a certain amount of time. Note that arrangements such as these are not government-sponsored; they’re community-sponsored. Occasionally, you can find a practice that is willing to repay your loan in lieu of certain salary or bonus concessions. The key is to figure out the best way to make the repayment plan work, so you and your family can successfully manage your finances.

3. Consolidate multiple loans. You cannot consolidate all but you can consolidate like loans, e.g., all federal loans. Current interest rates are very competitive and now would be a great time to lock in a low rate. You don’t necessarily have to accept longer payback periods; however, that is an option.

4. You can choose a graduated repayment schedule, paying less per month while you’re earning less and increasing it over time. You’ll still have the loan repaid in 120 payments (10 years), but it won’t feel so crushing while you’re just starting out. You can, since most physician loans are more than $40,000, extend payments to 25 years if that makes sense for your situation.

5. Defer or seek forbearance if you must. That is, if the total amount of your loans is too large due to other expenses. A deferral is available for a period of time based upon a specific need such as return to school, economic hardship, or unemployment. Forbearance puts payments on hold for up to three years, but interest continues to accrue.

6. Take advantage of other special loan-help programs. The NIH offers a loan forgiveness program for clinical researchers who conduct research for at least 20 hours per week over a two-year contract period. This program can result in a loan repayment of up to $35,000 per year, plus additional payments to cover federal income taxes.

7. Join a federal program such as the National Health Service Corps or AmeriCorps and receive loan forgiveness. Yes, the pay is much less, but you’ll gain more in paybacks, as well as a secure job, while providing service to those in need. Finally, at the risk of sounding parental, take a moment to re-center your thinking if you’re feeling resentful about your debt. Thankfully, the loan was there for you when you needed the funds. It got you through the very expensive, extensive education of medical school. Accept the payback arrangements - or take time to renegotiate them - and honor the debt.

Owen Dahl, FACHE, CHBC, is a nationally recognized medical practice management consultant with over 24 years of experience in consulting for and managing medical practices and author of Think Business! Medical Practice Quality, Efficiency, Profits. He can be reached at odahl@comcast.net or 281 367 3364.