It’s hard enough as private practice doc in today’s reimbursement environment. Medical school debt can make it worse, here are tips to avoid this issue.
Running your own medical practice can be costly. From increasing costs to declines in Medicare reimbursements, private practice physicians are often pressed for money. Adding on debt from medical school can make the situation even more burdensome.
According to the Association of American Medical Colleges, the average amount of medical school debt was more than $176,000 in 2014. At a rate of 6 percent over 10 years, this debt can cost upwards of $60,000 in interest alone - money you could be spending on property, vacations, or reinvesting in your practice.
If you’re looking to pay off your student loan loans quickly and efficiently, here are three tips to help you get out of debt and back on track.
If you have a good credit score but are paying high interest rates (above 6 percent), consider refinancing your student loans or allowing a new loan company to assume your existing debt. Working with a refinancing company means they will pay off your old debt and become your new lender - often at a lower interest rate, potentially saving you thousands of dollars over the life of the loan.
However, keep in mind that refinancing isn’t the best solution for everyone. In fact, if you do not have a lot of clients yet, you might want to investigate what options your federally-backed loans offer. Federal loans often allow flexible repayment options like deferments and income-based repayments, which can be essential when your income isn’t consistent.
Note that when you work with a private refinancing company, you lose access to these federal programs. While some offer unemployment protection, many do not and few allow deferments. If your job situation is fully secure or you’re just starting out with your practice, make sure you know the terms of refinancing before you commit.
There are several state and federal programs, such as the public service loan forgiveness program, which provide federal loan forgiveness. Most of these programs require working in locations where healthcare is inaccessible or the population is underserved.
For example, the Massachusetts State Loan Repayment Program allows primary-care physicians to set up practices in specific areas for a two-year commitment and receive up to $50,000 toward their loans. The Georgia Physician Loan Repayment Program sends doctors to underserved areas, repaying up to $25,000 each year for a maximum of four years. Programs like these can be an excellent opportunity for those starting a practice or looking to join one that works specifically with disadvantaged populations.
Of course, going this route requires a lot of dedication and lifestyle flexibility. Practicing in a health shortage area means moving yourself and potentially your family to regions of the country that are often isolated, economically depressed, or perhaps a less than desirable place to live. Additionally, physicians often find that these practices are overworked and understaffed, which can be frustrating to those who are used to having more resources available. However, doctors who do complete these programs get the satisfaction of assisting patients who are desperately in need of good, competent care, which can be highly rewarding.
For physicians who work in practices that don’t generate a lot of revenue, repayment programs such as income-based repayment (IBR) or Pay As You Earn (PAYE) may be right for you. These programs allow you to adjust your loan payments in proportion to your income, rather than deferring payments completely while accruing interest. IBR plans also postpone interest capitalization and provide a partial interest subsidy for the first three years of making payments, allowing you to forego your loans after 20-25 years, depending on the program.
In addition, if you have the option of working at a practice in the nonprofit sector, you could qualify for programs that forgive your student loans after 10 years of service. There is no limit to the amount of student loans that can be forgiven, which is great for those working in practices looking to shed their loan payments as quickly as possible.
Working at a medical practice is already hard enough. Why make it tougher on yourself by losing out on money you could be applying towards fun or your future (or both)? By getting on top of your loan payments, you can be on the road to financial independence within just a few years. It’s simply a “best practice” for physicians to get out of debt and on with their lives!
Andy Josuweit is CEO of Student Loan Hero