Douglas Olsen
Medical school debt is a burden that follows many physicians well into their careers. The average medical school debt is $200,000, but some physicians graduate with over $300,000 in student loans. With interest rates on the rise, monthly payments on this debt have become more expensive, and it is not uncommon for doctors to be paying off their loans for more than ten years. However, there are strategies to pay off medical school debt more quickly and reduce the overall amount paid. This includes working locum tenens or per diem shifts and applying the extra earnings towards loan repayment. Other options include income-driven repayment plans, refinancing, and loan forgiveness programs. So, do doctors end up paying all of their student loans? While it may take time and strategic financial planning, it is possible for doctors to become debt-free.
| Characteristics | Values |
|---|---|
| Average student loan debt for doctors | $200,000 to $320,000 |
| Average time to pay off loans | 6-10 years |
| Average monthly payment | Varies depending on loan term |
| Loan forgiveness programs | Public Service Loan Forgiveness (PSLF), Income-Driven Plans, Private Loan Refinancing |
| Strategies to pay off debt | Working locum tenens or per diem shifts, Refinancing to get a lower interest rate, Employer-sponsored loan repayment |
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What You'll Learn
Student loan forgiveness programs
The average medical school graduate owes 2.25 times as much as the average postgraduate college student, including their undergraduate debt. This means that the average medical school graduate owes around $243,483 in total educational debt. The median M.D. graduate owes $200,000 in student debt, but this number may not represent what doctors actually owe in total student debt. In fact, some physicians accrue educational debt from their undergraduate studies, which is usually deferred and accrues interest. This can lead to significant loan growth even three to five years out of medical school.
Given the substantial debt that doctors may face, there are several student loan forgiveness programs available. Here are some of the key programs:
- Public Service Loan Forgiveness (PSLF): This federal program forgives the remaining loan balance tax-free after 10 years of service of working full-time for a qualified employer. PSLF is available for those working in the nonprofit world, such as hospitals or universities, government agencies, or not-for-profit organizations.
- Indian Health Service (IHS) Loan Repayment Program: This program awards up to $40,000 for student loan repayment in exchange for a two-year commitment to practice in health facilities serving American Indian and Alaska Native communities.
- National Health Service Corps: This program provides grants to all 50 states and US territories, enabling them to offer their own student loan repayment programs. The National Health Service Corps also has specific loan forgiveness programs with short service requirements of 2-3 years and up to six figures in forgiveness eligibility.
- State-Specific Programs: Many states offer student loan forgiveness or repayment programs for doctors and healthcare professionals. For example, Minnesota has both an Urban Physician Loan Forgiveness Program ($33,000 annual forgiveness) and a Rural Physician Loan Forgiveness Program ($29,000 annual forgiveness). Kansas also offers loan forgiveness for practitioners serving in eligible rural counties for a three-year period.
- VA's SELRP Program: This program is for resident doctors who commit to at least 24 months of service at a designated VA facility. The program can provide up to a maximum of $160,000 in student loan relief, with a $40,000 annual loan repayment benefit.
- NHSC Students to Service Loan Repayment Program: Medical students may earn up to $120,000 in their final year of school by committing to serve at least three years at an approved NHSC site in a Health Professional Shortage Area (HPSA) of greatest need.
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Refinancing
Medical school graduates in the US owe an average of $243,483 in total educational debt, including premedical debt. The median M.D. graduates with $200,000 in student debt, but this number may not be representative of doctors' total student debt, as it does not include undergraduate debt. The average medical school debt may be as high as $320,000 when undergraduate debt is factored in.
Most physicians finish their residency with over $200,000 in medical school student loans, and it is not uncommon for new doctors to carry student loan debt of $300,000 or more. As a result, student loan debt has become a significant contributor to stress and burnout among doctors and other high-income professionals.
Doctors can refinance their medical school loans during residency or after they become attending physicians. Refinancing early can make a significant difference, provided the borrower does not require federal student loan benefits like Public Service Loan Forgiveness (PSLF) or income-driven repayment. PSLF is a federal program that forgives the remaining loan balance tax-free after ten years of full-time service for a qualified employer, such as a hospital or university. However, it is not an option for those planning to work in private practice or for-profit groups.
When refinancing, it is recommended to shop around and get rate estimates from multiple lenders to secure the lowest rate. A credit score in the high 600s is generally required to qualify for student loan refinancing, with higher scores resulting in lower rates. Refinancing private student loans is advisable when a lower interest rate can be obtained, even as an intern. Direct federal student loans should be refinanced once the borrower decides against PSLF and finds a lower interest rate than their effective rate.
Some companies that offer refinancing for medical school loans include Juno, Splash Financial, SoFi, and Laurel Road. Juno provides exclusive benefits for medical professionals, including discounted interest rates and cash-back bonuses of up to $1,000. Splash Financial has a special program for residents and fellows, allowing them to pay only $100 per month during training. SoFi offers competitive rates, flexible terms, and a 0.25% autopay discount. Laurel Road refinances both federal and private student loans and provides a 0.25% interest rate discount for AutoPay.
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Salary and specialty
The average medical school graduate owes 2.25 times as much as the average postgraduate college student, including their undergraduate debt. The median medical school debt for M.D. graduates is $200,000, but this number may not represent what doctors actually owe in total student debt. The average debt for physician clients of Student Loan Planner is $320,000, 60% higher than the median. This is because the debt includes educational debt from undergraduate study, which has often been deferred and accrued interest.
Most physicians finish residency with more than $200,000 in medical school student loans, and it is not uncommon for new doctors to carry student loan debt of $300,000 or more. A physician with an initial $200,000 federal loan can expect to pay upwards of $350,000 in repayments, including interest, through the lifetime of the educational loan. Interest payments alone can account for $164,000–$254,000 of repayments.
The salary of a physician will determine how efficiently they can repay their loan. A radiologist making $401,000 will be able to pay off their loans much faster than a family medicine doctor making $219,000 on average. A physician with a $250,000 student debt and a salary of $250,000 or more should throw every dollar they can at paying back their loans as fast as possible for no more than 10 years. This often involves refinancing to get a lower interest rate.
Some hospitals and facilities offer educational loan repayment as a recruiting incentive. This entails payment of the physician's medical student loans in exchange for a commitment to stay in the community for a given period. The average amount of loan repayment offered by Merritt Hawkins in 2022–2023 was $98,665, with most applicants required to stay in their position for three years or more. Larger health systems can offer $100,000 or more in student loan repayment.
Public Service Loan Forgiveness (PSLF) is a federal program that forgives the remaining loan balance tax-free after 10 years of service working full-time for a qualified employer in the nonprofit world, such as a hospital or university. PSLF is not an option if the physician plans to work for a private practice or a for-profit group. Private loan refinancing involves changing federal loans into a bank loan, which typically has lower rates and improved repayment terms.
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Interest rates
The interest rates on student loans for doctors vary depending on the type of loan and the lender. Federal Direct Loans and Federal Perkins Loans calculate interest on a daily basis. For Direct Unsubsidized Loans, interest accrues while the borrower is in school and continues to accumulate during the grace period. If the interest is not paid during this period, it is capitalized, meaning it is added to the original loan amount, increasing the overall debt.
To manage interest rates and reduce the financial burden, doctors can consider several options:
- Refinancing: Refinancing student loans can help lower interest rates. Private loan refinancing involves converting federal loans into bank loans, which typically offer lower rates and improved repayment terms. However, it is important to carefully consider the transition stage to avoid irreversible mistakes.
- Income-driven repayment plans: Plans like PAYE (Pay As You Earn) and REPAYE (Revised Pay As You Earn) cap monthly payments at a certain percentage of the borrower's discretionary income. These plans can provide flexibility and potentially lower interest costs over time.
- Loan forgiveness programs: Programs like Public Service Loan Forgiveness (PSLF) offer tax-free loan forgiveness after a certain period of service in qualified nonprofit, government, or educational institutions. This option may be preferable for those eligible, even if they owe less than a certain multiple of their income.
- Employer-sponsored repayment: Some hospitals and healthcare facilities offer loan repayment assistance as a recruiting incentive. This typically involves a commitment to serve in the community or remain in a specific position for a given period.
- Strategic investing: While paying off loans quickly may be tempting, focusing solely on rapid repayment can lead to missed opportunities for wealth accumulation through investments. Striking a balance between loan repayment and strategic investing can maximize long-term financial gains.
By carefully considering these options and seeking financial advice, doctors can develop a comprehensive strategy to manage their student loan interest rates and overall debt more effectively.
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Employer-sponsored hiring incentives
The average medical school debt for graduates is $200,000, according to the Association of American Medical Colleges (AAMC). However, this number may not represent the total student debt owed by doctors, as it does not include undergraduate debt. The average medical school graduate owes 2.25 times as much as the average postgraduate college student, including their undergraduate debt, which can amount to a total educational debt of $243,483.
Given the significant financial burden of medical school debt, many physicians seek out strategies to pay off their loans more quickly and reduce the overall amount they owe. One option is to work locum tenens or per diem shifts, which can provide higher earnings that can be applied to loan repayment. Additionally, there are various loan repayment programs available, such as the Public Service Loan Forgiveness (PSLF) program, which forgives the remaining loan balance tax-free after 10 years of full-time service for a qualified employer in the nonprofit world or government agencies.
In recent years, employer-sponsored hiring incentives have emerged as a significant factor in helping residents transitioning to practice manage their medical school debt. Healthcare employers are recognizing the value of offering student loan benefits as part of their employee benefits package to attract and retain talented physicians. These incentives can include signing or commencement bonuses, as well as direct contributions to student loan repayment. Larger health systems may offer $100,000 or more in student loan repayment incentives, while smaller incentives may be available at medium-sized health systems or physician private practices.
One example of an employer-sponsored hiring incentive is the case of Dr. Benz, who received $100,000 towards paying her loans from Aurora Health Care in Milwaukee. This incentive was provided in addition to a signing bonus, and both amounts were considered taxable income. Dr. Benz's experience highlights how employer-sponsored incentives can significantly reduce the financial burden of medical school debt and influence an individual's decision when evaluating job positions.
Employers can also partner with financial institutions to provide additional benefits to their employees. For instance, Laurel Road offers healthcare employers and their staff members one-on-one consultations with student loan experts, student loan forgiveness counselling, refinancing rate discounts, and educational tools for financial wellness. Furthermore, employers can design optional paid-contribution plans to help accelerate loan repayment or explore repayment matching options, such as matching employee student loan payments with contributions to their retirement accounts.
In conclusion, employer-sponsored hiring incentives play a crucial role in assisting doctors with their student loan repayment. By offering competitive salaries, signing bonuses, and direct contributions to loan repayment, healthcare employers can attract and retain talented physicians while helping to alleviate the financial burden associated with medical school debt. These incentives can significantly impact an individual's financial well-being and career decisions.
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Frequently asked questions
The average debt a doctor graduates with varies depending on the source. According to the Association of American Medical Colleges (AAMC), the median M.D. graduates with $200,000 in student debt. However, Student Loan Planner reports an average debt of $320,000 for its physician clients. Other sources put the average debt at $243,483 or $250,000.
The Public Service Loan Forgiveness (PSLF) program is a federal program that forgives the remaining loan balance tax-free after 10 years of full-time service for a qualified employer. To be eligible, physicians must work for a nonprofit, hospital, university, or government agency.
Yes, some hospitals and healthcare systems offer loan repayment assistance as a recruiting incentive. For example, AMN Healthcare's Physician Solutions division reported that the average loan repayment offered in Merritt Hawkins job searches was $98,665 in 2022-2023. In exchange, most applicants were required to commit to staying in their position for three years or more.
One strategy is to work locum tenens or per diem shifts and apply the extra earnings towards loan repayment. Physicians who work locum tenens full-time can earn an average of $32.45 per hour more than permanent-only doctors. Another strategy is to refinance student loans to get a lower interest rate, which can reduce monthly payments and the total amount paid over the life of the loan.
Rushing to repay student loans can sometimes lead to overlooking the nuances and potential opportunity costs of loan repayment. For example, by focusing solely on quick loan repayment, individuals may miss out on significant wealth accumulation through investments. Additionally, refinancing federal loans into a private bank loan can have its own set of considerations, such as losing access to income-driven repayment plans and loan forgiveness programs.
