Student loan debt can feel like a huge burden to tackle, especially for a recent medical school graduate. According to the 2016 AMA Insurance Report on U.S. Physicians’ Financial Preparedness, the average student loan debt amount after medical school for physicians in their 30s is between $150,000 and $200,000. Even with an annual salary averaging between $170,00 and $220,000, one in 10 physicians is still paying off student loans in their 50s.
If the thought of paying back your loan debt gives you angina pectoris, understand that you’re not alone and there are strategies to help you manage your finances and pay off debt before you’re gray. Here are five tips for managing medical student loan debt.
1. Consult a Financial Planner Early
Fewer than half of physicians in their 30s use the help of a financial advisor. The AMA Insurance Report advises physicians to “find an advisor early. Don’t wait until you ‘think’ you have enough money.”
A Certified Financial Planner (CFP) can help you set a budget around your student loan payments and other essential expenses. While there are plenty of budgeting tools available, the less time you have to spend on your finances, the more you can spend on practicing medicine and enjoying life.
Hiring a financial planner can be expensive; however, there are affordable options. LearnVest is a tool that helps you set up a financial action plan and pairs you with your own financial planner for a low monthly fee. Mint.com is a free personal finance tool that provides automated budgeting support. Qapital is a free iPhone app that helps you save money by rounding up prices from everyday expenses and puts the extra change into a savings account.
2. Find Out If You Qualify for a Deferment or Forbearance
If you have trouble making loan payments, you may be eligible for a loan deferment, or temporary delay in payment. Depending on the type of loan you have, the federal government may or may not pay the interest on your loan during this time. It’s important to research how much interest could accrue before deciding if deferment is right for you.
If you don’t qualify for a deferment, you may be able to get forbearance. Forbearance allows you to stop making payments or reduces your payments for up to 12 months. However, interest will accumulate on your subsidized and unsubsidized loans during this time. Anyone serving in a medical or dental internship or residency program can request mandatory forbearance, which lenders are required to grant.
3. Start With an Income-Driven Repayment Program
If you start out on a 10-year repayment plan, your monthly payments could be well over $1,000. The average first-year resident earns $52,200 annually. For most young physicians, 25 percent of take-home income going toward loan payments is far too high.
Income-driven repayment programs allow you to pay what you can afford based on your income and cost of living. According to the AAMC, this would reduce a first-year resident’s payments to approximately $300 a month.
Make sure to research each of the federal income-driven repayment options and/or consult with your financial planner before deciding on the plan that works best for you.
4. Refinance Your Student Loans
It’s not uncommon to have several loans with a few different student loan servicers. Refinancing and consolidating your student loans can help you to get out of debt faster and save you money.
According to Student Loan Hero, “If you have a steady monthly income and good credit score, then your risk as a student loan borrower has dropped significantly since you initially got the loan. Student loan refinancing can help you take advantage of your decreased credit risk. With a lower interest rate, you pay less overall on your loans. Plus, you have one interest rate for your entire student debt, which makes the whole thing a lot less confusing.”
Many students find that consolidating debt also makes their loans easier to manage and allows them to work with a lender that can be flexible and accommodating based on their unique situation.
5. Be Aware of All Options Available
There are several state-sponsored programs that provide loan repayment and forgiveness incentives for physicians to practice in Health Professional Shortage Areas (HPSA) designated by the federal government.
There’s also a variety of tech companies popping up with the goal of helping students pay off loan debt faster. SponsorChange.org helps volunteers raise funding to pay off student loan debt. Givling is a crowd-funded trivia app that pays up to $50,000 in loan debt per person to a few lucky winners each day.
It’s important to remember that there are a plethora of options available for medical students and physicians when it comes to managing student loan debt. Consult with experts, do your research, and stay aware of any new programs available and you can begin your journey toward stress-free student loan management.