Debt-consolidation, loan forgiveness programs can help emergency physicians deal with student loan debt

Sarah Hoper, MD, recently joined the staff at Vanderbilt University. She is interested in health policy and is EMRA’s Legislative Advisor. EMRA President Jordan Celeste, MD, is a fourth year resident at Brown University in Providence, R.I., and will be heading to Florida this summer to begin practice.

Question: I have heard that there are debt-consolidation and loan-forgiveness programs that might be useful to me. How should I manage my student loans?

Answer: Many established attending emergency physicians are unaware of the incredible size of the student loan burden faced by more recent graduates. According to the Association of American Medical Colleges, in 2012, the average student loan debt among indebted medical school graduates was about $167,000 for MD students. Debt levels are even higher for DO students. These numbers, of course, are mere averages. Twenty-five percent of 2012 graduates owe more than $200,000, and 5 percent owe more than $300,000. I’m confident these sums have not gone down since 2012. Student loan interest rates for those in residency now are no lower than 6.8 percent and sometimes as high as 11 to 15 percent for private loans. At an average interest rate of 8 percent, a student with $300,000 of debt at medical school graduation may owe as much as $378,000 upon completion of residency. Required payments on this debt may be more than $3,600 per month, much more than the typical American, and many a physician, spends on a mortgage. Many of these young physicians also have substantial consumer debt from automobile loans or credit cards. Emergency physicians, however, should count their blessings. Some attending physicians practicing in lower-paying specialties after attending expensive medical schools are now being turned down for student loan refinancing due to their income-to-debt ratio being too high! No wonder young doctors are looking for some relief from this financial pressure.

The Income-Based Repayment (IBR) Plan

Without IBR, most residents would be either bankrupt or forced into forbearance or hardship deferrals. IBR bases student loan payments on income rather than total debt or interest rate. As a result, residents making IBR payments on unsubsidized loans are often paying much less than even the interest on their loans. The IBR plan was recently changed; it is technically a modification of an older loan program called Income-Contingent Repayment, or ICR-A, and is also called “Pay as You Earn.” It caps student loan payments at 10 percent of “discretionary income” instead of the previous 15 percent under IBR. Discretionary income is defined as the difference between adjusted gross income (line 38 on IRS Form 1040) and 150 percent of the federal poverty level, about $18,000 for a single physician and about $36,000 for a family of four. So if you’re a resident making $50,000, your payments are capped at $267 per month if you are single and $117 per month if you are married with two kids. Since the interest alone on a $300,000 8 percent loan is $2,000 per month, you can see that the IBR/ICR-A payments are just a drop in the bucket, and the debt will continue to grow while in the program. When a resident graduates and begins earning a higher income, IBR/ICR-A payments will revert to a higher amount, calculated using the original debt on a 10-year repayment basis. If payments are made every month for 20 years, the remainder of the debt will then be forgiven. However, the typical emergency physician making even the minimum payments will have the debt paid off by then, so IBR forgiveness is really not a factor for most doctors.

Even emergency physicians, with their relatively short residency, can gain substantial benefits from Public Service Loan Forgiveness.

The Public Service Loan Forgiveness (PSLF) Program

PSLF is a type of loan forgiveness that can be beneficial for doctors. If a doctor works for a qualifying 501(c)3 employer, such as the military, Department of Veterans Affairs, a university hospital, or a non-profit hospital, the remainder of the loan forgiveness can be received after 10 years of qualifying payments instead of 20. This is a particularly beneficial program for specialists with long training programs, such as medical, pediatric, and surgical subspecialists. However, even emergency physicians, with their relatively short residency, can gain substantial benefits from PSLF. Basically, you are forgiven the amount by which you underpaid your loans in residency, plus the interest that accumulated because of those underpayments.