Reduce Your Student Loan Burden
The bad news is that the average medical school debt is higher than ever. According to the 2014 Medscape Residents Salary and Debt report, the median cost to attend medical school in the United States was $207,868 at public schools and $278,455 at private universities. The majority of newly-minted physicians entering residency are now facing six figures in student loan balances before they even start practicing. Add in the undergraduate costs for tuition, room and board and some of you – 37 percent of men and 33 percent of women, to be precise, have $200,000 in school debt and more by the time you pay your first very own medmal premium!
The crunch time comes when you enter residency. You normally no longer qualify for deferment, but somehow as a resident you’re going to have to make a dent in your six-figure debt – accruing interest – on an average residents’ salary of just $55,300 per year.
Normally that’s going to qualify you for one of three income-based programs designed to help manage the burden of repaying big federally-guaranteed student loans on relatively small salaries. The three programs are as follows:
- Income-Based Repayment Plan (IBR)
- Pay-as-you-earn
- Income-Contingent Repayment Plan
More information on each plan is available here or here.
Each of these federally-authorized plans gives you the option of setting your monthly student loan payment at a reasonable level given your current income. And this is where it gets interesting:
None of these programs effectively resets your payment plan at a higher level if your income goes up as your career progresses. But this is quite routine for physicians as they leave residency and enter their peak earning years. And that creates an opportunity for certain physicians and other professionals with relatively high student loan balances, low initial incomes in the first years of their working careers, and who work for certain non-profits, government agencies or public service organizations.
If you qualify for the Public Service Loan Forgiveness Program (PSLF), available to certain borrowers working at a variety of non-profits and government agencies, under current rules, you are done paying your student loans after ten years. As long as you make 120 consecutive on-time monthly payments under the program and meet the other qualifications listed at the link, at the end of that term, your remaining loan balance is forgiven.
The fun part: For most doctors with big loan balances who begin working at relatively low residency salaries who remain in the service of a PSLF-qualifying organization or agency, the monthly payment is nowhere near enough to pay down a $200,000 loan in 10 years. Think of it: Most people take 30 years to pay down a $200,000 mortgage and it’s their biggest monthly outlay!
The result: Qualifying doctors who play their cards right could wind up tens of thousands of student loan debt balances forgiven.
Note: Congress and the Obama Administration are slowly waking up to this situation and may soon act to close this loophole. For example, last year’s budget proposal from the Obama Administration sought to limit the amount of debt that could be forgiven under this program at $57,000. That budget was not adopted by Congress, but there are other efforts afoot to close that loophole, which turned out to be more generous to doctors than Congress apparently intended.
In the future, we could see Congress lengthen the payment terms, or force doctors to include spousal income in the payment calculations when they enter one of the income-based repayment programs.
Of course, if you sign up for one of these income-based debt repayment programs and enroll in the PSLF, and then you can’t work anymore because you are sick or hurt or otherwise disabled, you’re going to have a hard time completing those 10 years of service to qualify for the loan forgiveness.
Proper insurance planning can provide enough disability income to cover your student loan repayments – even if you don’t quite qualify for SSI or SSDI with a total and catastrophic disability.
That’s where we come in.
At Doctor Disability Insurance, we understand that you have had to make sacrifices to get to where you are. We are committed to helping you protect your most valuable asset: your ability to earn an income.
Doctor Disability Insurance, Inc. is an innovative, one-stop service that makes disability insurance shopping quick, affordable, and easy to understand. Physicians save time and money by comparing plans and prices from multiple insurance companies. The site provides free quotes from leading names in the disability insurance industry along with friendly and knowledgeable customer support. The best values in the insurance industry are located in one place and are available any time doctors are ready, including late at night and on weekends.
Based in San Clemente, California, President and CEO Charles Krugh is a Certified Financial Planner with more than 15 years of experience working with people in the medical industry.
Call us toll free at 866-899-7318 to speak to one of our disability insurance professionals.