You knew those medical school loans were going to be a drain on your lifestyle when you took them out, but what happens if you become disabled and can’t work as a doctor after graduating or you become disabled before graduating?
If you’ve been a good planner, you already have purchased some form of physicians disability insurance, whether that’s medical student disability insurance or medical resident disability insurance or some other form of disability income coverage. If not, it isn’t too late to apply for disability income insurance. The payments the insurer makes if you become disabled can be applied to any bills you have, including student loans.
Why Not Just Get Them Forgiven?
You may have heard that the U.S. Department of Education has a directive to discharge student loans for borrowers who become permanently and totally disabled. That law is good in theory, but it doesn’t cover those with partial disabilities, and it is subject to some pretty vague eligibility standards.
The total permanent disability discharge process is complex and takes quite some time, according to the Federal Student Aid Ombudsman. Your loan holder and guaranty agency will be involved; then, the Department of Education will review your application. You and your physician may be contacted at each level of review, the ombudsman says. Qualifications include a disability that can be expected to result in death; one that has lasted for a continuous period of at least 60 months; or can be expected to last for a continuous period of not less than 60 months. There are additional eligibility options if you have served in the armed forces.
Social Security vs. Department of Education
Under Social Security disability, there are specific and clear definitions and measures of qualifications. That doesn’t appear to be the case at Department of Education, according to a 2011 report from Pro Publica. You could spend many months arguing with the Department of Education and jumping through hoops to try to prove to them that you are disabled enough to have your loans forgiven. After going through all of that, you may still be denied, and—according to the Department of Education’s website—you cannot appeal that decision.
If you become disabled and receive disability benefits from any source, the Education Department can garnish those to pay for your student loans. If you haven’t gotten private disability insurance and are relying on a federal plan, such as Social Security, you could see a big chunk of your monthly assistance vanish through garnishment. You may be eligible for the Income Based Repayment program if you don’t qualify for a disability discharge, so ask your loan repayment officer about this option. It could allow you to retain much more of your disability insurance income.
Disability Insurance Options
Medical students have multiple options when it comes to protecting their income and lifestyle in the future. Schools offer medical student disability insurance, and many residency programs provide group disability insurance for residents. Both options have advantages and disadvantages. Once you have entered a practice—your own or another physician’s—you can opt for standard doctors disability insurance, which can be applied, should you become disabled, to any bills, including student loans.
While you are a student, Medical student disability insurance is an affordable option that offers future insurability and is very affordable—often under $100 per year. Some policies also offer a loan payoff benefit that will cover all or a large portion of your student loans. The offset is that the monthly payments to you are fairly low, typically under $2,000, and they end when your enrollment in school ends. Schools are mandated to offer medical student disability insurance, and it’s a good thing to accept. Keep in mind, though, that it doesn’t provide lifelong coverage.
Group Disability Insurance
Medical residents often are provided an option to participate in a group medical resident physician disability insurance plan. While that can be a fairly inexpensive option, it is important to remember that group policies are not controlled by the insured; they are controlled by the employer or organization that sponsors the plan. If you are looking for disability income insurance that you in control, and that lasts beyond your residency, you probably should turn to the individual market.
Individual Disability Insurance
Buying on the individual market when you are young and healthy usually means receiving a competitively low premium and being able to choose your own limits of coverage. When you finish your residency, you will have options to convert the plan to a full physicians disability insurance policy, usually without any further medical exams. If you opt to use the group plan as a resident, there are still physician disability insurance policies available on the individual market that you can sign up for when you transition out of residency.
H.R. 4170 Probably Won’t Help
A bill introduced in Congress in March of 2012 seeking to cap interest on federal student loans at 3.4% probably won’t get much traction. The proposed Student Loan Forgiveness Act, which would forgive student loan debt up to $45,520, is stuck in committee. Even if it moves forward, many of its key components—including loan forgiveness after just five years for those who practice medicine in underserved areas—will probably be whittled down in light of budget concerns.
A doctors disability insurance policy is really the best option for providing a stream of income that can pay student loans and other bills if you become disabled. Structured properly, an individual plan won’t be undercut by other disability benefits as they become available. It will be based on your ability to earn income in your own discipline of medicine and will not require total, permanent debilitation.
If you become disabled, you may still opt to duke it out with the Department of Education, but you will still have to pay your loans while you wage your battle. Contact us to get a comparison of coverages and a quote and to begin a lifetime of excellent disability income protection.
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