Options for Managing Student Loan Debt
Deciding how to manage student loan debt while in radiology residency is a confusing process; It’s a long road and there are all manner of jargon and rules / restrictions to be aware of — which makes the prospect downright unenjoyable.
However, it’s something most of us have to deal with, as the average student loan debt of medical students graduating in 2015 was $166,750. To get you started, I’ve made some cheat notes below for how to manage your loans as a radiology resident.
Defer while you can!
I recommend that you defer payments at first while you transition from medical school to residency and money is tight. I did it, and it saved me a few months of payments!
The next thing you have to do is pick one of the following three options for how to manage your loans over the next 6-7 years.
1. Deferment: a delay in loan payments where interest does not accrue. This is temporary (a few months) and usually gets used up right after medical school.
2. Forbearance: Stop (or never start) making loan payments, but interest continues to accrue. This is something that you have to reapply for yearly and that is typically only available while in residency.
3. Repayment: (the best choice) Begin one of many available repayment plans, choosing between both government or private lender schemes, more below. (Detailed analysis of these can be found here)
Deferment is temporary, and will not last you through residency. Forbearance is almost always a bad idea, unless you simply cannot pay your monthly bills and also make a loan payment. Forbearance allows interest to accrue and does not qualify you for loan forgiveness. For these reasons, the best option is “repayment,” and that will be the topic of the remainder of the post.
Begin repayment, and weigh Refinance versus PSLF
As you begin repayment, you will initially choose one of the government plans such as “Pay as you earn,” RePAYE, or Income-based repayment. Each of these allows you to make a lower payment each month, which is more affordable (as opposed to the exorbitant monthly rate of the “Standard 10 year repayment plan”). The differences between the reduced payment plans are small and boil down to how they calculate your monthly payment. Most people will be told which one they can use by their lender - and more information can be found here.
This will get you started, but there’s a big decision that each of us has to make at some point: “Refinance or don’t refinance?” It gets more complicated still, as you can refinance with the government or with private lenders. In other words: “you must choose, but choose wisely” - Indiana Jones and the Last Crusade.
Why a person might refinance: Refinancing is done to lower your interest rate.
Refinanced loans with the federal loan program are calculated such that it has zero effect on your overall rate, so it really just combines all your smaller loans into one bigger (but the same average interest rate) loan. This isn’t a bad thing but it doesn’t actually accomplish much.
Things get interesting when you consider refinancing with a private lender. I won’t list lenders here to avoid endorsement, but a quick google search could get you some example companies.
Benefits to private refinancing:
1. Lower interest rate (less money paid over the life of the loan)
2. Availability of variable and fixed rate loans (most federal loans are fixed), which you can advantage to further lower your rate.
Risks of private refinancing - the catch:
1. You must immediately begin full repayment (no more “pay as you earn” reduced monthly rates).
2. Variable interest rate loans can fluctuate.
3. You immediately give up the chance of any loan forgiveness. (more below)
That last line is important, which brings me to the most relevant topic of discussion for Radiology residents.
Radiology residents should consider PSLF!
Public Service Loan forgiveness is a program set up by the federal loan department. It outlines that: if you make consistent payments on your federal loans for 10 years (120 payments) while working for a nonprofit or government organization (tax code 501(c)3), then the remainder of your loans would be forgiven. For example: you could make reduced payments for 10 years in the “pay as you earn” program, and then have the remainder of your debt forgiven.
Why a radiology resident might love this
1. We have a long residency… Payments made during residency (most residencies anyway) count towards your 120 goal. This means that, depending on fellowship, 6-7 years of repayment could be accomplished at a reduced rate while in residency.
2. If planning to take an attending job at a nonprofit hospital (such as in many academic appointments), the following 3-4 years would completely eliminate your remaining loan debt.
Risks to consider if shooting for PSLF - the catch
1. No one has actually succeeded in having loans forgiven yet. The bill was passed in 2007, so no one has actually made it to 10 years so far.
2. Your attending job may not be at a “nonprofit.” You would then have difficulty making it to the 10 year mark. This wouldn’t necessarily adversely affect you, other than you may have been better off refinancing earlier.
3. People may have aneurysms when they find out that doctors are having debt forgiven. I’m serious!
4. There have been proposals to cap the forgiveness at $57K. None have passed so far.
What did I do? My wife and I are both physicians, and we both signed up for PSLF (no reason not to do it while in the federal repayment programs). However, I doubt we will both work at nonprofits as attendings, so the chances we both make it to 10 years of repayment in this program are slim. Once I graduate (and can financially handle full repayment), I plan to refinance my loans with a private lender to secure a lower interest rate.
What will you do? How have you managed your finances in residency? Comment below and share some of your experiences with your fellow RFS members!
The Doctors' Loophole — Student Loans and PSLF
Adam Kyle Deal, MD is a 3rd year radiology resident at Eastern Virginia Medical School.
This post has additionally been edited by Bob Lania, senior marketing director at World Financial Group