Income Based Repayment Student Loans Series Part 2
As previously noted in my post on student loans, the financial situation for medical students is getting much worse. There are a couple of bright spots visible in the changes of the last few years. This post will deal with one of them, the income based repayment (IBR) plan.
IBR is a way to keep your payments low. It also has a provision to completely forgive existing student debt after 25 years. Most doctors can get at least a little benefit out of this program. There is a relatively complicated formula that helps you determine what your maximum payment would be, but this chart from ibrinfo.org gives the general idea:
So a resident with two kids would have his student loan payments limited to 2.4% of income, or, on an income of $40K/year, about $80 a month. It doesn’t matter how much he owes. Of course, interest above and beyond this amount isn’t forgiven, it’s just added on to the debt. A negatively amortizing loan obviously isn’t a good idea for the long run so the government gives one more benefit. For the first three years in the program (the total length of many residencies) the government will pick up any interest above and beyond that required payment but only for subsidized loans, which as you know from my previous post, are going away. If you’re in med school or residency now, this benefit could still be significant for you, but a pre-med shouldn’t anticipate getting it.
Even after becoming an attending, you may still qualify for IBR. For example, if you have $300,000 in student loans at 6.8% and an income of $200,000, your student loan payment should be $2290 of which $590 goes toward the principle. But under the IBR program, your payment would be $2080 (again, assuming non-working spouse and two kids.) That just means you’re paying less of the principle and it’ll take a few more years to pay off the loans. It’s kind of like a partial deferment. Maximizing this benefit might even get you to the magic 25 years at which point the rest of your loans would be forgiven. But the truth of the matter is that you would have spent far more in extra interest dragging payments out at 6.8% for 25 years than you’d ever have left to be forgiven at year 25. If you’d like to run your numbers through a calculator, try this one.
All in all, this is a program that you might use for a short period of time to provide some relief in your budget. But as a general rule, NOT paying off high interest debt (such as student loans at 6 or 7%) when you have the means to do so isn’t a very wise move financially. But it would be pretty hard to make payments of $2000+ a month as a resident, so there’s definitely some utility in the program. In the next post in this series, we’ll discuss the Public Service Loan Forgiveness program.
$189,000: That’s about the average medical school debt for 2017 graduates, according to the Association of American Medical Colleges (AAMC).
What’s more, a third of graduates also have debt from their undergraduate studies, with a median balance of $25,000.
If you’re facing the six-figure average med school debt, find out if you can qualify for the following medical school repayment options and loan forgiveness programs for doctors.
How to pay the average medical school debt of $189,000 or more
It’s fairly common for medical graduates to put their student loans into forbearance while they complete their residency. But by doing so, you can quickly rack up interest and add even more to your medical school debt.
Putting the average medical school debt of more than $189,000 into forbearance over three years of residency, for example, adds $36,855 to the outstanding balance (assuming a 6.50% interest rate). That brings the total med school loan balance to $225,855.
If you can avoid forbearance or start repaying a portion of your medical school debt, it can help keep interest charges under control. Here are some medical school loan repayment options you can use to manage your debt.
Income-driven repayment programs
On a standard 10-year plan, monthly payments for the average medical school debt of $189,000 are more than $2,100 per month.
Meeting this financial obligation could be a stretch for doctors right out of medical school — especially when the average first-year resident earned just $53,580 annually in 2016, per the AAMC.
Physicians might want to consider switching to an income-driven repayment plan to keep up with their federal student loans on a smaller income. These programs set monthly payments to match your income and cost of living, keeping them affordable.
Under the Pay As You Earn (PAYE) plan, for instance, first-year residents would have approximate monthly payments of just $300 to $350, according to the AAMC.
Using an income-driven repayment plan for medical school loans won’t be the fastest or cheapest way to pay your debt. But unlike forbearance, PAYE will help fight the balance creep of added interest.
Med school graduates might be able to use these four federal income-driven repayment plans:
Keep in mind that eligibility requirements and repayment structures vary. So make sure you get to know each plan before deciding on one.
Refinance medical school loans
Student loan refinancing also might be an option for some medical school graduates.
Through refinancing, you can take out a new loan with a private lender and use those funds to pay off existing loans. Because you’re replacing your debt with a new loan, you’ll have the chance to adjust your repayment schedule and even get a lower interest rate.
This can be a huge benefit since, on average, medical school debt has a higher interest rate than undergraduate debt. The highest federal student loan rates are charged on the types of loans extended to med students:
- The Direct Unsubsidized Loan rate for graduate and professional students was 6.00% in 2017-18.
- The Grad PLUS Loan rate was 7.00% in 2017-18.
These rates combined with high average medical school debt balances can lead to huge interest charges. On the $189,000 average med school debt with a rate of 7.00%, for instance, the borrower pays about $74,000 in interest in addition to repaying the principal.
Refinancing medical school debt to a new loan with a 5.50% interest rate would lower monthly payments by $143 and save over $17,000 in interest.
The benefits can be even more compelling when you look at real-life examples:
However, this option has some potential drawbacks. Here are a few things to consider before refinancing your medical school debt:
- Meeting credit requirements: You’ll have to meet certain eligibility requirements based on your current income and credit history. This might be tricky for physicians right out of medical school or in residency.
- Losing federal student loan benefits: Switching med school debt from federal loans to private loans also means you’ll forgo access to federal student loan benefits, including repayment plans, the option to forbear or defer student debt, and loan forgiveness for doctors.
All things considered, refinancing is a medical school loan strategy worth considering. However, make sure it’s right for you before you decide to refinance your student loans.
You also can look into refinancing options specific to your profession. For example, SoFi has a refinancing product for physicians in their residency.
Negotiate a physician signing bonus
Signing bonuses are a common way employers attract the medical professionals they need. In fact, 90 percent of doctors recruited through the Medicus Firm in 2016 received employment offers that included a signing bonus, according to HealthLeaders Media.
The average signing bonus offered to physicians was just under $25,000. Assuming a 25 percent income tax rate, you’d take home $18,750 of that signing bonus.
If you applied that sum to make an extra payment, you’d save $15,650 in interest on the average medical school debt balance of $189,000 (assuming a 6.50% interest rate and a standard 10-year term), according to our lump sum extra payment calculator.
If you know you want to join a practice or hospital instead of setting up your own office, look for these opportunities to get extra cash to put toward student loans.
Carefully read your contract and verify the details and conditions of your signing bonus. A signing bonus often requires a commitment to remain at the employer for a certain tenure. And make sure your signing bonus is just that — a bonus, not an advance or a loan you’ll repay through future paychecks.
If you can negotiate a large signing bonus, it can be a great start to your medical school loan repayment. You could knock out a quarter of the average medical school debt in one payment, greatly reducing the amount of interest you’ll owe over time.
Student loan forgiveness for doctors
In addition to using clever repayment strategies, physicians might look into student loan forgiveness for doctors. It can be a lifeline for physicians who struggle with the average medical school debt or owe even more.
That’s probably why 3 in 5 physicians completing a residency in 2017 cited student loan forgiveness as a major concern, according to a survey from health care research firm Merritt Hawkins.
The trade-off, however, is fewer employment choices. You’ll likely have to work in an area of high need or for a nonprofit hospital to qualify for programs that offer loan forgiveness for doctors. Staying eligible for student loan forgiveness through these programs also might limit your choices when it comes to pay, specialty, location, and employer.
If you’re willing to make these sacrifices, student loan forgiveness programs can pay off in the long run.
Public Student Loan Forgiveness (PSLF) for doctors
Physicians whose work qualifies as “public service” can qualify for the Public Student Loan Forgiveness Program.
This is largely determined by their employer. Public service includes full-time employment by a 501(c)(3) tax-exempt nonprofit or public institution (which many hospitals are). It also includes working in areas that are underserved or have a high need for medical professionals.
Borrowers must make 120 payments (monthly payments for 10 years) while carrying out PSLF-qualified work. Then, the federal government will forgive the remaining debt.
Use our Public Service Loan Forgiveness calculator to see how much you could save with PSLF.
Military programs for medical school loan repayment assistance
Branches of the military offer help with tuition for medical students who are service members. But even doctors who have already graduated and are practicing can enroll in military service and get student loan assistance.
Some of these benefits can be combined, while others are an either/or choice. Any of them can take a large chunk out of the average medical school debt.
Make sure you understand these programs and their service requirements so you know what you’re signing up for.
Army doctor student loan assistance
Several student loan repayment assistance options for Army physicians exist and can help you manage your medical school student loans.
- The Financial Assistance Program awards grants of up to $45,000 per year as well as a monthly stipend of $2,000 or more to Army members enrolled in an accredited residency.
- The Active Duty Health Professions Loan Repayment Program offers up to $120,000 toward repaying medical school loans. Physicians must be on active duty to qualify, and the benefit is paid out in $40,000 disbursements over three years.
- Health Professionals Special Pay offers up to $75,000 to both active-duty physicians and doctors who are members of the Army Reserve who have completed a residency in a qualifying specialty. Payments of up to $25,000 are made over the three years.
Navy medical school loan repayment assistance
Members of the military serving as Navy physicians can take advantage of similar incentives. Here are some Navy medical loan repayment assistance options:
- The Health Professions Loan Repayment Program (HPLRP) offers a yearly maximum payment of $40,000 directly to medical school loans minus federal income taxes, which are typically about 25 percent. It’s open to medical students or residents and Navy physicians.
- The Navy Financial Assistance Program offers up to $275,000 in assistance to medical residents. It’s paid in grants of up to $45,000 per year for up to four years. It also includes a monthly living stipend of $2,200 for up to 48 months.
- Practicing physician sign-on bonuses offered by the Navy are also impressive. They can be between $220,000 and $400,000, depending on the physician’s specialty and experience.
Air Force medical school loan assistance
The main way the Air Force helps its members pay for medical school is through its Health Professions Scholarship Program. However, it’s mostly for students who have yet to complete a degree.
The Air Force Financial Assistance Program (FAP), however, can help physicians in the Air Force pay their medical school debt.
Similar to the Navy’s program, it offers a $45,000 grant for each year of your residency and has a monthly stipend of $2,000.
Once you complete your residency, you’ll be obliged to complete a year of service for each year you receive FAP plus an additional year.
Indian Health Services Loan Repayment Program
The Indian Health Service (IHS) is a federal health program for American Indians and Alaska Natives that offers a loan repayment program for health professionals. Those who take advantage of this program will be based in IHS facilities with the greatest need.
In exchange for a two-year service commitment, the IHS Loan Repayment Program will repay up to $40,000 in medical school loans. Physicians can renew their contract for additional student loan benefits until their debt is repaid.
National Institutes of Health Loan Repayment Programs
While many programs offer medical school repayment assistance for practicing doctors, the National Institutes of Health (NIH) offers awards to health professionals in research careers.
To qualify for the NIH Loan Repayment Programs, participants must agree to a minimum two-year contract to perform research funded by a nonprofit organization in the U.S.
Participants can qualify for $35,000 per year in student loan repayment. It also can be applied to most undergraduate, graduate, and medical school debt.
Through these eight programs, health researchers can receive student loan assistance while employed with the NIH (intramural programs) and eligible organizations outside the NIH (extramural programs).
The NIH also has two loan repayment programs for clinicians. One assists clinicians from a disadvantaged background, and the other assists clinicians conducting health disparity research.
National Health Service Corps loan repayment assistance
The National Health Service Corps (NHSC) offers loan repayment assistance to doctors and medical professionals.
NHSC Loan Repayment Program
The first option is the NHSC Loan Repayment Program. Participants commit to working at least two years at an NHSC-approved site.
This program can earn licensed health care providers up to $50,000 toward student loans. Participants also can serve as primary care medical or mental/behavioral health clinicians.
The student loan payout is tax-free and disburses at the beginning of the service commitment to maximize interest savings. What’s more, program participants can apply to extend this benefit beyond the initial two years.
The length and level of assistance provided by the NCHS will depend on the area of service, with high-need areas qualifying for larger loan repayments.
Students to Service Program
For medical students in their last year of school, the NHSC offers a Students to Service Program that provides up to $120,000 toward educational costs and student loans.
In return, the med student commits to providing primary health care at an NHSC-approved site for three years post-graduation.
Medical school loan repayment assistance programs by state
There are many state-sponsored programs that help physicians and doctors repay medical school loans.
Many are offered through the NHSC’s State Loan Repayment Program (SLRP). It provides incentives for doctors to practice in federally designated “health professional shortage areas” (HPSA).
These areas are listed in the AAMC’s database of state-level loan forgiveness and repayment programs for medical school.
Some states also have their own student loan repayment assistance plans (LRAPs) for physicians. Most often, these plans offer student loan repayment or special pay for doctors who commit to practice in medically underserved areas.
Here are the student loan assistance programs available in each state (excluding state loan repayment programs that are currently unfunded or otherwise inactive). Some states also might have State Loan Repayment Programs that are unlisted and administered through the NHSC.
SHARP offers awards, such as repayment of qualifying education loans and payment of direct incentive, to attract primary care physicians to medically underserved Alaska communities.
The Arizona State Loan Repayment Program includes the Primary Care Provider Loan Repayment Program and the Rural Private Primary Care Provider Loan Repayment Program.
Both programs require physicians to commit to a minimum two-year contract. Ultimately, $65,000 is awarded for that time. A third year of service will get $35,000, and the fourth year will get $25,000.
Physicians practicing in an HPSA in Arkansas can qualify for up to $50,000 in loan repayment assistance for a two-year contract. This program is administered through the NHSC SLRP.
The Community Match Rural Physician Recruitment Program offers an incentive of up to $80,000 for a four-year commitment to practice in a rural community in Arkansas.
The California State Loan Repayment Program requires a commitment of two years for full-time work or four years of half-time work in an HPSA.
The Health Professions Education Foundation highlights “golden opportunities” for medical school loan repayment assistance in California.
The Colorado Health Service Corps offers awards up to $90,000 for physicians who commit to a three-year contract practicing in an HPSA in the state.
The Delaware State Loan Repayment Program grants awards to doctors practicing at approved sites in HPSAs in the state. Based on experience and specialty, practitioners can receive up to $100,000 toward student loan assistance with a two-year contract.
The Rural Areas Assistance Program in Georgia offers up to $25,000 per year in student loan repayment for each 12-month commitment to practice medicine in a rural community. Doctors could receive $100,000 total for up to four years.
The Hawaii State Loan Repayment Program offers repayment of educational loan debt to health care professionals who make a two-year commitment to provide service at an approved site.
The Idaho State Loan Repayment Program awards $5,000 to $25,000 per year for a two-year commitment to work for a nonprofit or public employer in a health professional shortage area.
Additionally, the Rural Physician Incentive Program in Idaho provides repayment of up to $100,000 over four years for primary care, family, internal and pediatric physicians serving in shortage areas in Idaho.
The Illinois State Loan Repayment Program requires a two-year commitment to provide health care services in a health professional shortage area. In exchange, program participants receive up to $25,000 per year in loan repayment ($50,000 total).
Iowa’s Primary Care Recruitment and Retention Endeavor (PRIMECARRE) offers full-time physicians up to $50,000 per year in return for a two-year commitment to working at a nonprofit or public employer in an HPSA.
The Rural Iowa Primary Care Loan Repayment Program is limited to medical students of the Des Moines University College of Osteopathic Medicine or the University of Iowa Carver College of Medicine. It offers up to $40,000 per year toward student loans.
Additionally, this program requires a minimum five-year commitment to working in an eligible commitment service area.
The Kansas State Loan Repayment Program offers $25,000 per year to physicians making a two-year commitment to working in an ambulatory outpatient setting.
Additionally, the Kansas Bridging Plan offers up to $26,000 in loan forgiveness to physicians in Kansas residency programs. Participants must commit to practicing medicine full time in a rural community for 36 continuous months after completing their residency.
The Kentucky State Loan Repayment Program offers loan repayment assistance for primary care doctors committed to working in an HPSA for at least two years.
The Louisiana State Loan Repayment Program incentivizes physicians to practice in an HPSA with up to $30,000 per year in loan repayments. A three-year commitment is required.
Maryland’s State Loan Repayment Program awards physicians up to $50,000 per year in medical school loan repayment for a two-year commitment to practice in an HPSA.
With the Massachusetts Loan Repayment Program for Health Professionals, doctors can receive up to $50,000 for a two-year contract serving in an HPSA in the state.
The Michigan State Loan Repayment Program requires a commitment to practice in an HPSA for at least two years. Participants can get up to $200,000 in student loan repayment over eight years.
Participants in the Minnesota State Loan Repayment Program receive up to $20,000 per year toward educational loan repayment. There’s a two-year obligation to serve in a Minnesota HPSA.
There’s also the Minnesota Rural Physician Loan Forgiveness Program. It requires a minimum of three years working in a designated rural area in Minnesota. Participants are awarded up to $25,000 per year toward educational loans, with a maximum of $100,000 for four years of service.
Participants of the Minnesota Urban Physician Loan Forgiveness Program can get up to $25,000 per year toward medical school loan repayment (maximum $100,000 for four years). It requires a three-year minimum commitment to practicing in an underserved urban community.
The Missouri Health Professional State Loan Repayment Program offers up to $50,000 toward student loans for two years of service in an HPSA.
The Montana NHSC Student Loan Repayment Program offers physicians up to $15,000 per year for two years of practicing in an HPSA.
Montana Rural Physician Incentive Program (MRPIP) participants can qualify for up to $100,000 (over five years) in student loan repayment assistance by practicing in a rural or underserved community.
The Nebraska Loan Repayment Program offers up to $60,000 per year in loan repayment assistance to physicians who practice in state-designated shortage areas. A three-year obligation is required, and the physician must accept Medicaid.
The Nevada Health Service Corps offers loan repayment assistance with a commitment, typically of two years, to practice in a state-designated underserved area. Awards are based on available funding and vary by applicant.
The New Hampshire State Loan Repayment Program requires a minimum commitment of three years practicing in an underserved area. The medical school loan repayment award is up to $75,000 for three years, with an option to receive another $40,00 for a 24-month extension of service.
The Primary Care Practitioner Loan Redemption Program of New Jersey requires a two-to-four-year commitment working in an HPSA or state-designated underserved area. It provides up to $120,000 over four years toward repaying qualified educational loans.
The New Mexico Health Professional Loan Repayment Program will pay off up to $25,000 per year in medical school loans if a physician commits to practicing for two years in a designated medical shortage area in New Mexico.
Doctors Across New York provides an additional payment of up to $150,000 over a five-year commitment to doctors practicing in underserved areas.
Additionally, the Regents Physician Loan Forgiveness Award Program grants up to $10,000 per year to physicians practicing in shortage areas for two years. What’s more, those who have more than $20,000 in eligible expenses can apply for an additional two-year award.
North Carolina has loan repayment assistance up to $100,000 for a four-year commitment to practicing in underserved rural communities.
The NCMS Foundation Community Practitioner Program also offers grants totaling up to $70,000 (capped at half the total loan amount) to a physician willing to commit to five years serving in HPSA.
The North Dakota Federal State Loan Repayment Program offers participants up to $50,000 per year for a two-year commitment practicing at public or nonprofit sites in areas of need.
Participants in North Dakota’s Health Care Professional Student Loan Repayment Program can get up to $150,000 toward student loans for a five-year commitment to serving in a defined area of need in the state.
The Ohio Physician Loan Repayment Program places physicians in high-need areas. Up to $25,000 per year toward medical school debt will be granted for a two-year commitment. For an additional two-year commitment, the award is bumped up to $35,000 per year.
The Oklahoma Medical Loan Repayment Program awards a $160,000 maximum toward student loans over four years: $25,000 for the first year, $35,000 for the second, $45,000 for the third, and $55,000 for the final year.
A two-year minimum commitment to working in a rural or underserved area is required for this program. The commitment can be extended to a maximum of four years.
The Oregon Partnership State Loan Repayment is a two-year service commitment to an HPSA in Oregon. In exchange, participants will receive payments of up to 20 percent of total qualified educational debt each year.
There’s also a Medicaid Primary Care Loan Repayment Program for physicians in underserved Oregon areas who serve Medicaid patients. A minimum three-year commitment can get a physician an award of up to $105,000 toward educational debt.
The Pennsylvania Primary Health Care Loan Repayment Program offers physicians up to $100,000 toward student loans in exchange for a two-year contract to practice at an approved site.
The Rhode Island Health Professionals Loan Repayment Program grants student loan assistance to approved physicians who make a two-year commitment to practice in an HPSA in the state.
The South Carolina Rural Physician Incentive Grant is for primary care providers who practice in rural or underserved areas of South Carolina. It awards $60,000 to $100,000 for a four-year contract.
South Dakota’s Recruitment Assistance Program offers primary care physicians an incentive of more than $196,000 for a three-year commitment to practice in an eligible rural community.
The Tennessee State Loan Repayment Program provides up to $50,000 in student loan assistance for a two-year commitment. There’s also an option to renew the contract for an additional $20,000 per year. It’s open to primary care practitioners working at eligible practice sites.
Texas’Physician Education Loan Repayment Program (PELRP) offers up to $160,000 over four years of practice in a Texas HPSA.
There’s also the St. David’s Foundation Public Health Corps Loan Repayment Program, which requires four years of service at eligible sites. Awards of up to $30,000 are granted to physicians each year (up to four years.
And the Rural Communities Health Care Investment Program (RCHIP) offers partial student loan reimbursement up to $10,000 for physicians practicing in medically underserved Texas communities.
Utah’s Rural Physician Loan Repayment Program matches loan assistance awards provided by qualifying rural hospitals in rural areas. The total matched amount physicians can receive is up to $15,000 per year.
The Vermont Educational Loan Repayment Program for Health Care Professionals offers annual awards of up to $20,000 for health care primary care practitioners. They must work at a medically underserved site, typically for 12 or 24 months.
The Virginia Student Loan Repayment Program (VA-SLRP) requires physicians to make a minimum two-year commitment. Participants can be awarded a total of $140,000 toward educational loans for a maximum of four years of practicing in a Virginia HPSA.
Washington’s Federal-State Loan Repayment Program (FSLRP) awards up to $70,000 for physicians who contract to work for two years at a qualifying site in an HPSA.
The Health Professional Loan Repayment Program (HPLRP) is a state-funded program that commits health service providers to a minimum of three years practicing in an eligible site as determined by the state. Participants can be awarded up to $75,000 in return.
The Health Professions Loan Assistance Program offers up to $100,000 in student loan assistance. That’s $50,000 per year for a two-year commitment practicing in a Wyoming HPSA.
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