By: Adnan Rafique M.D.
Debt creates stress, stress creates behaviors that don't lead to happiness - Seth Godin
According to recent statistics, 76% of American medical students have student loans when they graduate from Medical School and the average loan amount is close to $250,000. That's a whopping amount of money even for doctors who just finished their training and starting a new life as a healthcare professional. Yes, doctors make a good income but without some serious planning and discipline, this loan can add a huge stress to the lives of many physicians.
When applying for a student loan, always evaluate your options and take the amount you need, not what is available for you. Doctors have a late start in their careers as compared to their non-doctor peers due to long and arduous medical school and residency. Some do further training after residency which adds up to 1-4 years more after residency. Despite prolonged school time and residency training, doctors come out in the marketplace without any financial training and loads of student loans.
Getting financial education before entering the workforce empowers physicians by giving them control over their financial assets and helping them design the strategy to free themselves from massive student debt in the first 5 years of their professional lives.
The two main types of student loans are federal and private.
Federal Student Loans usually have more repayment options, are easier to repay, and have lower interest rates.
Private Loans are usually through a banking institution or private lender that usually cost more than federal student loans. The interest rate and payments can also change without warning.
How to Pay off Medical School Debt.
1- Have a Plan: Hope and wishes are not good plans to deal with any challenges in your life. Without proper plans and guidance from debt repayment professionals, most doctors fail to take advantage of the various options they have available for early loan repayment. It's not uncommon for doctors to put their student loans into forbearance during residency. I strongly encourage everyone to start paying their loans ASAP during residency to avoid interest charges that cause your debt balance to grow significantly over time.
2- Most Common Medical School Loan repayment steps :
Following are some options that can help reduce the burden of loan repayment depending on your circumstances.
If you have a higher interest rate, you can refinance and reduce the monthly payment.
Enroll in an income-driven repayment plan (Especially during residency):
Military Programs for Loan Repayment Assistance: Different branches of the armed forces provide different plans to help doctors pay off student loans
Apply for Loan Forgiveness Plan: Take advantage of Medical school Loan forgiveness. plans like PSLF ( Public Service Loan Forgiveness) available for doctors who are willing to serve in underserved areas or the public sector for a certain duration. These forgiveness programs only apply to direct loans, so it’s imperative to determine whether or not you have direct loans before utilizing this repayment strategy.
Old & New Income-Based Repayment (IBR)
Physician Shortage areas: Many states also have programs that forgive student loans for doctors who work in underserved areas for a certain period. Some VA hospitals in bigger cities can also offer such a relief.
Negotiate Signing bonuses: Depending on the demand in certain geographical areas, some employers offer signing bonuses to attract doctors. Negotiate a higher amount with fewer ties attached to it. Use the entire amount to knock off the big chunk of your student loan, this will help you reduce the interest you will owe on the remaining amount.
5-year Plan
Hope and wishes are not good plans to deal with any challenges in life. Without proper planning and sacrifice, it will be hard even for high-earner physicians to deal with massive student loans. In a recent survey, it was estimated that only 37% of doctors pay off the entire amount in the first five years of their professional life.
Below are some steps that each physician can take right after they start earning a higher physician's salary.
Don’t give yourself a significant raise. When your salary jumps from $55K during Residency to $300K as a full-time physician, don’t get super excited and change your lifestyle drastically. For the first 5 years out of training, don’t give yourself a 400% raise, I’m not saying live like a resident but just give yourself a 50-100% raise from your resident salary.
Work hard and long hours to make extra money (moonlighting) while you are young and hungry. If you are salaried, always work more than what you get paid for as an investment towards your future promotion.
Pay off all your high-interest loans aggressively including student loans and credit card loans before you buy a house or high-priced items.
While you are paying off loans in the first 5 years of your career, start learning and educating yourself about different investment options. Read books and network with highly successful business people for future investments.
You don’t need a financial advisor in the first 10 years of your professional life. Learn the game of money so no one can take advantage of your ignorance and rob you for the next 30-40 years in the name of money management.
Start a side hustle if you can, it can provide extra income which can be used to pay off student loans faster. Doctors are very knowledgeable professionals, they can write blogs, make YouTube videos, and start a business with trustworthy and experienced friends or relatives.
Get good disability insurance and term life insurance for 20-25 years when you are young and healthy.
What you do in your first 5 years, determines how soon you achieve financial independence and enjoy life and family well before retirement.
“ If you don’t achieve financial freedom by the age of 45, it doesn’t mean you live in the wrong country or at the wrong time, it simply means you have the wrong plan”~ Jim Rohn.
Doctors With No Loans: Then we have some very blessed doctors, either their parents paid off their tuition or they went to medical schools where they have received grants and scholarships, not loans for their education. They have a financial advantage coming out of medical school with no loans but without proper financial literacy they will not achieve financial freedom and they will make bigger financial blunders due to complacency and lack of discipline, just like lottery winners and athletes.
Financial Literacy is the most important but most overlooked topic that should be included in either the high school curriculum or the medical school curriculum to equip our future high-income professionals with knowledge and confidence that can be used to handle their finances without making too many financial blunders.
Doctors with better financial understanding and plans will be able to reduce the chances of Physician Burnout in their lives and also pass this knowledge to future generations at the right time. It's no secret that kids of financially literate parents handle wealth better.
No matter which routes you take to pay off the student loan, the bottom line is “commitment”. Make a written plan and stick to it.
Pay off your debt first. Freedom from debt is worth more than any amount you can earn - Mark Cuban
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