As a resident on an IBR plan, the monthly payments are relatively low, given that a resident’s income is low compared to the threshold for nondiscretionary spending. However, as income increases, so does the monthly payment. This makes sense and is, of course, expected. But it can be painfully challenging to manage, given the timing of the increases.
For example, after 10-15 years of training, you may want to tackle certain personal goals that you’ve had to put off — such as marriage, buying a home, leasing or buying a new car and starting a family.
Unfortunately, many of those expenses won’t be considered when calculating your monthly loan repayment. Further, residency programs typically finish in June, but taxes aren’t due until April of the following year. It is easy to forget that upcoming spike in student loan payments, which can exceed several hundred percent. As your income grows, don’t forget to keep in mind that these repayment increases are delayed and adjusting your budget to accommodate them is crucial.
Once your monthly loan repayment exceeds $2000, an IBR plan may no longer be your best option. In that case, you might want to consider other payment plans, or you may want to refinance government loans into private loans at a lower interest rate. But before making any changes, there are a few things to consider. Under the IBR program, borrowers who consolidated their loans and work for a government, state or nonprofit institution are eligible for Public Service Loan Forgiveness (PSLF) after 120 payments and 10 years of service. Both criteria must be met and only payments made during your public-service time count.2
What many physicians do not realize is that they may have trained at an institution that qualifies them for PSLF. For example, I completed my residency at a large public safety net hospital that is owned and run by the state. So my employer was a government agency. The 4 years of repayments I made under the IBR plan count toward my public service, which means I only need another 6 years of public service and payments on the IBR plan to complete my public service obligation and have the bulk of my student loans forgiven.
Keep in mind that laws are subject to change, and with our new administration, this option may be at risk. Even Obama’s administration had considered capping the loan forgiveness at $57,700, due to concerns about the long-terms costs of public-loan forgiveness.3 While Trump has proposed similar income-based repayment models with lower caps on monthly payments and a shorter-term limit on the loans, it is unclear whether such proposals would pass the GOP-led congress. Further, the public service benefits of his proposal remain unclear, and a cap or elimination of the program altogether remains a possibility.
While borrowing such large sums of money so early in life can be confusing, tricky and financially challenging, if that’s what you need to do to fulfill your calling, it’s well worth the investment. But do consider enlisting the aid of a competent accountant, financial advisor or someone with some solid financial knowledge. While it may seem premature to employ a financial advisor before you have any significant savings to invest, their fees can be quite reasonable — often a small percentage of your investments — and they can offer a breadth of information beyond just investment advice. A good advisor will understand that you are just starting out, and will recognize that your financial growth will be fruitful for them as well. Talk to your colleagues. Just as with finding a physician, word of mouth is one of the best ways to find the right financial expert.
- “Medical Student Education: Debt, Costs, and Loan Repayment Fact Card.” AAMC. Updated October 2015. Available at: http://members.aamc.org/eweb/upload/2015%20Debt%20Fact%20Card.pdf. Accessed January 23, 2017.
- “How to Repay Your Loans: Forgiveness, Cancellation, and Discharge.” US Department of Education. Available at: https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation. Accessed January 23, 2017.
- Dliesle J.. “The Coming Public Service Loan Forgiveness Bonanza.” Brooking Institute. Updated September 22, 2016. Available at: https://www.brookings.edu/research/the-coming-public-service-loan-forgiveness-bonanza/. Accessed January 23, 2017.