The Association of American Medical Colleges recently published a report that finds the average amount of student loan debt a physician will graduate with tops $180,000. That’s the average; some students are able to bring this number down significantly with scholarships and grants. Others, unfortunately, face around $200,000 – $300,000 in students loans from undergraduate and medical degrees when they graduate. Becoming a physician is not an easy road. Besides the heavy cost of schooling, it takes anywhere from 12-15 years of one’s time and energy to complete.
At Idaho Medical Association Financial Services, we specialize in working with accredited investors in the medical field. We understand the specific needs and challenges of those in the medical profession and help create financial plans to help them meet their goals; one of the areas we specialize in is loan repayment. Facing massive student loan debt can be intimidating. With IMAFS, you have a trusted financial partner on your side.
1. Begin making payments on the loans as soon as possible. Pay interest and principal.
Start putting money towards your students loans as much and as soon as possible. In residency physicians earn a yearly salary of around $50,000 – $60,000 a year depending on a myriad of factors like location, position, cost of living, etc. During this time physicians need to begin the repayment process. Start putting money each month towards both the interest of the loan and the principal amount of it. For many people that means paying more than the minimum required amount each month. Until repayments begin hitting the principal amount of the loan, you’ll barely be making a dent in the amount.
While it may be tempting to defer loan repayment in residency, if it’s feasible, begin paying the loans back as soon as possible. The sooner you begin tackling the debt the less interest will accrue and the sooner the loans will be paid off.
2. Refinance your student loans
One of the best ways to conquer student loan debt is to refinance your student loans. If your student loans are currently above a 9% interest rate and you’re able to refinance to a lower rate, say 6%, then by refinancing you can save yourself thousands of dollars by doing so. Refinancing a loan means your current loan would be paid off by a new loan company and repackaged to you at a lower interest rate. It’s a common practice used for mortgages for homeowners.
There are a few things to bear in mind when considering refinancing your loans. In order to qualify for the most competitive rates, you must have a good credit score. The new package may have different loan terms (the number of years expected to pay off the loan amount), repayment terms, origination fees, etc.
3. Learn to live on half (or less) of your income. Put the rest towards paying off student loans.
According to a report by business insider, general practitioner physicians make anywhere from $192,000 – $225,000 a year. Specialists can make upwards of $324,000 a year. Learn to live on less of it, at least until the loans are paid off. Physicians spend years of their lives living as low-income students, so there is a temptation to begin “catching up” once a physician earns his or her income. It can be tempting to finally buy that new car or to finally buy a house. However, we advise building cash reserves and tackling the debt first. Learn to live on less.
The average American makes $52,000 per year.1 Use this number as a starting point and try to live off just that amount per year. Put the rest of your post tax pay towards paying off your student loans. Doing this should allow you to put a hefty chunk each year towards the debt – many times upwards of $30,000 is possible. If you have a partner who also generates income, try living off the lesser amount earned and use a majority of the paycheck of one person to go towards the debt. For example, if as a physician you make $192,000 and your spouse makes $60,000 in an industry outside the medical profession try living only off your spouse’s income. Doing this will slim down the debt in just a few years.
There are other important factors to consider before you enter loan repayment. You should determine if you are eligible for Public Service Loan Forgiveness. If so, the remainder of your loans may be forgiven after 10 years of qualifying payments. If you have several loans with different service providers and variable interest rates, it may make your life easier to consolidate. Before consolidating, you must calculate what the impact may be on your monthly payment and overall interest. There are also number of repayment plans to choose from and it is imperative to analyze which one will work best for you. At IMA Financial Services, we can help you make these decisions.
Idaho Medical Association Financial Services is a financial and wealth management firm specializing in personalized financial guidance to accredited investors in the medical field. Areas of speciality range from investment planning and retirement analysis to in-depth services such as tax analysis and strategies, insurance and estate planning and financial planning. For a free financial consultation, please call: (208) 504-1736 or email jared@imafs.org.
1 http://www.cheatsheet.com/personal-finance/how-much-money-does-middle-class-need.html/?a=viewall
