Effects of Student Loan Debt on The Economy

The 360 View of Your Student Loan Debt

Medical student loan debt is a popular headline topic these days. As a resident or new attending physician, you are probably ultra-sensitive to the topic. There are a lot of people out there struggling with it, and you are one of them!

Are you aware that as a new doctor you are in a unique position? Did you know that as a medical student or new attending physician with a massive amount of student loan debt that you now have a target on your back?

Who is targeting you?

That would be the medical student loan debt refinance industry!

Why are you the target? Why do they want your business so badly?

The first reason is that your salary will jump to an exciting new level. The second reason is that you are now considered creditworthy.

In other words, the student loan debt refinance industry knows that you are upward bound!

The refinance companies can be aggressive in their attempt to increase their business. That means you have to look out for your own interests. So, the question is not what the student loan debt refinance gurus want you to do. It becomes: What do you need to do with all this burdening student loan debt?

I have the answer: You need to take the weight of the student loan debt off of your shoulders as fast as you possibly can! You want to do what is best for you in the long run.

However, figuring out what is the best way of dealing with student loan debt can be a tricky business. The fine print probably killed an entire forest. To say there is a lot to understand around student loan debt is an understatement!

Are you ready to get a bit of student loan debt repayment know-how?

Repaying Medical Student Loan Debt with a Federal or Private Program

There are two different types of student loan programs. I think most people are somewhat aware of federal programs. You may not have internalized how different they really are!

The Definitive Guide to Medical School Debt for New Doctors - What Every Physician Needs to Know Right Now

Federal Programs

There are several different types of federal programs. The federal programs cover the most ground by having a variety of programs (increasing flexibility) and usually, they have a fixed interest rate (which is set by Congress). Students are allowed an in-school deferment. That means you start paying these loans after you finish school or drop below full-time status.

They have other benefits as well:

How do federal programs compare with private programs?

Private Programs

That brings us to the private programs which are usually issued by a bank or private company. The interest rates, terms and conditions are going to be different from a government-issued loan and you may need someone to cosign for you. Your income and credit rate will be important to these companies.

Something to keep in mind is that if you are going the route of private loans–you may be required to start paying your loans back while you are in school and you will pay the entire student loan debt. They also tend to have higher interest rates.

Something else to be aware of, In the event of a private loan, the interest continues to accrue and then it turns into principal making your loan amount grow!

Some other examples of where private loans fall short in flexibility are they are not eligible for income-based repayment plans or public service loan forgiveness!

Another area to consider is whether a private loan will have deferment or forbearance?  

The answer to that varies and will depend on the private loan program.

Are you thinking of leaving the federal program for a private one? You might want to consider what that might mean for paying off your student loan debt!

Physician Wealth Services

Before you leave your federal program understand the benefits of that program then compare them with what you will be getting in a private program. The last thing you want to do is complicate or delay paying off your student loan debt.

Options are always a good thing to have.

If you are thinking of working in public service, then having the option for public service loan forgiveness means that you will not pay the whole loan amount. The important thing to remember is making sure to keep up with the annual certificates to prove that you’ve completed each year of service and discharged your student loan debt.

When dealing with the federal loan servicers–documentation and proof (those annual certificates) are everything. Keep copies of everything!

With the federal program, if you want the to go work in another program (international medical) you have the option of deferment. Having that option might make the difference between your ability to meet some important personal goal of missionary or charity work.

That is not saying that a private loan won’t be the right fit. It might help you shred your medical student loan debt, but before leaving your federal program, make sure you thoroughly understand the benefits it offers in relation to your future goals.  It’s all about the pros and cons!

You wouldn’t want to give up on PSLF if there wasn’t a very good incentive! Because PSLF is…well let’s find out what exactly it is!

Public Service Loan Forgiveness

PSLF is about having all the “right” conditions in place in order to have your medical student loan debt forgiven.

What do I mean by that?

I mean that you will need to make 120 qualifying payments to the “right” type of loan, plan, and employer.

This was one of the big reasons that you wouldn’t want to throw in the towel on federal loans so fast.

  • All PSLF is through Fedloan Servicing
  • There is no such thing as PSLF with private loans
  • PSLF doesn’t work with older loan types, such as FEL or Perkins.

What loan type do you need?

You need a “direct” loan type.

Is there a certain plan type required for PSLF?

There is! That will be an income based repayment plan!

Who does PSLF work with?

Since the plan is for public service, the employer types are limited to state, governmental or 501c3 agencies.

I think it is very important to verify that you are working for a non-profit. There are times that the hospital is a 501c3, but you are employed by a physician’s group and you find out that you don’t qualify. That is not something you want to find out six years into what you think is PSLF!

How do you verify that you are working for a non-profit?

Look at your W2’s and pay stubs!

There are other public service agencies that may appear to qualify for loan forgiveness and you might think you are on the right track with the qualifying payments to discharge your student loan debt.  However, these agencies are in a gray area and could potentially slip through the cracks–they won’t be considered for PSLF.

In the end, it is better to stay with the tried and true agencies (state, government and 501c3).

I pause here with a warning. It can’t be stated enough: Fill out your annual certification form that will go to Fedloan Servicing and keep a copy.

Fedloan Issues

Now, there are difficulties with Fedloan Servicing in regards to communication and documentation. That is true of most bureaucracies, but keep in mind that the Fed Loan Services are not there to help you out.

It is difficult to talk to a customer service representative who really understands the details of the program, someone will accurately document your file and process your forms on time. Those are all important details that matter when it comes time to discharge your student loan debt.

Who is in charge of taking care of all these imperative details? Details that affect your financial future?

A customer service representative who is reading from a script!

Someone who you will talk to only once, and who you can’t refer back to in the event of an issue.

What does this mean for you?

It means that there is a very real potential for a problem to arise. It also means that there is nobody to have your back–except for yourself.

How should you handle any problem that shows up.?

  • Don’t call them
  • Send in a letter through their online portal or fax

Then you wait for two weeks for a reply. If you don’t get a response, resubmit through the Federal Student Aid Ombudsman. They will work with Fedloan Servicing to resolve the issue.

Be sure to check your message center at Fedloan Servicing for a document titled: Information Regarding Your Eligibility for Public Service Loan Forgiveness. This is a very important document.

The document will tell you how many months of qualifying payments they think you have so that you can compare with how many you think you have.

If there is any discrepancy, even if there is one payment off–take care of it now!

The Physician's Guide to Refinancing Student Loan Debt in 2018 (How to Take Your Student Loan Debt from 6 Figures to Paid Down)

Another thing to keep in mind is that Fed Loans and other servicers have their own agenda and will push you in the direction that benefits them. They are not fiduciaries and have many conflicts of interest.

How can you protect yourself?

I will state it again: document.

In addition, you must have some knowledge of how the student loan system works and understand that you need to look out for your own interests (including making sure everything is documented and issues resolved in a timely manner).

While thinking about your medical student loan debt, you might want to check out my side project Loan Buddy which was created for you to get the answers to your student debt for free.

Now, let’s look to the future of PSLF!

The Future of Public Service Loan Forgiveness

There are those who claim that this isn’t a sustainable program, so there are some changes being considered. The changes currently being considered won’t affect the current borrowers, who would be grandfathered in because they have already taken out loans and started making payments toward forgiveness on their student loan debt.

Some of those borrowers who are making choices based on this program are lawyers. I can just imagine thousands of angry lawyers filing valid lawsuits after being booted from a program they’ve been participating in.

That is not a pretty picture!

It’s the new borrowers who have to be on the lookout for changes. The new changes will affect someone new to PSLF, any future participants. I think the government will keep the program together, but something that I’ve always thought about is the tax angle.

I feel that if there are any changes made to the program it will not be tax-free, which will be a huge problem for physicians with approximately $300k or more in student loan debt!

Student Loan Debt

The important thing is to face the student loan debt issue head-on. Don’t go into forbearance in your first year. Those zero dollar payments are critical!

What advice is worth repeating to help pave the path for student loan debt freedom?

Document everything in exact detail (Date, time, who you talked to, subject), check how many payments you have submitted compared to what Fed Loans has reported in your file and follow-up immediately with any discrepancies!

Verify that you are working for a 501c3 agency.

Imagine making choices that were based on and working years for PSLF, only to find out that someone had mis-documented and a couple of documents were missing–or you were actually working for a physician group.

Comparatively speaking, a little footwork can prevent this!

Working to pay off and keeping track of your student loan debt is a lot of trouble. There will be days when you don’t want to face how much you owe or the hassle of contacting, tracking and verifying the documentation for your loans or PSLF.

Push past that feeling of resistance, envision how you will feel the day you are finally free from all medical student loan debt. That day will come with due diligence!

Share your experiences with student loans or PSLF! Would love to hear from you in our Facebook Community, but first, if you haven’t yet, please subscribe to the show for weekly content intended to help you with your finances!

Ryan Inman