Examining Physician Student Loan Debt Mistakes
Our nation is currently mired in a student loan debt crisis. Which means, these days it’s a tricky business to pay off your student loans. The reasons are varied. That being said, as the amount you owe rises, so do the complications.
My clients at Physician Wealth Services have an average of $290,000 in student loan debt.
That’s a lot of complications! You can imagine with that amount of debt weighing you down how easy it is to make repayment mistakes that you’ll regret.
How do you prevent these oversights from happening? You start by educating yourself. You start by recognizing what these potential mistakes are. There are ten of them. If you’ve made some of them there is hope!
What You Will Learn
I think the more important information is how to fix your student loan debt mistakes, but we’ll get to that!
Hold The Refinance, Please!
Caution: This is the biggest mistake on our list.
Some of the private student loans refinance companies will see you as a good candidate when you are a resident. Think of the DRB, SoFi or CommonBond Finance Companies.
Why do they see you as a candidate for refinancing during residency?
They know that you will eventually become an attending physician–and your income will explode. They want in on a good thing. They see you as a solid earner, who is unlikely to default will entice you on good interest rates before you become an attending physician.
So while you can refinance during residency–it doesn’t mean that you should!
My personal perspective is that they are preying on residents at a time when they already have enough to worry about, and that includes how fast they are racking up student loan debt.
I remember what it was like when my wife was a resident. She was trying to figure out her career path, start on that path and she was having to learn (and remember) everything, plus spending hours at the hospital–all while not getting the recommended amount of sleep!
As far as refinancing during residency, that’s just the tip of the iceberg!
As a resident, you shouldn’t even qualify for a refinance. Your debt to income ratio is upside down. Low income versus the high debt you are accumulating now. Not to mention the debt that you will continue to accrue in the next few years.
Here is another very important reason you don’t want to refinance during residency:
If you refinance, you will forfeit the Public Service Loan Forgiveness Program (PSLF).
You don’t know where your career will take you this early in the game.
If you refinance you are essentially cutting out that option.
You also cut off other options, such as all federal programs.
Don’t do that.
Something that would be worth your time to explore while you are in residency is REPAYE and the Revised Pay As You Earn programs. On that program, if you make qualified payments, you can also have a portion of your interest waived. You basically get a tax-free subsidy.
This is a good choice for your student loan debt while you are a resident. The question of refinancing can be shelved until you are an attending physician.
However, by shelving the question of refinancing, you leave yourself open to the possibility of working toward the PSLF program in the future. Since that is the case, I think now is a good time to answer the question of whether PSLF is even worth pursuing.
What if you are just starting versus 80 or more payments into the program? If you are already 80+ payments into the program. Then you will want to stay in the program.
I can’t bring the topic of PSLF up without reminding you to make sure that you are receiving your annual certification of the payments you made each year and specifically documenting in detail every contact you’ve made with the personnel at FedLoans.
Let me address those new attending who are just starting out. There is a concern that the PSLF program won’t be active in ten years, at this point is it worth starting the program?
If the program does go under in ten years, rest assured you will be grandfathered in. It’s grandfathered into the federal law.
I think it’s important to emphasize here that it’s not the repayment date that is important (when you went into repayment), but when you started originating the loans.
Sometimes your ability to qualify for programs depends on the original first date of disbursement.
In order to be grandfathered into a program, know the answer to these questions:
- How old are your loans?
- When was your loan taken out?
- When was your loan paid in full?
I have an example of the Pay As You Earn (PAYE) program. The important date to keep in mind is October 1, 2007. Did you take out loans before that date? Did you still owe a balance after that date? If you have a balance after the date of October 1, 2007, you can’t participate in the PAYE program.
This brings us to the PROSPER Act.
What does the acronym stand for? Promoting Real Opportunity, Success and Prosperity Through Education Reform. The act was originally proposed to terminate PSLF. However, The PROSPER Act has not yet passed.
In the end, is PSLF worth the effort?
If you qualify, then go for it. Make sure that your workplace qualifies, keep track of all contact with FEDLoan Services and get that annual certification that proves that you met qualifications. Currently, the borrowers who are eligible for PSLF and would be grandfathered in. Any loans taken out after a new act is voted in would not be eligible.
How do you know when your loans were taken out?
You can go to the National Student Loan Data System For Students (NSLDS) website and let LoanBuddy.us import that NSLDS file. It will detail the information. It’s the software that I’ve put out to help you understand your student loan debt options.
Now on to other mistakes you need to consider!
Consolidate Or Not Consolidate…That Is The Question!
There are so many people out there wondering if they must consolidate in order to qualify for the PSLF program.
Yes, no, maybe….
The answer is not necessarily. However, don’t do anything until you have all the facts, because sometimes consolidating your loans will have unintended effects. You may lose credit for payments you’ve already made. That means you are basically restarting your PSLF. It’s complicated, so consider all angles before you dive in!
Are you thinking of consolidating your loans before the grace period ends? One of the ways to decide if that is a good idea is to consider which program you would consolidate them for. If you consolidated prior to applying for the REPAYE program, you could jump right into receiving a subsidy benefit. Then you could start making qualified payments. The important caveat is to look at all the details to see if they fit your circumstances.
Speaking of details, we all know the most complicated situations arise from anything to do with income taxes.
Are you married?
What happens when you add the variations of your spouse’s income, debts and to the mix of your situation and student debt?
You have a very perplexing web to unravel!
Depending on your circumstances, filing married or separate have their own outcomes. You need to know which scenario will benefit you the most!
The things you need to consider are:
- Are there any write-offs?
- How much income you each bring in?
- Do you live in a common property state?
- Do you each have student loan debt? How much?
- Does one of you have your own business? An S-Corp?
An additional point to consider is any vast difference in spousal circumstances. I was given the example of one spouse has a significant income, but has student loan debt. The other spouse has a low income, say below $40k, filing separately is not going to significantly affect their payment.
There are so many variables to consider in every physician student loan debt situation!
The FedLoan Servicer
Something else that anyone who has student loan debt is doing wrong is making assumptions!
I think that FedLoans are the absolute worst. Talking to them is a long, painful business.
Don’t assume FedLoans or another loan servicer is going to process your request correctly. I’ve mentioned this before in some of my other blogs and it’s why I emphasize documentation. Keep a log of every phone call.
You’ll need to know:
- Document and have proof of every payment you’ve made
- Who you spoke with, date, time, the subject discussed
- All paperwork from your employer
- Get your annual certification
- Talk to the correct department
It’s entirely possible there could be miscalculations toward your qualified payments.
You can combat this problem by learning how the calculations are done and double check FedLoan’s work!
Fedloans makes a lot of mistakes. Ridiculous ones that don’t make sense. There is no mistake they can make that would surprise me.
Having said that, It’s still recommended that if you plan to do PSLF, you consolidate with FedLoan Service.
The reason is you are cutting out the middleman. All of the servicers are difficult to work with (Great Lakes, Navient or Nelnet), so at this point, by dealing with FedLoans you are working directly with the institution who is in charge of PSLF.
That’s small comfort, I know.
The Aggressive Pay-Off
My wife and I have been there. She had physician student loan debt, so we know what many of you are going through. I’ve seen physicians who are delaying major life events, such as getting married or having children. I’ve seen what the stress and anxiety of having the loans and trying to figure out how to pay for them does to families.
I believe part of the weight surrounding student physician student loan debt the actual debt. However, some of the burdens come from trying to make a decision about which program is best, should you consolidate or not. It just seems endless.
Talk about decision fatigue!
As a resident and a new attending physician, you are making life and death decisions. Then, you have to make student loan debt decisions that have a huge impact on your financial future. I hope by reading my blog, making decisions becomes a little less daunting.
As a resident, you will hear a lot of information that you pick-up through the grapevine. The important thing to keep in mind is that you need to understand the whole picture. Your whole picture. Which is unlike your coworkers. It’s totally a unique situation.
Most of those bits of information don’t fit into your particular picture. This is where personal finance comes into play, which is…well personal!
There is no one size fits all.
The customer service representative can help you with a lot of things. However, they aren’t usually trained in the nitty-gritty of picking a repayment program. They are also not versed in creating a budget where paying off your physician student loan debt enables you to be financially free.
It’s important to do your research and talk to a professional who understands the details of student loan programs–and the details of your life, your goals, your finances! How the two will fit together to your benefit.
Unfortunately, most advisors don’t understand student debt. That lack of knowledge can cost you a bunch of money. Once again, educate yourself. You should know more about student debt than your advisor does!