Medical Trainees Need to be Mindful of Debt

The transition period from medical school to residency is when trainees can make the biggest mistakes in terms of addressing their debts and budgeting their income.

This is an excerpt from an article that was orignally published in Residency Program Insider, May 12, 2017.

According to a recent report from AMA Insurance on physicians’ financial preparedness, of the more than 1,500 residents surveyed, paying off medical school debt was the top financial concern. Half reported having more than $200,000 in medical school debt, while 30% had $100,000–$200,000. These findings fall in line with data released by the Association of American Medical Colleges in October. A survey of 87 public and 57 private schools found that 47% of the graduating class of 2016 had $200,000 or more in medical education debt. Overall, the average amount of debt was about $190,000.  

The transition period from medical school to residency is when trainees can make the biggest mistakes in terms of addressing their debts and budgeting their income, according to Chris Long, financial advisor at Consolidated Planning, Inc. However, residents can ensure their financial stability by taking a few simple steps.

Before deciding how to repay their student loans, it’s important that residents first understand what’s in their student loan portfolios, says student loan consultant Paul S. Garrard, founder and president of PGPresents, LLC. Residents need to know, at a minimum, what they borrowed, who has their loans (who is their loan servicer), and when they come due. The National Student Loan Data System (www.NSLDS.ed.gov) lists all federal loans and helps borrowers identify their loan  servicer (most borrowers one servicer for all their loans) and most loans come due six months after graduation.

Most recent graduates have their entire student loan portfolio in the government’s Direct Loan program, such as Direct Unsubsidized and Direct PLUS, and all serviced by the same loan servicer, Garrard says, which negates the need for many to consolidate. Borrowers with older federal loans or federal loans not in the Direct Loan program can consolidate them with the government and thus convert their balance into a Direct Loan balance.

This can help with convenience, but more importantly, should help ensure a borrower has access to the best income repayment plans, such the new Revised Pay As You Earn (REPAYE) plan for their entire portfolio. Additionally, this is critical information for borrowers interested in the Public Service Loan Forgiveness (PSLF) program, as only loans made directly by the federal government are eligible for it, assuming other eligibility requirements are met. Borrowers can get a record of all their student loan borrowing—federal, private, and institutional—from a credit report from www.annualcreditreport.com.

Once residents know what they borrowed, who has their loans, and when their loans come due, they will be in a much better position to take the next step toward determining the best repayment strategy, Garrard says.