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Strategies for Paying Off Your Student Loans: Which is Right for You?

In the next few months, another class of resident physicians and fellows will finish their training and begin jobs as attending physicians. They will also need to begin making payments, if they haven’t already, on hundreds of thousands of dollars in student debt.

Among physicians — and dentists, attorneys, business owners, and other professionals in fields that require advanced degrees — there are several approaches to paying off student debt. The FIRE movement and others advocate for paying down debt as aggressively as possible, even if it means delaying lifestyle changes. Others choose career paths that can lead to student loan forgiveness. And others simply accept student debt as part of life, paying it off steadily over many years.

As is so often the case in personal finance, there is no one-size-fits-all strategy for paying off student debt. But choosing the approach that best fits your life can help you create and stick to a plan. 

“Live like a resident” 

A 2019 survey from Weatherby Healthcare found that about 35% of physicians surveyed had already paid off their student loans. Of those, nearly half were able to eliminate their debt within two years. Those physicians who eliminated their debt quickly said they focused on making extra payments, working more hours, and consolidating or refinancing their debt.

Most resident physicians have heard this piece of advice: Continue to “live like a resident” after you become an attending physician and apply as much money as you can toward your student debt.

Generally speaking, “living like a resident” means avoiding lifestyle creep as much as possible. Physicians are encouraged to keep their living expenses moderate and continue to avoid discretionary spending, even after their salary increases several times over. 

Then, physicians who choose this route are encouraged to make large extra payments on their student loans. Making extra payments can shorten the borrower’s repayment term and reduce the total amount of interest they will pay over the life of the loan, since extra payments are typically applied to the principal. 

If a physician receives a signing bonus — which averaged about $32,000 in 2019, according to the American Medical Association — they can apply that toward their student loans too. Effectively, it’s a very large extra payment, which will shorten the loan term and reduce the amount of interest the loan accrues. (Remember, though, that signing bonuses are taxable, so you will need to put some money aside for that.) 

In some specialties, attending physicians are able to pick up additional shifts to earn extra income. Those payments can be applied to student debt as well. 

Even if you pursue an aggressive debt repayment strategy, it’s important to remember that not all lifestyle changes constitute “lifestyle creep.” If your family is growing, it makes sense to move into a larger home. If you need to replace your car, it’s OK to purchase a newer model. 

The key to “living like a resident” is moderation and prioritization: Delaying some lifestyle changes so that you can repay your debt as quickly as possible and make those changes in the future. 

Paying off loans gradually 

Not all physicians want to continue to “live like a resident” after their training is complete, though. Many choose slower but more manageable repayment plans, settling into monthly payments as if they were paying off a mortgage. These kinds of repayment plans typically last around 10 years. 

On a plan like this, most physicians will still need to apply several thousand dollars per month toward their debt. They will also accrue significantly more interest over the life of their loans than their colleagues who pursue aggressive repayment plans. 

On the other hand, making a fixed monthly payment frees these physicians to spend the rest of their income — including whatever they earn from locums or in bonuses — however they like. They also have the freedom to make extra or larger payments, accelerating the schedule.

If you choose to settle into a steady repayment plan, there are still steps you can take to reduce your debt load. First, you can consider consolidating and refinancing your loans to secure a better interest rate — as long as you are not pursuing loan forgiveness or an income-driven repayment plan, which we’ll discuss shortly. 

However, keep in mind that once you consolidate you will lose the benefits that your government loans provided. One example is the 0% interest that various stimulus payments provided during COVID. If you had already refinanced your debt, you probably missed out on the 0% interest rate.

To create a gradual repayment plan, use a student loan calculator to figure out how much you need to pay monthly to eliminate your student debt by a desired date. Then, set up automatic payments, just as you would with any other loan. 

Income-based repayment plans and loan forgiveness

If you have federal student loans, you have several options for repayment plans based on your income. These include: 

  • Income-based repayment, in which you make payments of 10% of your discretionary income for up to 20 years. If you experience changes in your income, you have the opportunity to verify your income and recalculate your payment every year.
  • Pay As You Earn (PAYE), which is available to borrowers if the amount they owe each year on a 10-year repayment plan exceeds 15% of their discretionary income. Borrowers make payments of 10% of their discretionary income. 
  • Revised Pay As You Earn (REPAYE), which was created for borrowers who didn’t qualify for PAYE. Like PAYE, borrowers pay 10% of their discretionary income toward their student debt; unlike PAYE, if your monthly payment doesn’t cover the full amount of interest due, the government lender will pay the difference or a portion of the difference. 

Many physicians can qualify for, and choose to pursue, PAYE and REPAYE plans. Each of these repayment plans includes specific rules and restrictions, though, so be sure to talk to a professional before committing to any specific plan.These plans provide debt forgiveness after 20 or 25 years of payment. 

Note, however, that the forgiveness on these loans is picked up as taxable income. In the March 2021 stimulus package, any student debt that is forgiven up to year 2025 will not need to be counted as income. The change applies to both federal and private loans. Not very many people will have met the requirements for loan forgiveness during this time frame, but it may suggest future student debt forgiveness will be tax free.

In addition to these plans, the federal government offers Public Service Loan Forgiveness. PSLF forgives loans after 10 years for physicians working for “public service employers,” which can include the military, public or nonprofit hospitals, and academic settings. (Talk to your employer about whether your institution qualifies.) 

If you qualify for PSLF, you will make monthly payments determined by your income. After 10 years, you can apply to have the remainder of your debt forgiven. This forgiveness is tax-free. 

Generally speaking, if you have federal loans, keep an eye on changes to federal policy. The income-based repayment plans described above were created within the last decade, and new plans could be introduced at any time. 

The best approach is the one that works for you

If your life situation allows you to try to pay down your debt aggressively, you’ll spend less on interest and be debt-free sooner. On the other hand, making fixed payments over many years can allow you to make the lifestyle changes you want to make while knowing that you’re on track to eliminate your debt. 

It’s important to remember that these approaches aren’t mutually exclusive. You can set up a repayment plan and still make extra payments whenever possible. You may start your career pursuing student loan forgiveness but then change jobs, requiring a new approach. 

Student loans can be complicated, so if you’re not sure which path to pursue, talk to a student loan expert or an advisor who can help you through the numbers and provide guidance.

Your financial strategy can and should change as your life changes. That applies to student debt, too. Create a strategy that makes you feel comfortable and in control — and modify it as you need to until you’re debt-free. 

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