5 Student Loan Mistakes All Med Students Should Avoid

Managing student loan and debt requires the same diligence as managing medical school. But with so many things to consider and so many decisions to make, it is far too easy to let student loan decisions slide until “everything’s settled.”

Until you’re out of residency, the period of transition for medical students is fraught. Even with the challenge of medical school behind you, what to do about the question of loans accumulated throughout the process? When dealing with student loans, and with federal student loans in particular, the worst thing you can do is turn and run in the opposite direction. For med school borrowers it can be difficult to work out a repayment plan while still living on a resident’s budget, but by planning early it’s possible to set yourself up for a debt-free future in only a couple of years. Here are a handful of mistakes all doctors should avoid when deciding how to pay back their student loans.

Failure to Consolidate Loans

First, there are several important differences between federal student loans and other loans. General student loans function like other debt. Federal loans qualify for a variety of important repayment options. This makes consolidation an important first step.

Failure to consolidate at the start of residency is a potentially costly mistake because of the special treatment afforded qualifying federal loans. Among the most significant benefits is the Public Service Loan Forgiveness (PSLF) program. The key feature of this program to keep in mind is the 10 year, or 120 payment, timeframe.

Consolidating loans into a qualifying loan immediately after medical school starts the clock running for the total amount of debt. This is significant because the monthly repayments during residency are lower than they will be for a doctor in private practice. Lower payments mean greater loan forgiveness when program requirements are met.

Failure to File Paperwork

Meeting the 10 year employment requirement means documenting employment. Although this can be done at the end of the period, that simplistic approach is not prudent. Employment records can be lost over time, so filing the PSLF Employment Certification Form each and every year is the best approach.

This means not only completing and submitting the form, but continuing to follow up and resubmit every week until the agency acknowledges they have received the paperwork. This acknowledgement should be retained in the file with a copy of the completed form. No one likes to be a pest, but a lack of follow up can prove to be a costly mistake.

Mis-evaluating Repayments

Choosing the wrong repayment plan is the second most common mistake for doctors when managing student loan debt. To be fair, this mistake is an easy unforced error because it is based on so many factors. Some factors are speculative when the repayment option is selected, such as anticipated future earnings after residency.

As a general rule, the lowest possible payment during residency will be the best option. A second rule-of-thumb is that if anticipated earnings in private practice exceed $300,000, repayment programs that cap monthly payments such as PAYE or IBR are a better choice. However, there are exceptions to these rules based on spousal income and other factors.

Forbearance

This rule has no exceptions when the overall strategy is to qualify for PSFL. Each monthly payment is important and forbearance means no monthly payment. Keep in mind that a monthly payment of $0 is still a payment under the rules for PSLF qualifications, and that the lower the monthly payment, so long as it is made, the higher the total amount of loan forgiveness.

Forbearance also increases the total amount owed because it increases the amount of interest accrued on the loan. It may seem like a simple budgetary strategy when money is tight and expected to be plentiful later, but forbearance is simply digging a deeper hole that will consume more of your future income.

Procrastination

Forbearance is sometimes unintentional in cases where an income-driven re-verification form has been submitted before the deadline but not processed by the loan-servicer until after the deadline. Payments are not credited for purposes of satisfying the 120 payment requirement. Diligently filing the form as soon as it is received is a simple step that can prevent unnecessary surprise.

Keep in mind that the re-verification form can be submitted at any time. This can be a real benefit when there is a change in income before the form is due. Submitting before an increase in income extends the period of the lower payment. Submitting when a decrease takes place reduces the monthly payment sooner.

Making the choice to tackle your student loan payments today is “best practice” advice for all doctors and doctors-in-training. You can reduce your debt in no time at all, it’s just going to take a little extra discipline and planning – not unlike school itself. By taking steps early you’ll be on the fast track to move forward with your medical career and future financial goals.



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