Investing vs. Paying Off Debt: What Doctors Should Do First

How to Manage Student Loans and Debt as a Medical Professional

Medical school debt is a serious financial burden. The average medical student in the United States graduates with $200,000 to $300,000 in student loan debt. Managing this debt effectively is crucial to achieving financial freedom. Here is a comprehensive guide for doctors and medical students to navigate student loans and pay them off strategically.

Step One: Accept the Debt Like a Chronic Condition
Medical school debt is a reality for most doctors. It is important to acknowledge it, understand its implications, and create a plan to manage it. The good news is that there are many repayment strategies available that can make this debt manageable.

Step Two: Know Your Loan Like You Know Your Patients
Understanding the type of loan you have is essential.

• Federal vs. Private Loans: Federal loans come with repayment options such as income-driven repayment (IDR) plans and Public Service Loan Forgiveness (PSLF). Private loans often have fewer repayment options but may offer lower interest rates.
• Interest Rates: Many medical school loans have interest rates between 6% and 9%. Knowing your interest rate is essential because high-interest loans should be prioritized for repayment.
• Repayment Terms: Some loans have a standard 10-year repayment period, while others can be extended to 25 years. Understanding your repayment options will help in choosing the best strategy.

Step Three: Choose the Right Repayment Plan
There are several repayment options available for medical professionals:

• Standard Repayment Plan (10 Years): Fixed monthly payments over 10 years. This option is best for those who can afford higher payments and want to pay off their debt quickly.
• Income-Driven Repayment (IDR) Plans: Includes PAYE, REPAYE, IBR, and ICR plans. These options adjust your monthly payment based on your income and family size. They are ideal for residents and early-career physicians.
• Extended Repayment (25 Years): This plan lowers monthly payments but increases the total amount paid due to accumulated interest.

For doctors planning to use PSLF, an IDR plan is the best option since it lowers monthly payments while qualifying for loan forgiveness.

Step Four: Public Service Loan Forgiveness (PSLF)
PSLF is a government program that forgives remaining student loan balances after 120 qualifying monthly payments while working for a nonprofit hospital, academic institution, or government employer.

• Qualifying payments must be made under an IDR plan.
• The borrower must work full-time for an eligible employer.
• The PSLF application process has historically been complex, but as of 2023, over 600,000 borrowers have successfully received forgiveness.
• Submitting the PSLF Employer Certification Form annually ensures that progress is being tracked correctly.

Step Five: Increase Your Income Through Side Hustles
One of the fastest ways to repay student loans is by increasing income through additional work.

• Locum Tenens Work: Temporary physician assignments that pay significantly higher rates. Some doctors earn $200 to $300 per hour through locum tenens work.
• Telemedicine: Online consultations provide a flexible way to earn additional income.
• Medical Writing and Consulting: Physicians can generate extra revenue through freelance medical writing or industry consulting.
• Real Estate Investing: Many doctors choose real estate investments as a way to build wealth outside of clinical work.

Side hustles allow physicians to direct additional income toward loan repayment while building long-term financial security.

Step Six: Refinancing High-Interest Loans
For doctors who are not pursuing PSLF, refinancing can save significant amounts in interest payments.

• Refinancing works best for attending physicians with stable incomes and good credit scores.
• Lowering an interest rate from 7% to 3% on a $200,000 loan could save over $50,000 in interest over time.
• Private lenders offer competitive refinancing rates but come with the risk of losing federal loan benefits such as IDR plans and PSLF eligibility.

It is essential to compare refinancing options carefully before making a decision.

Step Seven: Budget Like a Medical Student Again
Many physicians fall into the trap of lifestyle inflation after completing residency. However, controlling spending in the first few years as an attending can accelerate debt repayment.

• Avoid unnecessary luxury purchases in the early years of practice.
• Follow the 50/30/20 budget rule: 50% for needs, 30% for wants, and 20% for debt repayment and savings.
• Live below your means for a few years to eliminate debt faster.

A few years of financial discipline can lead to early financial independence.

Step Eight: Automate and Prioritize Debt Repayment

• Automating payments prevents missed due dates and sometimes qualifies borrowers for a small interest rate discount.
• Avalanche Method: Pay off high-interest loans first while making minimum payments on others. This strategy saves the most money in the long run.
• Snowball Method: Pay off the smallest loan first for psychological motivation before moving to larger debts.

Both methods work, but the avalanche method is the most cost-effective approach.

Step Nine: Investing While Paying Off Debt
Investing while repaying student loans can be beneficial under the right circumstances.

• If loan interest is below 5%, investing in a retirement account (401k, Roth IRA) or low-cost index funds can generate better long-term returns.
• Historically, the stock market has returned 7%-10% annually, making it a good option for wealth building.
• Real estate investments can provide passive income while repaying student loans.

A balanced approach of loan repayment and investing can accelerate financial freedom.

Step Ten: Work With a Financial Advisor
Medical school does not teach financial management, so consulting a financial professional can help optimize loan repayment strategies.

• Choose a fiduciary financial advisor who specializes in physician finances.
• Avoid financial products with high fees or unrealistic promises of returns.
• Join physician finance groups and forums to learn from other doctors managing similar financial situations.

A well-structured financial plan ensures that loan repayment does not interfere with long-term wealth building.

Final Takeaway
Medical school debt is a long-term commitment, but with the right strategy, it does not have to control a physician's financial future. By choosing an effective repayment plan, considering loan forgiveness programs, refinancing high-interest debt, and budgeting wisely, doctors can accelerate their path to financial independence.

What strategies are you using to manage your student loans? Share your experiences and insights.