September 26, 2019
3 min read

Manage student loan debt at every career stage

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Sanjeev Bhatia, MD 
Sanjeev Bhatia
David B. Mandell, MD 
David B. Mandell

by Sanjeev Bhatia, MD; and David B. Mandell, JD, MBA

Physicians who are finishing their training and starting their first jobs are often disappointed by the onerous burden of student loan debt.

Given the increased costs of medical education, living expenses during residency and fellowship, duration of specialty-specific training programs and interest rates allotted to students, it is typical for young doctors to embark on a career with debt loads of $200,000 to $500,000.

Unless the debt is addressed properly, it may dramatically affect real savings, retirement planning, family planning and even an individual’s credit-worthiness later in life. High student loan debt is an unfortunate reality for many millennial physicians and possibly another contributor to personal and family stress, professional insecurity and financial hardship.

This scenario is not uncommon. According to the American Association of Medical Colleges, 76% of medical students who graduated in 2016 carried student loan debt. They had a mean debt of $189,165, which was a 5% increase from the debt the prior year’s class had. At a typical 6% interest rate on student loans, the average graduate faces a student debt burden of $268,000 upon completion of residency and fellowship if the loan is deferred during training. With compounding interest, it is easy to see how such debt loads can get out of control quickly.

In this column, we present some strategies for fighting student debt that millennial and non-millennial physicians can implement at various stages of their careers.


Avoid capitalization in residency, fellowship

Although student loans are sometimes unavoidable, their costs typically balloon the highest during the residency due to a process called capitalization, which is the addition of unpaid interest to the principal balance of a loan. The principal balance of a loan increases when payments are postponed during periods of deferment or forbearance, and unpaid interest is capitalized.

Sometimes, it is difficult to avoid capitalization during residency due to a high cost of living. However, if possible, paying some or all of the interest during residency allows a significant slowdown of capitalization of the debt burden.

Recently, income-driven repayment plans have become a solution that allows repayment of student loan interest during residency with more tolerable monthly payments. An example of one such plan is the Revised Pay As You Earn (REPAYE) program offered by the U.S. Department of Education. With REPAYE, the federal government covers 50% of all interest above the monthly payment amount during repayment.

To illustrate how this works, if a resident who earns $55,000 a year has an unpaid student loan of $164,000 at 6% interest, the monthly payment just to cover the interest would be $824 under a typical 10-year repayment plan. Under REPAYE, the resident would only have to pay $300 per month while the federal government would cover $262 of the monthly interest. Although some interest still capitalizes, the amount is more tolerable.

First job: Refinance student loans

One of the simplest methods to reduce any student loan debt is to refinance student loans through a private lender when starting in practice. Refinancing is a relatively easy way to not only consolidate any student loans into one lump sum, but also to lower the interest rate considerably.

Although a young physician may give up certain loan protections inherent to federal student loans and income-based repayment models in the process, the upside of such refinancing is typically a dramatic reduction in the interest rate on the student loan. It is not uncommon to see interest rates lowered by 2% to 3%, an amount that may significantly reduce the cost of debt over a 10-year span.


A $268,000 loan that is paid back over 10 years at 6% interest would have a monthly payment of $2,975.35, with $89,042 in total interest. If refinanced at a 4% interest rate, the monthly payment would be $2,713.37, with $57,604 in total interest.

Disability insurance for asset protection

A previous article for touched on the need for millennial physicians to protect their greatest asset — the ability to earn income, something that could be jeopardized by an accident or health condition. Securing adequate disability income insurance early in a career protects the student loan debt payment plan, as well as the physician’s ability to generate future income.

Student loan debt is one of the biggest national crises of our generation. Without careful planning, a physician’s $200,000 to $500,000 loan after training can rapidly get out of control. The strategies discussed may be helpful not only for mitigating risk during medical training, but also for optimizing repayment plans during the first few years of a career. Although the goals for debt repayment and saving/investing can become a balancing act for young physicians, having a sound plan helps in making great strides toward safeguarding their financial future.  

Disclosures: Bhatia and Mandell report no relevant financial disclosures.