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Association of American Medical Colleges Tomorrow's Doctors, Tomorrow's Cures®

Debt Still High but More Options: The State of Medical Student Indebtedness

AAMC Reporter: April 2012

—By Gina Shaw, special to the Reporter

Rindi Iberg has no idea how she’s going to pay off her medical school loans.

The 29-year-old single mother of two, a second-year student at the University of Missouri School of Medicine, has financed virtually her entire medical education with loans, a tab that will reach about $170,000 for the full four years.

Iberg wants to pursue a career in emergency medicine or obstetrics and gynecology, but those loans weigh on her mind. “I grew up going to free clinics and places like that, and I didn’t like how I was treated,” she said. “So I want to work in that kind of setting. But the money makes me think twice about it.”

Most research indicates that indebtedness and loan repayment are not the determining factors in medical students’ specialty choice, but students like Iberg demonstrate that these factors can be important considerations.

“In a recent meeting with first-year students, I asked how many of them would say that debt would play a considerable role in their specialty or residency choice,” said Joetta Bradica, Ed.D., director of student aid at the Penn State College of Medicine. “I’d say 60 percent of them raised their hands. But when I asked how many would use debt alone to decide their specialty, no one raised a hand. It’s not the only factor, but I think debt definitely is one of many students consider as they choose their specialties.”

Today’s medical school graduates are entering residency with a mean debt of just over $150,000 if they attended a public institution, and more than $176,000 for private school graduates. Surprisingly, though, that debt level has barely budged over the past several years, although medical school tuition rates continue to rise.

“For the past three years, student debt has almost plateaued, growing at only 1 to 2 percent annually,” said Julie Fresne, AAMC director of student financial services. She attributed the relatively flat borrowing levels to a change in interest rates for federal student loans that went into effect in 2006. Before then, interest rates were variable and usually well below 6.8 percent, which is the new fixed rate that the government has imposed.

Repayment options

Fortunately for today’s students, rising interest rates have been accompanied by a variety of new loan repayment and forgiveness options. “When I came into this field 20 years ago, there was one repayment plan and one way to pay your loans,” Fresne said. “Now we have a number of repayment plans that either are based on income or start off small and get larger.”

One of the newest options is Income-based Repayment (IBR), a federal loan repayment plan that caps the required monthly payment at an amount intended to be affordable based on your income and family size. For example, a resident supporting a family of four on an annual income of $60,000 would be required to pay only 6.4 percent of his or her gross monthly pretax income toward student loans. After 25 years of payments, any remaining debt is forgiven.

Brian Jin, M.D., a radiology intern at Mercy Fitzgerald Hospital in Darby, Pa., is taking advantage of the IBR to help manage the $170,000 in loans he accumulated at Albert Einstein College of Medicine in New York. “At this point in my earnings, I don’t think I would be able to afford the standard repayment schedule, so I’ve had to rely on the IBR,” he said.

For Jin, that loan repayment wasn’t really a factor in his specialty choice. “There are always cycles and you never know what policy changes may come about, so a high-earning specialty may not always be that way,” he said.

But there is still interest in encouraging new graduates toward primary care and related specialties and to practice in underserved areas, which means more money than ever is available for loan forgiveness programs. The National Health Service Corps (NHSC) received additional funding through the federal stimulus package, much of which was dedicated to its loan repayment program.

“A two-year commitment to the NHSC results in $60,000 in loan forgiveness, and a third year yields another $40,000, which makes a massive dent in anybody’s loan package,” Fresne said.

There also are loan forgiveness programs via the military and the National Institutes of Health.

The newest forgiveness option is the Public Service Loan Forgiveness program (PSLF). Anyone who works in a nonprofit, tax-exempt 501(c)(3) organization or for federal, state, local, or tribal government (including the military and public schools and colleges), as well as AmeriCorps and the Peace Corps, is eligible.

“If you work for one of these organizations for approximately 10 years, while making payments on your loans—which can be under one of the income-based payment plans—then after that time, your loans are forgiven,” said Fresne.

Cheri Marks, coordinator of financial aid and student records at the University of Missouri School of Medicine, recently noticed that more of her students are looking into public service commitments.

“Because of the growing debt, I think they’re more willing to give up some time to get some of their debt forgiven. One of my students was just selected for the NHSC in a new pilot program where they apply during their fourth year of medical school. During his family medicine residency, he will get $120,000 in loan forgiveness in exchange for three years of post-residency service.”

But demand for these options far outpaces supply. The NHSC, for example, is generally able to fund only 15 percent to 20 percent of eligible applicants. Marks’ student was one of only 77 selected for the pilot program, out of more than 1,000 applicants.

Students also must consider whether the possibility of a lower salary for several years might “cost” them more in the long run than the amount of the forgiveness.

“We do not have exact data on primary care doctor starting salaries across the country, and specifically how these vary between for-profit and nonprofit positions,” said Jay Youngclaus, AAMC senior education analyst. “Our best estimate for a primary care physician indicates that a nonprofit starting salary could be up to $20,000 to $25,000 less annually compared to a for-profit position. For higher-paying specialties this difference could be even greater. This is a pretty important point to consider when evaluating the opportunity cost of a program such as PSLF, which involves 10 years’ worth of repayment.”

Someone like Iberg, with her interest in emergency medicine and obstetrics, would seem to be an ideal candidate for a public-service program, but she has concerns.

“Being a single mom, your life isn’t your own. I have two kids who have to go to school somewhere, and I can’t in good conscience live somewhere that might not be good for my kids,” she said.

Gaining financial savvy

For students like Iberg, the financial coaching provided by
their medical schools, and by the AAMC, has never been more important—and financial aid advisers report more interest in their services than ever.

“We’ve seen an increase in the interest in scholarship information; I think we can deduce from that, that students are concerned about financing medical school,” Bradica said. “I’ve also seen a number of students requesting information about repayment options earlier than their fourth year. They’re asking about it in their second and third years, which wasn’t the case in the past.”

Imparting financial savvy to medical students, many of whom have only recently become responsible for paying their own way and who are often still unfamiliar with things like credit scores and compound interest, is a growing focus at medical schools. Anthony M. Sozzo, M.S.Ed., associate dean for student affairs at New York Medical College (NYMC) starts even before his students come to campus.

“I meet with applicants in the pipeline four days a week, from September through the beginning of May,” he said. One of the first “homework” assignments Sozzo gives them is to visit the AAMC’s FIRST (Financial Information, Resources, Services, and Tools) for Medical Education Web site, a resource that financial aid professionals have called “invaluable.”

Over the course of medical education, financial aid officers continue to coach students about spending and investing wisely, understanding finances, and managing their debt. In addition to seminars and Webinars, Sozzo maintains a popular NYMC financial aid Facebook page, with a following of about 700 students, podcasts, and a YouTube channel to keep his classes informed.

As burdensome as medical school loans may be, graduates are still managing to pay them off. As a cohort, physicians have the lowest default rate on student loans. “My default rate is zero, and I think many medical schools can say the same,” said Bradica. Which means that even though medical students might graduate with a high level of debt, most of the time, they’re finding ways—even though it may require sacrifices—to pay it back.