Staggering educational debt is a reality for newly minted physicians. In addition to undergraduate indebtedness, a quarter of medical school graduates have debt exceeding $200,000. Early planning with the advice of an expert, appreciating the accumulative effect of obtaining a number of smaller scholarship awards, and using physician organizations for support can result in successful debt management strategies. Added debt relief also awaits those willing to practice in medically underserved areas.

— John A. Fromson, MD*

New debt management resources and expanding loan forgiveness options are helping physicians cope with increasing debt levels.
By Bonnie Darves, a Seattle-based freelance health care writer

Long before Tamaan Osbourne-Roberts, MD, completed medical school at the University of Colorado, he had been whittling away at his potential education debt in a strategic and somewhat unusual manner — by racking up as many scholarships as possible. The Denver resident, who just completed his second year of family medicine training, finds the prospect of repaying his total debt tab unsettling at times. But he knows it could be a lot worse.

“I still have a five-figure debt load, but I reduced my potential indebtedness by more than $100,000 through scholarships,” said Osbourne-Roberts, who received nearly a dozen merit-based awards from the American Medical Association, his university, and other sources. “People forget, I think, that if you receive a lot of smaller scholarships it can add up to a lot of money. And the most you lose is a few hours on a Saturday, writing essays and completing applications.”

Today, Osbourne-Roberts, with help from his wife — he describes her as a “financial whiz”— is on the repayment fast track. He is tackling the higher-interest loans first and will soon move on to the lower-interest ones. Because he doesn’t expect to earn a high salary after residency, budgeting has become a high priority. He hopes to complete a public health fellowship and eventually work in geriatric medicine. “I drive a nine-year-old Civic, and we just used last year’s tax refund to pay down some of my loans,” he explained. “I think having a repayment plan and a budget is a big piece. If you have those, you can make it work. But a lot of people I encountered in medical school didn’t seem to have either.”

Taking a strategic approach to dealing with medical education debt has become even more important in recent years, as both the costs of medical education and student debt levels have risen considerably. The median debt level was $155,000 in 2008, and debt of more than $200,000 is not uncommon now, according to Julie Fresne, director of student and resident debt services for the Association of American Medical Colleges (AAMC). A recent AAMC report found that 25% of medical school graduates have debt exceeding $200,000. Repaying such large sums can be a daunting undertaking, Ms. Fresne acknowledged, but physicians appear to be managing.

“Loan default rates among medical students are extremely low, which suggests that, at least at current levels, the debt is not insurmountable,” she said. “There also are no strong statistics that suggest that debt in and of itself is driving specialty choice.” A May 2009 report by the U.S. Government Accountability Office, for example, found that most physicians make career choices based on their intellectual interests and lifestyle preferences rather than indebtedness.

“I haven’t seen residents making career decisions based solely on debt. But sometimes it’s a major influence, and I think a lot of that has to do with worry,” said Richard Pels, MD, director of graduate medical education at Cambridge Health Alliance and assistant professor of medicine at Harvard Medical School in Boston. Debt levels can and do play a role in practice-setting choice, Pels observed, especially for primary care physicians.

In the short term, at least, education debt has influenced the practice plans of pediatrician Michelle Niescierenko, MD. The University of Buffalo School of Medicine graduate, who recently completed training in the Boston Combined Residency Program–Pediatrics at Boston Children’s Hospital, had hoped to go abroad to work with an international relief organization. “If I hadn’t had so much education debt, that’s what I would have done,” said Dr. Niescierenko, who will instead work in pediatric urgent care for a year and then pursue a fellowship in pediatric emergency medicine.

“The debt has been a big factor in my decisions, especially as a single person without family support for education funding,” she said. “I’ve had to make an art out of managing my debt, but at least I am now getting close to repayment.”

Psychiatrist Curtis Wittmann, MD, studied medicine at Washington University in St. Louis and accumulated nearly $150,000 in debt during those years. But the burden didn’t alter his career choice. He recently finished training and now works in the emergency department at Massachusetts General Hospital. He also maintains a small private practice. He knows, though, that his loan repayment will be protracted because of decisions he made earlier. Starting repayment of his private loans during residency took a “considerable percentage” out of his monthly paycheck, so he used loan deferment and forbearance to the extent permissible during residency for his federal loans. He also plans to use the government’s newly launched graduated payment program to give him more breathing room.

“This isn’t the ideal way to minimize the total cost, but it shifts the payments from a time when I have fewer resources and a lower salary,” Wittmann said, to a time when, presumably, his “financial situation will be more secure.” Based on his own experience, he advises medical students to be more cognizant of loan structures and repayment requirements when they assume the debt. “I think the most important thing is to consider not only the interest rate but also the other details of loan repayment that may create difficulty during residency and in [your] early career.”

Physicians Seek Government Debt-Repayment Help
Although Dr. Niescierenko decided to tough it out without outside assistance, many physicians headed into primary care and specialties in which limited earning potential may affect the repayment timeline are eyeing loan repayment and forgiveness programs, if only to reduce the “fret factor.”

“At some level, the psychological unburdening in knowing that they can reduce that debt is almost as important as other factors they may be considering,” said Pels. “If physicians want to do primary care and want to work with diverse, underserved populations, they can do that and still receive that loan forgiveness. Those programs hold a great deal of promise.”

Programs such as the National Health Service Corps (NHSC), which offers scholarship and loan repayment awards, may soon become more popular. The recently enacted American Recovery and Reinvestment Act (ARRA) of 2009 provides an additional $300 million in funding, including $168 million for loan repayment, to boost the physician workforce in medically underserved areas. The debt repayment program is available to physicians who are in training or have completed training.

This new funding means that NHSC practice locations will increase significantly, to include urban and rural areas not previously deemed health professional shortage areas, explained Matthew Shick, AAMC’s senior legislative analyst. “It’s already a strong program, but it is going to be much broader because of this new money. There will be many more urban opportunities than there have been in the past,” Shick said. He added that misconceptions abound regarding assignment options and compensation. In actuality, even before the new government funding was announced, positions were available in hundreds of urban and rural locations, and physicians on NHSC assignments earn the same salary as their colleagues at those sites who are not in the loan repayment program. Some physicians, eyeing a mountain of education debt, decide during medical school to sign on for practice opportunities that offer loan forgiveness or repayment as an enticement, especially if the options suit their professional objectives. One is internist Matthew Watson, MD, MPH, who will soon start his first practice position at an Indian Health Service (IHS) clinic in Jackson, California. “I signed up for this as one way to put my money where my mouth is, because general medicine has always called me,” said Watson, who is part Native American and grew up on IHS facilities, where his father worked as a pharmacist. “I knew what I wanted to do early on, and I locked myself in early, but I’m glad I did.”

Dr. Watson, who attended Columbia University Medical School in New York and is a chief resident at Cambridge Health Alliance, also chose the IHS option because of the inherent flexibility. He was able to choose among a wide range of practice locations, as the chief requirement was that 50 percent of the facility’s patients be indigenous. As part of the program, $25,000 of his loans will be paid tax free annually. He also made the decision to consolidate his loans through the federal Primary Care Loan program, a low-cost federal loan program geared toward medical students committed to primary care practice. “I would have done this either way, but the IHS option was the most appealing because I was able to go almost anywhere in the country,” Dr. Watson explained.

Second-year internal medicine resident Jay Bhatt, DO, MPH, of Boston, past president of the American Medical Students Association (AMSA), made his decision early to serve in the NHSC. Bhatt plans to practice in an urban setting, where he can combine his commitment to caring for uninsured and underinsured individuals with his public health credentials. The loan repayment was a big draw, as his education debt, even beyond what the NHSC will repay, is still $160,000. “My debt is high in part because I borrowed money to live on during school,” said Bhatt. “We really didn’t learn much in medical school about loan repayment and service options. I am grateful that I had the benefit of my AMSA experience and my exposure to NHSC to wrap my head around the financial issues.”

Based on his experience and what he saw during his AMSA tenure, students often complained about the lack of guidance available on debt repayment. Dr. Bhatt urges students and residents to be proactive in addressing their debt. “If you’re not on top of it, it can be incredibly difficult and painful,” he said. “That expertise is especially important for physician couples who are both graduating with enormous amounts of debt, which we see a lot of today.” He now encourages his colleagues entering residency to work with a financial planner who has expertise in medical education debt and to tap into the growing array of online resources (see below).

Fortunately, awareness of rising medical education debt as a pressing issue — not just for individual physicians but for the workforce as a whole — is prompting action in academia and on Capitol Hill. The AAMC recently launched a comprehensive website called FIRST (Financial Information, Resources, Services, and Tools), and federal and state governments, with a push from policymakers, are expanding their loan repayment and forgiveness service options.

The U.S. government’s Public Service Forgiveness Program, created in 2007, may also undergo modification that will ease repayment for physicians who work in qualifying public service positions in public health, public safety, military service, or emergency management. The program allows loan forgiveness or cancellation of remaining principal and interest after the borrower has made 120 monthly payments. The hope, Shick noted, is that the 10-year forgiveness period will be adjusted to include the residency and training years. “The details are still unfolding on this, and everyone involved is still trying to figure out how all the pieces would come together,” Shick said.

Getting a Handle on Debt Repayment
Following are tips offered by organizations such as the AAMC and experts in medical education debt management for making repayment as painless as possible:

1. Create a master document that includes the details of and contact information for all loans, including amounts, issuing institutions or programs, and entities that service the loans. Commit to keeping meticulous records on payments and all associated correspondence.

2. Get a handle on the relative cost of individual loans (the subsidized and unsubsidized ones) by comparing interest rates, loan terms, and other factors affecting repayment. Ensure a solid grasp of the repayment particulars for each loan, such as grace periods and forbearance and deferment options.

3. Before choosing a repayment option or consolidating loans, do the math to ensure the plan makes financial sense. Work with a financial advisor experienced in education debt management, if necessary.

4. Tap into the myriad resources available on the Internet — from the AAMC and medical professional organization websites and online discussion forums to lender and loan servicer support systems — for guidance on repayment.

5. Physicians who are in deferment or forbearance periods — or still in school — should consider making some sort of payment on the interest that’s accruing on the most costly loans, particularly unsubsidized or GRAD Plus loans. Keep in mind that forbearance, if granted, is an expensive proposition because interest charges continue to mount.

6. Stay in touch with loan servicers, and notify them of any changes to phone, e-mail, or address, as they are the most important contact points during repayment.

Deferment, Forbearance, and Income-Based Repayment: Understand the Basics
Most physicians have grasps on basic loan deferment because they defer payments while in medical school and, if they qualify, during training. Physicians who need to defer making payments for financial reasons after completing their training, however, should note that eligibility criteria for economic hardship deferment have changed. Effective July 1, 2009, to qualify for deferment, the monthly debt burden must total at least 20 percent of monthly income. Total income minus the loan debt cannot exceed 150 percent of the federal poverty level (for the family size).

Physicians who request forbearance — a period during which payments are either lower than scheduled or are not made at all — must meet stringent income and other criteria and must apply formally through a loan servicer. The typical period is six months to one year. Some physicians who receive forbearance, however, may fail to recognize how the payment “lapse” will affect them later. Interest that went unpaid on any loan, including subsidized loans, is capitalized at the end of the forbearance period. That means that total debt increases during forbearance.

To increase the range of protracted repayment options for physicians who experience financial constraints, the U.S. Department of Education has introduced a new repayment structure, the Income-Based Repayment (IBR) option. Available starting July 1, 2009, the IBR limits required loan payments to 15 percent of the household income that exceeds 150 percent of the federal poverty level. IBR options can be used with subsidized and unsubsidized Stafford Loans (Direct or FFELP), Grad PLUS loans, and federal consolidation loans. Borrowers may participate in the IBR plan for up to 25 years, at which point any remaining debt is forgiven.

For more information on how IBR loan payments are structured and calculated, go to www.IBRinfo.org.

Resources
Physicians working through the often confusing tasks associated with managing loans and evaluating repayment options may find the following resources helpful:

1. Association of American Medical Colleges FIRST (Financial Information, Resources, Services, and Tools) program, available at www.aamc.org/first. A newly launched AAMC initiative, FIRST offers a comprehensive array of education debt resources and tools for students and trainees at all stages of the spectrum, from those contemplating medical school to physicians who have completed their residencies.

2. Offerings include debt estimation tools and payment calculators, an extensive glossary of lending terms, an up-to-date compendium of state and federal loan repayment and forgiveness programs, and a basic primer on debt management strategies, among others. FIRST also now hosts the FIRST for Residents Mailbox, which enables residents to anonymously pose questions or concerns about loan repayment, deferment, forbearance, and other debt management issues. The mailbox also sends e-alerts to subscribers on program modifications that may affect loans, deferment, and forbearance options, as well as announcements of new programs.

3. MEDebt Solutions, available at www.medebtsolutions.com. This resource, previously operated as the AMSA Loan Consolidation Program, offers unbiased information on debt management strategies and options in the context of overall financial guidance. Key resources include a medical education debt guide and checklist, as well as budgeting and money management guidance tailored to medical residents and newly practicing physicians.

*Dr. Fromson serves as the editor for Career Resources and is Vice Chair for Community Psychiatry, Brigham and Women’s Hospital; Chief of Psychiatry, Brigham and Women’s Faulkner Hospital; Associate Professor of Psychiatry, Harvard Medical School.