According to the Association of American Medical Colleges (AAMC), the average medical school graduate now carries more than $200,000 in college debt. They have not been obligated to return their federal student loans for the past three years.
However, when repayments resumed immediately after a pandemic respite, medical school graduates may be unprepared on how to repay their debt. Despite their significant student loan debt, 56% of graduating medical students polled by the American Medical Association’s (AMA’s) Council on Medical Education said they had no plans to seek loan forgiveness.
“I’m particularly concerned about those who graduated medical school in 2020 and never felt the impact of loan payments on their budget,” Tyler Olson, a financial planner who works with medical students and residents, told Medscape Medical News. Even 2019 graduates probably only made four payments before the loan pause began in March 2020, Olson added.
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Last month, the Supreme Court halted President Joe Biden’s student loan relief proposal, which would have reduced loan balances for medical students and residents by up to $20,000 per year.
If the loan repayment break is not extended further, student loan interest will restart on September 1 and borrowers would be required to begin making payments the next month.
Some borrowers may still benefit from temporary respite if they sign up for Biden’s latest debt relief program. They have a 12-month grace period during which late or missed payments are not deemed overdue. The plan, which could go into effect in July, could reduce monthly payments for undergraduate loans by half, increase the amount considered protected from repayment, and forgive debt after at least ten years of payments for borrowers who meet specific requirements.
Meanwhile, according to the AMA poll, only 34% of surveyed medical students with debt intend to pursue federal Public Service Loan Forgiveness (PSLF). After making 120 qualified payments while working full-time for a charity or government agency, the program forgives the remainder of a physician’s student loans. The PSLF program reduces borrowers’ loan balances by $98,000 on average. However, Olson claims that the scheme may cancel up to 80% of a physician’s debt.
Olson believes that residents who have become accustomed to not having to repay loans for three years may struggle to handle the additional expense. With an average interest rate of 6.5% on student loans, graduates must pay around $2300 per month to pay them off in 10 years, which is the payback timetable for those who have not chosen an income-driven repayment plan.
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Derek Fitzgerald, MD, a Georgetown University physical medicine and rehabilitation resident, graduated from medical school in 2020. According to Medscape, making school loan payments will stretch his current budget, so he wants to juggle numerous side occupations, including teaching, to relieve financial stress and supplement his income during residency.
Fitzgerald said he would consider practicing in underprivileged areas and pursuing loan forgiveness, but he also wants to look into private practice, which normally pays more. “With a monthly net income of over $20,000, I can comfortably manage loan payments ranging from $3000-$5000,” he explained.