Med students are facing up to the rising price of education but how are they managing debt?

Young physicians may appear to have it all. Passion. Youth. Slang you don't understand. However, the current national debt average for graduating medical students is $183,000 according to the Association of American Medical Colleges (AAMC). That figure does not include personal debt or pre-medical school debt, which many students also have. Fortunately, there are numerous federal scholarship and loan repayment programs, including pay-as-you-earn (PAYE) options.

Some medical groups are concerned the daunting thought of paying off a $200,000 loan plus interest over 17 to 20 years may discourage many students from even considering medical school. There is already a substantial physician shortage nationwide, and AAMC predicts by 2025 the U.S. could be short up to 90,000 physicians, including 31,000 primary care physicians. Many posit medical student debt is affecting career choices. So instead of choosing the lower-compensating primary care, many opt for a higher paying specialty that may not have been their first choice and potentially suffer burnout and/or depression.

A recent article in the Journal of the American Board of Family Medicine provides some insight into not only how debt affects students’ career decisions, but also their professional outlook. “We now have good evidence that debt influences, at least, some medical students to choose high-income specialties rather than primary care careers,” author Dr. Julie Phillips wrote. She referred to a large retrospective study of more than 135,000 physicians. Those who graduated with more than $100,000 in debt were less likely to practice family medicine. And perhaps more disturbing is a qualitative study Phillips mentions where “students described their debt as making them feel more cynical, less altruistic, and entitled to a high income. High debt has also been correlated with callousness, stress, suicidal thoughts, failing medical licensing exams and leaving or being dismissed from medical school.”

On the flip side, Phillips wrote several surveys have shown students who choose family medicine value income and lifestyle less than their peers. Dr. Marie-Elizabeth Ramas chose family medicine with $100,000 in debt from medical school. Dr. Ramas told Healthcare Dive she was able to secure a National Health Services Corps (NHSC) scholarship so her debt is less than that of the average medical student. However, she revealed, “one-third of my income goes to my loan debt. So when you factor in taxes and the fact that I’m married with three children, it really starts to weigh.” She said she knew she wanted to go into family medicine early on. “I think I can speak for the majority of family doctors – you go into family medicine because you want to help people.” Yet, Dr. Ramas explained there’s a constant balancing act between serving patients and paying the bills. “Decisions are sometimes made not for vocation but for finances and that becomes a stressor because it becomes a conflict between your calling and what you need to do to make ends meet.”

Rising costs

Debt is increasing at a very fast rate. Data from the past are mixed as to whether debt factors into medical career choices. "But no matter what the past data says, nobody knows what’s going to happen because debt is increasing so quickly. We have a new generation of physicians who have a very different financial picture than past generations of physicians,” Ashley Bentley, student interest strategist with the American Academy of Family Physicians (AAFP), explained in an interview with Healthcare Dive. 

It’s startling to read how much medical school tuition has increased. Between 1984 and 2004, average tuition and fees jumped 165% in private medical schools and 312% in public medical schools. And in 1984, 87% of public medical school students graduated with an average of $22,000 in debt, and for 90% of private medical school students, debt averaged $27,000. Twenty years later, in 2004, the average debt rose to $125,000 – an increase of more than 150%. 

Average public medical school tuition for first-year students for 2015-2016 ran $30,000 for a resident and $55,000 for a nonresident, and private medical school tuition averaged $50,000, according to an American Association of Medical Colleges Tuition and Student Fees survey.

So if one were to do the math, the median four-year cost to attend medical school is potentially $200,000 for those at private schools and as high as $220,000 for those at public schools. Please advise: This is for tuition only and does not include living expenses, books, or other school expenses.  

Dr. Westby Fisher, a board- certified internist and cardiologist, who pens a personal blog wrote in 2014, “For our newest trained doctors increasingly saddled with nearly insurmountable debt, the lure of medicine is waning. For those already in the pipeline, the reality of what’s coming when the loan bills come due is inevitably going to be turning our next best hope for medicine’s future away unless the cost problem is fixed soon…Unless we really work to change the cost of educating our next generation physicians I fear that medicine’s best hope for the future will quickly dwindle away.”

A mix of financial solutions

Fortunately, there are numerous federal programs to repay medical student debt, including the Public Service Loan Forgiveness (PSLF) program, the Revised Pay As You Earn Plan (REPAYE), the National Health Service Corp (NHSC), and private refinancing, to name a few. The federal loan interest rate averages between 5.5% and 7.0% so a 10-year standard repayment plan on a $200,000 loan would be $2,000 a month, Aryea Aranoff, head of strategy at Darien Rowayton Bank (DRB), a bank that specializes in student loan refinancing, detailed in a blog. Many residents will choose to put their loans into forbearance during residency since their salaries are low, but interest still accrues, sometimes adding as much as 25% to the total debt. 

The PSLF program, enacted in 2007, was originally for mostly undergraduates with smaller loans. But Aranoff told Healthcare Dive, “It’s a very attractive program because large loans can be forgiven. We’re not talking about $20,000 or $40,000 being forgiven, but closer to $300,000.” 

The idea behind this program is it provides full forgiveness on federal loans after 10 years of monthly payments on an income-based plan, providing a physician works full time at a nonprofit organization. However, Aranoff says there are very limited spots available in nonprofit hospitals, and wrote in his blog, “Generally PSLF is a program most applicable to doctors who foresee careers in academia or plan on practicing in under-served areas. Secondly, as a federal loan program, it can be subject to change.” For example, President Obama’s 2015 budget had a proposal to cap the forgiveness amount at $57,500, but it didn’t make it in the final budget. “Everyone is waiting to see when people start getting their loans forgiven how it’s going to work. I think people are really curious to see if doctors making $300,000 are getting $300,000 loans forgiven and whether the government is really going to continue something like this and actually forgive those size loans,” Aranoff added.

HHS runs a program, the National Health Service Corp (NHSC), which tries to fill primary care physician shortage gaps in federally designated shortage areas. NHSC offers three programs – a scholarship program, a loan repayment program, and a students-to-service loan repayment program. The scholarship program is competitive – it received 2,112 applications last year and awarded 207 individuals. The loan repayment program awards up to $50,000 (tax-free) to help repay loans in exchange for a two-year commitment to work at an NHSC site. The students-to-service loan provides loan repayment up to $120,000 to medical students in their last year to pursue primary care while working in underserved communities.  A Health Resources and Services Administration (HRSA) spokesperson told Healthcare Dive that during FY 2015, NHSC funded approximately $176 million new loan and scholarship awards for about 3,200 medical students.

Pay-as-you-earn programs

Matthew Shick, director of government affairs and regulatory counsel for AAMC, said the new generation of physicians is opting for income-driven repayment plans, which are basically PAYE programs. “The older generation may have opted more for the 10-year repayment plan, but the new generation is headed more towards these income-driven repayment plans,” Shick added.  

In the past, Shick explained, the only option for physicians was a repayment plan based on what was owed, “which was very high for medical students - $2,700 or so per month.” However, the PAYE program drops that amount substantially during residency because the salary is low; the monthly payments average around $300 a month. After graduation, when income increases, the monthly payment rises to about $1,600 a month. “This is still much lower than what the previous generation had to pay under a standard 10-year repayment program," Shick noted.

AAMC has a loan repayment fact card for 2015 that looks at a sample repayment of $183,000 in federal direct loans. Under a PAYE program during residency (3 years for primary care) monthly payments would be $300 a month, and post-residency for 17 years, $1,600 to $2,400 a month. Total interest on the loan: $224,000, total repayment: $407,000.

The Department of Education recently updated the PAYE program with the Revised Pay as You Earn (REPAYE) program that caps monthly payments at 10% of income and is available to all borrowers with federal direct student loans, regardless of income or loan application date. However, the new program extends the term to forgiveness for graduate student loans to 25 years versus 20 years under PAYE. Also, a spouse’s income now counts towards discretionary income and can substantially increase monthly payments and borrowers have to apply every year to stay enrolled in the program. “REPAYE has its merits. Lo-income borrowers, particularly those who did not previously qualify for PAYE will find the new program and its interest subsidies to be incredibly valuable,” Aranoff wrote in another Huffington Post blog.

In the private sector, there is a new initiative to refinance student loans while medical students are residents. Aranoff calls this effort, “a major innovation – to allow people to refinance at a lower rate before they’ve started their professional life. That’s really a major change and a very exciting option for doctors.” Also, AAFP offers recent graduates loan consolidation and refinancing without application or origination fees through a partnership with SoFi – a finance company. 

Is it worth it?

Ramas told Healthcare Dive, “I ask myself every day is it worth it?  Yes, because primary care is my calling. Is the debt worth it? Yes, I think so. Is the debt necessary? No – I don’t think it is. I think the system is broken in that sense.” Ramas said her advice to first-year medical students would be not to pick a specialty based on debt. “This is a life-long commitment and you want to be happy and feel you are fulfilling your role. It’s not just about paying the bills. And, even though as a primary care doctors we make less than other specialties, we’re not suffering by any means. The average family doctor still makes about $180,000 a year average and that can increase depending on the skill set gained in residency.”   

The demand for family medicine physicians remains high. A 2015 Merritt Hawkins’ report said for the ninth consecutive year, family doctors were the most requested physician-recruiting assignment with an average starting salary of $198,000. Signing bonuses are becoming the norm at around $20,000 for family medicine, according to the Medical Group Management Association (MGMA). The group’s 2015 Provider Compensation Survey Report of 70,000 providers showed primary care physicians reported a median compensation of $241,273, a 3.56% increase from the previous year. And, although specialists have a much higher median compensation of $411,852, their salaries only increased 2.39% for the same time period.

“Medical students are still going to be able to live a comfortable lifestyle if they make smart financial decisions,” Ashley Bentley of AAFP concluded. “So they should make their specialty choice based on what they are passionate about –the type of work they want to be doing for a long time. Every single graduating medical resident needs to be smart with their money.”

Filed Under: Finance Practice Management