Doctors: Pay Off Student Loans Quickly

6 strategies for taking years off medical school debt and saving thousands in the process

Graduating from medical school is a major accomplishment. But for too many doctors, the celebration is dampened by the massive student loan debt that can go hand-in-hand with a medical degree.

In the class of 2018, 75 percent of medical school students graduated with student debt, according to a NerdWallet report. The average amount: $196,520, up from $190,694 in 2017.

To put that in perspective, the monthly payment on a $197,000 student loan balance is $2,212 on the standard 10-year federal repayment plan, assuming a 6.25 percent average interest rate. That’s more than double the average American’s monthly mortgage payment of $1,029.

Many doctors struggle to afford the full amount of their monthly student loan bills during their residencies and wind up putting their loans into forbearance until they complete the program. Unfortunately, the spiraling interest charges can result in a balance that’s thousands of dollars higher than the amount they originally borrowed by the time they become attending physicians.

Such crippling debt at the start of a medical career is a bitter pill to swallow, and repayment times on traditional student loans programs can drag on for 10 to 30 years. Let’s take a look at six ways to manage medical school debt while paying it down faster.

  1. Refinance with a private lender. The high balances and high-interest rates that characterize medical school debt can translate into a big opportunity for savings by refinancing with a private lender. The federal student loan interest rate is 6.6 percent for graduate programs like medical schools for the 2018-19 school year.

    Student Loan Hero points to reputable student loan refinancing lenders that offer rates as low as 1.95 percent – a significant saving over the length of the loan. Doctors are often ideal candidates for refinancing, as qualifying for the lowest rates requires excellent credit and a high-income relative to your debt.

    Consider this: if you took out a $189,000 loan at 7 percent interest, you would pay more than $74,000 in interest payments by the time you paid off your loan. If you refinanced your debt with a 5.5 percent interest rate, you would only pay $57,000 in interest and save $17,000.

    Of course, there’s a tradeoff to consider: refinancing means sacrificing federal loan benefits. That includes student loan forgiveness options, strong deferment protections, and access to federal income-driven repayment (IDR) plans.

  2. Consider an income-driven repayment plan. With an average first-year salary of less than $60,000, the high monthly demands of a standard 10-year student loan repayment plan can be a stretch for doctors during their residencies. But remember, deferring payments until you finish can tack thousands of dollars onto the cost of your loan.

    IDR plans can be a great option for residents who can’t afford to make full payments. There are four federal plans that cap monthly payments at a percentage of your discretionary income, making them easier to afford. That can extend your student loan term to 25 years, but also fights the balance creep of accumulating interest that accompanies forbearance.

    At a $56,000 annual income, you might owe as little as $315 a month. These plans also typically forgive any balance remaining after the repayment period.

    Here’s the downside: your low monthly payment may not cover all the interest that accumulates on your loan, increasing your total balance. To counter this, the government’s Revised Pay As You Earn (REPAYE) program offers a subsidy that waives half of any unpaid interest.

    But there’s a caveat there as well. Since payments grow with your income, your monthly payment could eventually wind up higher than it would have been in a standard 10-year federal repayment plan.

  3. Think carefully about how you file your taxes. For doctors who recently got married and are making payments on federal student loans, tax filing status as a married couple could significantly impact your student loan payments. Several IDR plans the only factor in joint income with your spouse if you file joint tax returns, while REPAYE considers your spouse’s income regardless of how you file.

    Of course, filing taxes as married-filing-separately could lead to higher taxes for the household and negate any associated student loan savings. It’s wise to consult with a qualified certified public accountant about the best way to file taxes while paying student loans.

    CPAs will also help you take advantage of relevant tax credits. For instance, if you made student loan interest payments in 2018, IRS tax law allows you to claim a student loan interest deduction of up to $2,500 on your 2019 tax return, as long as you and your student loans meet certain eligibility criteria. This credit is available to people with federal and private student loan debt, and you don’t even have to itemize your deductions to qualify. It is phased out, however, after a certain income level is reached.

  4. Don’t assume high salaries preclude you from forgiveness programs. If your income is low compared to your medical school debt, student loan forgiveness programs can serve as a lifeline. Public Service Loan Forgiveness (PSLF) offers student loan forgiveness after 10 years for doctors whose work qualifies as “public service.” That might include working for public or nonprofit hospitals, academia, the public health sector, or the military.

    To receive this loan forgiveness, you must make 120 monthly payments on an income-driven payment plan while working for a public service employer. If your income becomes too high to qualify, your payments cap out at the standard 10-year plan’s repayment rate, which still counts toward PSLF.

    Of course, there’s a catch: while public service can be personally rewarding and gives you the chance to help people who really need it, it does often come with lower salaries and less desirable locations. It can also limit your choice of specialties.

  5. Negotiate a physician signing bonus. Medical employers often use physician signing bonuses to attract top talent – and they can offer a great opportunity to pay down a substantial chunk of your medical school debt. In 2017, the average physician signing bonus was $30,000 – but the largest was $200,000.

    If you apply an extra lump-sum payment of $30,000 to the average loan of $197,000 at the beginning of the 10-year repayment schedule, you’ll save you more than $27,000, assuming the 6.6 interest rate. It also enables you to pay off your loans 27 months early.

    And don’t stop with your signing bonus. Continuing to make extra payments once you can afford to can eliminate a big portion of your student debt and help you pay it down faster.

  6. Live like a resident (just a little longer). To make extra payments on medical school debt, you need to make them a financial priority. The simplest way to do this is by mentally preparing yourself to live like a resident for a few more years, even though you may be earning three times as much.

    If you can keep your living expenses and discretionary spending low for the first few years that you earn an attending’s salary, you can pay off your debt aggressively – saving thousands of dollars in the long-term.

    Just be sure these important financial strategies are also in place:

  • An emergency fund that ideally contains enough to cover three to six months of living expenses
  • Investing in a retirement fund to at least get your employer’s 401(k) match
  • Paying down high-interest debt like credit cards

Medical student loan debt can feel daunting, and most doctors are anxious to get out from under the burden as quickly as possible. But practicing medicine leaves physicians little time to address student loan strategies – and most aren’t sure of the best path forward. A skilled CPA can help you discover ideas and tax strategies that may take years off your loans – saving thousands of dollars in the process.

Provident CPA & Business Advisors serves successful professionals, entrepreneurs, and investors who want to get more out of their business and work less, so they can make a positive impact on their lives and communities. Typically, our clients reduce their taxes by 20 percent or more and create tax-free wealth for life. Contact us for expert advice on tax planning, and to find out how we can help your business exceed your expectations.

Many Doctors Moonlight. How Does it Impact Their Taxes?

It’s important to understand what supplementing your income means for your taxes.

Modern medical debt is mounting. The figures run high to enter the medical field: $240,000 to $340,000 for a public or private degree with a median graduating debt of $190,000. It’s no wonder moonlighting is used by many physicians to get ahead. It can provide a valuable income stream at a crucial point in a graduate’s life, though not all who moonlight are fresh out of class.

The reasons aren’t solely financial, either. Moonlighters are part of a huge shift in the American workforce as up to 50 percent of the workforce goes freelance within the next decade. Today, burnout and job dissatisfaction mean upwards of half of all physicians are starting to seek some independence.

Whatever your motivation to moonlight, here’s what you need to know to file your taxable income properly.

Some important cautionary advice on moonlighting

You must first be certain that you’re permitted to moonlight under your current practicing circumstances. Failure to check your employer’s policy could result in severe penalties (consider the University of Colorado School of Medicine’s ban on moonlighting as an example). In other instances, you may find that only a certain number of moonlighting hours are allowed based on your experience or that they are dependent on supervision.

Policies vary between states and institutions and you will likely require a signed agreement from your primary employer to enable you to moonlight. If you’re sure that extra work won’t lead to trouble with your employer or with the law, then you’re free to consider your taxes.

Moonlighting and the 1099

An important distinction here is just how you’re choosing to earn the extra income. Who’s paying and where makes the difference between you being classed as an employee or as self-employed. Moonlighters often work at locations outside of their day job and for employers other than their primary one. This is known as locum tenens.

As such, they’re typically taxed under the 1099-MISC filing category. This makes the recipient responsible for filing fees and taxes on their moonlight income. These expenses won’t be removed from a paycheck as they usually are by a full or part-time employer under the standard W2 form.

The 1099 means you personally account for your owed taxes come April, typically via the 1040-ES filing. On the other hand, 1099 earnings do have the advantage of having certain tax deductions, provided you’re working at a secondary institution. This could be a big help with things like travel costs or supplying a home office and would be filed under Schedule C.

The Tax Cuts and Jobs Act (TCJA) could also be strongly in your favor if your job allows you to work and charge independently for your services. You could be looking at a 20 percent individual income tax deduction if you qualify. That said, working in the health care field is an out-of-favor “specified service trade or business” group when it comes to the new deduction, which means extra requirements to qualify for it; you can read about those here.

You can run your figures through this tax calculator for an idea of how the TCJA might affect you.

Moonlighting and the W2

The same can’t be said if you do all your moonlighting at the same facility as your day practice. The TCJA is less generous to physicians who remain stationary under same employer circumstances. You’ll still be making extra money, but the results would be taxed as usual by your employer and appear on your W2 as per your standard hours. There are financial upsides, however.

Onsite moonlighting at your usual facility removes the need to spend money on travel; a sometimes-hefty expense often incurred in a locum tenens scenario. Physicians who moonlight as their sole working model are also required to have pay for liability coverage insurance. This is another expense you might side step by remaining onsite with your primary employer.

Permission to moonlight and proper insurance should be priorities for every physician. Failure to ascertain either one could lead to financial liabilities that could easily consume any extra income or tax savings.

Managing today’s taxes is a big step toward your future

Choosing to moonlight will help boost your income and offer you expanded experience and independence. But don’t let your hard work be wasted by bad tax decisions. Get in touch with Provident CPA & Business Advisors and we’ll help craft a strong tax plan for your future. Among our strategies is assessing whether doctors can declare themselves as independent contractors rather than employees of a medical group, which could save them big come April. In the meantime, check out our earlier blogs on asset protection and malpractice to get more financial and tax information for medical professionals.

Real Problem Solving: How to Truly Tackle Your Company’s Dilemmas

How’s your track record at addressing and resolving issues?

It’s the elephant in the room. You see the problem, but everybody wants to avoid a discussion. Why is that – especially when it’s an obstacle that can kill organizational performance and profit? We live in an age where a company can lose a significant amount of its value because of a news report. Other, subtler issues linger long-term, limiting growth and success. When there’s a problem, it often has to be dealt with. Right now.

Provident advises a straightforward approach that results in real problem solving. It comes from the Entrepreneurial Operating System (EOS). This methodology banishes elephant-in-the-room obstacles with three steps. Identify the root cause, discuss it quickly, and solve it permanently.

Why do some organizations fail at problem-solving?

EOS originator Gino Wickman outlines that some leadership teams are highly efficient in problem-solving, while others are, as he put it, “terrible and lucky to get through 25% of them.”

To help, Wickman created a process known as the Issues Solving Track. EOS refers to problems as “issues.” The process contains three steps that create the acronym IDS:

1. Identify

Connie Chwan, a certified EOS Implementer and owner of PureDirection, LLC, observes that often, issues are uncomfortable, not well-defined, and unpleasant to deal with. Not solving the problem you want to avoid, she explains, becomes your second problem.

That’s why it’s important to identify the root cause of the issue. This is because the problem is really just the symptom. It’s for this reason that Chwan and Wickman advise you to not move forward until you clearly identify the real issue.

2. Discuss

It’s time for the team to share thoughts, ideas, concerns, and solutions for the issue. This must happen in an open and honest environment. Wickman doesn’t beat around the bush. In his Issues Solving Track, he advises teams to “get it all out on the table but say it only once. If you say it more than once, you are politicking.”

3. Solve

The hardest part comes last and the solution should always be simple. It isn’t as important what you decide but that you decide. If you don’t hear what Wickman describes as “the sweet sound of agreement,” it’s time to go back to the discussion phase. Action steps for the solution belong to an owner on the team, who will report on completion in the next meeting.

Removing IDS obstacles

Wickman’s personal experience shows that a healthy team will experience a high rate – eight out 10 times – of agreement to a solution. What does he mean by healthy? EOS is a holistic management system. Vision and traction get a team on the same page and provide the discipline to become more accountable. This makes the team healthy, meaning they’re cohesive and functional.

The repeated inability to agree on a solution may be an indication that your team should return to the basic tenets of EOS and discover what’s preventing them from achieving traction.

This dysfunction is often a symptom that a team is experiencing a lack of what author Patrick Lencioni calls organizational health. Successful leadership teams must be comfortable with open and honest exchanges at all points along the IDS process.

Mark Capaldiani, Founder and CEO of Opportunity into Revenue, observes that healthy leadership teams are able to focus on the greater good of the company, rather than narrow interests. Lacking that capacity, Capaldiani warns that the same issues will keep resurfacing. This can be a barometer of organizational health and the difference between a thriving versus a struggling culture.

Accelerating IDS

IDS can eat up a lot of time in meetings, which is why EOS suggests a way to make the process quicker. It’s applied during the first step of identification. It boils down to Who, Who, One Sentence.

  • Who: This refers to the person bringing up the issue.
  • Who: This refers to the team leader who will own the issue’s resolution.
  • One Sentence: The person bringing up the issue must describe it in a single, “rip off the band-aid” statement.

This process can reduce hours of wasted time and reclaim up to a week of productivity each year. Problem-solving isn’t the only organizational challenge that EOS can help your organization take to new levels. Learn how we can help you clarify, simplify, and achieve your vision.

Why High-Income Doctors Continue to Drown in Debt

On average, physicians make the highest salaries across the nation. But many doctors still continue to drown in debt due to student loans and poor spending habits

Attending medical school and becoming a physician has long been a noble and sought after career choice. Also, one of the highest paying. In U.S. News and World Report’s 2019 Best Paying Jobs List, (which also takes into account employment, growth rates, and job prospects) the 11 best-paying jobs are in the medical field. The highest is an anesthesiologist, paying a median annual salary of $208,000.

But to get there, medical students continue to take on hundreds of thousands of dollars in debt to complete their programs. And when physicians finally start their practices, many continue to struggle with large amounts of debt throughout their careers.

When physicians make such hefty salaries, why does this happen?

Medical school debt statistics

Medical school isn’t cheap, of course, and most med students get student loans to cover the substantial costs. Recent data from the Association of American Medical Colleges shows that in 2018, 76 percent of med students graduated with debt, and the median debt was $192,000. Private medical schools have even higher tuition, and 21 percent of students graduating from those schools have $300,000 or more of debt.

The average cost of a four-year med school program is $242,902, and private schools have a median cost of $322,767. It’s easy to see why most students have to resort to loans to pay for their medical education – especially given that full tuition scholarships are pretty rare in this field.

While many physicians do then see high salaries after graduating and completing postgraduate training, trying to start an adult life and establish a career can be extremely difficult with a couple of hundred thousand dollars in debt hanging over their head.

Spending habits of doctors

Let’s take a look at some of the ways doctors can have bad spending habits once they’re practicing which contributes to a massive amount of debt.

1. Doctors are supposed to have money, right?

Sometimes doctors, young or old, may feel the need to show others that they do, in fact, make a lot of money. It’s ingrained in our culture for us to assume that physicians make way more money than the rest of us.

That doesn’t mean that they have perfect lives or make smart financial choices, however. Sometimes doctors feel that they have to spend money in order to live up to that expectation. They’ll buy the bigger house and the snazzier car because they worked hard, and this is when it’s all supposed to pay off.

Family and friends may also be encouraging this behavior, as others start to depend on loved ones they assume can bail them out. Sometimes, physicians themselves overestimate their own salaries and compare their lives to other doctors who make more money than they do.

2. They’ve waited long enough

Consider the fact that doctors spend much of their young adult lives in school or residencies. After college, graduate school, medical school, a years-long residency, and finally a fellowship in some cases, it could easily be ten to fifteen years that young physicians are just studying and scrimping before they start making a salary.

Once they’re out of school and residency, doctors often start buying. A lot. They spend their new money instead of putting it toward the student loan debt they’ve accumulated. And it makes sense – they’ve been learning, doing rotations, and living off of meek funds for years. They’re finally making real money, so of course they’re anxious to start enjoying life.

3. Doctors haven’t been trained about financials

Again, it may be easy for people to overlook the financial needs of doctors: They make plenty of money or at least they will someday. And doctors themselves start to believe this, so they may totally neglect good saving habits or ignore wise investment choices, including saving enough for retirement

Doctors may not understand how daily spending needs to align with overall financial goals, or they may not know how to save the most on taxes. Physicians need the same financial training as the rest of us. They should look to financial programs or resources for those in medicine or set up an appointment with a professional financial advisor.

Provident CPAs & Business Advisors understand a large amount of debt that comes with medical training, and we help physicians figure out how to navigate one of the biggest drains on income – taxes. Among our strategies is assessing whether doctors can declare themselves as independent contractors rather than employees of a medical group, which could save them big come April. Contact us for more advice on tax planning and a proactive strategy. Every dollar saved on taxes is another dollar toward diminishing that debt.