The Physician Guide to Evaluating Student Loans

Physician with Student Loans

If you are a physician and early in your career, you probably have student loans.

According to the Association of American Medical Colleges, the median amount of student loans for a physician entering residency in 2019 was approximately $200,000. Most have Federal loans and are on an income-driven repayment plan.

As a CFP® married to a physician working for a 501(c)(3) non-profit, I cringe every time I hear of a physician at her employer who refinanced their Federal student loans solely based on a lower interest rate.

Whether you have Federal or Private loans (or don’t know what you have), taking the time to evaluate your options can be a great investment of your time.

Step 1: Examine

What do I have and where can I find this info?

You can access the most detailed information about your Federal loans through the National Student Loan Data System (NSLDS).

You will find your private loans on your credit report. Most important information such as interest rate, payment, expected payoff, etc. can be found through online banking or a mobile app.

Types of Federal Loans

Subsidized Stafford – You don’t pay interest while you are in school, in a grace period or during deferment.

Unsubsidized Stafford – You pay interest from the time the loan is disbursed until it is gone.

Federal Consolidation – All of your smaller Federal loans are combined into 1 loan.

Perkins – Loans made to students who demonstrate financial need based on a calculation of the family’s expected contribution and cost of attendance.

Parent PLUS – This type of loan places the obligation of repayment on the parent or legal guardian.

*Take note if the word Direct is included in the name of your loans (i.e. Federal Direct Unsubsidized Stafford Loan) . If the info you obtain from the NSLDS lists the lender as US Department of Education, you have a Federal Direct loan.

Types of Repayment Plans

Standard – Fixed payment over 10 years.

Graduated – Payments start at a lower amount and increase every 2 years at a rate to pay off the loan over 10 years.

Extended – Fixed payment over 25 years.

Extended Graduated – Payments start at a lower amount and increase every 2 years at a rate to pay off the loan over 25 years.

Income-Driven Repayment (IDR) – Payments are calculated as a percentage of discretionary income. IDR plans are a requirement to qualify for Public Service Loan Forgiveness (PSLF).

Types of Income-Driven Repayment Plans

Repayment PlanEligibilityPayment CalculationForgiveness TrackInterest Limitations
Pay As You Earn (PAYE)Partial financial hardship required, no balance on a federal loan on October 1, 2007, loan disbursed on or after October 1, 2011.10% of joint/separate discretionary income*, capped at 10-year payment amount.20 years or PSLFCapitalization limited to 10% of the amount borrowed.
Revise Pay As You Earn (REPAYE)No partial financial hardship required, doesn’t matter when you borrowed.10% of discretionary income**, not capped at 10-year payment amount.25 years for graduate loans/20 years for undergrad only, or PSLF.Only 50% of interest accrues during periods of negative amortization.
“Old” Income Based Repayment (IBR15)Partial financial hardship required, doesn’t matter when you borrowed.15% of joint/separate discretionary income*, capped at 10-year payment amount.25 years or PSLF.No limit.
“New” Income-Based Repayment (IBR10)Partial financial hardship required, no balance on a federal loan on July 1, 2014.10% of joint/separate discretionary income*, capped at 10-year payment amount.20 years or PSLF.No limit.
Income Contingent Repayment (ICR)No partial financial hardship required, doesn’t matter when you borrowed.20% of discretionary income, capped at 12-year payment amount.25 years or PSLF.No limit.

*Married couples can manipulate this by filing taxes Married Filing Separately.

**Always based on both spouses’ income regardless of tax filing status.

Step 2: Diagnose

Is forgiveness possible?

Do you have Federal student loans and currently or will soon work for a 501(c)(3) Non-profit? If the answer is yes, consider pursuing Public Service Loan Forgiveness (PSLF).

PSLF is a form of forgiveness where if you meet certain requirements, your loans are forgiven tax-free. So, if you are a physician with Federal Direct student loans, this can be a financial game changer.

To qualify, you must have Federal Direct student loans, work full-time for a non-profit or government entity, make 120 qualifying income-driven repayments, and be able to prove it.

Potentially qualifying and not being aware of this could be a six-figure mistake for those with high student loan balances.

But I heard over 99% of PSLF applications get denied?

In September of 2019 Forbes published this article with data from a government watchdog showing a 99% rejection rate. Why did this happen? They didn’t qualify!

Only Federal Direct loans qualify. Prior to July 2010, Federal loans came from 2 sources, Federal Family Education Loan (FFEL) and Federal Direct. The vast majority were FFEL, which do not qualify. However, you can make them qualify through a Direct Consolidation, but that only begins the 120 qualifying payment clock. As a result, it may be too late for some to consider this option.

Since July 2010, all Federal loans have been through the William D. Ford Federal Direct program. So, prior to then most students had to take an action to make them qualify.

PSLF not in your future?

A physician who has private loans or doesn’t plan on working for a non-profit or government entity won’t qualify.

If that sounds like you, then you can narrow your focus to ways to pay them off with minimal interest. That may include making extra payments or refinancing at a lower interest rate.

You should keep in mind that Federal loans are discharged at death. So, if you refinance your loans with a private lender, and you pass prematurely, your spouse is now responsible for those loans. This financial planning problem can be easily fixed with a low-cost term life insurance policy.

Step 3: Prescribe

How to Maximize PSLF

If you are on the PSLF track, you maximize the amount forgiven by paying the least amount possible. How do you do this?

  1. Choose the Right Income-Driven Repayment Plan

Examine the differences between the different types of plans. Some will allow you to exclude your spouse’s income. Some will include a lower percentage of your income in the calculation. Other differences such as interest limitations may apply. As a result, there is likely an option more appealing for your situation. The loan simulator provided by is a great resource for this.

2. Lower your Adjusted Gross Income on your tax return

If you are on an IDR plan, you have to re-certify your income at least annually. Your Adjusted Gross Income (AGI) from your previous year’s tax return is the most common method. A few ways to lower your AGI include contributing pre-tax to your retirement plan, HSA/FSA, and tax-loss harvesting from taxable investment accounts.

3. Tax Filing Status

There are some instances where filing your taxes separately from your spouse could make sense. You should beware of the tax consequences in doing so. Essentially, if the increase in the amount forgiven outweighs the additional tax you pay by filing separately and the risk the loans aren’t forgiven (i.e. you change employers), it makes sense.

If you are thinking of going this route, you should consult with a tax professional and someone who knows the ins and outs of student loans and PSLF.

Start the PSLF Paper Trail

If you meet the criteria, you will receive a letter in the mail from FedLoan Servicing documenting what counts toward PSLF. Here is a picture of what it looks like:

Direct Consolidation Loan

If the only thing in your way of PSLF is your loan type, you may still have enough time left where a Direct Consolidation makes sense.

Before you do this, you should carefully consider the pros and cons.

If you think a Direct Consolidation is right for you, here’s where to apply.

How to change your repayment plan

Did you notice a clear advantage of one income-driven repayment plan over another for your situation?

Here’s how to change that:

  • Login to your StudentAid.Gov account
  • Go to Manage Loans
  • Apply for an Income-Driven Repayment Plan

Refinancing with a Private Lender and are two great resources for comparing rates of private lenders. Remember, before you refinance, you should carefully examine what benefits you may lose by refinancing and any fees involved.

3 Common Traits to be Aware of:
  • Less payment flexibility
  • Loans not discharged at death
  • Lose PSLF eligibility

But, an adequate emergency fund and disability income insurance policy can help with the first bullet point. And again, a low-cost term life insurance policy can address the second.

Making Extra Payments

If you want to retain the benefits that come with Federal loans, you could make extra payments to pay them off quicker and at a lower total cost. Be sure your payment preferences are set to funnel any amount above the minimum to pay down the principal.

If you want to further optimize your strategy, you can designate which loans the extra amount goes toward. One common method is to start with the highest interest loan. Another is to begin with the lowest balance loan.

More Help from Bankrate

Figuring out whether or not to refinance student loans is already a complicated process, but with the COVID-19 crisis, it’s even more confusing than before.

To help simplify this process, Bankrate put together a guide that breaks down different factors to consider when making a decision, including:

  • Pros and cons of refinancing
  • Challenges when refinancing with bad credit
  • Steps to take if you’re having trouble making payments

Here’s the link:

What’s right for your situation?

If you found this helpful, help a fellow physician struggling with student loans by sharing.

If you have questions about your personal situation, feel free to reach out to me.


Partial Financial Hardship – If your payment was based on your income/debt ratio, it would be lower than a standard 10 year repayment plan.

Discretionary Income – Adjusted Gross Income minus 150% of the poverty guidelines for your family size and state.

Interest Capitalization – occurs when unpaid interest is added to the principal amount of your student loan. When the interest on your federal student loan is not paid as it accrues (during periods when you are responsible for paying the interest), your lender may capitalize the unpaid interest.

Negative Amortization – when the monthly payment is less than the interest charged.

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