When it comes to handling your medical student loans, most of the generic advice out there just isn’t a fit for your situation. As a new physician, dentist or other medical professional, you’re in quite a different place than a newly-minted undergrad who’s starting their career at 22.
Those differences boil down to two key factors that necessitate a different loan management strategy: the amount you owe, and what else you have on your plate.
You’re likely dealing with significantly more debt than the average new graduate – in 2016, headlines were made when the average student loan debt figures climbed over $30,000, but new doctors graduate with an average of $189,165 in medical student loans, and new dentists are looking at an average of $261,149.
In addition, you’re not 22 anymore, and you probably have a few more things you want to balance when it comes to your overall financial picture. Living on ramen noodles to pay down your debt probably isn’t high up on your list of things you want to do, and it’s not going to help you buy a house, host a wedding, or achieve the other goals on your priorities list either.
Luckily, there are steps you can take to make sure that you handle your medical student loans in a way that works for your life, even if it seems like an insurmountable task right now.
Step One: Pull your loans together
The first step is to get all of your loan information in one place, and look at it as a holistic picture of what you owe, to whom, at which interest rates.
For your federal loans, you can find all of the information in one place, at nslds.ed.gov. Log in and take a look at all of the information.
Then, it’s time to gather all of your private loan information, which might require a few more logins.
Whether you use a spreadsheet or a plain old piece of paper, write down the total loan amount, your interest rate and your monthly payment for each loan. The only way to effectively plan to pay down loans is to start with accurate information, after all.
And when you’re looking at these amounts, remember that there may be ways to manipulate your payments if you need to down the line. So if you’re staring at a number that feels far too big for your budget? Don’t panic yet.
Step Two: How much money do you have available to pay off your loans?
Now that you have all of your loans in one place, it’s time to look at what else you need to pay for in a given month.
Start with your current take-home monthly income, knowing that you have already chosen to save 10% through your employer’s retirement plan. On top of that amount, you should then aim to save 10% of your take-home pay, which is the number you see on your paycheck.
Once you’ve got your savings figured out, then it’s time to take stock of the payments you need to make every month for necessities like rent, food, utilities and other non-negotiable bills.
Next, add in the money that you spend on non-necessities that are still nice to have, like restaurants, coffees, hobbies and other indulgences. I’m not saying go crazy with them, but if they’re a regular part of your life that you enjoy, add them into your budget.
Now, look at how much you have left over. This is the amount of money you have to put towards your financial priorities, and paying off your debt is one of them – but it’s not the only one.
Step Three: Balance it with your other priorities
If you were 22, living with roommates and scrimping and saving as you started your life, it’s possible that you’d want to throw every dollar towards your debt to clear it as soon as possible. However, graduating at a different life stage means that’s probably not the right strategy for you and your money.
Once you’ve got an idea of how much money you have to put towards your priorities, it’s time to figure out what those priorities are for you (and your family, if you have one).
Make a list of everything you’d like to use that money for, from a wedding to a mortgage to starting a family – and make sure to include paying down your medical student loans as a line item, because it needs to be on the list.
You know your current monthly payments, from Step One, but now is when you can decide whether you have room in your budget to make additional payments on your loans. If you can afford to do that while still balancing your other goals, it’ll save you a bundle of interest in the long run.
However, don’t try to overdo it by sacrificing all of your other priorities, including that 10% you’re putting away for retirement and the 10% you’re putting away for other savings. Over the long term, the most important thing is to find a balance that works for your budget and your life, so that you’re paying the least amount of interest while still having the life you want.
Step Four: Understand your refinancing and loan management options
There’s a lot of competing information out there about your student loan management options.
Should you refinance?
Should you consolidate?
What if you can’t afford your payments?
The right answer for you will be personal, and it’ll be based on a few key factors that are specific to your life.
First and foremost, you’ll want to consider your employment situation. If you have a steady, stable job that you can count on for years (or decades!) then refinancing any federal loans to lock in a lower interest rate could save you a lot of interest over the course of your loan. If you do this, however, you’ll lose access to all of the more flexible repayment options that come standard with federal loans, like income-based repayments.
Let’s look at an example. If you’re a physician employed at a hospital, and the norm for your specialty is that you’ll be at the same hospital for many years in a stable position, refinancing federal loans could be an option for you.
On the other hand, if you’re a dentist working part-time at multiple practices, and still working towards a full-time, permanent position, keeping the privileges of the federal payment programs is likely well worth the cost of a few percentage points of interest.
And in the case that you can’t afford your payments yet, there are options available to you. They’re a little bit more in-depth and will be discussed in upcoming posts.
What’s Step Five?
At the end of the day, handling your student loans as a medical professional is never going to be as straightforward as “pay them off as soon as possible,” but there are ways to make sure that you do pay off your loans in a timeframe that suits your life, while still living it along the way.
If you’ve gotten stuck on a step, whether it’s figuring out a budget, balancing your financial priorities or questions about loan management, I’d love to talk more about your goals and how I can help. I offer free 30-minute consultations to medical professionals who are grappling with their student loan debt, and can help build a plan that balances your debt with your life as a newly-minted physician or a dentist.
Picture: Medical School Student Loan. Copyright: 123RF Stock Photo