Steven J. Fleischman, MD

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 Welcome back to a discussion of my favorite topic, the black hole of medical   training: business. This column is about medical school loans, an issue near   and dear to me. By the time I graduated from medical school, my debt had escalated   to $160,000. Then during residency, like many of my colleagues, I got married   and became a parent. I thought when I finally started earning a salary, I'd   be able to buy a home and save for my children's educations and my retirement.   But the medical student loans loomed, and as of July 3, 2000my first day   in practiceI could no longer defer payment. 

 Let me tell you how I got into such debt and how I plan to get out of it. 

 When I started medical school, a financial aid officer told me about Stafford   loans, the Supplemental Loan for Students (SLS), and Health Education Assistance   (HEAL) loans (see "

Digging your way out of medical school debt

").   He advised me to finance as much as possible through the federal programs (Stafford   and SLS), which had fixed interest rates, which at that time were locked in   at 8%. HEAL loans, on the other hand, had a variable interest rateat the   time about 5.75%. After the high interest rates of the late 1980s, our financial   aid officers were wary that rates would once again skyrocket, making the 8%   a safer bet. (Little did they know that rates would drop to an all-time low   by the time my loans were due for repayment.) 

 I am happy to report that as a medical school graduate of the class of 1996   with about $140,000 in loans, I was further in debt than many of my colleagues.   By 2002, the average debt for a graduating medical student was $104,000. For   those attending a private medical school, the average was $123,780, compared   to $91,389 for students at public institutions. I remember nothing about the   requisite exit interviews I had with our financial aid officer, and that may   be how I got into trouble with deferment. 

 Deferment is the process of putting off payments on student loans until residency   is over. I had a LOT of paperwork to complete for deferment because for each   year of medical school, I had Stafford, SLS, and HEAL loans, each of which required   a separate form. And the banks doing the lending changed over the years. I'm   no financial guru and I was working well in excess of 80 hours per week, but   I quickly realized that failure to file just one deferment form could harm my   credit. 

 Seemingly to the rescue came the solicitations about consolidating my loans.   I couldn't resist the pitch to reduce my paperwork burden to just one deferment   form. Consolidating my loans with a single lender also meant I could make a   single monthly payment. But there was a drawback: Interest rates were high at   the time and locked at the weighted average of the Stafford/SLS loans and I   didn't realize that once I consolidated, there was no ability to refinance at   a lower interest rate. Unlike mortgages, student loans, for some ridiculous   reason, can only be consolidated 

. Imagine my surprise when I recently   wanted to refinance my Stafford/SLS loans from 8% to about 3% and was told I   couldn't because I had already done that as an intern. That made me just a bit   angry. Interest rates on every type of loan were under 6%. My HEAL was at 2.54%   and my mortgage was 5.25% but my consolidation loan with Sallie Mae had to stay   at 8%. 

 So, I called the US Department of Education to complain. They said talk to   Congress, but I tried that, too, and got nowhere. Then I decided to get creative.   At that point, half of my $160,000 debt was a HEAL at 2.54% and the other half   was at 8%. And I was no longer eligible for the $2,500 tax deduction on student   loan interest because my wife and I had exceeded the $130,000 joint-income cap.   (Thanks for nothing, Congress!) My first step was to take out a home equity   line of credit (HELOC), which at the time had an interest rate of 4.25% and   was tax deductible. The second thing I did is not for the undisciplined. I received   an offer for a new credit card with 0% interest on balance transfers for 16   months and used it to finance my remaining 8% interest loan. I had a definite   plan for paying off the credit card within 16 months and would not suggest financing   through a credit card for anyone who 

 have such a plan. Keep in   mind, too, that using a credit card or HELOC may put your spouse on the hook   for the debt if something happens to you, whereas liability for most student   loans rests with the student alone. All told, I've saved a fair amount in interest   and have a plan in place to finish paying off my debt within the next 5 years. 

 I have one suggestion for anyone with student loans: make a plan. In fact,   even if you don't have student loans, you still need a financial plan. It's   a roadmap, if you will, that shows where you and your family are, where you   want to be financially, and how to get there. Medical school loans can seem   overwhelming. Clinicians leaving residency usually have many things that need   their attention, such as retirement, funds for educating their children, and   housing. Making a decision about which of these goals to address first is not   easy and many factors play into these life decisions. Don't try to arrange your   finances alone. That's difficult and also can put a lot of pressure on your   personal relationships. Seek out professional financial help. 

  Find a financial planner you trust. A fee-only planner may be a good   choice as these professionals charge by the hour and do not make money by trying   to sell you things. They are paid a flat fee for their planning services. 

  Meet regularly with your planner. That need not be monthly, but you   should reevaluate your plan semi-annually or at least yearly. Things change   and your plan should be updated to reflect that. 

  Don't wait. I believe that every new intern should be required to meet   with a financial planner. This is an opportunity to learn about personal finance,   develop a relationship with a planner, and relieve any anxiety that you may   have about your debt burden. 

  Make it a family affair. Including your spouse/partner in the sessions   with your planner will help identify and prioritize your goals. 

 Medical student loans can feel overwhelming for a new physician starting out.   A solid financial plan goes a long way toward easing those concerns.

"Our Generation" offers real-world solutions to problems faced   by ob/gyns new to practice. Written by young readers for young readers, each   column sketches out a specific problem and offers practical "street-smart" advice.   Columnists Steven J. Fleischman, MD (

),   and Editorial Board Advisor Nanette Santoro, MD (

),   welcome your questions, comments, and ideas. Let them know how life is going   in the trenches. Submission of a letter or e-mail constitutes permission for   Contemporary OB/GYN, its licensees, and its assignees to use it in the journal's   various print and electronic publications and in collections, revisions, and   any other form of media. 

Digging your way out of medical school debt 

 For many young physicians, the joy of finally starting to earn a decent living   is tempered by the knowledge that the astronomical IOUs they accrued in medical   school are still looming. 

 Most debt-ridden graduates consolidate their loans before leaving residency.   That is a tempting strategy; it simplifies the paperwork and makes the monthly   installments far more affordable, since you can take up to 30 years to repay.   Remember, though, that by taking longer, you'll be increasing the total interest   you pay; in some cases, you may be nearly doubling the overall cost of your   education! 

 Suppose, as so often happens, that you marry a colleague from medical school   or residency who 

 has debts? Theoretically, you can combine all your   loans into one single package. But financial experts generally warn against   this strategy. Individual consolidated loans are forgiven if the borrower dies   or is disabled. But if your loans are consolidated with your spouse's, and something   happens to one of you, the surviving partner will still be responsible for the   other's debts. (Moreover, in case of a divorce, you could be linked for years   by your joint responsibility for paying down the entire loan.) 

 In the worst-case scenarioyou can't begin to pay down your debtyou   can always apply for forbearance, which is available for all medical education   loans. But you should at least try to chip away future debt by making the interest   payments. And if you can't pay all of the interest you owe, pay it on the loans   with the highest interest rates. Of course, the same principle applies to paying   down the balance of your loansstart with the ones with the highest interest. 

 As Dr. Fleishman discovered, taking out a home equity loan is a good way to   retire your medical school debts because the payments are tax-deductible, at   least on the first $100,000 borrowed. The only caveat is that the loans generally   must be paid back within 5 to 15 years, rather than the more leisurely pay schedule   of consolidated educational loans. 

 Dr. Fleishman's second strategyusing a credit card to pay off debtsis   a little more problematic. Robert Baldassari, a financial advisor and CPA from   Fairfax, Va., warns physicians to read the fine print on their credit card offer   carefully; for many cards, the accompanying literature says that the offer is   good only for purchases, not for cash advances. 

 "If Fleischman was able to make use of such a godsend, he used it cleverly   to retire his debt," Baldassari says. The only improvement, the advisor added,   would have been to use the credit card for all of the debt, since there would   be no interest, and then, just before the 16 months were up, to take out a home   equity loan to retire the debt. 

 But yet another financial advisor and CPA, Sherman Doll of Walnut Creek, Calif.,   echoes Fleischman's warning that his strategy is "not for the undisciplined."   Getting credit cards and running large balances on them can affect your credit   rating negatively, Doll warns. 

 What if you can't find the kind of credit "deal" that Fleischman did, and   don't own a house to borrow on? One strategy would be to find a practice so   anxious for you to join that it's willing to repay your loans. Arrangements   like this still exist, although they're in the minority and are not always in   the most desirable locations. And keep in mind that there may be a good reason   that the practice is having so much trouble persuading someone to join. 

 You might want to investigate state and federal programs, such as the National   Health Service Corps (NHSC), which offer loan-repayment incentives for physicians   willing to work in medically underserved areas. The Indian Health Service (IHS)   loan repayment program also pays a substantial chunk of your debtsand   both the NHSC and the IHS pay more than 30% of the federal taxes due on their   loan-repayment money. You'll need a sense of adventure, however, since there   are no guarantees that you'll like where you're sent. Alternatively, you can   join the US Army or Navy Reserves and receive loan repayments of up to $20,000   a year in exchange for at least one weekend per monthand the chance you'll   be called up for an extended tour. 

 And finally, there's the time-tested route that financial expertsand   your grandmotherhave preached for years: 

.   Forget the status car and the drop-dead house, at least for the time being.   Shop for bargains and avoid credit card debt. Eat at home, and take modest vacations.   Buy quality items that last. And set clear priorities: Would you rather have   a lot of "stuff" or be free of debt? 

 

Steve Fleishman. Getting out from under student debt. 

Author | Steven J. Fleischman, MD

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Our Generation: Getting out from under student debt