The Credit Check: Managing Student Loan Debt and Credit Health for Physicians

Your dedication to becoming a licensed medical professional has taken you on a long, rewarding educational journey. But, as you’re all too familiar with, that journey has come at a cost. Nearly three-quarters of all medical students graduate with student loan debt—often substantial debt. Medical professionals owe, on average, $250,995.¹  

If you’re in the process of building a healthy financial foundation for yourself and your family but are burdened with a large amount of student loan debt, we understand the challenging balancing act you face.

Let’s take a look at your student loan repayment options, as well as the importance of maintaining a healthy credit score.

The Unique Student Loan Debt Challenges for Physicians

If it’s been a while since you looked at your loans, take some time now to review and determine if you have federal or private student loan debt. The type of debt you’ve accrued can impact your repayment plan options.

Typical federal loans for medical students include:

• Stafford Loans (Direct Unsubsidized Loans): Because these loans are unsubsidized, the government does not pay interest on the loan while you are in school. As soon as the loan is taken out, interest begins accruing. Notably, the federal government stopped issuing Stafford loans in 2010, and Federal Direct Loans replaced them.
• Direct PLUS Loans: Direct PLUS loans are unsubsidized and have a fixed interest rate. Borrowers (graduate or professional students or the parents of undergraduate students) must have good credit scores to qualify.
• Perkins Loan: The government stopped issuing Perkins Loans in 2017, but they are low-interest loans for undergraduate and graduate students with severe financial needs.
• Primary Care Loan: Specifically offered to those planning to specialize in primary care, these loans give borrowers a 12-month grace period after graduation before repayment is required.

Some private student loan lenders, like Sallie Mae, also offer loans specifically for medical students. 

Your Loan Repayment Options

Again, your repayment options depend on the loans you’ve acquired throughout your academic career. Here are some options based on the type of loans you have.

Federal Loan Repayment Programs

There are many repayment plans to consider for federal student loans. As you review your options, think about what your actual repayment goals are.

If you want to pay the least amount possible each month, this will likely extend the length of your repayment period but free up more of your monthly cash flow.

If you’d like to pay off the debt as fast as possible, you may be able to avoid paying additional interest over time, but your monthly payments will be higher.

Typical federal loan repayment programs include:

• Standard Repayment Plans: For these plans, borrowers pay the same amount each month for 120 months (10 years). These plans typically have the highest monthly payments but accrue less interest over the loan’s lifetime.
• Public Service Loan Forgiveness (PSLF): Available to those who work in the government, public schools, or qualifying nonprofit organizations, the PSLF program forgives any remaining loan balance tax-free after 120 months of repayment (10 years).
• Income-Driven Repayment Plans (IDR): There are currently multiple income-driven repayment plans offered by the Department of Education, though they may change as new laws are passed. These plans are based on your previous year’s tax return, as you only pay a certain percentage of your monthly income (the percentage may vary based on the individual plan). The repayment period is much more extended than the standard repayment plans, typically lasting 20-25 years.
• Graduated repayment: These repayment plans last ten years (similar to the standard plans) but gradually increase the payment amounts over time. The payments start relatively low but increase every two years.   

You may be a high earner, which means typical income-driven repayment plans don’t work in your favor. As you compare options (which the Department of Education can help you do here), keeping these goals in mind is essential. Otherwise, you may commit to a repayment plan that puts more strain on your monthly budget than is necessary.

Private Loan Repayments

Unfortunately, your only real option for adjusting your private loan monthly payments is to refinance with a lender who offers a more favorable interest rate than what you’re currently paying. Some lenders may temporarily reduce payments under certain circumstances, but there are no income-driven repayment plans for private loans.

If you have a good credit score, it’s always worth researching other lenders and finding opportunities to consolidate and refinance for a better rate. Keep in mind, however, that if you consolidate and refinance your federal student loans, those loans will no longer be eligible for any type of federal loan forgiveness or repayment plan.

Building and Maintaining Credit Health

A credit score tends to be a part of peoples’ financial life that sits on the back burner until it’s needed for something important—buying a home, applying for an apartment, or refinancing student loan debt.

Unfortunately, it takes time to raise your credit score—so neglecting to check it until you need it to borrow money isn’t wise.

Your credit score tells you much about your financial health and borrowing power and can also be your first indicator of something wrong. Check your credit score regularly to catch missed payments, see if new credit inquiries have been made (indicating your personal information may have been compromised), and get a birds-eye view of your lines of credit.

The higher your credit score, the more responsible you are as a borrower—and therefore, the more desirable you look to lending institutions. A high credit score can open the door to exclusive loans or credit cards (which may have favorable rewards or cardholder perks). You may also be able to secure loans with better terms or interest rates.  

How to Increase Your Credit Score

Your credit score is reported by the three main credit bureaus: Experian, TransUnion, and Equifax. Your score will vary slightly between them (since each uses a unique formula for determining credit scores), but they should stay within 20 points or so of each other.

If you’re currently working with a less-than-stellar credit score, here are a few ways to gradually increase your score over time (even as you continue paying down student loan debt):

• Pay on time: While it sounds simple enough, it’s worth pointing out that paying your bills on time is the most influential factor in determining your credit score.
• Minimize credit utilization: If your credit card has a $10,000 limit, and your balance is $3,000, your credit utilization is 30%. The lower you can keep this percentage, the better it’ll be for your credit score. This is the second most crucial factor in determining an individual’s credit score (behind paying on time).
• Increase lines of credit: The more credit you have available, the better your credit utilization percentage will be (granted, you keep your actual borrowing around the same). Following the example above, if your credit card balance is $3,000 but your borrowing limit is $30,000, your credit utilization drops to 10% (even though you’re borrowing the same amount).
• Dispute incorrect information: You’re entitled to view your credit score regularly, which can help you find errors that may have been reported by mistake. If you do find incorrect information in your credit report, contact the credit bureau immediately to have the information corrected or removed from your history.

Budgeting for Financial Success

Physicians are in a unique financial position as they graduate med school and start working in the “real world.” Their lifelong earning potential is high, as their income increases significantly as their career continues. However, many physicians still feel financially strained in their early careers with high student loan debt (often comparable to a mortgage). 

We understand the challenges you face, and that’s why we specialize in helping physicians like you balance your debt obligations with your needs today and goals for the future. You’ve worked incredibly hard to earn your degree and deserve to reap the financial rewards.

If you’d like to talk about debt repayment options, including improving your credit score to refinance private debt, feel free to reach out to our team anytime. 

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