Residency & Beyond

Start Shrinking Your Med School Debt

Before you save your first patient as a doctor, learn how to save money in student loan debt from Justin Nabity, founder & CEO of Physicians Thrive.

If you’re not familiar, Physicians Thrive, is an advisory group helping physicians avoid business and legal pitfalls and build their financial education. He provides important advice for prospective doctors and current physicians who should be seeking ways to plan for future debt, and reduce their current student loan debt.

It’s difficult to overstate how stressful the prospect of loan repayment is for young physicians. With student loan debt for medical students averaging around $250,000, it can be difficult to start wrapping your head around paying back such a large sum. Some new doctors worry constantly about their loan burden and put every extra penny towards paying off their debt. Other physicians simply try to put their debt out of mind and make the bare minimum in repayments. Unfortunately, neither of these strategies is particularly effective for your long-term financial health.

However, there is good news: you can pay off your loans, and probably faster than you think. Our team of physician-specific financial advisors works with doctors all over the country. When our clients finally see a personalized, realistic debt repayment plan detailing their path to a debt-free future, their relief is immediate. Medical training is still a highly secure, lucrative investment, and there is no need to be frantic or panicked about loan repayment. At the same time, don’t be too passive and expect your finances to work themselves out on their own. As a medical student, here is what you can start doing today to create a proactive debt reduction plan:

Apply Early to Secure a Resident Stipend

Medical residents can typically begin applying for attending positions as early as two years before graduation. At this point, many training doctors have not even started to think about the application and interview process, but there are substantial advantages for those who are willing to commit early. Many employers will offer perks in order to lock-in a high-quality candidate years in advance, including resident stipends for training physicians.

Resident stipends are offered in addition to sign-on bonuses in order to recruit training physicians while they are still completing their residency. If you sign an employment contract that offers a resident stipend, you could receive several thousands of dollars each month during your final two years of residency. This additional income can make a serious dent in your student loan burden, because paying back loans earlier reduces the interest that accrues on top of your principal loan.

An important caveat: if you change your mind and renege on a signed employment contract, you will be asked to repay any advances, bonuses or stipends you have received.

Negotiate Strategically to Start Paying Off Loans Sooner

Even if you cannot apply to jobs in the earliest round of interviews or find an employer offering a resident stipend, there are several ways that contract negotiation can shrink your debt. Many new physicians, fearful of scaring off potential employers, avoid negotiation altogether. This is a huge mistake. It is perfectly normal and appropriate for any physician to attempt contract negotiation, and there is no need for negotiation to be adversarial. In fact, a few adjustments to a compensation structure can make an enormous impact on your financial situation, with little or no inconvenience to your employer.

For example, imagine if you are applying for positions during your final year of medical school, and an employer offers you a contract with a $250,000 first-year salary. Instead of waiting to earn that income after you start working, you may be able to ask your employer to spread out the equivalent of your first year’s compensation into four installments of $62,000 over the course of your last year of residency and first year of employment. Think of this pay structure as an advance on your first year of income: the employer is paying you the exact same amount of money, however this timeline allows you to make several large lump sum payments towards your debt while you are still in training. Generally, private practices will have more leeway and flexibility to negotiate payment schedules than a large hospital or medical group.

It may also be advantageous to renegotiate your compensation structure for a larger signing bonus. You will avoid additional interest and take a bigger chunk out of your principal loan by putting a large portion of your signing bonus towards a lump sum repayment, rather than increasing your regular student loan repayments by a small margin. By putting these early financial windfalls towards student loans during residency, you can also avoid the temptation to overspend when you finally earn an attending salary. By maintaining a more modest lifestyle in the first few years after training, you may be able to pay off your loans four to five years sooner.

Invest in Contract Review to Know What You Deserve

Few things can delay or derail a student loan repayment plan like an underpaying first job. Because new physicians are the least familiar with the employment contracts and compensation standards, they are the most likely to be taken advantage of by employers. Unfortunately, many employers knowingly offer low-ball salaries and boiler-plate contract terms in the hopes that some new doctor fresh out of residency will agree without negotiation. Professional contract review, conducted by a physician-specific contract attorney and financial advisor, can help you compare, understand, and negotiate contract offers.

Whether you want to negotiate for a different bonus or understand how a pay structure might impact your loan repayments, a contract review team can help. Imagine after your first year of working, you realize you are earning $25,000 less than your colleagues with commensurate experience. Even worse, your bonus relies on complicated productivity benchmarks that are virtually impossible to meet, and your non-compete clause prevents you from leaving to work any other practice in the area. A professional contract review could have clarified, addressed or avoided these issues before your contract was ever signed. A contract review ensures that any job offer you accept is aligned with your personal financial needs and goals, including student loan repayment.

Your Final Note on Student Loan Debt

Here is the single best piece of advice for medical students regarding loan repayment: do not live in fear of your debt. Strong emotional reactions rarely lead to wise financial decisions. Instead, develop a proactive plan to tackle your debt with the help of a financial professional. A few strategic financial moves early in your career can make a world of difference, and give you the confidence to start working towards all your financial goals.

Justin Nabity

Justin Nabity is the founder and CEO of Physicians Thrive, an advisory group helping physicians avoid business and legal pitfalls and build their financial education. As a wealth management advisor from a family of doctors, he launched his business by traveling to medical schools nationwide to educate physicians about their unique financial, legal, and business needs. Today, Physicians Thrive has served physicians at over 400 medical centers, hospitals, and medical schools, and 1000 residency and fellowship programs.

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