In Scenario 1 ($150,000 borrowed), Dr. Median chose forbearance during residency, followed by a standard 10-year repayment plan, requiring her household to make the maximum monthly payment after she completed her residency. In this scenario, while living in Boston with a $145,000 primary care starting salary, her household would have $1,100 per month in discretionary income two years into practice at age 32. In Denver, her household would have $1,500 per month (see Table 2, Scenario 1). Because this scenario requires the largest monthly loan repayment and our model suggests that her household could manage it, we did not include the results of the other repayment plans at this borrowing level in this report as these would allow even more monthly discretionary income.
Scenario 1 would result in an even higher level of monthly discretionary income if Dr. Median pursued a non-primary-care specialty. For example, psychiatry or obstetrics–gynecology would afford her $3,200 per month with a $195,000 starting salary, and general surgery would afford her $5,100 per month with a $245,000 starting salary (see Tables 3 and 4, Scenario 1).
In Scenario 2 ($200,000 borrowed, forbearance during residency, standard 10-year repayment plan), her household would have much less discretionary income if Dr. Median chose primary care: just $200 per month at age 32 living in Boston. To repay this level of borrowing without falling into debt or reducing spending in other areas, Dr. Median’s household might need to consider other repayment options, such as living in a more moderate-cost area like Denver, where the same scenario would result in $600 per month in household discretionary income (see Table 2, Scenario 2). Alternatively, if Dr. Median were to make a two-year commitment to the NHSC loan repayment program while living in Boston, her household would also have $600 per month (see Table 2, Scenario 3). If she chose an extended 25-year repayment plan living in Boston, her household would have $1,500 per month (Table 2, Scenario 5). They would have roughly $1,000 per month if she chose IBR in that scenario (Table 2, Scenario 8), although IBR would require them to make an $800 monthly loan repayment during her residency. At this level of borrowing, even if Dr. Median pursued primary care while living in Boston—the specialty choice and living combination that generates the most economic challenges among all the models—many repayment plans would be economically feasible. However, extended repayment would result in a hefty interest payment over its 25 years.
Examining the scenarios at the level of $250,000 borrowed showed a different story. The only scenarios where a standard 10-year repayment plan seems economically realistic involve at least a four-year commitment to the NHSC loan repayment program, whether living in Boston or Denver (Table 2, Scenario 12). Using the extended 25-year repayment plan living in Boston at this level of borrowing does result in $900 in monthly discretionary income at age 32, although full repayment for this scenario totals over three-quarters of a million dollars (Table 2, Scenario 13). If Dr. Median chose IBR at this borrowing level, which requires repayment during residency, her household would also have $900 in monthly discretionary income at age 32 (Table 2, Scenario 16).
Fewer than 1 in 20 indebted medical school graduates face the final borrowing level that we modeled—$300,000. This borrowing level would be difficult for Dr. Median to comfortably repay if she were a Boston-area primary care physician. The few repayment scenarios in which her household discretionary income would be above $300 a month involved either IBR (Table 2, Scenario 24), PSLF (Table 2, Scenario 25), or a four-year NHSC commitment while on an extended 25-year repayment plan (Table 2, Scenario 23). If Dr. Median pursued primary care in Denver at this borrowing level with an extended 25-year repayment plan, her household would have $700 in monthly discretionary income and over $920,000 in total repayment (Table 2, Scenario 21).
The considerable economic benefits to pursuing the higher-paying specialties are apparent when comparing scenarios across Tables 2, 3, and 4. For example, Scenario 18 ($300,000 borrowed) seems economically infeasible if Dr. Median were a primary care physician living in Boston, as it results in −$1,300 per month in discretionary income (Table 2, Scenario 18). However, if Dr. Median had a starting salary of $195,000, this same scenario would result in $400 per month in discretionary income, and, with a starting salary of $245,000, her household would have $2,200 per month(Tables 3 and 4, Scenario 18). In Tables 3 and 4, we show only selected Boston scenarios for comparison purposes because these higher-income households seem economically capable of living in an expensive city and managing the most financially challenging repayment option that we modeled—$300,000 borrowed and repaid via a standard 10-year repayment plan.
The scenarios that we modeled indicate that recent medical school graduates with the median amount of education debt ($160,000) can enter primary care, raise a family, live in an expensive urban area, and repay their debt in 10 years without incurring additional debt, provided their household income is comparable to the spending model that we used, which was based on median statistics. To achieve all of these goals at the $200,000 debt level, however, a primary care physician would need to consider an extended repayment plan and/or a federal loan repayment program, such as IBR or the NHSC. To achieve these goals at debt levels of $250,000 or more, a primary care physician would need to consider living in a more moderately priced area and/or choosing an extended 25-year repayment plan or a multiyear commitment to a federal loan forgiveness/repayment program.
In general, the more a medical student borrows, the more likely it is that he or she will need to consider repayment options other than a standard 10-year repayment plan if he or she lives in an expensive urban area. Not surprisingly, each such choice involves trade-offs. For example, an extended repayment plan results in a lower monthly payment but much more interest paid over the repayment period. IBR bases the monthly payment on the household’s income but, for maximum benefit, requires payment during residency when the household’s income is at its lowest. PSLF offers the possibility of loan forgiveness but only after 10 years of working in a government or nonprofit position. The NHSC offers generous loan repayment sums but requires at least two years of service in an NHSC-approved position in a health professional shortage area, which can be urban or rural.
If Dr. Median pursued a higher-paying specialty, we found that her household could manage her education debt repayment without incurring further debt while living in any city and using any type of repayment plan for any level of education debt included in our models.
For all levels of borrowing across the three career tracks, regardless of the repayment plan or the discretionary income available early in Dr. Median’s career, our models show her household with ample finances for retirement.
Our results demonstrate that a primary care career is economically viable for today’s medical school graduates, with the caveats that we noted above (a nonstandard repayment plan or living in a less expensive area) for the higher debt levels. At the highest levels of borrowing, if Dr. Median pursued a primary care career, she faced a challenge in repaying her education debt. Dr. Median could meet the challenge of repaying that extreme level of education debt while pursuing primary care, but she would likely need to consider options such as living in a lower-cost area and choosing a 25-year extended repayment plan with its larger interest amounts, or participating in a federal loan forgiveness/repayment program. Although physicians have historically shown little interest in loan repayment programs, such as the NHSC, recent federal budgets have included considerably more overall NHSC funding, which may trigger increased interest among new medical school graduates.
We recommend that future research efforts focus more directly on the influence of education debt on specialty choice by exposing undecided medical students to the economic details of the education debt repayment options to determine whether they report that this information influences their decision making.
Potential repayment challenges
Although education debt levels for indebted medical school graduates in the classes of 2009–2011 remained stable, if they were to increase in the coming years at a rate comparable to those that we have seen historically, an increased number of indebted graduates, particularly those pursuing primary care, might need to consider repayment options beyond the standard 10-year repayment plan, which could make primary care less attractive to some graduates.
If a household’s income were less than that in our model, which is based on median statistics, because of a lower income level for either spouse, the household would face challenges managing their education debt repayment, particularly if they chose a standard 10-year repayment plan while living in an expensive city. In addition, if a household were to maintain a living standard above that of our model, which for some items is based on federal statistics for households in the “$70,000 and above” category, it would be faced with challenges to balance loan repayment with living expenses.
For all levels of borrowing, the PSLF repayment scenarios (Scenarios 9, 17, and 25) seem to be among the most financially advantageous, because the household’s monthly IBR loan repayment would be tied to its income, not its debt, and, per the program’s guidelines, a sizeable portion of the loan balance would be forgiven after 10 years of repayment. However, there is an opportunity cost to this program in that it requires employment at a nonprofit where the income potential for a physician would likely be lower than if the physician were in private practice. Thus, over 10 to 20 years, the short-term financial gain afforded by the program’s loan forgiveness potential could be outstripped by the long-term financial advantages of having a higher annual salary each year. Although a full accounting of this opportunity cost is beyond the scope of our study, the scenarios that we modeled mask this trade-off because the starting salaries that we used were based on data from physicians in private practice, not those working for a nonprofit. Physicians considering PSLF would likely benefit from consultation with certified financial planners to evaluate the program in the context of their individual loan portfolios and potential career paths.
First, our findings are based on a financially savvy household that follows the ESPlanner guidelines on optimal spending and saving levels to minimize the financial shock of major future expenses, such as purchasing a home or having a child. In scenarios with forbearance during residency, our models had the household saving during residency to prepare for loan repayment and other expenses after residency. For residents and early-career physicians who are not as financially savvy or disciplined as our fictional household, our findings may represent an optimistic assessment of a primary care physician’s ability to repay such education debt levels without increasing her household’s debt. However, if the household were to maintain a standard of living below the assumptions of our household spending model, augment the household income, or choose a location with a lower cost of living, managing debt repayment would be easier than we predicted.
Second, in our sensitivity analyses, family planning decisions had the greatest impact across scenarios. For example, we found the decision to start a family later or space children farther apart to be financially advantageous. Alternatively, we found that having more than two children strained some scenarios where high levels of borrowing were repaid via a standard 10-year repayment plan in an expensive city. Thus, a household that makes different family planning decisions than Dr. Median’s might not follow the scenarios that we modeled.
Third, we assumed continuous NHSC support, if any NHSC support, in our scenarios. The loan repayment program, though, offers no guarantee beyond the initial two-year commitment, as participants must amend their contract each additional year, which is subject to the availability of appropriated funding for the program. Thus, our scenarios that modeled NHSC support beyond two years would not hold true for physicians who receive only the initial two-year commitment.
Fourth, all our scenarios included a married working couple with children, and our conclusions followed from that baseline assumption. The following scenarios, which are beyond the scope of our study, would generate different outcomes and conclusions: an indebted MD who remains single; a married MD whose spouse does not have an income, works part-time, or has significantly more debt than the amount we modeled; a married MD who experiences a divorce; an MD married to another MD with medical school debt of his or her own; or an MD who is much older at the start of medical school. These scenarios provide interesting opportunities for future research.
Our economic modeling of a physician’s household income and expenses across a range of medical school borrowing levels in high- and moderate-cost living areas shows that physicians in all specialties, including primary care, can repay the current median level of education debt. At the most extreme borrowing levels, even for physicians in comparatively lower-income primary care specialties, options exist to mitigate the economic impact of education debt repayment. These options include an extended repayment term or federal loan forgiveness/repayment program, such as IBR, PSLF, and the NHSC. Each option, however, has its own trade-offs. Our findings are important because, regardless of the degree to which education debt and/or income expectations influence specialty choice, medical students and new physicians should understand the long-term financial implications of their career choices.
Acknowledgments: The authors thank Julie Fresne, Henry Sondheimer, and Paul Jolly, all of the Association of American Medical Colleges, for their careful review of earlier drafts and helpful suggestions.
Funding/Support: The work of Dr. Wiecha and Dr. Koehler was supported, in part, by a Primary Care Training grant (#D56HP10305-03-00) to Dr. Wiecha from the Health Resources and Services Administration, U.S. Department of Health and Human Services.
Other disclosures: None.
Ethical approval: Not applicable.
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