Update 5/3/21: With the current pause to federal student loan payments and interest accrual due to the COVID-19 pandemic, if you still have federal student loans, you likely want to HOLD OFF on refinancing your student loans with a private company until this is no longer in effect.
Now that you’re done with PA school, I’m sure one of the first financial thoughts you’re having is, “How in the world am I ever going to pay off that much in student loans?” If you’re like most new PA-C providers, you likely have a hefty amount of student loans which are probably in the six figure range. Perhaps you’re fortunate in that you have family members or a spouse who can assist you in paying back some of the debt, but most of us just have to figure out a way to repay our loans on our own. Trust me, I’ve been there. It surely seemed like a daunting task, especially considering that my monthly student loan payments were actually more than our first mortgage payments! Craziness! Here are 6 strategies to consider when repaying your student loans:
1) Live like a PA Student (PA-S) for Another 2 – 5 Years
This is a slight spin off of what Dr. Dahle of The White Coat Investor recommends for physicians, which is to “Live like a resident for 2 – 5 years after residency”. So what does “Live like a PA-S for another 2 – 5 years” mean? It means do not let your new fancy PA income allow you to have a new fancy budget. This brings up the concept of lifestyle creep, which is the notion that the more money you earn, the more money you start to spend. Another way of phrasing is that the more you earn, non-essential items and luxury goods start to be perceived as “necessities” versus “wants” in life. In general, it’s good practice to fight lifestyle creep throughout your PA career as much as you can. However, it’s especially important during the first few years of being a practicing PA, as you’re trying to set yourself up for success and pay off those loans. If you tackle The 3 Big Budget Items right from the beginning, you’ll be set up for success in no time.
Unfortunately, this is another area in which I did not succeed very well. Initially, I was gung-ho about paying off my loans quickly and getting the proverbial monkey off my back. However, our “financial advisor” (which we will discuss another time) advised me not to be in a big rush to pay off my loans, but rather do so over the course of 10 years. He seemingly offered this advice based on a couple of reasons: 1) he notified me that the interest amount that I pay on my loans each year was tax deductible and 2) he recommended that my husband and I instead put money towards purchasing life insurance (which we will discuss later as well). However, unfortunately, these both were not excellent areas of advice. For example, I was able to deduct my student loan interest over the course of a few years, but then once our joint income reached a certain threshold, that was no longer an option for us. Additionally, as we will later discuss, whole life insurance has its flaws.
Instead of dragging out your student loan payments for a decade or more, seriously consider if you and your significant other if you have one can buck up and live more frugally for another 2 – 5 years after PA school while throwing excess dollars at your loans. It will feel so good and freeing to be done with those payments!
2) Increase Your Income to Decrease Your Debt
While the first point encouraged you to consider saving more, this point encourages you to earn more. As a PA, you’re able to work in a variety of medical roles and areas of medicine. Consider getting a second part-time job to use the earnings to cut your student loan debt. Another option would be to work another job outside of medicine, though a PA job may be more profitable.
3) Consider Whether You Will Be Participating in the PSLF (Public Service Loan Forgiveness) Program
If you elect to work for a qualifying governmental organization or a not-for-profit, you may be eligible to have your student loan forgiven. To qualify for PSLF, you would need to work full-time for 10 years and make 120 qualifying payments. Many PAs end up being employed through for-profit private organizations, so they would not qualify for this option. This has to be a personal decision for you to make depending on what area of medicine and what area of the country you are wanting to practice in. The government has been discussing canceling this program, so there is no guarantee that this program will benefit you, although if you were to start it, there is a chance that you would be grandfathered in. However, if you decide that pursuing this option is right for you, it is suggested that you make the minimum required qualified payments, in addition to setting aside money each month into a separate account to save enough money that will add up to pay off your loan over the years (ideally within 2 – 5 years by living frugally, but definitely within the 10 years). Then, if for some reason you do not qualify for PSLF at the end of the 10 years, you would have that chunk of money set aside to pay off the loan anyway!
4) Consider Whether You Will Be Participating in an Income-Driven Repayment Plan (Such as PAYE, REPAYE, IBR Plan, or ICR Plan)
(Hint: You Likely Shouldn’t)
Income-driven repayment plans (IDR plans) are programs where a borrower could potentially have a lower monthly payment based on a percentage of their income (especially if it’s a lower level income) and the size of their family. In addition to possibly having lower payments, if you do make those payments on time over the years of the repayment term, the rest of your loan amount is forgiven. If a new PA-C has a very large student loan debt amount, and depending on if they have kids as well, this may sound like an appealing option. However, let me caution you on a few things.
The first is something called the tax bomb. Yes, it is as bad as it sounds. With IDR plans, unlike PSLF, the forgiveness amount is unfortunately taxed at regular income rates. So the year your loans are (finally) forgiven, you’d likely have to pay back a very large tax amount. Not cool.
The second caution is that IDR plans are government programs, so their tax rates are usually on the higher end of the student loan spectrum compared to private student loan companies.
The third caution is simply the fact that with an IDR plan, you’d be in debt for so many years. As in likely 20 to 25 whole years. Ick! Even the salary of a PA right out of school would be considered a fairly high income, so most PAs likely would not need to use an IDR plan. A PA career also should be considered an in-demand, reliable career, which helps mitigate the risk of not being able to make payments with set amounts. However, during rare, unprecedented situations such as the COVID-19 pandemic (which we are in the midst of as I’m writing this), even PAs can be furloughed or laid off unfortunately. If other similar pandemics were to occur in the future, though, many loan companies likely will work with their borrowers to provide some flexible payment options. An IDR plan may benefit a select few, but honestly the whole concept of reaching financial independence is not only to get out of debt ASAP, but to accumulate wealth over time as well so you can choose what to do with your time and money.
5) Consider Refinancing Your Student Loans with a Private Lender
(Hint: If Your Answers to #2 and #3 Were No, Then You Likely Should)
If you are not shooting for PSLF and have decided that going through an IDR plan is not right for you, the next step to consider is whether or not you should refinance any federal student loans through a private lender. The answer is likely yes, as often the rate that you would get through a private lender would be so much lower.
I suggest checking with several student loan companies such as SoFi, Earnest, Laurel Road, etc. to compare interest rates and terms. Additionally, you could check through a service called Credible, where you’re able to enter your personal information as well as your student loan information, and what you’re looking for in a loan. Then, Credible will show you which companies you would match through, as well as their interest rates to compare them all through one service. So convenient!
In addition to a lower interest rate, there are some other benefits of refinancing through a private lender. Through private lenders, you often can choose some of the terms of your loan such as the ability to pick how many years to pay the loan back, as well as being able to choose from fixed versus variable interest rates based on the length of the loan that you settle on. Another benefit of refinancing through a private loan company is consolidating your loans into one easy, convenient location and one total amount with the same company.
6) If You Do Refinance Your Student Loans Through a Private Lender, You Likely Should Frequently Refinance Your Student Loans over the Years!
I was almost 6 years out of PA school when this notion came to my attention. Six whole years! Can you believe that? For some reason, I thought something to the effect that once I had initially refinanced my student loans that that rate was likely the best rate I could get. This is wrong for several reasons which will soon be discussed. Additionally, I liked the company that I had refinanced through (SoFi) for their customer service, so even though I was getting mailed advertisements from other loan companies about refinancing through them, I never really considered it.
However, it finally dawned on me after reading many articles and posts online about how many others were refinancing their student loans and getting good rates. I decided to look into it, and found that not only could I get a better interest rate, but I still could actually stick with my original loan company, instead of going through a competitor. So, I ended up dropping my interest rate by 2.27% through SoFi, and saving thousands of dollars on interest.
There technically is not a time limit between when you can refinance again. You can continually shop for lower interest rates through companies and refinance often until your loans are paid off. For example, the economy can affect interest rates, so they may be lower depending on what is going on in our country and even the world. One caveat to refinancing student loans often is that in order to obtain great interest rates through student loan companies, you usually have to have a good if not great credit score. If you have a poor credit score, you may need to stick with federal loans. Additionally, the process of refinancing your student loans in of itself can affect your credit score, though usually this is only by a small amount for a short period of time. The savings typically outweigh the small affect on your credit score.
You likely will be able to get better interest rates over the years practicing as a PA. As you make payments on your student loans, your credit score will likely improve. Additionally, over the years out of PA school, your income will likely increase, helping your credit score to improve. This is due to your debt-to-income ratio improving, which then makes you an attractive candidate to private lenders, allowing you to qualify for refinancing with excellent interest rates.
In summary, we have reviewed 6 strategies for you to consider for how you can create a game plan to tackle your student loans. Living like a PA student (i.e. living frugally) for 2 – 5 years after PA school should help you to be able to pay off your loans in that time period instead of dragging them out for several years like I have. You’ll feel so accomplished and relieved once that burdensome debt is off your shoulders!
If you would like to apply for a student loan refi with SoFi, use the link below, and as of 5/3/201, we each would get $10 for you checking your student loan rate, and then each another $300 when you fund your student loan through SoFi!
Disclosure: This link is a referral link, and I would receive a small commission if you choose to refinance your student loans with SoFi.
Click here to receive $$$ back from SoFi
Do you have a significant amount of PA student loans that you’re tackling? What strategies are you considering to pay them off? If you’ve paid off your student loan debt, tell us how you did it below!