There are not very good statistics on average chiropractor student loans. Through my student loan consulting business, I’ve helped some chiropractors with stunningly high student debt relative to their income. That prompted me to start investigating to see what I could find, and the results are not good for the future of the profession.
Chiropractor student loans are among the most crushing of any profession relative to income prospects. In this article, I’m including my top tips on how to save thousands of dollars in interest while repaying chiropractic student loans.
The Average Chiropractor Student Loan Balance is Over $100,000
The most recent survey I could find from 2014 of new chiropractic grads showed that 88% had loans above $100,000. An academic study from early 2014 found that 54% of new grads would owe over $150,000 in chiropractor student loans.
Given how little data is available on the true cost of chiropractic school, let’s look at another source of information where we might be able to guess the scale of the problem.
My Chiropractor Client’s Average Debt Level
Of the people I’ve worked with, the average chiropractor student loan balance has been approximately $260,000. This is what led me to investigate the magnitude of the student loan problem in the profession.
Since the overhaul of the Grad Plus loan rules in 2006, graduate schools have been able to access unlimited sums to finance a students education from the federal student loan programs. Of course, tuition has exploded in almost every professional school in the country, and chiropractic schools are no different.
Typical Chiropractor Incomes Do Not Allow For Loan Repayment in Most Cases
The Bureau of Labor Statistics puts out salary information for various jobs across the country. The median chiropractor earns $64,440. That’s roughly in line with what I’ve seen from clients in my student loan consulting practice.
With such modest incomes, the average chiropractor has no hope of ever repaying their educational debt. Even if chiropractors start their own practice, it’s very difficult to make the necessary payments on chiropractic school loans and have a life at the same time.
How Can a Chiropractor Pay Back Loans Then?
I help chiropractors craft a student loan repayment strategy. If your debt to income ratio is going to be above 2 for the duration of your career, then choosing the right income driven repayment option is critical.
Additionally, most chiropractors work in the private sector. Hence, since student loan forgiveness for the private sector is considered taxable income at the end of a 20-25 year repayment period, I help walk clients through how much they need to save a month to cover their future tax liability.
In most cases, I would help a chiropractor client evaluate the Revised Pay As You Earn (REPAYE) program or the Pay As You Earn (PAYE) program to figure out which option saved them more money. If you’re already using the Income Based Repayment plan (IBR), it makes sense to think about switching.
You have to see how much accrued interest you have outstanding, as it would be added into the principal balance and start generating interest too if you change plans. However, there can be very good reasons to do so.
Here’s an Example of How I Optimize Chiropractor Student Loans
Let’s assume that Brett graduates from chiropractic school this year with $250,000 in student debt at a 7% interest rate. He starts out at $60,000 a year, and that grows to $80,000 a year within the first five years of his career. After that, his salary grows at a 3% inflation rate. Here’s how much paying back his loans would cost under various repayment plans, estimated with the proprietary tool I use in student loan consults to create customized repayment strategies:
Let’s understand this chart. Brett has three major income driven repayment options available. The old IBR plan is what many of you are probably using as it is a legacy plan that’s been around a long time. Old IBR requires 15% of your discretionary income, and after 25 years the loans are forgiven and you’re taxed on the leftover balance.
PAYE and REPAYE both require 10% of discretionary income, which is a lower payment than the old IBR plan. Under IBR, Brett would start off paying $527 a month. Under PAYE and REPAYE, Brett would only owe $352 a month. If you look at the total nominal cost column, clearly IBR is a big loser for most chiropractors.
The Standard 10 year plan is also untenable as it would require $2,903 a month in payments. Clearly the Standard plan is off the table. So we’re left with trying to figure out what plan is better for Brett: PAYE or REPAYE.
Choosing between PAYE and REPAYE for Brett the Chiropractor
Let’s go left to right at the chart above. The total payment until forgiveness under REPAYE is about $191,000. The same figure for PAYE is roughly $140,000. The reason for this difference is because PAYE has a 20 year forgiveness period instead of a 25 year forgiveness period with REPAYE. So in terms of total payments over Brett’s career, PAYE wins here.
Now we look to the remaining balance on Brett’s chiropractic student loans when they’re forgiven. Under REPAYE, that figure is about $373,000 and with PAYE it’s about $460,000. Why does Brett have a lower balance under REPAYE even though the loans have an extra five years to grow?
The reason is because REPAYE comes with an interest subsidy. If you’re not paying all your interest, which many chiropractors will not be, then the government covers 50% of the remaining interest. For that reason, REPAYE usually results in a lower balance at forgiveness.
Remember that the forgiven balance is taxable income under the IRS. I’m assuming a 40% tax rate since the amount will be added to Brett’s income, pushing him into a higher marginal bracket. That means Brett will owe a six figure tax bill of roughly $149,000 under REPAYE and $184,000 under PAYE.
How is Brett the Chiropractor Going to Save for that Six Figure Student Loan Tax Bill?
If you look all the way to the right on the chart, you’ll see a column called “Monthly Tax Penalty Account Savings.” This is the approximate amount I’ve estimated that Brett would need to save each month in an investment account to cover that corresponding tax penalty under each repayment plan.
For REPAYE, that sum is smaller because the tax penalty is lower. So Brett would need to save about $250 a month for 25 years to cover the tax bill.
For PAYE, the needed savings are higher because the forgiveness tax penalty happens sooner and the forgiven balance is higher and results in a higher tax bill. I calculate Brett would need to save about $450 a month to cover this penalty.
Finally I’d have a discussion with Brett how much he wants to spend a month on his student loans. If he’d rather have them gone in 20 years with PAYE, he would spend about $350 a month in payments and $450 a month in tax penalty savings for $800 total. Perhaps he’d rather spread out the cost over 25 years.
In that case, Brett would pay $350 a month in payments and $250 a month in tax penalty account savings for a total of $600 a month.
I Can Help You Come Up with a Personalized Chiropractic Loan Repayment Strategy
If you have a six figure student loan burden from chiropractic school, click on the button and ask me a question about your situation below. I help chiropractors conquer huge student loan balances with low cost, flat fee consultations.
I perform a holistic loan analysis with my proprietary simulation tool to see what your best available repayment options are (government, private refinancing, etc). I’ve saved the average client tens of thousands of dollars.