- December 13, 2016
- Posted by: Travis
- Category: Pharmacist
Growth in pharmacy school debt has accelerated greatly in recent years. Now, you’re unusual if you graduate WITHOUT taking on six figures of pharmacy school debt to finance your education. Based on the most recent national survey from the American Association of Colleges of Pharmacy, almost 87% of graduating students borrowed to pay for their Pharm.D. Luckily, pharmacists also have some of the best tools at their disposal of any profession to pay back their student loans. I know because I’ve saved my average pharmacist client $73,805 on their average pharmacy school debt balance of $173,500 through flat fee student loan consulting. Here is my prescription to cure pharmacy school debt.
First Figure Out Your Debt to Income Ratio
A debt to income ratio is a statistic that I use in my student loan consulting business to figure out what options a client might have to pay back their pharmacy school debt. To calculate it, you simply take the total amount of student debt and divide it by the client’s income. For example, if Sue had $150,000 of pharmacy school debt and an income of $115,000 as a retail pharmacist at CVS, her debt to income ratio would be $150,000/$115,000 = 1.3.
Pharmacy school debt is highly variable between individuals. Public universities produce far lower total costs than private universities. Here’s a look at the pharmacy school debt profile for the class of 2016:
Median Pharmacy School Debt for the Class of 2016
I haven’t looked at a data set showing the entire distribution of pharmacy school debt, but I would guess you would see two big clusters of folks depending on where they went to school. The first group would include graduates from public institutions who would have $50,000 to $150,000 in loans. The second group would be the private school graduates who owed between $150,000 to $250,000 in student loans.
The highest pharmacy school debt I’ve seen in a client consult was around $225,000, so this hypothesis checks out with the anecdotal evidence I have. Luckily, even the worst pharmacy school debt balances are relatively tame compared to what I’ve seen for veterinarians, lawyers, doctors, dentists, and chiropractors.
Pharmacist Starting Salaries Are a Bit More Predictable
The average starting salary for pharmacists last year was $104,000. From what I’ve seen, most folks start off making something between $90,000 to $110,000 depending on if they’re in a retail or hospital setting. Obviously if you do a residency the pay is much lower.
While some employers pay better salaries than others, pharmacists overall have a relatively tight band of possible compensation outcomes after graduation compared to other professional degree programs. This works to pharmacists’ benefit when managing student loans. I’ve never seen a debt to income ratio above 4 for a pharmacist. Unfortunately, I see this happen all the time in other professions.
The Most Common Debt to Income Ratios Make Pharmacy Student Debt Manageable
So most pharmacists will graduate with pharmacy school debt of around $50,000 to $250,000. Most pharmacists’ incomes will be between $90,000 and $110,000 unless they do a residency. That means the range of debt to income ratios at full salaried employment will be 0.45 at the best and 2.77 at the worst. Most graduates will have debt to income ratios of 1 to 1.5.
Very Few Pharmacists Will Want to Use Private Sector Loan Forgiveness
Let’s run a simulation to see what I’m talking about. Assume that Kim graduated in 2016 with a pharmacy school debt load of $150,000 at a 7% interest rate. She makes a starting salary of $105,000 working at a retail pharmacy.
If you’re a pharmacist and using one of the income based repayment options, please be very careful. The total cost for your education will likely be much higher on one of these programs. One reason is that pharmacist incomes are high enough that the monthly income based payments are not cheap. The other reason is that after years of high payments, you will need to pay a tax penalty on the leftover pharmacy school debt balance.
Most Private Sector Pharmacists Should Refinance Their Debt with a Private Lender
Note that the above private refinancing example was for a 10 year term and an interest rate of 4.5%. If you have great credit, high income, and little debt outside of what you borrowed for your education, you might get a rate even lower than that. Thus the savings would be higher.
While I think it would be worth the flat fee I charge to hire me to help you shop for refinancing rates on your pharmacy school debt, I’ll include my referral links here so you can check what your rate would be through a private refinancing company. They give both you and me a cash bonus, and you could get thousands of dollars a year in interest savings.
Credible – $200 bonus to you
So many pharmacists have no idea that they’re giving the government free money by paying back their loans on the Standard 10 year plan. Please reach out to me at email@example.com if you fall into this category. There are so many better options available.
What if You Work For a Not for Profit Employer?
This is one reason why doing a consult with me on pharmacy school debt is so valuable. I don’t just look at private refinancing companies. I do a holistic evaluation of your debt profile and try to find every dollar of savings I possibly can. For pharmacists working at not for profit employers such as children’s hospitals, community health centers, etc., you might be eligible to have most of your pharmacy school debt forgiven tax free. If you work for a not for profit, then you need to know about the Public Service Loan Forgiveness program (PSLF).
PSLF allows for tax free loan forgiveness after 120 monthly payments made on a qualifying federal repayment plan while working for a qualifying not for profit employer. If you’re unsure whether you qualify, I can help clear that confusion up. You can also see if you’re eligible by submitting the PSLF employment certification form.
The pharmacists who could benefit the most from PSLF are the ones who go through with a residency and/or fellowship. If you complete this training and go to work in a not for profit hospital setting, you might be able to pay as little as 20% of the cost of your education over time. You would make whatever the minimum monthly payment is on an income based program and track your progress towards PSLF by submitting the employment form annually.
Another important resource is federal and state pharmacy school debt forgiveness programs. PSLF is the largest and most wide ranging. However, you can and should check out this list I found over at Credible on the various programs available for pharmacy school debt.
What Do I Do with my Pharmacy School Loans During a Residency or a Fellowship?
Pharmacists make a lot of mistakes with their student loans when going into postgraduate training. Whatever you do, please DO NOT use forbearance or deferment if you plan on doing a residency or fellowship. The interest continues to accrue, and you’ll lose out on federal loan benefits.
For example, say a new Pharm.D. takes a PGY-1 position and that she has $200,000 in pharmacy school debt. Assuming all of the loans are unsubsidized at a 6% average interest rate, she will accrue $12,000 of interest by the end of her first year. Imagine she adds on a PGY-2 year and a one year fellowship. If she does the income based repayment paperwork perfectly and prevents any of the interest from capitalizing, she would add another $24,000 in interest to her bill for pharmacy school for a total of $36,000.
If instead she had used the REPAYE plan, she would pay about $185 a month on her loans during training. In addition to having this amount credited against her total balance, she would receive an interest subsidy of 50% of the remaining interest not covered by her monthly payment. The interest accrual is about $1000 a month. The government would take $1000, subtract $185 and get a remainder of $815. Then the government would pay 50% of that leftover interest. In other words, Uncle Sam pays about $407.50 a month in interest costs. In total, our new Pharm.D. only has to deal with $407.50 of interest each month instead of $1000 a month. That’s a huge benefit that most pharmacists doing postgraduate training do not know about.
REPAYE is not always the right repayment plan. It depends on your family size, spousal income, spousal student loan burden, and cash flow available for student loan payments. Even so, the worst decision is electing to pay nothing during pharmacy residency or fellowship. I help correct these mistakes during pharmacy school debt consults.
Make a Plan to Tackle Your Pharmacy School Debt and Save Thousands of Dollars
One of my friends from undergrad went to pharmacy school after college. We always do a fantasy football league every year with some of the guys from our college church group. I think I asked him some questions in preparation for writing this article, and he mentioned that he had some pharmacy school debt.
We took a look at his loan profile, and he mentioned that he worked for a not for profit county hospital. I took a look at his loans, and he was making payments under the Standard 10 year repayment plan. His interest rate was north of 6%.
He had made payments for 3 years on this plan. Luckily, payments made on the Standard 10 year repayment plan still count for PSLF. We switched him to REPAYE, and now his payments will be 10% of his discretionary income instead of the far higher Standard payments he had been making. Furthermore, after another 7 years of payments, his balance will be forgiven by the government tax free. I saved him about $100,000 compared the strategy he had been using that would have resulted in complete payback.
If he had worked at a CVS or Walgreens instead, I would have made sure he got a lower rate than the >6% he had been paying through private refinancing. Either way, he had been paying thousands of dollars every year in unnecessary student loan payments.
Have a Well Thought Out Strategy to Deal with Your Pharmacy School Debt
Whether you learn the loan rules and come up with a strategy yourself or hire someone like me to help for a one time flat fee, most pharmacists lose out on thousands of dollars in savings on pharmacy school debt. Don’t be one of them. If you have thoughts on pharmacy school debt, questions on how to manage it, or just want to vent about the high cost of education, hit up the comments section below and I’ll reply.
My business model here at Student Loan Planner, LLC is helping people conquer huge student loans with flat fee consultations. In the first few months of this startup’s existence, I’ve consulted with 100 people with $25 million in student debt, and I’ve saved them over $10 million over the life of their loans. I perform a holistic loan analysis to see what your best available repayment options are and simulate what the future looks like, including how to plan for a potential massive tax penalty. If you are facing a six figure pharmacy school debt burden, I urge you to contact me at firstname.lastname@example.org to learn more about my services.