Physical therapist student loan debt is a big challenge compared to its income prospects. Tuition is rising at twice the rate of income and Doctor of Physical Therapy (DPT) graduates have far more student debt than they thought when they first enrolled.
Physical therapists have 50% higher debt than they thought when they enrolled in the DPT program.
Taking on an average physical therapist student loan debt of $90,000 to earn $80,000 a year seems like a sound financial decision. That’s what the DPT programs lead its students to believe. But the reality ends up hitting DPTs in the pocketbook.
Between annual physical therapy school tuition increases (not stated on the program websites), higher than anticipated living expenses, and accrued interest, financing your physical therapy education can lead you to end up with loan balances in the $150,000 range while those who went to private schools can be in excess of $200,000 when all is said and done.
Student loans go from a manageable amount to a crushing financial burden which is the high cost to the physical therapy profession.
The DPT degree increases quality of care, but how much does it affect income?
Physical therapists used to be able to get a master’s degree in two years. Then, the American Physical Therapy Association (APTA) released their Vision 2020. This included a push for DPT programs to get 100% adoption by 2020.
Patients are benefiting from the extra time in school and more on the job training. DPTs graduate with better healthcare training and are more prepared than before. This is a great thing for the industry and patient care.
The problem is that incomes aren’t rising proportionally.
Salaries for physical therapists are growing at the normal rate of inflation. But they didn’t anticipate that tuition for PT programs would grow at twice that amount each year they’re in school.
Career decisions based on money not passion
Because of the high physical therapist student loan debt compared to income prospects, DPTs are forced to make to make career decisions based upon paying back their loans rather than pursue a specialty they truly care about.
Seeking more income because of the higher than anticipated student debt, they change specialties from their original passion, uproot and move to new cities and in some cases leave the field altogether to make more money in different occupations.
Some wanted to open their own private practice or buy into a franchise, but that’s off the table. Saving up for the buy-in fees gets put on the back-burner as physical therapist student loan payments take a solid chunk from their monthly paycheck.
DPTs went to school to help patients in a way that was meaningful to them, but the student loan burden forces them to make a different choice.
Common mistakes physical therapists make
Along with the burden of physical therapist student loan debt, confusing loan repayment programs and poor guidance cost physical therapists even more money. Here are common mistakes we’ve seen here at Student Loan Planner®.
Staying on income-based repayment (IBR) makes monthly payments 50% higher and total payments higher compared to Pay As You Earn (PAYE) or Revised Pay As You Earn (REPAYE).
Let’s assume that Chris has $200,000 of loans at 6.5%. He starts out making $70,000 and his salary grows to $80,000 within five years and then grows at inflation from there.
Total Payments + Taxes Owed
First Monthly Payment
REPAYE - 25 years
IBR - 25 years
PAYE - 20 years
Chris’s total payments under IBR are estimated to be $333,945 over 25 years. That includes the estimated taxes owed (40% tax rate) on the forgiven balance in 25 years.
With REPAYE, total estimated payments and taxes owed would only be $257,196. REPAYE would save Chris more than $75,000! PAYE would save him more than $90,000 and he’d be done paying back his loans five years sooner.
Mistake #1: Not exploring Public Service Loan Forgiveness (PSLF)
Under the same scenario, if Chris decided to work for a 501(c)3 organization (nonprofit) and made 120 qualifying payments, the savings with PSLF would be astounding.
We’re talking $195,000 in savings compared to other options. $200,000 of loans can be paid back over 10 years for less than 25% of the loan amount out of pocket. What could Chris do with an extra $195,000 that didn’t have to go toward his physical therapist student loan repayments?
Mistake #2: Not taking advantage of lower monthly payments to save more money
Let’s be honest. Saving money on student loan payments means nothing for people who end up spending the difference.
PT students who have dreams to open up their own clinic or buy a franchise can make it happen if they utilize savings from student loan forgiveness to do so. Some individuals use lower payments from programs like REPAYE and PAYE to spend more money.
If you’re going for loan forgiveness, then take the $1,000+ a month you would have had to spend on loans and use it for other financial goals. Don’t just spend it on big-ticket items like housing and cars.
Mistake #3: Marrying someone with a similar or higher income without reevaluating loan strategy
Assume Chris marries his spouse in five years. They both earn $80,000 at that time and his spouse has no federal student loans or private loans. Here’s how things would change:
Total Payments + Taxes Owed
REPAYE - 25 years
IBR - 25 years
PAYE - 20 years
Total payments and taxes owed would jump up $135,000 under REPAYE and $75,000 under PAYE if they file taxes jointly
At that point, switching strategies may make sense and moving to private refinancing over 10 years looks like the lowest out of pocket cost. However, private refinancing would mean forgiveness is off the table for good.
What do most DPTs do? Just pick a plan without thinking and never reevaluate their strategy. Don’t be one of them.
How to pay off physical therapy student loan debt (Steps Chris can take)
If Chris and I worked together, I’d ask these questions to help him figure out the best way to pay back his loans:
1. What are your career goals?
Chris and I would talk through his reason for becoming a DPT in order to determine some possible student debt relief for physical therapists. Does he want to work at a hospital, start a clinic, buy a franchise, or is he not quite sure?
Starting a clinic and buying a franchise would require a solid savings plan. We’d find a path that would keep student loan payments low so he could maximize his savings.
Depending on the specifics of his situation, we could switch to PAYE or REPAYE and talk through strategies to lower his adjusted gross income (AGI) which would lower his payments even more.
2. Is seeking work from a nonprofit (501c3) organization on the table?
If he’s willing to be patient, working for a nonprofit hospital 10 years would be ideal. He could keep payments low, enroll in PSLF and have his federal loans off the table at a fraction of the cost.
3. Is the prospect of marriage on the table anytime soon?
Getting married can have a huge impact on a DPTs loan payment strategy including skyrocketing monthly payments and an increase of tens of thousands of dollars in out-of-pocket loan costs.
If marriage is close by, then we’d want to take Chris’s future spouse’s income prospects and student loans into the equation. To save the most money, the two of them would need a mutually agreed upon, unified approach to paying back the student loans.
4. How certain are you about your career over the next 10 years?
When it comes to the right strategies to pay off physical therapy student loans, a high degree can certainly be a beneficial factor. If there’s any uncertainty whatsoever, the most flexible, least costly plan is the way to go.
REPAYE can be a good option with uncertainty because of the potential interest subsidy. If the loan payments stay low, the government would pay part of Chris’s loan interest effectively lowering his interest rate.
Here’s how the interest subsidy works:
Chris has $200,000 of student loans at 6.5%. That means that his loan will accrue $13,000 of interest this year ($200,000 x 6.5%). His total loan payments for the year would be $5,000 ($417/month) based upon his $70,000 of income. So his loans are due to grow by $13,000 and his payments will cover $5,000 of it. That means there’s $8,000 of interest not covered by his payments.
Under PAYE, his loan would grow by that $8,000 this year. Under REPAYE, the government would subsidize half of that remaining $8,000. They would eat $4,000 of that interest.
That subsidy lowers Chris’s interest rate from 6.5% to 4.5% for that year ($13,000 total – $4,000 subsidy = $9,000). $9,000/$200,000 = 4.5%
Not only that, but if Chris changes course down the road, he would have $4,000 less to pay back or be forgiven compared to PAYE.
You might be thinking that’s a great option no matter what? Well not necessarily.
There’s no cap on REPAYE payments, so If Chris’s income is going to grow significantly or he ends up marrying someone with a similar or higher income and no student loans, his loan payments could more than double.
That’s why if something significant in his life happens down the road, he’d want to reevaluate his path. Since he’s not quite sure about his future spouse or earnings, taking advantage of the interest subsidy means he’d lower his interest rate and have less to pay back if he were to switch payment plans or refinance.
Physical therapist student loan debt doesn’t mean financial doom
Physical therapists can find a clear path to pay back their student loans. A path that could save them tens of thousands of dollars out of pocket and figure out how to pursue the career path and specialty that motivated them to enter PT school.
Student Loan Planner® has done thousands of consults for student loan borrowers with over $1.44 billion of student debt. Whether you want to work for a hospital and go for PSLF, work at a private clinic or save up to start your own, we can help you figure out the optimal path in just one hour.
I work with borrowers who owe less than $300,000 and usually serve as the point person for our physical therapist student loan consults. Feel free to email me at [email protected].
Are student loans keeping you from pursuing your career and financial goals as a physical therapist? Share your story in the comments.