There are a few drastically different choices to make when it comes to physician assistant loan repayment options. How do you know which one is better for you?
PA Loan Repayment Purgatory = Costly
Many physician assistants (PAs) find themselves in loan repayment purgatory which can end up costing them thousands. Most PAs end up here because the combination of making a six-figure salary and owing between $150,000-$200,000 makes the loan repayment strategies very confusing.
The 10-year payment may seem just a touch too high but the income-driven repayment plans like PAYE & REPAYE can be more than affordable.
So some PAs choose the in-between route. Go with PAYE and pay extra toward their loans when they can. They may not understand that being on the loan forgiveness track but paying back the full amount before any amount can be forgiven can end up costing thousands of dollars more to pay back their loans.
Aggressive Loan Payback vs. Physician Assistant Loan Forgiveness
There are 2 paths that make the most financial sense to pay back your physician assistant student loans.
- Aggressive – Get the lowest interest rate you can and throw all extra money at paying back your loans in 10 years or less.
- Passive – Sign up for the income-driven repayment plan that gives you the lowest payments. Do what you can to lower your AGI and maximize loan forgiveness and your savings.
Anyone who does the murky middle road ends up paying more out of pocket than they have to. That means more of your hard-earned money goes to the financial institution rather than staying in your wallet. We’re talking $10,000s.
So how does one choose? Well, we’ve found that people with a 1.5x ratio of student loans/income might be best to take the aggressive approach. Those with 2.0x ratio or more might be best suited to take the passive approach.
So here’s the rub for PAs.
Many PAs are right smack dab in the middle of that range which makes choosing to aggressively or passively pay back student loans very challenging.
Should a physician assistant work for a non-profit hospital or a private company?
Aside from being on the edge of that magic debt to income ratio, a physician assistant’s career choice can add another layer of complication.
How do you choose between working for a non-profit to qualify for public service loan forgiveness (PSLF) vs a private company?
PAs certainly need to consider their quality of life, but salary & total compensation is a major factor. How much more does a PA need to make with a private employer in order to give up the PSLF benefit?
What about the option to sign up for the National Health Service Corp (NHSC) and receive $50,000 of student loan relief by committing to 2 years at a qualifying Health Professionals Shortage Area (HPSA)? This could be a solid option regarding loan repayment for physician assistants in underserved areas.
Physician Assistant Student Loan Repayment Options = Too Many
Just to recap, most PAs have to make the choice between:
- Refinancing – Timeframe: 10 years or less
- Signing up for an income-driven repayment plan (PAYE, REPAYE, IBR) – Timeframe: 20 or 25 years
- Going for PSLF – Timeframe: 10 years minimum
- Joining the NHSC for 2 years then choose 1, 2 or 3. Timeframe: ???
What’s the best way for physician assistants to pay back their student loans?
Kristin is 26 and graduated from PA school a year ago with $170,000 of student loans at 6.5%. Her current salary is $100,000.
Let’s compare her options between PAYE (the passive approach) vs Refinancing (the aggressive approach):
If we’re looking at total loan payments alone, Kristin would spend about the same on PAYE and refinancing. The difference is that with PAYE, that amount is spread out over 20 years vs 10 years.
That means refinancing payments would be much higher than PAYE. Her refinancing payment could be $1,803/month for 10 years vs a starting payment of $685 on PAYE. That’s a $1,200/month difference.
But wait! PAYE means that the forgiven loan balance of $170,000 is taxed as income, so she would owe about $68,000 in taxes (estimated 40% tax rate) in 20 years. That brings her total out-of-pocket cost for PAYE to $289,000 vs $221,000 on refinancing, a $68,000 higher cost.
So does she go with lower payments and pay back her loans over 20 years, or go for the lower out-of-pocket cost with higher monthly payments and be debt free in half the time?
How can Kristin make the best decision to pay back her loans?
Here are the questions I’d ask Kristin to help her figure out the best strategy to repay her loans:
- How badly do you want to be debt free?
“Do you want to still be paying back your student loans into your mid-40s if you would have a lower monthly payment?”
“Do you want to be done paying back your student loans as quickly as you can? Yes? Then are you willing to keep your lifestyle the same for a while and throw everything you can at them to be debt free in less than 10 years?”
This is a personal decision that she might need some professional help figuring out. I’m a budget expert as well as a CFP®, so we would really hash this out together.
2. Is there an opportunity to work for a non-profit hospital? Would a potentially lower salary be worth it?
PSLF (Public Service Loan Forgiveness) is an awesome option for physician assistant debt forgiveness if they can work full time for a 501c3 organization (non-profit) or government employer.
How good is it? Pretty darn good!
With 120 consecutive monthly payments (10 years) toward PSLF, Kristin may only have to spend $94,000 paying back her $170,000 student loan debt using PAYE as her repayment option. That’s right the total cost of her education ends up being 45% cheaper!
There could be a catch though. Maybe the non-profit hospital would pay her less money. So how much more would she have to make in a private job to make it worth it?
Well, she’d be saving close to $130,000 paying back her loans on PSLF vs refinancing over the same period. That would be a $13,000 after-tax benefit each year. That means Kristin’s pre-tax salary would have to be about $20,000 or so higher working for a private job to give up the PSL benefit.
There is more nuance to it that, which we would dive into on the call, too.
How much more does the purgatory route cost?
What if Kristin thought that $1,800 a month sounded like too much but she could probably afford about $1,400 a month? Let’s assume she can get a 15-year refinancing loan at 5.5%.
Kirstin would end up spending $35,000 more paying back her loan over 15 years vs 10 years. That’s a rather large number plus it would take her 5 extra years to be debt free. She’d be better off finding an extra $400 in her monthly budget that she could put towards the loan payment.
If she could only afford $1,200 a month payment, then a 20-year term at 6% would cost her $300,000 in loan payments. That’s about $80,000 more than the 10-year option. It would also be $11,000 more expensive than going for loan forgiveness on PAYE including the estimated tax bomb.
Talking to an expert = Clear Student Loan Repayment Path + Significant Savings for Physician Assistants
Physician assistant loan repayment options = Confusing have many options available to them. Too many options in fact with taxable loan forgiveness, PSLF, and refinancing.
If you’re like the other PAs I’ve worked with who are struggling to find out the best way to pay back your student loans, I’d love to help out.
Send me your questions at [email protected] or click the button below to reach out.