Everyone knows that specialists make a lot of money in medicine. What they don’t know is that Public Service Loan Forgiveness (PSLF) will allow most specialists with student loans to pay a fraction of what they owe for their education. I help physicians craft a student loan strategy through flat fee student loan consultations, and I can probably help you too at email@example.com. Current student loan rules make specializing a far more lucrative decision for today’s physicians.
Specialists Have a Lot of Debt and PSLF Has No Cap
Compare a generalist OBGYN to a specialist gynecologic oncologist. The generalist completes a four year residency and then starts earning an attending salary. The specialist must first complete the four year residency and then a three year fellowship after that. Therefore, the specialist will have three more years earning a small salary while the loans accrue interest. That is why specialists with student loans tend to have higher balances before they begin to pay them back.
The PSLF program has no cap on forgiveness currently. That means doctors with a lot of debt stand to benefit the most from the program. Hence, specialists with student loans can really benefit a lot from this program while they’re increasing the value of their human capital by pursuing more training.
PSLF is a Huge Subsidy to Fellowship Programs
Consider that income driven repayment plans and the 10 year Standard plan all count towards 10 year loan forgiveness for doctors. For a specialist, they could be paying $300 a month during fellowship while their generalist attending colleagues pay $2,000 a month while the specialist is in training and has a lower income.
These payments all count towards loan forgiveness, regardless of how high the dollar amount of the payment. That means doctors training to be specialists get several years worth of extra credit towards loan forgiveness at a much lower dollar cost. Meanwhile, generalists’ payments are so high that they actually cover some or all of the interest on their debt and will therefore get less forgiven.
An Example on How Much Better Off Specialists with Student Loans Are Under PSLF
Going back to that earlier example, let’s call our generalist OBGYN Megan and the specialist in gynecologic oncology Christina. Both of them graduated med school in the same year with $250,000 in debt at 7% interest. Both use the PAYE program to pay as little as possible. After four years of training, Megan earns a $200,000 salary. After seven years of training, Christina earns a $300,000 salary. Here’s how the debt grows over time. I’ll assume both start at $50,000 yearly salaries in their first year of residency and that it grows at a 3% rate. Both work at the same not for profit hospital and thus qualify for the PSLF program. For simplicity, we’ll assume both remain single during the entire 10 year period.
If you wanted your own copy of the calculator I used to simulate the above, you could get your own copy here.
Christina the Specialist Pays Less for Her Education and Earns More Too
Before taxes, the difference in salary between the two doctors during Christina’s fellowship is about $140,000. The pre-tax cost difference of the higher loan payments for Megan the generalist is about $25,000 per year. The net difference now pre-tax is $110,000. On an after tax basis, Megan earns about $70,000 more than Christina the specialist during the three year fellowship period.
So over three years, the OBGYN generalist Megan makes about $210,000 more than Christina the specialist. When Christina becomes an attending, her after tax salary difference is about $65,000 more than Megan. Say they work for 30 years. At a minimum without adjusting for inflation, Christina makes close to $2 million more after taxes.
Specialists often have better lifestyles than generalists. Without the PSLF program, being a generalist would look at a lot more financially attractive relative to specializing. As long as PSLF exists though, specialists will be getting massive subsidies to continue their education.
If you’re worried about losing PSLF, there are ways to hedge against its repeal. However, under current rules, doctors thinking about doing more training should sign up for all they want to do because student loan policy really rewards doing that financially.
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