The first few years after medical school can seem financially suffocating for young physicians. Who can think about saving for long-term goals, such as buying your first home or planning for retirement, when you’re struggling with day-to-day bills and the equivalent of a mortgage in student loan debt? The good news is that fellows are earning more. The 2010 Postgraduate Fellowship Compensation Survey, produced by the American College of Healthcare Executives in Chicago, found that nearly 75% of fellows surveyed earned between $45,000 and $60,000 per year. Just 4% of those polled said they earned less than $40,000 a year, while 15% said they were paid $60,000 or more. (See “What Do Fellows Earn?” below.)
Indeed, fellowship compensation has increased over the last 5 years; median base compensation rose 14% to $49,800 in 2010, from $43,604 in a similar survey conducted in 2006. “[T]here also has been a noticeable improvement in fringe benefits that are fully paid versus those [that are] partially paid. The improvements are most noticeable for medical, dental, and disability insurance,” according to the study’s authors. “For example, 43% of fellows in 2010 received fully paid disability insurance when in 2006 only 29% received this benefit.”
Still, even students at the high end of the fellowship pay scale must find the means to service enormous debt. The average educational debt for the Class of 2010 was $157,944, according to the Association of American Medical Colleges in Washington, D.C. (That’s just an average—students in certain medical specialties graduate with debt of $200,000 or more.)
“In the coming years, a lot of people will still be paying off their student loans when it’s time for their kids to go to college,” said Mark Kantrowitz, the publisher of financial aid information Web site finaid.org, in an interview with The New York Times
On top of 6-figure education loans, many graduates have substantial high-interest credit card debt. On average, older graduate students (aged 30 to 59 years) had outstanding credit card balances of $12,593, according to a 2007 Nellie Mae survey, the most recent data available. That’s almost twice as much as their younger counterparts aged 22 to 29 years, who carried average credit card debt of $6479.
So what’s a struggling fellow to do? Don’t panic. By taking a methodical approach to managing your spending and your debt, you can get on the road to financial security. Just follow these 5 steps.
In the coming years, a lot of people will still be paying off their student loans when it’s time for their kids to go to college. ”
Choose the Right Repayment Plan
If you’re one of the lucky few young physicians with enough income to cover your monthly expenses and your debt payments, with money to spare for saving, choose a student loan repayment program with the shortest term. The standard federal loan repayment program extends payments out for 10 years. (Extended and graduate repayment programs allow graduates to expand payments up to 30 years.) If you have higher-interest private loans, pay the minimum owed on your federal loans and concentrate on making larger payments to pay down the higher-interest debt first.
But if you’re neck-deep in debt, including high-interest credit card debt, and you expect your current meager salary to increase steadily over the next decade, consider enrolling in an income-based repayment (IBR) program. Graduates pay 15% of their income over 25 years, and after that the remaining balance (if any) is forgiven. (You can cut that down to 10 years if you work in public service, including jobs in government and nonprofit 501(c)(3) organizations, under the Public Service Loan Forgiveness plan.)
In 2010, the federal rules were changed to make the IBR rules more equitable for married couples. Previously, the formula that lenders used to calculate IBR payments did not combine a couple’s total student loan debt, leading to monthly payments that were up to twice the amount 2 single borrowers would have to pay, particularly if both spouses had advanced degrees. For married couples who file jointly, lenders now use a formula that factors in the couple’s total outstanding federal student loan debt and adjusted gross income to come up with the minimum monthly payment. Find out if you’re eligible for the IBR program by using this calculator: ibrinfo. org
Can’t Afford Your Lifestyle? Change It
Many graduates in their late 20s have enjoyed living on their own for many years. When the time comes to finally start repaying those big monthly education bills, however, some may find themselves unable to make ends meet and be forced to make hard decisions about their living arrangements.