Student Loan Repayment Options

Jeff Witz

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Beware! Federal Student Loan Payments Resume Soon

Jeff Witz, CFP®

MEDIQUS Asset Advisors, Inc.

Results.  One Client at a Time.®

The period of administrative forbearance on federal student loans is set to expire January 31, 2022, and payments will resume February 1, 2022. Student loan relief was a major component of the CARES Act passed in 2020. The provisions in the CARES Act suspended payments on student loans, dropped the interest rate to zero percent, and suspended collections on student loans in default. After multiple extensions, this relief for federal student loan borrowers is set to end. Physicians who took advantage of this relief will once again be expected to make payments on their loans.

Many physicians look for strategies to reduce their interest accumulation and/or reduce their monthly payments so they can focus more resources toward other goals like saving for a home, retirement, and their children’s college educations. The nearly two years of loan forbearance certainly assisted with this, but with that program coming to an end, now is a good opportunity to review the other options available:

  • Are you practicing medicine at a for-profit or non-profit organization? Public Service Loan Forgiveness is a hot button issue, but as long as it remains a viable option, it is one worth considering for physicians with substantial student loan debt. Many physicians complete their residencies and fellowships at non-profit hospitals. If you were paying toward your loans during that time, you may already be 5-7 years into the 10-year (120 eligible payments) loan forgiveness process. The months of zero payments under the soon to end forbearance program also count toward the 120 total eligible payments, so you may be even closer to forgiveness eligibility.
  • Are there loan repayment assistance programs available to you? The National Institutes of Health (NIH) repays up to $50,000 per year of student loans if you agree to conduct medical research in needed fields. The National Health Service Corps (NHSC) offers tax-free loan repayment assistance of up to $50,000 for a 2-year commitment to qualified health care providers who choose to take their skills to geographic areas with inadequate medical care. Additionally, most individual states have loan repayment assistance programs for physicians who practice in their state facilities.
  • Is refinancing a viable option? If you practice medicine at a for-profit company, refinancing is worth exploring. Refinancing can dramatically reduce your interest rate and monthly payments, especially with interest rates continuing to hover near historical lows. The lower interest rate may result in paying less over the lifetime of the loan. However, rates are often determined by a combination of credit score and income.

Why is refinancing, reducing your interest rate, and reducing your monthly payment typically desirable? Aside from the obvious that the lower the interest rate, the lower the interest accumulation over the lifetime of the loan, lower monthly payments also provide some cash flow flexibility. You can still choose to pay higher amounts to try and pay the loan off sooner, or you can take the money saved and put it towards another financial goal.

As a quick reminder, the general rule of thumb on whether you should devote additional resources towards paying down your debt versus saving and investing is, if you believe you can earn a higher rate of return by investing than the interest rate being charged on the loan, saving and investing that money is theoretically the smarter financial move. However, investment returns are rarely guaranteed whereas interest rates typically are. A borrower’s risk tolerance should factor into this decision.

Finally, the personal well-being of the borrower also needs to be considered. If loans are causing significant anxiety or other health or lifestyle problems, your personal well-being should take precedent and paying extra towards the loans should be considered.

Everyone’s situation is unique, and many factors influence which student loan repayment strategy is most beneficial. Consult your financial professional to determine which option fits your needs best.

Jeff Witz, CFP® welcomes readers’ questions.  He can be reached at 800-883-8555 or at witz@mediqus.com.

200 North LaSalle Street – Suite 2300 – Chicago, Illinois 60601

312-419-3733 – Toll Free 800-883-8555 – Fax 312-332-4908 – www.mediqus.com

Investment advisory services offered through MEDIQUS Asset Advisors, Inc. Securities offered through Ausdal Financial Partners, Inc.  Member FINRA/SIPC ∙ 5187 Utica Ridge Rd ∙ Davenport, IA 52807 ∙ 563-326-2064 ∙ MEDIQUS Asset Advisors and Ausdal Financial Partners, Inc. are independently owned and operated.

Beware! Federal Student Loan Payments Resume Soon

Jeff Witz, CFP®

MEDIQUS Asset Advisors, Inc.

Results.  One Client at a Time.®

The period of administrative forbearance on federal student loans is set to expire January 31, 2022, and payments will resume February 1, 2022. Student loan relief was a major component of the CARES Act passed in 2020. The provisions in the CARES Act suspended payments on student loans, dropped the interest rate to zero percent, and suspended collections on student loans in default. After multiple extensions, this relief for federal student loan borrowers is set to end. Physicians who took advantage of this relief will once again be expected to make payments on their loans.

Many physicians look for strategies to reduce their interest accumulation and/or reduce their monthly payments so they can focus more resources toward other goals like saving for a home, retirement, and their children’s college educations. The nearly two years of loan forbearance certainly assisted with this, but with that program coming to an end, now is a good opportunity to review the other options available:

  • Are you practicing medicine at a for-profit or non-profit organization? Public Service Loan Forgiveness is a hot button issue, but as long as it remains a viable option, it is one worth considering for physicians with substantial student loan debt. Many physicians complete their residencies and fellowships at non-profit hospitals. If you were paying toward your loans during that time, you may already be 5-7 years into the 10-year (120 eligible payments) loan forgiveness process. The months of zero payments under the soon to end forbearance program also count toward the 120 total eligible payments, so you may be even closer to forgiveness eligibility.
  • Are there loan repayment assistance programs available to you? The National Institutes of Health (NIH) repays up to $50,000 per year of student loans if you agree to conduct medical research in needed fields. The National Health Service Corps (NHSC) offers tax-free loan repayment assistance of up to $50,000 for a 2-year commitment to qualified health care providers who choose to take their skills to geographic areas with inadequate medical care. Additionally, most individual states have loan repayment assistance programs for physicians who practice in their state facilities.
  • Is refinancing a viable option? If you practice medicine at a for-profit company, refinancing is worth exploring. Refinancing can dramatically reduce your interest rate and monthly payments, especially with interest rates continuing to hover near historical lows. The lower interest rate may result in paying less over the lifetime of the loan. However, rates are often determined by a combination of credit score and income.

Why is refinancing, reducing your interest rate, and reducing your monthly payment typically desirable? Aside from the obvious that the lower the interest rate, the lower the interest accumulation over the lifetime of the loan, lower monthly payments also provide some cash flow flexibility. You can still choose to pay higher amounts to try and pay the loan off sooner, or you can take the money saved and put it towards another financial goal.

As a quick reminder, the general rule of thumb on whether you should devote additional resources towards paying down your debt versus saving and investing is, if you believe you can earn a higher rate of return by investing than the interest rate being charged on the loan, saving and investing that money is theoretically the smarter financial move. However, investment returns are rarely guaranteed whereas interest rates typically are. A borrower’s risk tolerance should factor into this decision.

Finally, the personal well-being of the borrower also needs to be considered. If loans are causing significant anxiety or other health or lifestyle problems, your personal well-being should take precedent and paying extra towards the loans should be considered.

Everyone’s situation is unique, and many factors influence which student loan repayment strategy is most beneficial. Consult your financial professional to determine which option fits your needs best.

Jeff Witz, CFP® welcomes readers’ questions.  He can be reached at 800-883-8555 or at witz@mediqus.com.

200 North LaSalle Street – Suite 2300 – Chicago, Illinois 60601

312-419-3733 – Toll Free 800-883-8555 – Fax 312-332-4908 – www.mediqus.com

Investment advisory services offered through MEDIQUS Asset Advisors, Inc. Securities offered through Ausdal Financial Partners, Inc.  Member FINRA/SIPC ∙ 5187 Utica Ridge Rd ∙ Davenport, IA 52807 ∙ 563-326-2064 ∙ MEDIQUS Asset Advisors and Ausdal Financial Partners, Inc. are independently owned and operated.

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