	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 

	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. ”

	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: 

	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.

	Moving back home with one or both of your parents can seem like a drastic—and humiliating&mdash;step for a young physician to take, but eliminating monthly housing costs can allow you to concentrate all your disposable income on repaying your high-interest debts. But don’t just show up on your parents’ front porch, laundry in hand. Instead, create a “rapid debt-reduction plan” that plots out how long it will take you to whittle down your debt to a manageable level, and sets a goal for when you plan to get back out on your own. (Vertex2.com, a site devoted to Microsoft Excel spreadsheets, has an excellent debt-reduction worksheet&mdash;based on the “snowball method” of paying the highest debts first&mdash; that can help you track your progress at 

	If moving home with your parents is not an option (or at least, not a palatable one), consider taking on a roommate to share your monthly household expenses, and perhaps even your commuting costs.

Once you’ve got the right loan repayment plan in place and you feel comfortable that you can afford your monthly household expenses, it’s time to focus on emergency savings. Yes, emergency savings is even more important than saving for retirement at this point. The fact is, small and even big financial crises—such as a major car repair or being unable to work because of accident or injury&mdash;do happen to people your age, and you need to plan for it.

Save for a Rainy Day, Even When It’s Pouring

	Conventional wisdom calls for saving between 3 to 6 months of monthly expenses in an emergency account, but even this amount can seem daunting when there are so many other pressing bills to pay. So start small—and stick with it. Open a high-interest online savings account and start socking away, say, $25 to $50 a paycheck, by having the funds automatically deposited each pay period. Then once a year, or sooner if your cash flow improves, increase that amount steadily until your savings would cover at least 3 months of expenses. Using an online account and cutting up your debit card to avoid easy access to the funds will help you avoid the urge to splurge.

	With your short-term financial cushion in place, it’s time to think about long-term savings. Younger workers are notorious for putting off saving for retirement early in their careers. In fact, a full one-third of workers aged 25 years and under do not contribute to employer-sponsored retirement plans, and only 4% of young workers are maxing out their workplace retirement plans, according to a recent survey by the tax-information publisher CCH Inc.

	This is especially true for younger physicians and couples struggling to repay enormous student loan debt. Most do not realize, however, that even meager retirement savings in the first few years after medical school can contribute substantially to their retirement nest egg down the road. By the time retirement rolls around, they will have missed out on a lifetime of compounding.

	The retirement age for those born after 1960 is 67, so a 27-year-old fellow has 40 years to build a nest egg before he or she is eligible for full Social Security benefits. For example, socking away $5000 a year over 40 years, with a relatively conservative 6% return, will generate savings of $871,667. But if you postpone retirement savings in just that first year alone, your account would end up with $51,429 less.

	Again, if you’re struggling financially and even saving $5000 a year pre-tax seems too steep, try at the very least to contribute enough to get your employer’s 401(k) matching contribution. It doubles your return on savings before you even begin investing.

	Thinking About Raiding Your Nest Egg? Stop

	If you have already begun contributing to a retirement savings account—on your own with an individual retirement account (IRA) or a Roth IRA, or through your workplace’s defined contribution plan, such as a 401(k)&mdash;the temptation to tap into the savings to make ends meet may be strong. Nearly 1 in 5 Americans admitted raiding their retirement accounts during the past 12 months to cover household expenses, according to a recent report by consumer finance site Bankrate.com. Even worse, 60% of young workers cash out their 401(k) when changing jobs.

	If you are considering tapping your retirement savings, don’t! After getting hit with taxes and penalties, you’ll end up with roughly 70 cents on the dollar. And as with the example above, spending even a few thousand dollars in savings early in your career can have dire consequences when you’re ready to retire. In fact, some may find themselves unable to retire because their savings fall short of their goals. Instead, search for other ways to cut back on spending and leave your tax-deferred retirement account alone.

	By following these steps, and sticking with them—no matter how tough the going gets&mdash;you will shore up your finances, pay down your debt more quickly, and potentially save yourself thousands in interest costs.

Terri Cullen is managing editor of Physician’s Money Digest, a personal finance, financial news, and practice management resource exclusively for physicians. She has covered personal finance and financial planning topics for more than 15 years as an author and former writer and columnist for

Articles

The first few years after medical school can seem financially suffocating for young physicians. 

Five Steps to Financial Security for Fellows

Ifreke Williams, a third-year med student, stands in front of a camera holding a print-out of her outstanding student-loan debt to date, and the numbers are sobering: “Medical School Debt: $226,000 (Now)—$295,000 @ Graduation.”

	Williams shared her story with HuffingtonPost.com to raise awareness of the staggering amount of debt many medical students face, along with the difficult career and life decisions that result from it.

 “The thought of starting life with such a huge debt is very frightening, especially since I plan on going into primary care and not a lucrative medical specialty or subspecialty,” she writes.

	Medical students in the Class of 2009, including both public and private schools, graduated with a median student-loan debt of $160,000, according to a survey by the Association of American Medical Colleges (AAMC).

 But that figure is skewed by the number of students who receive financial assistance from their families, schools, scholarships or other forms of aid. Students like Williams who need to rely almost entirely on loans to pay their education costs often borrow far more: The AAMC survey found that 17% of private-school grads had incurred debt of $250,000 or more.

	Students leaving med school with the equivalent of a mortgage in debt is severely limiting the choices young physicians can make—both in terms of their families and their finances. More residents burdened with six-figure debt are shunning family medicine and primary care, concerned with the relatively low pay and looming threat of sharp reductions in government Medicare payments. Physician shortages in primary care are the most pronounced in rural areas and in regions of the country where the cost of living is high. And, regardless of their chosen field, many young physicians find they must make sacrifices in their personal lives to service their debt, such as putting off buying a house or starting a family.

	Policy makers are finally starting to take notice of the impact education debt is having on the U.S. healthcare system, and new legislation is being considered to help ease the burden. We’ll look at some new and existing government programs that are attempting to help physicians manage, or in some cases eliminate, their student-loan debt.

Married couples get a break with new IBR rules 

	Two important changes went into effect on July 1, 2010, that may make some physicians eligible for the Income-Based Repayment (IBR) plan that were not eligible before. A change in the way household income and debt is formulated could mean lower payments for married couples.

	IBR is a payment option for federal student loans that keeps monthly loan payments affordable with payment caps based on the borrowers’ household income and family size. In most cases, loan payments are less than 10% of their adjusted gross income. Borrowers in the plans are also eligible for forgiveness of any remaining student-loan debt after 25 years—or just 10 years if they work in the public service sector, including jobs in government and nonprofit 501(c)(3) organizations. The program covers most federal loans. The 10-year payment period doesn’t have to be consecutive; so, for example, a borrower can work in public service for five years, go into the private sector for a few years, and return to complete the 10-year requirement when the time is convenient.

	Under the rules that went into effect in July, IBR eligibility will be based on either the balance when the loan first entered repayment 

 on the current loan amount—whichever is greater. So borrowers with loan balances that have increased due to accrued interest would be eligible to qualify based on what they actually owe. An online calculator available at www.ibrinfo.org/calculator.php, can tell you if you’re eligible for IBR under the new rules.

 had federal student loans typically paid higher monthly IBR payments than single borrowers. For married couples who file jointly, lenders will 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. Previously, the formula didn’t combine the couple’s total student-loan debt, leading to monthly payments that were up to twice the amount that two single borrowers would have to pay.

	If you’re married and your spouse has federal student loans too, contact your lender to ensure your payments reflect this new rule change.

	Physician shortages have vastly increased the number of national, state, and local loan-forgiveness programs offered to young physicians, most with the aim of boosting the number of physicians in primary care. Currently, there are a number of state and federal bills under consideration that would offer loan-forgiveness or partial-repayment programs to physicians who agree to work in certain fields or underserved areas of the country.

	There are already a number of loan-forgiveness programs available for physicians. The most widely known is a program by the National Health Service Corps (http://nhsc.hrsa.gov), which makes loan repayments for physicians who practice for a certain number of years in areas of the country with severe physician shortages. Its full-time program starts with an initial award of $50,000 for two years of service, and a new part-time pilot project begins with an initial award of $50,000 for four years of service. Participants in the program may be eligible to extend their service until all of their debt is paid.

	A growing number of hospitals and private healthcare systems are extending loan forgiveness to attract young physicians as well. A listing of hospitals and other organizations that offer loan forgiveness can be found at www.finaid.org/loans/forgiveness.phtml.

New ombudsman to resolve disputes with private lenders 

	Finally, the new provision of the 2010 financial reform bill creating new Federal Student Aid Ombudsman may help borrowers find relief in dealing with problems they encounter with private lenders. The ombudsman will be dedicated to helping students with private student loans resolve disputes and other problems with lenders. An ombudsman position already exists in the Education Department for federal student loans, but it excluded private loans.

	The need for more oversight of non-government loans became abundantly clear over the last decade as the use of private student loans exploded: Between 2000 and 2008, total education borrowing with private loans soared from $6 billion to $24 billion, according to the College Board.

 In 2009, private loan borrowing was slashed in half, as access to credit dried up in the wake of the financial crisis.

	Often students who borrow with private loans do so because they’ve already maxed out the federal loan borrowing limits. Generally, there are no borrowing limits for private student loans, which can often lead students to overextend themselves. There are also no limits on private loan interest rates. With the exception of subsidized Stafford Loans, the rate on government loans is currently capped at 6.8%. Variable private loan rates can climb to 20% or more, and penalties for late payments can be equally steep.

	The new ombudsman won’t have the authority to impose changes in the terms or conditions of individual student loans. Still, the office is designed to help find a fair and equitable solution for student problems.

	If you are having a problem with a private lender, contact the ombudsman at http://fsahelp.ed.gov or call (877) 557-2575. You may also email a detailed letter explaining your problem to fsaombudsmanoffice@ed.gov, or write to the U.S. Department of Education, FSA Ombudsman, 830 First Street, NE, Fourth Floor, Washington, D.C. 20202-5144.

	The new ombudsman’s office will also be responsible for issuing annual reports to congressional lawmakers on prevailing issues and trends within the private student loan industry, shining some much-needed light on practices that may be harming borrowers.

Sidebar: How Student Loans Affect Your Credit Score 

	For many graduates, taking out a student loan marks the beginning of their official credit history. Credit-rating companies consider student loans installment debt, in the same category as a mortgage or home-equity loan. Though you may have hundreds of thousands of dollars in debt, the size of your student loans isn’t as much of a factor in calculating your credit score as your ability to repay it. This is why it’s so important to never miss a payment to any lender.

	Many students ding their credit scores quite by accident because they miss making their first student-loan payment—often because they weren’t aware it was due. Students move, addresses on file aren’t kept up to date, and payment notifications get lost in the mail. To avoid this, make sure you keep careful records on all of your outstanding student loans, and notify lenders when you move.

	If you’re in a financial bind and you miss a payment, your credit score could drop by as much as much as 50 points. But if you enter a deferment or forbearance program with your lender, it shouldn’t adversely affect your score. Credit-scoring companies generally view these as temporary programs and so generally don’t factor them into the scoring. If you’re struggling to make payments, contact your lender to explore available debt-relief programs immediately before you miss a payment. To learn more about credit scores and how they’re formulated, visit MyFico.com (www.myfico.com).

	The most comprehensive source of up-to-the-minute student financial aid and student loan information, including advice and tools for parents, students, and graduates.

	Run by the National Consumer Law Center, this site provides student loan borrowers with information on their legal options and rights, and has breaking news on government rules and legislation that may affect your loans.

	A Web site with news, information, tools, and advice on the Income-Based Repayment (IBR) plan run by the Institute for College Access & Success.

	(www.aamc.org/programs/first/students/factsheets.htm)

	Brief informational financial aid and student loan worksheets for help with repaying student loans from the Association of American Medical Colleges.

For many graduates, taking out a student loan marks the beginning of their official credit history. Credit-rating companies consider student loans installment debt, in the same category as a mortgage or home-equity loan.

Terri Cullen

Articles

Five Steps to Financial Security for Fellows

Defusing the Student-Loan Debt Bomb