Dear Student Loan Hero,
I’m a physician weighing several job offers. One would give me a traditional signing bonus for coming aboard, but another provides the option of a student loan repayment bonus that could help me hack away at my medical school debt. All things being equal, which type of bonus should I go for?
Dear Student Loan Borrower,
First off, congratulations on the start of your career — and the beginning of the end of your student loan debt. The average Class of 2018 medical student graduates $196,520 in the red, according to the Association of American Medical Colleges (AAMC), so it must be nice to finally come into some green.
Whether you should accept a signing bonus on top of your starting salary or student loan repayment assistance is an interesting question. And it’s not all that different from asking whether you should invest your income or pay off your debt.
After all, a signing bonus likely has very few strings attached, such as maintaining employment for a set period. You could handle the windfall however you see fit. The student loan-related bonus, meanwhile, would almost assuredly go directly to your lender, never touching your personal bank account.
Your question has two answers: one mathematical, the other emotional.
Let’s start with the hard numbers. Say you’re choosing between a $25,000 signing bonus and a $25,000 loan bonus. You’ll need to gauge whether you can receive a better return on saving the cash or on whittling down your debt. If you (or your financial planner) can expect a 6.00% yield on your investment and you’re repaying your debt at 4.00%, for example, the choice would be clear — you’d likely be better off investing than repaying extra on your loans.
You might also consult your potential employer, as well as a tax professional to understand the implications with Uncle Sam. Receiving the student loan bonus would likely mean facing a hefty tax bill. If you opt for the signing bonus, however, you might save some extra money on taxes, since your access to the student loan interest tax deduction could be spread out over many years. But with the student loan repayment benefit, you’d get just one year’s worth of deduction for the entire sum from your employer, and since it’s capped, you might not save as much as with the signing bonus.
Of course, you could have other priorities in mind for that $25,000 cash bonus. It could clear away higher-interest credit card debt, for instance, or cover for your upcoming wedding or mortgage down payment.
As Julie Fresne, a senior director at the Association of American Medical Colleges, told Student Loan Hero, taking the cash doesn’t necessarily mean ignoring your medical school debt. “Keep in mind that the graduate could take the signing bonus and use some or all of it to make a payment on their student loans independently,” she said.
Figuring the financial benefit of a student loan bonus is more straightforward: just plug your potential bonus amount into our lump sum extra payment calculator. A $25,000 payment toward a $196,520 loan tagged at 7.00% interest, for example, could shave 25 months and $26,808 off your repayment.
As for the emotional side of the equation, ask yourself how big an impact would paying off your student loans have on your sense of well-being. If being debt-free would remove a heavy burden, then you have your answer: Skip that signing bonus, and potentially grab one the next time you change employers.
On the other hand, if that education debt doesn’t feel like it’s your biggest priority, you might be better off taking the signing bonus that could be applied to multiple financial goals at once.
You might opt to make that extra-large student loan payment, for example, and simultaneously amp up your investing, or even donate to charity. Also note that, down the road, your debt could potentially qualify for forgiveness or be made cheaper via student loan refinancing.
Before you decide, take a step back to ensure you’re aware of all these student loan repayment options. If you go to work for a company like Aetna that promises a 401(k)-like match on your monthly student loan payments, for example, you might prioritize the signing bonus.
Of course, as Phillip Miller, communications vice president at physician recruiting firm Merritt Hawkins told Student Loan Hero, “If a physician has educational debt, it’s acceptable to ask for both.”
Good luck in life and repayment,
Student Loan Hero