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Becoming a psychiatrist is an expensive process. With the high cost of medical school, many students turn to psychiatry loans to pay for their education.
According to the Association of American Medical Colleges, medical school graduates leave school with more than $190,000, on average, in student loans. With interest, the typical repayment amount can be as high as $418,000.
If you’re a new psychiatrist with student loan debt, it’s important to know all your repayment and loan forgiveness options.
How to repay your psychiatry loans
As a psychiatrist, your earning potential is high. The Bureau of Labor Statistics reported that the national mean annual wage for psychiatrists is $216,090. But student loan debt can eat up a significant part of your income.
If you’re struggling to keep up with your student loans, here are three ways to make them more affordable.
1. Apply for an income-driven repayment plan
If you have federal student loans and can’t afford your payments under your current repayment schedule, consider applying for an income-driven repayment (IDR) plan.
Under an IDR plan, the government extends your repayment term to 20 to 25 years and caps your payments at a percentage of your discretionary income. Plus, if you still have a loan balance after the end of your IDR plan’s term, the government will forgive the remaining balance.
There are four IDR plans available:
- Pay As You Earn (PAYE): Under PAYE, your repayment term is 20 years, and your payments are 10% of your discretionary income.
- Revised Pay As You Earn (REPAYE): Your payments are 10% of your discretionary income. Undergraduate student loans have a repayment term of 20 years, while graduate or professional degree loans have a term of 25 years.
- Income-Based Repayment (IBR): For new borrowers who took out loans after July 1, 2014, your repayment term is 20 years, and your payment is 10 percent of your discretionary income.
- Income-Contingent Repayment (ICR): With an ICR plan, you pay the lesser of 20 percent of your discretionary income or what you’d pay under a 12-year repayment plan with a fixed payment adjusted for your income.
Depending on your salary and loan balance, an IDR plan can dramatically reduce your payments. For example, if you had $183,000 in student loans at 4.5% interest, your monthly payment under a 10-year repayment plan would be $1,897.
If your income was $182,700 and you qualified for PAYE, your monthly payment would be just $1,372. Applying for an IDR plan would give you an extra $500 per month in your budget.
You should know that there are some downsides to IDR plans. Despite getting a lower payment, you could end up paying much more in interest over the length of your repayment term than you would with a 10-year plan. If you qualify for forgiveness at the end of your IDR plan, the IRS taxes the forgiven balance as income, which can lead to a hefty tax bill.
2. Refinance your student loans
With refinancing, you work with a private lender to take out a new loan equal to the amount of some or all of your private or federal student loans. The new loan has completely different repayment terms. You could qualify for a lower interest rate, lower monthly payment, or shorter repayment term.
Refinancing can help you save a significant amount of money. For example, if you had $100,000 in student loans at 7% interest, you’d have a monthly payment of $1,161 under a 10-year repayment plan and would pay $39,330 in interest fees.
If you qualified for a refinanced loan with a 4% interest rate, your monthly payment would drop to $1,012, and you’d now pay $21,494 in interest. Taking a few minutes to apply for student loan refinancing could save you more than $17,000 over the length of your loan repayment. You can use our student loan refinancing calculator to find out how much you’d save by refinancing your student loans.
There are some drawbacks to refinancing to consider. If you refinance federal student loans, you’ll lose out on benefits such as access to IDR plans and Public Service Loan Forgiveness (PSLF). Plus, qualifying for a refinanced loan as a new graduate can be difficult on your own. You might need a cosigner — someone with good credit and a stable income — to apply for the loan with you.
3. Negotiate a signing bonus
One of the best ways to manage your student loan payments is to boost your income so the loans are more affordable. As a psychiatrist, you might be able to negotiate a signing bonus when considering job offers.
According to The Medicus Firm, a national health care recruiting firm, the average signing bonus for a physician is $30,000. If you applied that amount to your student loans, you could save money over the long run.
If you had $100,000 in student loans at 7% interest, you’d repay a total of $139,332 if you paid only the minimum payments for the length of your loan. By applying your $30,000 signing bonus as a lump-sum payment, you’d pay off your loans nearly four years earlier and repay just $116,518. Using your signing bonus strategically would help you save more than $22,000.
To find out how making an extra payment would affect your loan, use our lump sum extra payment calculator.
National student loan forgiveness options for psychiatrists
If you have large amounts of education debt, student loan forgiveness can provide you with much-needed relief. There are four forgiveness programs you might qualify for as a psychiatrist.
1. Public Service Loan Forgiveness
If you have federal Direct Loans, you might be eligible for PSLF. Under the PSLF program, the government forgives the balance of your loans after you make 120 qualifying monthly payments while working for an eligible nonprofit organization or government agency.
Payments you make under an IDR plan count as a qualifying payment for PSLF, so you can make reduced payments and still be eligible for loan forgiveness. Unlike IDR plan forgiveness, the amount of your debt that the government forgives is not taxable as income.
As a psychiatrist, you’re not eligible for PSLF if you work in private practice or a for-profit setting.
To find out if you qualify, use this PSLF checklist.
2. National Institutes of Health Loan Repayment Program
If you’re a psychiatrist interested in a research career, you might be eligible for the National Institutes of Health (NIH) Loan Repayment Program. Under this program, the NIH will repay up to $35,000 of a researcher’s student loan debt per year if they commit to one of NIH’s mission-relevant initiatives.
To qualify, you must agree to spend at least two years performing research funded by a nonprofit organization within the U.S. Your loan balance must be equal to or greater than 20% of your institutional base salary at the time of the award.
For more information and to apply, visit the NIH website.
3. National Health Service Corps Loan Repayment Program
The National Health Services Corps (NHSC) offers loan repayment assistance to qualified health care providers. Under this program, mental or behavioral health clinicians can receive up to $50,000 in repayment assistance. In return, you must make a two-year commitment to work for an NHSC-approved location.
For more information and to submit your application, check out the NHSC’s application and program guide.
4. Department of Veterans Affairs’ Program for the Repayment of Educational Loans
Psychiatrists who agree to a period of service with the Department of Veterans Affairs (VA) might qualify for up to $30,000 in repayment assistance per year.
To qualify, you must be enrolled in your final year of a postgraduate physician residency program leading to a specialty qualification in psychiatric medicine or a subspecialty qualification of psychiatry. The program you attend must be accredited by the Accreditation Council for Graduate Medical Education or the American Osteopathic Association.
For more information, visit the VA website.
State repayment assistance programs
Depending on where you live, you might qualify for a state repayment assistance program. Some areas offer medical professionals, including psychiatrists, student loan repayment awards to encourage them to live and work in areas with a shortage of qualified health care providers. With most programs, you must commit to working a fixed service term.
For example, behavioral health providers in Arizona can receive up to $50,000 for their initial two years of service under the state loan repayment program.
To find out if your state has a similar initiative, check out the student loan repayment assistance program tool, a searchable database of more than 120 awards.
Managing your student loans
If you’re drowning in psychiatry loans, it can feel impossible to dig yourself out. But you can make your payments more manageable and even save money by researching your repayment and forgiveness options.
If you need help managing your loans, sign up for the Student Loan Hero app for free help and advice.
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