Strategies for Managing Student Loan Debt for Physicians and Attorneys

In this episode of the Retire Early Retire Now podcast, host Hunter Kelly, a Certified Financial Planner, delves into strategies to manage student loan debt for high-income earners, particularly new doctors and attorneys. He discusses the importance of understanding the landscape of student loans, including federal and private loans, interest rates, and repayment statuses. The episode covers income-driven repayment plans, public service loan forgiveness, and loan consolidation or refinancing options. Hunter also emphasizes balancing debt repayment with other financial goals such as retirement savings and building an emergency fund, and offers practical tips for paying off debt faster. He encourages listeners to live modestly post-residency and automate payments to achieve financial freedom more efficiently.

00:00 Introduction to the Podcast

01:27 Understanding Student Loan Debt

03:45 Federal Loan Repayment Strategies

04:59 Public Service Loan Forgiveness Overview

06:16 Loan Consolidation and Refinancing

10:10 Balancing Debt with Financial Goals

14:27 Practical Tips for Faster Debt Repayment

16:52 Conclusion and Next Steps

Check out the Palm Valley Wealth Management Website
PalmValleywm.com

Check us out on
Instagram
LinkedIn
Facebook
Listen to the Podcast Here!
Apple
Spotify

Transcript

0:00

Welcome to the retire early retire now podcast. I'm your host hunter Kelly certified financial planner. Uh, and I do this podcast every week to empower high income earners like physicians and attorneys. Uh, to achieve their financial goals with confidence. And today we're diving into a topic that weighs heavily, both figuratively and literally for new doctors in that student loan debt. Uh, if you're just starting out your career and you're staring at six figure student loans. Uh, that's, that's scary and it's not easy, uh, but you're not alone. Uh, the good news is that we'll talk about some strategies today that will help you tackle this debt. Without sacrificing your financial future. Uh, and in this episode, we'll break down the best ways to manage and reduce, uh, and pay off your student loan debt while balancing other goals like saving for retirement and building wealth. Um, And so, uh, before we get started, go ahead and like this podcast, share it with a friend, live a five star review on your favorite podcasting app and go to YouTube. Uh, finally at hunter Kelly CFP. Uh, subscribe to my YouTube channel. Uh, and like this video, it helps grow this channel, uh, so that other physicians, other attorneys that are dealing with student loan debt and other financial topics that we speak about and talk about all the time. Uh, can get the education that they need to make the best decisions for their, uh, situation. Uh, but let's jump right into it. So. Let's start to understand the landscape of student loan debts. Uh, for doctors, but for really anybody that has significant loan debt. Uh, the first thing you need to understand are a couple of things. One, um, it's not uncommon for physicians to have, uh, six figures of student loan debt. Now this is something that I see a bunch. Uh, and, and anybody that has graduated middle school, medical school, or even law school for that matter. Um, can be familiar with this. So you add on the amount of debt, the interest that is compiling. Uh, as this debt continues to, to, uh, build up that interest, it can feel overwhelming. But here's the thing you have a high. Uh, potential for income. And so with the right plan, you can pay off this debt while still building a solid foundation, uh, for your financial future. Um, and so that's what we really want to get into today. And so the first thing you need to do is you need to understand your loans. So a couple of things you need to understand one the details about your loans. What's the total balance. Uh, are they federal loans? Are they. Private loans. Is there a con uh, Combination of both. What's the interest rates. Federal loans typically have a fixed rate while privates, uh, loans can vary from time to time. Um, And so what is the status of your loan or are you making repayments right now? Are you in deferment or are you in forbearance? And so understanding where you're at, uh, kind of where you're at in point a and then that will help you start to work. Uh, and devise a plan to get to point B, getting those loans pay off right. Um, and so there's really two routes. A couple of routes. You can go here, right? Uh, if you have federal loans, uh, there's a couple of different avenues down there. Uh, whether that's income driven repayment plans. Um, Uh, consolidate him and getting on a standard repayment plan or maybe even refinancing to a private, uh, law firm. And so we're going to talk about some benefits. And some disadvantages of all of these different types of plans. And then come up with some key tips or key strategies to help you. Uh, understand how to better. Um, Kind of attack this, this debt, right. And so the first thing I want to talk about is if you have federal student loans, which most of you probably do. Um, the first thing you want to think about, especially as you get into residency. Um, or if you're early on in your career as an attorney, Uh, you want to think about income driven repayment plans. And so these plans generally. Uh, are based off your income, right? As, as the title says, right? So, uh, they're usually capped at 10 to 15% of your monthly income or your, the income. And then they're especially helpful again, early on in your career. Uh, as you're a resident and at, at a hospital or wherever. Um, your pay is gonna be much lower than when you become a physic, uh, Attending physician. And so this could help you kind of pay the bills as you move forward. Um, and there's a couple of different plans. There is the pay as you earn plan, there's the repay plan and there's a, uh, income based repayment plan. And so, um, based off your situation, how you want to file, depending on spouses, income, things of that nature. Um, which we can dive into a later podcast. Um, one of those three plans may make sense for you in residency. And so the next thing you want to consider. Um, or another way to, uh, I guess, pay off your student loans is the public service loan forgiveness plan. And I'm actually going to spend, uh, all of next week's podcast talking about this. So I'll just kind of breeze over it quickly. Um, but this is a way that, uh, if you make enough qualifying payments, uh, working for a nonprofit hospital, Or government organization as a physician. Uh, you can actually, um, get this loan forgiven. So, um, potentially you could have, uh, 50,000 a hundred thousand couple of hundred thousand dollars forgiven, depending on how much. Uh, and loans you have and, uh, when you start repayment and all of those sorts of things. So, uh, this can be, uh, a big, uh, Incentive to work for those nonprofit hospitals and things of that nature. So, Uh, we will, uh, Talk more about that in depth next week. I think that deserves its own podcast because, uh, you don't want to make a wrong step on these types of repayment plans and think you. Or getting the debt forgiven. And you still realize you have another, a couple of years of repayment or what have you, or, or, or screw up and go to a hospital that is not a qualifying hospital. Whatever that case may be. And so, oh yeah. We'll spend a whole podcast on that next week. Uh, and then the other option, if you have federal loans would be loan consolidation or refinancing. Um, so. A couple of things to consider there. Uh, you have to be careful if you're going to refinance so private lender because, um, once you. Uh, refinance. So private lender, you're kind of stuck there, right? The only thing you would be able to do at that point. It's potentially refinance to another private lender. So you lose all, all the benefits of potentially public service, loan, forgiveness. Um, these income driven repayment plans, things of that nature. Um, and so that's one option. The other option would be to consolidate maybe getting on a standard repayment plan. So there are standard repayment plans, a 10 year. Uh, 20 year and I believe a 30 year, but that's just off the top of my head there. Um, And so the good thing about this is that you'll have a standard, a monthly payment you'll have a fixed rate. And then after your term of 10 or 20 years, then you'll be able to. To essentially pay that off. So if you're not going to work for a hospital that has the public service loan forgiveness, um, then this may be a good idea to consolidate and go to one of these more standard. Payment plans because as your income starts to increase, Uh, this is a fixed payment. So the percentage of this. Um, your income going to this debt. Uh, continues to decrease as your income increases. So this could be a good, uh, Uh, option for you. The other option, like I just mentioned is refinancing to private lenders. So if your, uh, if your interest rate is gonna be much lower than what you would have with your federal loans, then, uh, then it would make sense to start looking at potentially. Uh, Refinance into a private lender, especially if you're not going to have the opportunity to, um, utilize a public service loan, forgiveness plan. And so. What are some questions that you should be asking yourself as you start to think about, uh, refinancing. So re refinancing is a hot topic. Um, it's one of the best ways to save money on interest. Uh, if the interest environment is correct for obviously the last couple of years, interest rates have been rising, they're starting to come back down. Um, so there may be some opportunities in the future to consider refinancing. Now the vast majority of people are probably not refinancing right now. Um, but as these rates start to come back down, this is a question that you should be asking, just like, if you own a home, right. And so. When to refinance one, you want to make sure that you have a stable income. Uh, post-residency so, again, Uh, if you know that you're not going to qualify for any of the government assistance. Uh, then. Refinancing at a better interest rate. I may be advantageous to you because again, you're going to get a fixed rate. You're going to get a fixed payment. Um, and as your income increases, the amount of money percentage wise that you're putting up your income to this debt payment, uh, would continue to go down. Uh, so if you're not pursuing any of the government assistance, And you want a lower rate. This will be a great reason for you to refinance. Um, so how would you refinance at. One, you would want to shop around lenders. So couple wonders. Uh, that you could shop around. So fi. Laurel road, credible. There's a bunch of them. Uh, obviously Google can help you with that. But you want to look at. A couple of different options and look at the best rate, um, and know the terms that you want. Uh, as you go into it, do you want it? You want to pay it off in 10 years, 20 years, 15 years. What type of payment do you want? So considering all those different, um, Objectives and then getting to the lender that would meet those objectives. And so the next thing is, well, how do we balance this with, uh, other financial goals? Again, staring down at$200,000 of student loan debt can be scary. But the good thing is you have potential to earn more and more and more. So we have to be responsible about, uh, how do we balance this debt repayment? With other financial goals, like potentially buying a house. Uh, planning for retirement. Uh, helping our kids with, uh, college and sports and all the different things of that nature travel vacation. Um, you worked hard in college. Uh, in med school and, and. Whatever that may be residency. And, uh, you want to be able to enjoy the fruits of your labor. So how do we balance all this? So the first thing is obviously to build an emergency fund. Uh, before you start aggressively paying things down or putting a bunch toward retirement or other types of investments. Uh, so we want to aim to have three to six months worth of living expenses so that when the car breaks down or you have an AC unit go out, whatever that case may be, uh, you can easily pay for that. And not have to stop paying. Uh, student loans or taking money away from your retirement, whatever that may be. The next thing you want to look at is am I getting a match at my employer? We want to start to look at. All my 401k or 43 B options. Uh, potentially a 4 57. And so as a doctor, this can be your biggest ally, one for preparing for retirement, but also to other things. Uh, one being the match from your employer. Um, so free money, but also with some of these income driven repayment plans. Uh, you'll want to lower your income as much as possible. So you have the ability to put toward a four, three B and a 4 57 or a 401k and a 4 57. This would be a great way to lower that income, especially. As these, uh, contribution. Uh, limits continue to arise. I think we're at 23,000 23, 500. Uh, and, and if you can put into a 4 57 as well, you double that. So now you're potentially putting away. Uh, 20 to. Let's call it$46,000 a year. Um, and if you're on this income driven repayment plan, that's going to lower your payment because it's based off of, uh, 10% of your income, 15% of your income, whatever that case may be. Right. And so. Uh, the retirement plans can be a big help in that way. So not only are you getting the match, but you're helping your, your payments go down as well. And then it comes down to your goals, right? Uh, how fast do you want to get this debt paid off? If this debt payment is 10, 15, 20% of your income. Then you would want to concentrate on potentially getting some of these loans paid off. So there's payments would go down and now your debt to income ratio. Is getting back down to a level where you can put more toward retirement or investments or your lifestyle. Uh, whatever that may be. The other rule of thumb is if your, uh, interest rates and this wasn't prevalent until a couple of years ago. But if your interest rates are north of six to seven, maybe 8%. Then we want to start looking at making extra payments because the amount of interest you will earn in your investments versus what you'll be saving by paying these, uh, student loans off earlier starts to, uh, not. Work out in your favor as much. Right. And so, uh, we want to balance. Okay. Well, if I have an 8% loan, doesn't make sense for us to just start chunking a little bit extra. Now getting it paid off in 10 years versus 15 years, whatever the case may be. Right. So that we can save on that interest. And so if the, if the interest rates are lower, if they're in the three to 4%, well, maybe you want to consider investing maybe in a taxable account or retirement account. Um, and then having the option to be flexible, to pay it off earlier if we want, or, uh, just earn more interest in our investment accounts. And so. Uh, finally, some practical tips for paying off this debt faster. Uh, the obvious one is to make extra payments, even if it's a hundred to$200 a month extra, if you're not a. Utilizing some of these government assistant plans and you're just on a standard repayment plan or on, uh, you refinanced to a private. Uh, pain, couple hundred extra dollars a month. We'll cut your, uh, time down dramatically. Right. And so, um, Again, we want to, we want to make extra payments. Um, using sign-on bonuses or, uh, windfalls, maybe inheritance things of that nature. Um, and making sure that any extra money that you come into, uh, we're want to allocate a portion or all of that to our loans, to get those loans paid off quicker. Um, the biggest thing, and I think the, uh, the last two are the, probably the most important, um, is once you come out of residency, continue to live, like you're only making that residency money. And then that will give you a lot more flexibility too. Put toward retirement pay off those loans earlier. Uh, get a nice nest egg so that, um, so that when those loans are paid off, you have a lot more flexibility in your. Um, time and your ability to do that need to work and things of that nature. So live like a resident for 3, 4, 5 years. Get these loans paid off. Um, get a nice down payment on a house that you want to buy or, um, a car or some other long-term goals that you want, whether that's working toward retiring early or being able to go part-time. Whatever that may be. So, uh, don't go out and basically turn your lifestyle up to. Uh, that new income as you become an attending physician. And then the last thing automate these payments, obviously in this day and age, it's pretty easy to do so, but automate the payments, whether that be your extra payments that you're making. Um, or just the payments in general and automate your savings right. Um, so find that balance and then automate everything so that you don't have to think about it. And you can just put your head down. Practice your, um, Work on work and family and everything else, and not have to worry about these payments. And you can just check in every so often, right? And so. Paying off student loans, uh, as a new doctor, it can feel like an uphill battle. Um, but with the right strategy, it's entirely doable. Remember to take, take it step by step. Uh, explore your options with a PR. Uh, public service loan forgiveness, which we'll talk about in the next episode. Um, whether you need to refinance whatever the case may be, explore those options, but make the right decision for you. If you'd like personalized guidance. Um, talk through this. Uh, creating a plan. You can visit me at my website, Palm valley, wm.com. Um, don't forget to share this again with a fellow. Uh, physician, um, that you could, that could find this useful someone that has debt and kind of is, is very unsure about how to get this paid off. Has questions about it. Uh, this can help them. And that's what I'm here to do. And here. Educate help you guys make better decisions. And, uh, have confidence in doing so. So thanks for tuning into the retire early turnout podcast. Hope you enjoyed this episode again. Check out next week's episode. Uh, more specifically about that public service loan forgiveness. Um, and be sure to subscribe to my YouTube channel hunter, Kelly CFP, and leave a review on your favorite podcast app. Hey, we'll see you next time.