Repair student loan repayment law

A federal legislative change in how medical school graduates repay their loans leaves residents in a financial pinch.

Posted Nov. 19, 2007.

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The road to becoming a physician is long and, for most, paved with huge student loans. That's followed by not-so-stellar pay in residency. Medical school graduates carry an average of $130,571 in debt. Resident physicians on average earn $43,266 a year.

When it comes to figuring out how high the monthly payments will be, it doesn't take an advanced degree -- or even a calculator -- to do the discouraging math.

The government shouldn't make it any harder on graduates to pay back these loans then it already is. But the recently signed College Cost Reduction and Access Act does just that.

On Oct. 1, it eliminated something dubbed the "20/220" rule. That option had allowed residents eligible for economic hardship to defer payments on subsidized loans for up to three years without accruing interest on the debt. Physicians in training were eligible if they met two criteria: (1) Their debt burden was greater than 20% of their income; and (2) their income minus the debt burden was not greater than 220% of the federal poverty level ($10,210 for single residents and $13,690 for couples). Residents had to reapply for the status once a year.

The majority of residents -- 67% -- met the criteria, according to the Assn. of American Medical Colleges.

The most pressing concern the law raises: A new repayment program won't take effect until July 1, 2009, leaving the training physicians in a financial bind during the gap between programs.

That typical resident with more than $130,000 in loans and a slightly higher than $43,000 salary would have to repay $1,878 a month during the gap year, or put their subsidized loans into forbearance. While in forbearance, training physicians won't have to repay the loan, but they will accrue interest that will have to be paid later. It is extra debt they didn't face under the 20/220 program.

Either option is an expensive one for already cash-strapped residents and debt-laden young physicians.

Once the new income-based program goes into effect in 2009, the news is better. But the situation is not as good as it was under the 20/220 program. The new program caps a resident's monthly repayments at 15% of their income that exceeds 150% of the poverty line for the borrower's family size. The federal government will continue to pay the interest on the subsidized portion of the borrower's loan.

The bottom line for first- through third-year residents is that they will have to start paying back their loans right away. That average resident will have to lay out $349 a month, unless forbearance is chosen.

Although payments in the third year and beyond would be slightly lower than they were under the 20/220 option, repayment during those early years is not easy on residents. Many of them train in urban areas with high living costs. And facing big debts could influence their career choices. Instead of going into primary care -- an area where physicians are desperately needed -- medical students could choose to follow a higher-paying specialty path in which they feel more secure to pay back their loans. The American Medical Association and others fear that residents also may shy away from public health service, practicing in underserved areas or a career in medical education or research.

It doesn't appear that Congress intended to make life harder for medical school graduates. Nevertheless, that is the consequence of the act.

Lawmakers need to fix it.

First, they need to patch the gap year. Then they need to focus on creating a better program than the one outlined in the new law.

Leaders from the American Medical Association, AAMC and American College of Physicians are among those calling on Congress, ideally, to reinstate the 20/220 economic hardship criteria. At minimum, Congress needs to change the 150% eligibility threshold to open up the economic hardship deferment option to more residents or create a new pathway for residents to defer repayment. The new law changed the current criteria from 100% of poverty to 150%. Most graduates likely would not meet that level.

There is still time to change these unfortunate provisions that only will add to the already daunting financial burdens of becoming a physician.

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External links

AMA Medical Student Section memorandum on the College Cost Reduction and Access Act (link)

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