New rule excludes medical graduates from federal loan deferment plan

The U.S. Dept. of Education has finalized its decision to tighten access to a popular debt-management program, which will close this program to medical graduates.

The new regulations, based on the College Cost Reduction and Access Act of 2007, are open for public comment and still could be altered. But the Assn. of American Medical Colleges said significant changes to the economic hardship deferment program would be unlikely at this stage.

Under the old rules, two-thirds of first-year residents qualified to delay repaying their subsidized federal loans for up to three years without accruing interest. The typical medical resident making $45,000 and carrying at least $76,000 in debt qualified.

The new rules, established in April, limit qualifying income to $15,600 a year or less, and debt size is no longer considered in the eligibility calculation. If graduates, including physicians, work in public service, their remaining debt will be forgiven after 10 years of repayments. But details of this loan forgiveness deal have yet to be defined, and it is unclear what type of physician practice would qualify.

The economic hardship loan deferment program will continue to accept applicants under its old rules until July 1, 2009, giving qualifying residents and new medical school graduates one last year to participate.

For those no longer eligible, the U.S. Dept. of Education plans to start an income-based repayment program July 1, 2009. In this program, a medical graduate starting residency at $45,000 a year would be required to make monthly payments of $365, according to the AAMC. The median medical education debt is $140,000, the AAMC said.

Another option is to go into forbearance, in which residents don't pay on the loans, but the loans accrue interest, ultimately increasing the total amount residents must repay.

Changes still being sought

AMA Board of Trustees member Chris DeRienzo, MD, said the AMA was disappointed in the education department's stance and would press for changes during the comment period. Even small monthly payments would be too much for some residents, he said. "We hope to have another crack at making our points on why the pathway is important to a lot of residents across the country," he said. "This is not dead yet."

At press time in early June, the AMA House of Delegates was expected to consider four resolutions related to rising medical student debt. One proposal calls for studying the feasibility of the use of endowment funds or other approaches to help trim students' debt. The AMA also supports a bill that would reinstate the economic hardship loan deferment program for medical graduates.

Kimberly Ruscher, MD, a surgical resident at the University of Connecticut in Hartford who has $150,000 in student loans, used the economic hardship loan deferment program to manage her debt during residency. Now she will try to pay the $500 a month she will owe under the income-based loan repayment program instead of going into forbearance and accruing interest on her debt.

"I respect the financial responsibility I undertook when I took these loans, but I took them under a certain set of rules and regulations knowing I would pay them back later," Dr. Ruscher said. "Now the rules have changed on me."

She said the situation is particularly hard for colleagues who have started families and can't afford loan repayments on residents' salaries. They will have to opt for forbearance, she said, and watch their total debt climb.