Written By Travis Hornsby, CFA®, CFP®
Updated on January 26, 2021
Ryan Inman is the host of the Financial Residency podcast and founder of Physician Wealth Services. As a financial planner, he focuses on helping physicians and physician spouses take control of their finances.
A self-proclaimed “numbers nerd,” Ryan began work in financial planning after finishing grad school in 2008. He is married to a physician and has firsthand experience managing huge student loan debt while trying to further a career and reach financial goals.
In 2015, Ryan started his own financial practice for physicians in situations similar to the one he and his wife were in. He has seen how bad decisions with student loans can cost people, especially medical practitioners, hundreds of thousands of dollars.
The role of Public Service Loan Forgiveness
A lot of high-level professionals, including doctors and other medical professionals, depend on the Public Service Loan Forgiveness (PSLF) program — 1.13 million certified borrowers are on track to be approved for forgiveness as of June 2019. Their total debt amounts to $102 billion.
Recent reports have shown that only 1,216 borrowers were approved for PSLF out of the 90,000 unique forgiveness applications, which makes the approval rate about 1.4%.
Of the rejections, 98% were based on applicants:
- Not having made enough qualifying payments (55% of those denied)
- Missing information, such as forgetting to sign the form or not having the right dates (24% of those denied)
- Having loans that aren’t eligible for the program (15% of those denied)
- Entering the wrong dates for employment verification (2% of those denied)
- Not working for a qualified employer, such as a not-for-profit or government agency (2% of those denied)
PSLF forms are difficult to figure out, and “it’s really, really easy to miss some information so that totally makes sense,” Ryan said. Plus, there might be errors within your file, problems with dates, or hiccups in the process of recertifying those errors in order to remain eligible.
Flaws in the PSLF system
As many student loan borrowers have learned, you can get a great college degree by taking out a significant amount of student loan debt, but you don’t get much education on how to pay that debt off. Plus, the application process for PSLF is confusing and convoluted.
If you look at the reasons for rejection, it appears that there is an education issue. “The idea that anyone needs to hire someone to understand student debt is a really sad state for what we’re doing,” said Ryan.
Working with different clients, Ryan has seen some unbelievable mistakes on the part of borrowers and the PSLF system. For example, one physician made payments through his three years of residency, which would account for 36 months. Even though he made all of 36 payments, only 6 qualified toward PSLF. It turned out most of the dates were wrong. Then during his fellowship, which lasted 12 months, he was credited 39 payments.
“It’s not physically possible to have 39 payments made in a 12-month period,” Ryan said. “Even that little bit of detail is going to cause issues … he’s 101 payments in though, so we’ll find out pretty quickly in the next couple of years. But we’re still trying to get that fixed, and it’s been eight or nine months.”
The half-million-dollar mistake
It’s unfortunate when physicians do not understand PSLF. Ryan shared a story about a physician who had $500,000 in student loan debt. He refinanced his student loans and worked an extra job in private practice to make additional money to pay down the balance.
Refinancing was a huge mistake because it negatively affected his eligibility for PSLF and will cost him hundreds of thousands of dollars in payments — and there’s no going back.
“It was so unfortunate,” Ryan said. But he didn’t know the consequences of refinancing his student loans. “And I’m sitting here thinking, like, I know probably around what kind of salary you’re making and … I don’t know how you’re going to come out ahead.”
This physician earned about $25,000 or $30,000 more per year in gross income — not take-home pay. He now has to pay back $500,000 of student debt.
“Not to be insensitive, but my face, my chin was definitely on the ground,” said Ryan. “I thought to myself, I don’t think he realized how bad he just screwed up, and I felt horrible. My heart was broken hearing his story.”
Hard-learned lessons and preventive measures you can take
Mistakes like these are why you don’t want to make your decisions based on marketing from a student loan refinancing company. A lender won’t stop you from taking out a car loan that’s more than you can afford, tell you not to take out a mortgage that’s too big for your income, or prevent you from refinancing a federal loan into a private loan when it’s not in your best financial interest.
Take the time to listen to podcasts like the one here at Student Loan Planner® or Ryan’s at Financial Residency. Being informed can make you better understand your financial situation and your options.
You can also hire someone who knows what they’re talking about. Hiring a student loan debt professional can give you access to help that is in your best interest and provide you with input from an objective source. Spending a couple of hundred dollars on a student loan review could save you from making a costly, irreversible mistake.
Develop a financial plan to pay off your student loan debt
Student loans are just one piece of the financial planning puzzle, however. You must think through goals and understand what opportunities and challenges may come up in your life.
To do this, ask yourself:
- What does your ideal life look like?
- What would the perfect day look like?
- What kind of job do you want to have?
You can take small steps toward living the life that you want by starting with creating and reviewing a net worth statement. From there, begin cash-flow planning so you understand how money can help you realize your dreams. Don’t forget student loans are part of cash-flow planning because your debt payment plan can greatly impact your cash flow.
Once you understand how your money works and where it is going, make sure you have term life insurance coverage in place and “stay away from permanent insurances and whole life policies,” said Ryan.
“Then get to work on investments, estate planning, taxes, and implementation of the actual plan,” he said. “Don’t make any changes until you think through the entire plan.”
Your student debt payoff choices should match your needs
Ryan will be the first one to tell you that “not everyone should hire a planner [because] not everyone would be a good candidate to work with a planner.” Taking the DIY approach to managing your finances is always an option, and many people can do that successfully.
A lot of people with student loan debt, including doctors, pay to work with a financial planner but then don’t take the advice seriously. If a client doesn’t implement suggestions, they won’t see any progress. This dynamic leads to a strained relationship between the planner and the client.
Clients can have plenty of excuses, such as being too busy or not wanting to learn about money. To that, Ryan says, “Who else is going to understand your finances? Who else is going to manage that? You should care more about your money than anyone else.”
Physicians need a solid plan for paying off student loans
Without a strategy to repay your medical school loans, you could end up throwing a lot of money away. Instead, you could get a predebt consultation to help you set up a solid debt repayment plan so that you make sure your finances are in good shape when you finish med school.
If you’ve already graduated and are facing hundreds of thousands in student loan debt, don’t automatically assume refinancing for a lower interest rate is your best solution. Federal repayment programs can be used in your favor and can keep more money in your pocket.
As Ryan said, “Physicians just need a lot of help. You go through training, and you have really no formal training on financial topics or anything personal finance related.” The good news is you can get that training now and pursue a debt-free future.
