Protecting Your Income on the Path to PSLF
Physicians are faced with several unique financial concerns, but some financial decisions can affect others and it’s important to look at each area as part of an overall plan or strategy. For example, determining the right student loan repayment plan often takes into consideration things like marital status, debt, cash flow, insurance, etc. And for early-career physicians working toward Public Student Loan Forgiveness, protecting your income, even while still in training, helps to ensure that you can continue to manage those loans and make qualifying payments should you be unable to work.
The example below introduces Dr. Brown, a PGY3 pursuing PSLF, to demonstrate the difference having disability insurance makes in the event of illness or injury as well as considering the cost of insurance when determining loan payments.
Introducing Dr. Brown
Dr. Brown is a single individual with $350,000 of unsubsidized federal student loans from medical school at a fixed 6.5% interest rate.
After the 0% COVID forbearance ends, this will begin accruing $1,896/month of interest. Their PGY3 income is $60,000, so their corresponding monthly payment on a REPAYE/PAYE income-driven repayment plan is $330/month.
This means there is unpaid interest of $1,566/month for the unsubsidized loans (assuming the $330/month payment). In Dr. Brown is enrolled in a PAYE income-driven repayment plan, this entire difference will accrue on the side. In REPAYE, half this amount ($783/month) of interest would accrue.
Both PAYE & REPAYE plans may be appropriate depending on several factors like whether Dr. Brown pursues fellowship, what sort of practice they enter, spousal information, income & family size, etc. Regardless, either repayment strategy will mean the loan balance will grow each month during training.
Because Dr. Brown is pursuing Public Service Loan Forgiveness (PSLF) after 10 years of making qualifying payments at a not-for-profit hospital, they are not currently concerned about the increasing balance and are solely focused on minimizing their monthly payments during training and the few years in practice before having their loans forgiven tax-free.
Keep in mind, of this depends on Dr. Brown’s ability to work for a qualifying employer – aka not be knocked out of work due to illness or injury.
What if Dr. Brown is unable to work?
If Dr. Brown is no longer working, they are still responsible to pay their loans unless they are completely and totally disabled. Outside of this catastrophic situation, Dr. Brown has only a few options:
- Begin paying the loans back over an extended 25 years. In Dr. Brown’s case, this would be $2,400/month in addition to all living and medical expenses. They can also refinance and pay a similar level over 20 years (if they qualify)
- Continue in an income-driven repayment plan such as PAYE or REPAYE, making $0/month payments based on $0 worth of income. After 20-25 years, the entire balance (including interest accumulation) would be forgiven as a taxable balance to the family. This means Dr. Brown would be responsible for hundreds of thousands in taxes in the future and needs to set up an investment plan to cover this
How could Dr. Brown have protected themself?
The answer is simple: True Double Dip Own Occupation disability insurance. You can read more about the why the definition of disability matters and own-occupation here, but put simply, this type of coverage protects a physician’s income if they cannot perform their specific job duties. This specialty-specific coverage offers the most specific definition of ‘disabled’ and generally provides benefit even if the physician can earn an income doing something else.
How can early-career physicians protect themselves and their income now?
The key takeaway here is that it’s important to consider your PAYE/REPAYE calculation plus the cost of insurance when determining your total monthly loan payment. Dr. Brown wasn’t concerned with the reality of their loans now, instead assuming they’d be forgiven and focusing on their future income as a practicing physician. The reality is that nobody assumes they’re going to be unable to work, and your loans will still be there regardless.
A great first step to best protecting yourself is confirming that you are in the most appropriate loan repayment plan for your specific situation and repayment/forgiveness goals. Meeting with a professional to make sure you are on track with qualifying payments, ideally while minimizing your monthly payment as much as possible, is recommended.
For physicians still in training who are waiting to worry about disability insurance until they enter practice, consider picking up True Double-Dip Own-Occupation coverage now to ensure that your income and loan responsibilities are adequately protected, especially if you’re pursuing PSLF. You can also receive and lock-in discounts when you pick up disability insurance while still in training.
One of our Twin Oak Insurance Specialists is happy to run a free, no-obligation comparison of the 6 major carriers and walk you through the process as we have for thousands of residents and fellows across the country. We are independent of any specific carrier and our goal is to find the best policy for YOU.
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