Student Loans Archives - Panacea Financial

One Thing Financial Planners Wish Doctors Knew About Student Loan Debt

Panacea Financial — Mon, 23 Jan 2023 15:22:15 +0000

Most doctors graduate with significant student loan debt. There is plenty of information and advice accessible on the internet, but we asked three financial planners what is one thing they want to share with doctors about educational debt.

Read what Meredith Jones, DVM, CSLP®, associate financial planner at Vincere Wealth and veterinarian, Benjamin Bush, CLU, ChFC, managing partner at Northeast Sequoia Private Client Group, and Josh Lantz, CRPC®, chief investment officer & financial advisor at MD Financial Advisors, wish doctors knew about their student loan debt.

Answers have been edited for brevity and clarity.

What is one thing you wish all your doctor clients knew about student debt?

BB: The one thing I think that I would like for them to understand and try to appreciate is that student loans are an investment. Student loans are an investment in your ability to have a not just a little bit higher income but a much larger income on average. Yes, you have to pay them off, but that ability to have an increased income through your education was an investment. As long as you manage that system correctly, it’s going to pay off for you in spades.

Also, I wish they just knew all of the options available. Without financial education, most of them are getting online. They’re trying to find what they can do and piecemeal or talk with other physicians, but there are a lot of professional resources out there to help manage student loans.

Knowing all the refinance options that are available in the marketplace is also huge. There’s a whole subset of people that have no idea that they can refinance their student loan debt out of the federal loans. I just think the lack of knowledge and understanding of the entire system is troubling. Frankly, we’re talking about kids taking on loans, starting when they’re 17, 18 years old for the next 8 to 12 years without understanding any of the parameters, rules or options around them.

I wish they knew that there are a lot of resources available and often those resources are not expensive or could be free that can help them navigate this conversation so they’re not doing it on their own and trying to figure out the entire American financial system on a trial and error basis.

JL: Know that there are other programs besides PSLF. A lot of doctors are unaware that there are state sponsored programs for example. Many states provide these programs. They tend to lean more primary care but not always.

The other thing I would mention is a lot of doctors are very ambitious and want to get done with these debts so fast that they get too aggressive with the loan pay-down. They take a five year note when they really should do a 7 or 10.

So, they go into practice, they get that five-year note, and they get bigger payments because those payments are condensed into five years. Suddenly, they have kids, the bills go up, and they’re paying for the nanny.

And they’re over their skis, and they can’t afford things. What’s the first thing they’re going to cut? Well, it’s the retirement savings, so they wait to save for retirement. And that just prolongs how long they’re going to have to work. In many cases, it means that they don’t have enough for retirement later on in life.

MJ: The biggest one is that student debt doesn’t have to affect your career decisions. No matter how much debt you have, there is a plan out there that is going to work for you. There’s a lot of really comprehensive and valuable help out there for people who are looking for a student debt repayment strategy.

There’s a lot of value to meeting with a student loan consultant or meeting with a financial planner familiar with student loans. It’s 100% worthwhile to talk with an expert about your student loans so you’ll have peace of mind that you’re on the right plan.

You may spend a few hundred dollars to have a consultation like that if it’s just for student loans, or if you’re meeting with a financial planner, then it may be more. I’ve heard stories from student loan consultants of folks who saved tens of thousands of dollars by meeting with a consultant because they were actually not on an optimal plan for their student debt.

Pros & Cons Of Paying Student Loans Off Early, According To Financial Planners

Panacea Financial — Fri, 20 Jan 2023 22:45:54 +0000

Most physicians, dentists and veterinarians graduate with significant student loan debt. Some choose to pay off this debt early, while others use their money in other ways. We asked three financial planners what benefits and downsides they see with eliminating this debt burden early.

Answers have been edited for brevity and clarity.

What are the benefits of paying off student loans early?

BB: The benefits of paying off early are you have now reduced your obligations to anybody. There’s no longer a requirement of your monthly cash flow, which can be emotionally a reward.

Financially, it’s just playing a little bit more of a long game because you now have the freed up cash flow to go build up that liquidity. You’re just starting at a later date, and time is extremely valuable in this discussion. Now you have more choices with your current cash flow than you did before.

JL: There’s definitely an emotional benefit. We find the number one thing for doctors when they’re stressed out, a lot of time, it’s the student debt. Outside of what they’re dealing with on their day job, their student loans really pull them down, so there’s a tremendous benefit in not having this weight on your shoulders.

That’s the biggie for a lot of them. Then, obviously, if you eliminate the debt sooner, then you’re paying less interest over time.

MJ: There are doctors of all kinds who just want to pay off the debt as soon as possible and are looking at knocking that out in 3 to 5 years. For folks who can do that, that can be really awesome. They’ve got all of this freedom and they’ve got this huge weight of the debt that is suddenly off of their shoulders. They can travel more and feel like they have more freedom, not just financially, but also in their careers as well.

I see a lot of doctors who have a lot of student debt and that affects their career decisions. Doctors who pay off the loans early may be more likely to take a risk like moving into a different sector of the career, moving from working for someone else to starting their own practice, or going from a clinical setting to a non-clinical setting. You may be more likely to do that if you have paid off your student debt than if you haven’t.

What are the downsides of paying off student loans early?

BB: Downsides are you’re shifting capital to a place that you can’t get it back. If I want that money back, I have to go ask permission to get it. If I pay off debt aggressively and then an opportunity comes to my door in two, three, four or five years, and I don’t have the capital to invest into that opportunity, I’m going to go back to a financial institution and ask them for the money. They’re going to dictate the terms which could be better or worse than what I just paid off.

JL: You could miss out on some forgiveness. I know a lot of doctors learned that the hard way over these last few years. They didn’t expect these programs. We had a lot of doctors that suddenly, through this PSLF waiver, realized: I can have some of my loans forgiven, even though I wasn’t pursuing PSLF. So, if you were in the category where you prepaid them then have that realization later, you missed out on some forgiveness.

Also, sometimes doctors move to a new job, and maybe their employer provides some kind of benefit towards student loans—that’s becoming much more popular. Or, maybe the resident state that you work in provides some kind of benefit towards the loans, and you miss forgiveness or repayment from the state.

The other big downside is it could prolong your financial freedom. Everyone, doctors included, need to save up money to be financially free at some point. I define financial freedom as that point where you’re working because you choose to, not because you have to. That takes accumulating a bunch of assets that you’re going to convert to income later on in your life. If you wait to start doing that, you’re going to miss out on a bunch of compounding returns between now and then.

Often, the doctors that are in that category are the ones that prepay their debts. They spend all their dollars essentially prepaying their debts to get them done as soon as possible, and that prolongs saving for financial freedom. They don’t have money compounding for them or money going in the market because they’ve been using all their dollars to essentially get rid of their debt ASAP.

MJ: There’s a lot to unpack here because not every doctor, whether it’s a physician, a dentist, a veterinarian, can afford to pay off their student loans early. I am typically recommending paying off student debt if they can pay it off in full in less than five or six years, and there are some folks who can afford to do that. There’s a growing number of doctors who unfortunately can’t afford to do that and are probably looking at income-driven repayment.

A lot of physicians are eligible for PSLF. In ten years, the balance of the debt is forgiven, and it’s tax free.

Most dentists and most veterinarians work in private practice, and most of them aren’t working for employers who qualify for PSLF. So, those who are on income-driven repayment plans and are going for forgiveness, they’re paying the minimum on their student loans. Then, they’re having the rest of it forgiven in 20-25 years, and they’ve got a tax bill at the end of that.

[Income-driven repayment] allows them to pay smaller payments on their student loans and it frees up more cash flow so that they can put the money toward other financial goals, like saving for retirement, buying a house, or saving so that they can start their own practice.

Doctors who have a high debt-to-income ratio who are trying to put all their money toward the debt may not actually be able to afford to pay it off in full. And they’re often putting off other financial goals that they might have.

How Are Doctors Handling The Student Loan Payment Pause?

Panacea Financial — Fri, 20 Jan 2023 22:13:47 +0000

Federal student loan payments have now been paused for over two years. This lack of payment obligation has caused borrowers to use different strategies when handling the temporary extra funds. We asked three financial planners what they are seeing within the doctor community during this time.

Answers have been edited for brevity and clarity.

What is going on with the student loan payment pause and how are you seeing your doctor clients handle this?

MJ: It started in March 2020, and it continues to be extended. We don’t know when it’s going to end exactly, because it’s kind of a moving target. Now it’s not going to start up until 2023 at least, potentially later in the year, or it may get extended again.

As far as how doctors are handling it, it depends on what their career goals are, their financial situation, and what their student loan repayment strategy is. For those who are trying to pay off their student debt in full, a lot of them are just adding as much money toward the student debt as possible, so that they can get it paid off quickly while the interest is zero.

Some of them, while the payments are on pause, are using that money that they would have put toward their loans and are either saving it toward another financial goal or they’re investing more.

Some folks who are not as mindful have probably incorporated it into their spending money and are not paying as much attention to the fact that eventually the loan payments will restart.

BB: While [the pause] is helpful from a financial standpoint as it allows for additional cash flow, it’s also starting to ultimately create a cash flow crunch because unless they are putting away every dime that they would be putting into student loans, they’re establishing other types of behavioral investments in terms of increasing what they’re able to spend.

It is very hard to retract out of those things. I’m seeing some doctor clients being very responsible, but for the vast majority it is very difficult because they are free and clear with a lot of cash flow that wouldn’t otherwise be on their balance sheet.

Some of them are enjoying some lifestyle changes, while others are taking advantage and really starting to build a robust savings and investment strategy to increase liquidity.

So, we are continuing to approach it with clients. We have an opportunity to make a change prior to them turning those federal loans back on.

We should probably be proactive rather than reactive because you’re still going to have to pay with one exception, public service loan forgiveness. You know, they’re continuing to give credit towards those loans. And so, their timeline is shortening, which is helpful.

JL: My take on it is the $10,000 forgiveness—or $20,000 with a Pell Grant—is all jammed up in the courts, and it’s probably going nowhere. The forbearance extension was a backdoor way for the administration to provide student loan relief. As of right now, they’ve said, “We’re going to give 60 days notice if this gets resolved in the courts, but if we don’t hear anything by June 30th, then 60 days from there.”

That means for a lot of doctors, they’re not going to pay until August 30th on these loans. If they have federal loans, they’re not paying, they don’t have interest, and it counts towards PSLF if they’re in that program.

For the doctor community, they’re much more excited about this and it’s much more meaningful financially than getting $10,000 in forgiveness because for a lot of them, they’re saving $2,500 a month in payments that they would have been paying for those months. Now that’s extended longer. So big relief for the doctor community for sure.

If a doctor is not applying for PSLF should they be making payments right now?

BB: It has to be directly correlated with what their broader financial strategy is.

If your financial strategy includes being able to invest in things like other businesses, whether that’s silently or actively in the medical field or opportunities outside of medicine, then we will probably look at what opportunity builds up liquidity during this period of time to execute on those opportunities, rather than being in a super rush to pay the federal government back for loans that they’re not charging us right now.

Money is entirely emotional and psychological. So, if I come across a client that even if logically it doesn’t make sense to necessarily pay down the debt, but it’s who they are; it’s embedded in their DNA, then it’s an anti-debt conversation. I’m going to say to them: paying off debt is never bad. Let’s make sure we’re taking advantage of this period of time where we can just continue to drop principal and therefore reduce your long term interest.

Many of our clients that are a little bit more dynamic, somewhat entrepreneurial, want to take advantage of the freed cash flow to build up liquidity and go execute on other opportunities.

JL: They really should seek out help from an adviser because it’s really case by case. But, in most instances, I encourage them to wait to refinance because they got a 0% loan right now, so why switch that to a loan that’s going to have an interest cost associated with that?

That will change when they need to start paying on these loans. A lot of those doctors that are not pursuing PSLF should strongly consider refinancing. Their strategy during this time depends on their financial goals.

They’re getting a 0% loan, so maybe they use some of those extra dollars elsewhere. Markets are down. When markets go down, expected returns go up, so they could be placing some of those dollars towards markets where maybe they can get long term expected returns that are much higher than the cost of the interest. So maybe that doctor should put money in the market, assuming they have the risk tolerance for it, instead of paying on a 0% student loan.

MJ: If their goal is to pay off their student debt in full and pay it off as soon as possible, then it certainly makes sense to either put as much money as they can toward the debt now or to actually pile it up. Some folks I know are saving the money they would have put toward the debt because right now there’s no interest on student debt, and some are actually investing their money with the hope that it’s going to be even more valuable by the time they have to start repaying their student loans.

If their plan is long-term income-driven repayment (not PSLF) and going for forgiveness, then really putting that money to work in other ways certainly makes sense. If they haven’t started saving for the tax bomb, the tax bill that would be due at the end of forgiveness, they should start saving for that.

You’re Not Alone: Many Doctors Need Help Navigating Student Loan Debt

Panacea Financial — Fri, 20 Jan 2023 21:22:49 +0000

Most doctors, whether physicians, dentists or veterinarians, graduate with significant educational debt. According to the Education Data Initiative, on average, physicians graduate with about $241,600 in debt, dentists with $292,169, and veterinarians with $183,302.

The number of medical, dental and veterinary school graduates with educational debt is high, with 76-89% of medical school graduates and 83% of both dental and veterinary school graduates graduating with student debt.

Needless to say, no matter your educational loan burden and your journey to repay, you are not alone. To illustrate this point, we asked three financial planners how often their doctor clients ask for advice on managing their student loans.

Answers have been edited for brevity and clarity.

How often are your doctor clients asking for advice on their student loans?

MJ: It’s one of the most common concerns for our clients, and especially the doctors who are early in their careers. There’s certainly a lot of confusion surrounding student debt and repayment strategies.

I’m a veterinarian, and I know what it’s like to have six-figure student debt. It can be a huge weight psychologically, and it takes up a lot of mental space for many doctors when they’re thinking about their finances.

BB: It has been a little less common just because of the federal government moratorium on payments, which is to say we are talking about it, but not at the same length that we were two to two and a half years ago.

Over the course of the last year, it’s really been a number of conversations around: do we want to refinance to lock in an interest rate today with the idea that we probably might miss three, six, nine months of no payments, but to have your ongoing payments locked at a lower interest rate? Or do we want to roll the dice, wait until the moratorium’s up, then see what’s available?

The dialog has changed a bit, but we’re still talking about quite a lot because for a lot of our doctors, it’s still the largest number on their balance sheet.

JL: I’d say if they’re under age 45, 90% of the time. It’s really only those situations where they came from a wealthy family or maybe they’re from another country that they don’t have student loans. In most cases, they’re going to have student loans, and most of the time they have $300,000 to $400,000 in student loans.

I always remind them everyone’s in the same boat. Everyone’s got these student loans, and you shouldn’t feel bad. That’s just part of becoming a doctor.

Get help with your student loans

Disclosures

The post You’re Not Alone: Many Doctors Need Help Navigating Student Loan Debt appeared first on Panacea Financial.

What Doctors Need To Know About Biden’s Income-Driven Repayment Plan

Michael Jerkins, MD MEd — Wed, 18 Jan 2023 18:29:29 +0000

The Education Department on January 10, 2023, shared the details of the Biden Administration’s proposed reforms to the income-driven repayment program (IDR). During the initial announcement in August 2022, these reforms were overshadowed by the president’s plan for a one-time, set-amount loan forgiveness, despite these changes to IDR being potentially more beneficial in the long term.

Many doctors are disqualified from the partial loan forgiveness ($10,000 per borrower, $20,000 if a Pell Grant recipient) because their income is higher than the $125,000 income cap or $250,000 for married couples filing jointly. (This forgiveness is currently blocked in the courts and may be overturned). But, these new changes to IDR plans could have a big impact on doctors’ finances.

Here’s what you need to know about these changes and how the new income-driven repayment program affects physicians, dentists and veterinarians.

What is income-driven repayment?

Income-driven repayment plans set your monthly student loan payment at an amount that is intended to be affordable based on your income and family size, according to the Federal Student Aid website.

The current plan options are:

Revised Pay As You Earn Repayment Plan (REPAYE)
Pay As You Earn Repayment Plan (PAYE)
Income-Based Repayment Plan (IBR)
Income-Contingent Repayment Plan (ICR)

Each plan calculates your monthly payment based on a percentage of your discretionary income, which you pay for a set number of years. Once you complete the total length of payments, the remaining balance is forgiven.

The Biden Administration’s proposal calls for a simplification of IDR offerings, phasing out PAYE and ICR plans and limiting enrollments into IBR. Borrowers with Parent PLUS loans will still be able to use the ICR repayment plan.

A brief history of the income-driven repayment program

Income-driven repayment plans first became available to borrowers in 1994, when Congress established the Income-Contingent Repayment Plan. In 2007, the federal government launched a more generous version of the previous plan, calling it Income-Based Repayment. In 2010, 2014 and 2015, the federal government created Pay As You Earn, New IBR, and Revised Pay As You Earn, respectively.

Today, roughly 8.5 million federal student loan borrowers are enrolled in an IDR plan, representing about a third of all borrowers in repayment.

What will change in the new income-driven repayment plan?

The new plan, which will be a revised version of REPAYE, includes these changes:

$0 monthly payments for any individual borrower who makes less than 225% of the poverty level
Monthly payments for undergraduate loans capped at 5% of a borrower’s discretionary income, if they do not qualify for $0 payments
Unpaid monthly interest will be covered, so a borrower’s loan balance will not grow as long as the required monthly payments are made

While graduate loans, including medical school, dental school, or veterinary school loans, will remain at 10% of the borrower’s discretionary income, borrowers with both undergraduate and graduate loans will pay a weighted average between 5% and 10%.

Other changes to be made include:

Raising the amount of income that is considered non-discretionary, therefore protecting it from repayment
Forgiving loan balances after 10 years of payment, rather than 20, for borrowers with original loan balances of $12,000 or less. This may not apply to many doctors as balances are typically much higher than $12,000.
Simplifying enrollment by providing an opt-in for borrowers to allow the Department of Education to automatically pull their income information each year, removing the need to recertify their income annually
Borrowers not currently in an income-driven repayment plan could see forgiveness
Credit given towards forgiveness if a borrower was in more than 12 months of consecutive forbearance or 36 months of aggregate forbearance

Though the benefits of these changes are most significant for low-income borrowers with solely undergraduate loans, doctors will still be positively impacted.

How do changes to income-driven repayment affect doctors?

Physicians, dentists and veterinarians can reap the benefits of these changes through strategic decisions that can lower monthly payments or help along the way to Public Service Loan Forgiveness.

Additionally, the simplification of the enrollment and recertification of income into income-driven repayment could help doctors and doctors-in-training save time and mental effort.

How to take advantage of income-driven repayment changes

An official start date for these changes has not been announced, though the Department of Education aims to begin implementing some of these changes later this year.

Enrollment in this new plan is not available now, but if you want to enroll in the future and are unable to make the standard payments currently, you may want to enroll in another IDR plan. Once the new program is available, you will be able to switch from your existing plan into the new one.

Why change the current income-driven repayment program?

Since 1980, the total cost of four-year public and private college has nearly tripled, even when accounting for inflation. Medical, dental and veterinary schools are following the upward trend. According to a report from the Association of American Medical Colleges, medical education costs have been rising at double the rate of inflation.

Federal support has not kept up with these dramatically rising costs. While Pell Grants once covered almost 80% of the cost of a four-year public college degree, it now covers under a third.

Cumulative student loan debt of all borrowers had increased dramatically in the last few decades. In 1995, the total federal student loan balance stood at $187 billion. Since then, the balance has increased 766.3%, or 45.1% annually to $1.617 trillion.

This debt burden weighs heavily on the more than 45 million borrowers, preventing many from building wealth and achieving financial freedom. Biden’s plan aims to target “debt relief as part of a comprehensive effort to address the burden of growing college costs and make the student loan system more manageable for working families.”

How should I deal with my student loans?

Doctors often face large student debt burdens when graduating. According to the Education Data Initiative, on average, physicians graduate with about $241,600 in debt, dentists with $292,169, and veterinarians with $183,302.

Each doctor has a unique loan balance, financial situation and long-term plan, so your student loan payment plan should be individual to you. Working with a financial planner experienced with student loans, especially those who consistently work with physicians, dentists and veterinarians, can help you find the best repayment strategy for you.

Through our Build Your Team program, you can get connected to an industry-specific financial planner who can help you determine the best ways to deal with your student loan debt — totally for free! Get connected and learn more here.

More resources to help you:

Student loans are a complex topic. Want to learn more? Find more on our Resources page or check out one of our curated articles:

The post What Doctors Need To Know About Biden’s Income-Driven Repayment Plan appeared first on Panacea Financial.

As a Doctor, Should I Refinance My Student Loans?

Ned Palmer, MD MPH — Tue, 17 Jan 2023 22:32:27 +0000

Refinancing your medical, dental, or veterinary school loans could save you money on interest, but it’s not always your best option.
Loan forgiveness programs only apply to federal loans.
If you intend on working for a qualifying institution full-time for 10 years and you have qualifying loans, you should pursue Public Service Loan Forgiveness.
If you will not qualify for PSLF, refinancing becomes a prudent strategy after you start making significant income.

Is Refinancing Your Student Loans from Medical, Dental, or Veterinary School the Right Decision?

Refinancing student loans is a common strategy to pay off debt. Doing so could get you a lower interest rate and make your finances more manageable — something that’s appealing at all levels of your healthcare career, whether you’re in training as a resident or fellow, or even in practice as an attending.

But refinancing isn’t always your best option.

Refinancing is a big decision, one of the biggest financial choices a young doctor can make. But refinancing should only be done if it’s right for you! When you choose to refinance medical, dental, or veterinary school loans out of the federal system, you forfeit options that could lead to significant loan forgiveness opportunities. That’s why you must first explore all of the options available to you.

In 2021, 76-89% of graduating medical students had educational debt with a median debt burden of $241,600. And the average debt is even higher for dentists and veterinarians! Worse, physicians with high levels of debt experience higher rates of burnout and lower quality of life and satisfaction with their work-life balance.

So, before you consider refinancing your medical, dental, or veterinary school loans, make sure you understand what it means to refinance, the type of loans you have, your projected employment path, and more.

What is refinancing?

When you refinance, you create a new loan with a private lender. The private lender pays off your existing loans and gives you a new loan with new terms. Typically, the new terms include a lower interest rate than what you’re currently paying.

What type of loans do I have?

You either have federal student loans or private student loans — and many people have both. Federal loans are offered by the government, while private loans are offered by banks, credit unions, and other financial institutions.

You can find your federal student loans listed at studentaid.gov, and your credit report lists your private loans. There are many resources available at studentaid.gov, like a list of your loans, repayment calculators, and Public Service Loan Forgiveness assistance.

Here’s what you need to make an informed decision:

Your total student loan balance
Your current interest rate
What federal income-driven repayment program you qualify for (more on that below)
Your employment/career plan.

Once you have a full picture of all your student loans, you can explore if refinancing your medical, dental, or veterinary school loans is right for you.

Student loan forgiveness

One of the two major benefits of the federal system is student loan forgiveness — the other is deferment. Interest subsidies also exist in the federal system in the REPAYE system, which we will cover below. To be eligible for forgiveness, you must remain in the federal system — that means not refinancing medical, veterinary or dental school loans.

Public Service Loan Forgiveness (PSLF) is perhaps the most well-known forgiveness option available. It’s a federal program that can erase your medical, dental and veterinary school debt, tax-free, in 10 years, and you can enter the program once you graduate.

You can save a LOT of money by utilizing this strategy: Doctors have been forgiven hundreds of thousands of dollars through PSLF.

PSLF eligibility

To be eligible for PSLF, you must follow certain employment requirements:

You must work for a 501(c)(3) nonprofit organization; more than 75% of hospitals qualify. (This means that most residencies qualify and that payments made during residency can be retroactively approved.)
You must work full-time as an employee for the qualifying nonprofit.
You must submit employment certification forms to confirm you’re working for an eligible organization.

Make sure to determine your eligibility and see if your employer qualifies.

In addition to the employment requirements, you must also sign up for an income-driven repayment (IDR) plan and make 120 cumulative payments.

Income-driven repayment (IDR)

There are currently four IDR plans you can choose from:

Pay As You Earn (PAYE)
Revised Pay As You Earn (REPAYE)
Income-Based Repayment (IBR)
Income-Contingent Repayment (ICR)

President Joe Biden recently announced changes to the income-driven repayment offerings. This new program, a revision of the REPAYE plan which will likely be implemented in late 2023, will benefit a majority of student loan borrowers with changes like:

$0 monthly payments for any individual borrower who makes less than 225% of the poverty level
Monthly payments for undergraduate loans capped at 5% of a borrower’s discretionary income, if they do not qualify for $0 payments
Unpaid monthly interest will be covered, so a borrower’s loan balance will not grow as long as the required monthly payments are made
Simplifying IDR options by phasing out PAYE and ICR

While graduate loans will remain at 10% of the borrower’s discretionary income, borrowers with both undergraduate and graduate loans will pay a weighted average between 5% and 10%.

See the full list of changes on our article breaking down the new program here.

Though there is no specific effective date, the Department of Education is expected to begin implementing these changes in late 2023. Keep up to date on the Department of Education website.

No matter which plan you choose, every monthly payment you make counts toward the mandatory 120 payments.

Pay As You Earn (PAYE)

Before the changes made by Biden go into effect, PAYE requires you to pay 10% of your discretionary income toward student loans every month. The higher your income is the higher your monthly payment will be, and one unique benefit with PAYE is that you do not have to include your spouse’s income which makes it a good option if you’re graduating medical school with a spouse with a high income

With PAYE, you and your spouse should file taxes separately because your spouse’s income will not count toward calculating a higher monthly payment. Your spouse will pay more in taxes, but you’ll end up paying less over the lifetime of the loan due to the cap on monthly payment amount that comes with PAYE. The cap ensures you don’t pay more than the standard, monthly 10-year payment amount.

This plan has a partial hardship requirement: to be eligible your monthly 10-year payment amount must exceed what your calculated monthly payment would be for PAYE. This is not a difficult requirement to meet, otherwise you would be staying in the 10-year standard repayment plan.

Using PAYE, you also won’t lose as much money when you earn more as an attending physician due to the cap. You can switch to this plan at any time to save money.

Revised Pay As You Earn (REPAYE)

Currently, REPAYE also requires you to pay 10% of your discretionary income, and this plan is recommended if you’re graduating medical school with no spousal income to consider and want to take advantage of the program’s unique benefit: the interest rate subsidy. (With REPAYE, you cannot avoid having your spouses’ income count toward your monthly payment calculation.)

Using REPAYE typically amounts to a lower repayment amount, which is made possible by an interest subsidy the government provides to keep interest costs low for those that qualify. Of note — this doesn’t lower your actual interest rate. Instead, if your monthly payments amount to less than the accrued interest for that month, the government pays off a fraction of your interest expense.

Unlike the PAYE plan, there’s no cap on monthly repayment amounts. This means that you’ll pay 10% of your discretionary income, even if your income rises significantly. So if you’re a high-earner or are married to a high-earner, this isn’t the best option for you.

Income-Contingent Repayment (ICR)

At this time, ICR requires you to pay 20% of your discretionary income. This plan is recommended if you have Parent Plus loans that have been converted to direct loans (because it’s the only plan that allows them).

ICR is similar to REPAYE and doesn’t have an income requirement to qualify.

Income-Based Repayment (IBR)

Before Biden’s proposed changes go into effect, IBR requires you to pay 15% of your discretionary income toward student loans every month. Like with PAYE, installment amounts are capped to the standard monthly 10-year payment amount, and have the same partial hardship requirement.

This plan was initially designed as an improvement to ICR, specifically for an older type of loan called Federal Family Education Loans. Now, all loans under that program can be consolidated within the federal system, making them eligible for PAYE or REPAYE. As such, this program has fallen out of favor.

Does my employment qualify for PSLF?

The first question to ask yourself is whether you’re willing to begin your career working in the nonprofit sector full-time. If the answer is no, then PSLF isn’t right for you — and you should consider refinancing your medical, dental, or veterinary school loans.

If you’re ready to refinance, seek private refinancing once you’re making enough money to receive competitive rates. In general, heavily indebted students are more likely to choose high-income specialties.

Keep in mind: Most private lenders offer the best rates to doctors who have been practicing for several years because their rates are based on your income, relative to the amount of debt you have. (Panacea Financial’s student-loan refinancing does not consider debt-to-income ratios because they understand the financial investment required to become a physician.)

As an alternative to PSLF, you can also pursue a 20- or 25-year forgiveness track, in which the government writes off the balance of your federal loans after paying your loans for 20-years through an IDR. You’ll still have to pay taxes on this, unlike PSLF, which is tax-free. (With the 20-year track, the forgiveness amount is taxed as income.)

Of note – few physicians are likely to qualify for the extended forgiveness because even at a lower tier physician salary, we simply make too much. Furthermore, this forgiveness is not tax free. This means that at a physician’s marginal tax rates, they are going to owe a huge tax bill when they finally receive forgiveness – between 30% and 50% potentially! While a physician may benefit from the extended forgiveness option, it should be regarded cautiously.

Keep in mind: This is a relatively new program. No one has completed the 20-year requirement to date, which means there’s no information on what this entire process is like.

PSLF popularity is growing, but the program is still relatively underutilized. Among medical school graduates choosing primary care specialties, 11.7% said they intended to utilize PSLF in 2010, compared to 25.3% in 2014.

So if you have federal loans and are committed to full-time work at a qualifying nonprofit organization, student loan forgiveness is likely a good choice for you.

Is there an income limit to PSLF?

Another reason student loan forgiveness may not be right for you is if you earn too much money. While there’s no income eligibility for PSLF, your repayment plans are based on your income. To determine this, you’ll need to calculate your discretionary income payments and your 10-year standard repayment plan.

If your discretionary income payments are more than your 10-year standard payments, then you should consider refinancing. If you (or you and your spouse, combined) are a high-earner, you would be paying the capped 10-year standard monthly amount. In this case, you would be making 120 payments (10 years) at your 10-year standard monthly amount, so you would have paid off the full amount of the loan and thus be forgiven $0. Over that time period, you would have paid significantly more in interest than if you had refinanced.

However, the math becomes more complicated if the discretionary payments are almost as much as your 10-year standard payments. In this case, you should determine the exact interest savings of refinancing. You also may need to consult a tax specialist about the implications of filing with your spouse.

Important things to know about PSLF

If you temporarily lose eligibility, those months simply won’t count toward the 120 cumulative payments you have to make. In this case, the payments you already made still count toward the total balance, and you do not lose credit towards forgiveness.
You are ineligible for PSLF the moment you refinance your medical school loans privately.
Some worry about future changes to the amount of debt that’s eligible for forgiveness as both major parties have expressed interest in capping the benefit. Based on precedent, the general expectation is that people already working toward forgiveness won’t be affected.
Payment amounts are based on discretionary income — a calculation that is based on your income, and the federal poverty level per family size. Getting married can significantly increase your income, which, combined with having kids (pushing IDR payments down) explains why the differences between IDR plans tend to hinge on family size and income

Student loan deferment and forbearance

The second major benefit of the federal system is deferment and forbearance. Both deferment and forbearance allow you to temporarily postpone or reduce your federal student loan payments.

The general rule is: If you’re in deferment, no interest will accrue to your loan balance. If you’re in forbearance, interest will continue to accrue on your loan balance. But oftentimes, the terms are used interchangeably.

In 2020, as a part of the CARES Act, the federal government froze all repayment of student loans by setting the interest rate to 0%. That means, if you have federal student loans, you’re not currently required to make payments.

The student loan payment pause is extended until 60 days after the U.S. Department of Education is permitted to implement the debt relief program or the litigation is resolved. If the debt relief program has not been implemented and the litigation has not been resolved by June 30, 2023 — payments will resume 60 days after that. Keep up to date here.

The upside of forbearance is that, even while you’re not making any payments on your student loans, every month still counts toward your PSLF requirements, which increases the amount that could be forgiven. Additionally, you’re not accruing any interest, so the loan balance is unchanged during the forbearance period.

Private lenders are not beholden to the CARES Act, and are much less likely to offer deferment plans like this.

Why should I be refinancing my medical school loans?

If you have federal student loans, you may be able to find a lower interest rate in the private market. And, ultimately, the lower rate is reflected in savings to you over the life of the loan.

Here are two scenarios to highlight why you may want to refinance your medical school loans:

1. Fastest payoff, minimum total interest paid

Greg recently became an attending physician. He wants to pay off his student loan debt as fast as possible, so he keeps his expenses down and continues to live like he did as a resident even after starting to get paid like an attending.

Greg has $412,000 in student loan debt at 7.2% over a 20 year term. He refinances this into a 5-year loan at 4.75% APR. Now, his monthly payment is $7,727 — more than double his previous monthly payment of $3,243.

The lifetime cost of the loan drops from $779,000 to $464,000. And instead of paying $367,000 in interest over the life of the loan, he’s only going to pay $52,000.

Thanks to refinancing, Greg can pay off his student loan debt 15 years faster and save $315,000.

2. Maintain lifestyle, lower interest rate

Michelle is also an attending physician. Like Greg, she has $412,000 in student loan debt at 7.2% interest over a 20 year term. She wants to maintain her current lifestyle, but she knows she can get a lower interest rate and save money in the process.

Michelle refinances her student debt to a 15-year loan at 5.99% APR. Now, her monthly payment is $3,474 — only a slight increase from her previous payment of $3,243.

The total cost of the loan drops from $779,000 to $625,000. And instead of paying $367,000 in interest over the life of the loan, she’s only going to pay $213,000.

In this case, refinancing allows Michelle to pay off her student loan debt 5 years faster and save $154,000.

Scenario 1 is about finding the fastest way to pay off your student loans:

Get a lower interest rate
Shorten the lifetime of the loan
Increase your monthly payment amount
Pay off your medical school loans faster
Minimize the amount paid in interest

Scenario 2 is about managing your student loans to match your desired lifestyle:

Get a lower interest rate
Shorten the lifetime of the loan
Maintain your monthly payment amount
Pay off medical school loans faster
Save money on interest charges

In both examples, you can see why refinancing is a good option. Whether or not refinancing is right for you comes down to your desired lifestyle and financial goals.

When is the best time to refinance?

The best time to consider refinancing your medical school loans is when you’re early in practice as an attending physician.

When you’re a med student, it’s still too early to refinance — but it’s never too early to educate yourself and learn about your options. And once you begin your residency, refinancing only makes sense if you can get into a deferred payment program — but you should start preparing for it by educating yourself.

If you’re interested in exploring deferred payments during your residency, Panacea offers programs with $100 monthly payments. However, the programs are not very flexible: There are restrictions on how long you can participate in the program. And once it ends, you revert to making full payments — something that’s very difficult to cover if you’re earning a resident’s salary.

How often should I consider refinancing?

If you have private education loans (PEL), you should always be on the lookout for a better deal — although you likely won’t get great terms until you’ve completed your training.

PELs — private loans taken to pay tuition costs like Sallie Mae — typically have higher interest rates even than public loans, which makes them enticing to refinance. The most important things to know when shopping for a better rate are your total balance and the interest rate on your current private education loans.

Should I try to pay off my student loans ASAP?

The real question is how comfortable you are with debt.

Many people will tell you to pay off your student loans as fast as possible, but debt isn’t the only thing you should consider. You should balance student loan debt with your desired lifestyle and other expenses in your life.

When dealing with significant debt, many sources suggest living like a resident as long as you can. But that doesn’t always lead to an ideal lifestyle.

Delaying important decisions in your life to prioritize debt — buying property, starting a practice, getting married or even having kids, for example — can result in missed opportunities. And the benefit of those opportunities often exceeds the burden of student loan debt.

Is refinancing student loans different than consolidating?

Consolidating is the process of organizing and combining multiple debts into a single debt.

If you have different student loans from undergrad, graduate school and medical school, you can consolidate them all into a single loan from a private lender. That way, you only have to make one payment toward student debt every month.

Consolidating your student loans is a way to simplify your finances, and you can often get a lower interest rate on a consolidation loan.

With refinancing, however, you’re moving your debt from one lender to another and setting new terms. Refinancing your student loans can also save you money on interest, and many people opt for refinancing to align their debts and monthly payment requirements with their current lifestyle.

Special refinancing options for doctors

If you decide loan forgiveness and other public programs aren’t right for you, Panacea Financial can help with a refinance product specifically designed for doctors. First, there are no cosigner requirements because we respect the path you took to become a physician. There are no maximums on these loans because we understand the cost of financing medical education. Almost every other financial institution has loan maximums that they won’t refinance above.

Additionally, we have fixed rates that are based on term length that you get to choose between. You won’t get offered a range, and there’s never a bait-and-switch with an imaginary interest rate because we do not utilize your debt-to-income levels, or credit score like at traditional lenders. Panacea’s rates are transparent; we do not punish you for the investment you made to become a physician.

Medical Student Loan Refinance payment schedule examples: 5 year fixed rate, $300,000 at 2.75% APR is $5357.87 per month; 7 year fixed rate, $300,000 at 3.00% APR is $3,964.25 per month; 10 year fixed rate, $300,000 at 3.25% APR is $2,931.87.40 per month; 15 year fixed rate, $300,000 at 3.50% APR is $2,145.00 per month.

Traditional banks won’t tell you your rate until you’ve given them all of your information. You have to apply to find your rate. Panacea’s rates are published publicly and they won’t change after you apply.

The bottom line on refinancing student loans from medical, dental, or veterinary school

Whether or not you should consider refinancing your medical school loans depends on your situation.
If you plan to pursue Public Service Loan Forgiveness, you should not refinance because it will disqualify you from these programs.
If PSLF is central to your plans, make sure you utilize an income-driven repayment plan that best aligns with your financial needs to ensure you get the largest possible amount forgiven.
If you are an attending who will make too much money to have your loan balance forgiven, you should seek a better rate via refinancing.
How you refinance will be dictated by your lifestyle: Are you comfortable carrying a little more debt to have more access to experiences or investment opportunity? Or would you prefer to live modestly to pay off the debt as fast as possible? These are questions you’ll have to answer.
The ideal time for refinancing your loans is as soon as you know you won’t be pursuing PSLF. Often this is early in your career as a practicing physician, dentist or veterinarian. For those that know this earlier, you can take advantage of in-training refinance programs.
Panacea Financial allows you to refinance with no cosigner requirement, at transparent rates, and with no maximums. Click here to get started today.

This article was authored by Dr. Ned Palmer, Dr. Michael Jerkins, and Dr. Josh Daily. It draws heavily from the following journal articles:

What Should I Do With My Student Loans? A Proposed Strategy for Educational Debt Management published in the Journal of Graduate Medical Education, Feb 2018
Personal Finance for Pediatric Trainees published in Clinical Pediatrics, September 2016

Panacea Financial, a division of Primis. Member FDIC.

The post As a Doctor, Should I Refinance My Student Loans? appeared first on Panacea Financial.

Financial Tips For Doctors: Budgeting, Savings, Retirement & More

Michael Jerkins, MD MEd — Thu, 22 Dec 2022 21:01:44 +0000

Since our establishment, we have been dedicated to not only providing excellent products and services built for the needs of doctors, but also sharing financial, lifestyle and professional resources that can help you throughout your career.

We’ve compiled all of our articles on common financial topics and questions into one easy-to-access resource.

Managing your finances in every career stage

Budgeting can be difficult, especially in school, training and early in career. These articles focus on managing your finances and building a budget.

Why Monthly Budgeting is Critical for Doctors in Training

Budgeting can be especially important during training when money is tight and financial stress is common. A budget can give you control over your money, make you aware of your spending, and keep you focused on your goals.

This article answers:

How do I create a budget as a doctor?
What tools can help me create a budget?

How to Cover Expenses During Medical Residency

Many residents struggle to find funds to pay for moving costs, unanticipated expenses and general spending, while receiving inadequate pay. Options for covering these expenses include credit cards, borrowing from friends and family, moonlighting and personal loans.

This article answers:

What are my options for covering expenses in residency?
Which option will work for me?

How Can Doctors Avoid Lifestyle Creep?

Transitioning from resident to practicing doctor typically means a steep jump in pay, which can be exciting but come with challenges. As individuals earn more money, there can be a tendency to spend more and more, even beyond their means.

This article answers:

What is lifestyle creep?
Why is lifestyle creep common for doctors?
How can doctors avoid lifestyle creep?

Building your savings

Many doctors have difficulty building savings through school and training, but savings can help you adapt to moments of financial strain or plan for long-term goals.

How a High-Yield Savings Account Can Help Doctors Save Money Faster

High-yield savings accounts are a great tool for storing and growing savings passively.

This article answers:

What is a high-yield savings account?
What can doctors use a high-yield savings account for?
What should a doctor look for in a high-yield savings account?

A Doctor’s Guide to Building an Emergency Fund

An emergency fund is a readily accessible sum of money that is set aside to use during unexpected expenses or periods of unemployment. This financial tool can help you avoid or postpone the use of credit cards or high-interest loans.

This article answers:

What is an emergency fund?
Do doctors need an emergency fund?
How can doctors build an emergency fund?

Learning the financial basics

Many physicians, dentists and veterinarians receive very little financial education. Understanding basic financial topics can help you make educated decisions to get you closer to achieving your financial goals.

Hard Credit Check vs. Soft Credit Check: What Doctors Need to Know

“Credit check” is a phrase you may hear often as you search for banking products that work for you.

This article answers:

What is the difference between a hard credit check and a soft credit check?
How do credit checks affect doctors?

How Doctors Can Improve Their Credit Score & Other Common Credit Score Questions

Doctors can often become burdened by a low credit score because of their need to take on substantial debt early in their careers.

This article answers:

How is a credit score determined?
How can I improve my credit score?

Tackling student loan debt

Physicians, dentists and veterinarians typically take on a significant amount of student debt. Navigating repayment and/or forgiveness can be easier once you know the basics of your options.

Pros and Cons of Public Service Loan Forgiveness for Doctors

Public Service Loan Forgiveness is an option for getting rid of substantial student debt, but there are benefits and drawbacks to this program.

This article answers:

What are the benefits and drawbacks of Public Service Loan Forgiveness for doctors?
Is Public Service Loan Forgiveness a good option for you?

As a Doctor, Should I Refinance My Student Loans?

There are many student loan payment options for doctors: PSLF, income-driven repayment, refinancing and paying the balance directly.

This article answers:

What is student loan refinancing?
What student loan payment or forgiveness option is best for me?

A Doctor’s Guide to Refinancing Student Loans

Refinancing your student loans could reduce your interest rate or lower your monthly payments.

This article answers:

Is student loan refinancing the right choice for me?
How do doctors begin the refinancing process?

Taking control of non-student loan debt

It is widely known that doctors take on significant education debt, but they also often take on other debt to pay for things like relocation, medical expenses and other unexpected costs.

Personal Loans for Doctors: What You Need to Know

Personal loans are a good alternative to the high interest rates of credit cards.

This article answers:

What is a personal loan?
What can doctors use a personal loan for?
How do I apply for a personal loan?

What You Need to Know About Credit Card Consolidation for Doctors

25% of physicians are currently paying off credit card debt, according to Medscape’s 2021 Physician Wealth & Debt Report. Credit card consolidation can help you tackle your debt efficiently.

This article answers:

What is credit card consolidation?
How can doctors consolidate credit card debt?

Preparing for retirement

It’s easy to put off preparing for the long term, but it’s important to start early. Don’t play catch up throughout your career. Start now, so you can be set up for success in your golden years.

How to Prepare for Retirement as a Physician, Dentist or Veterinarian

High debt load, late start in earning, excessive spending, and lack of knowledge can get in the way of making a retirement plan, but preparing for retirement should be a priority throughout your career.

This article answers:

When do doctors typically retire?
How should doctors prepare for retirement?
Should doctors use a financial advisor to prepare for retirement?

What is a 401(k) and an IRA? What Doctors Need to Know About Retirement Savings

There are many retirement savings account options, but two of the most common are 401(k)s and IRAs.

This article answers:

What is a 401(k)?
What is the difference between a traditional and Roth IRA?

Finding experts to help you along the way

Life as a doctor can be challenging, but it can be made a little easier with a strong team behind you. Don’t navigate the challenges of personal and professional life alone.

A Doctor’s Guide to Selecting and Using a CPA

CPAs can ensure your personal or practice finances are in order and give you tax advice to avoid overpaying on your taxes.

This article answers:

How does a CPA help doctors?
What should I look for when using a CPA?

Finding a Practice Lender & Bank: Choosing Wisely Today for Your Practice Tomorrow

When financing a practice need, a lender may seem like an easy choice—just pick the best rate. This decision is actually much more complex.

This article answers:

What factors affect a practice loan?
What should I consider when choosing a practice lender?

How Contract Lawyers Help Doctors

Whether an employment contract or a business deal for your practice, contracts are a common part of professional life that require careful review.

This article answers:

What is a contract lawyer?
When do doctors need a contract attorney?

There’s more!

We have plenty of other articles focused more specifically on individual career paths—physician, dentist and veterinarian. Visit our Resources page to find more.

Want to know more about a topic we haven’t covered? Send us an email to let us know what doctor and/or financial topic you are interested in.

The post Financial Tips For Doctors: Budgeting, Savings, Retirement & More appeared first on Panacea Financial.

What The Fed Rate Hike Means For Loans, Credit Cards & Savings

Tyler Stafford, CFA — Wed, 14 Dec 2022 16:19:15 +0000

Inflation is now at 7.1%, lower than the peak of 9.1% in June, but still higher than any point since the 1980s. Americans have been feeling the effects of this with more costly groceries, gas, rent and more.

The Federal Reserve is aggressively raising rates in an attempt to slow spending, cool the economy and reduce the worst inflation in four decades. The Fed hopes increased rates will bring inflation down to the desired 2 percent.

Despite the hope this brings for cheaper consumer costs in future, increasing rates mean financial products are more expensive right now. What do doctors need to know about how these rates will impact their financial needs?

Understanding the interest rate hikes

Rate increases and inflation have been a popular topic in the news and conversation recently, but how do these rate hikes really affect you?

Since the beginning of 2022, the Fed has raised rates seven times to a range of 4.5 to 4.75%, with their latest hike in February raising the rate by 25 basis points. Banks use the Fed rate as a guide to help determine the rate they charge for certain products such as mortgages, personal loans, or auto loans.

The policymakers forecasted continued interest rate increases by an additional 0.5% through 2023, which by design would make borrowing more expensive and should decrease the amount of money in circulation and lower inflation.

So let’s take a closer look on how rising interest rates can affect you in your daily life.

How do rising interest rates affect my credit card?

Credit card companies typically base rates on banks’ prime rates which move in tandem with the Fed, which means your borrowing costs are increasing.

The average credit card interest rate as of July 15, 2022 is 22.91%, the highest rate since August 2019. In comparison, the average rate last year was 16.45%.

The best way to handle the increased interest rates on credit cards is to pay off your balance in full each month. If you are unable to pay your balance off each month, consider acquiring extra funds through other methods with lower interest rates, like personal loans.

How do rising interest rates affect my personal loan?

Personal loans are not always affected the same as other consumer products. The impact depends on whether you already have a loan or are looking to get one and whether the loan rate is fixed or variable.

Fixed vs. variable loan interest rates

Most personal loans are fixed-rate loans, meaning your annual percentage rate is not dependent on market factors. Once you obtain a fixed-rate personal loan, your rate will stay the same over the course of the loan.

For those who already have personal loans, this means you don’t have to worry about these rate increases, but for those currently in the market for one, higher rates could impact your decision.

Is now a good time to get a personal loan for doctors?

Though rates are high, they may get higher over the next few months. If you are in need of a personal loan, getting one now could save you from that higher rate if rates increase. If you aren’t sure if you need a loan, we recommend not rushing into the process simply to lock in a low rate.

If you are in need of extra cash without the ability to pay off your need each month, personal loans are a better option than the most common alternative, high-interest credit cards. Credit card rates are also increasing significantly and could result in significantly increased interest expense over time.

How do rising interest rates affect my student loans?

The rising interest rates shouldn’t have a significant effect on federal student loan borrowers at this time, but those with private loans could expect increasing rates.

How will rising rates affect my federal student loans?

The student loan payment moratorium that began in March 2020 has been extended to 2023. All federal student loans have had a set interest rate of 0% and therefore aren’t affected by rising rates at this time. Additionally, federal student loans have been bound by fixed rates since 2006. Only federal borrowers who received a variable-rate student loan before July 2006 would experience a higher rate.

How will rising rates affect my private student loans?

On the other hand, private student loans are not bound by a moratorium thus they will be likely affected by the rising rates, depending on the terms. If you have a variable-rate private student loan, you will experience higher interest rates and the fixed rates you are being offered are likely to increase as well.

One way to manage these rising rates is by refinancing to a lower, fixed-rate loan before rates increase. Check out our guide to finding out if refinancing would be right for you.

How do rising interest rates affect my high-yield savings account?

As interest rates rise on consumer loans and other products, they also increase on high-yield savings accounts, meaning you earn more.

Depending on your bank, you can expect an increase in your annual percentage yield (APY). The higher your APY, the more money you will make passively.

What should I expect with Federal Reserve rate increases?

The Federal Reserve uses rate increases to bring inflation to a more reasonable and sustainable rate. These increases attempt to shrink the supply of money available to make purchases, making money more expensive.

As interest rates rise, consumers typically slow their spending, especially on major purchases, because of the substantial rates that will affect a loan long term.

Though rising rates are a hopeful step toward a less volatile economy, some worry these actions could tip the economy into a recession. An example of this happened in 1980 and 1981. During this time, inflation rose to 14% and the Fed raised rates to 19%. This pushed the country into a severe recession but remedied the extreme inflation rates consumers were battling.

There is no certain way to predict what effect rising rates will have on the economy, but ideally, they will lead to a soft landing where the economy slows enough to temper employment and wage increases without entering a recession.

How Panacea Financial can help you deal with rising interest rates?

Despite the ever changing economy, Panacea Financial is committed to working in the interest of our customers. That is why we offer competitive rates on personal loans, practice loans and student loan refinancing. We also just raised our rates on our high-yield savings accounts to help you grow your money faster as you save.

If you are feeling overwhelmed by the thought of adapting your budget and financial plan to the changing economy, we can connect you with a financial or wealth advisor through our Build Your Team program.

Panacea Financial, a division of Primis. Member FDIC.

The post What The Fed Rate Hike Means For Loans, Credit Cards & Savings appeared first on Panacea Financial.

How Has The Biden Presidency Affected My Student Loans?

Michael Jerkins, MD MEd — Wed, 30 Nov 2022 20:40:06 +0000

Editor’s Note: This article was originally published in October 2020. We updated and revised the content December 2022 to provide the most current and accurate information.

Student debt has doubled over the last ten years, ballooning up to $1.54 trillion, and becoming the second largest consumer debt type, placing it higher than both credit cards and auto loans.

Current students and recent graduates have a much different relationship with student debt than previous generations, which may explain why student debt has recently become more of a pressing issue for voters. It has solidified its position on the forefront of the political consciousness in this country, as evidenced by its discussion in the run-up to the 2020 presidential election as well as the upcoming midterm elections.

In his campaign, President Joe Biden proposed many plans to aid those burdened by student loan debt. Now, with ongoing student loan forbearance and widespread economic hardship due to COVID-19, Biden has announced his plan for student loan forgiveness.

Understandably, many want to know how these factors could affect their loans. We have rounded up what you need to know about Biden’s campaign promises and his latest announcement.

What do I need to know about loan forgiveness?

The student loan crisis has been a hot button issue for many years, but continuing economic hardships caused by the coronavirus pushed the Biden administration to take action.

In a press conference on August 24, 2022, President Biden announced his plan for student loan forgiveness and the end of the forbearance period. Biden’s announcement confirmed that $10,000 of federal student loans would be forgiven, with Pell Grant recipients receiving up to $20,000 in forgiveness. This forgiveness would only apply to borrowers who made less than $125,000 annually or $250,000 annually for married couples who file taxes jointly.

Additionally, some federal repayment programs are being restructured as undergraduate loan repayments can now be capped at 5% of an individual’s monthly income, rather than the previous 10% guideline for income-driven repayment.

In the months following the announcement, a federal appeals court temporarily barred the relief program. The issue was then sent to the Supreme Court. The Supreme Court will hear the case in February 2023, making the final decision on the legality of the proposed forgiveness.

As a result of these legal issues, the Biden administration announced a final forbearance extension, despite the earlier decision to have the final extension end on December 31, 2022.

According to the Department of Education, “Payments will resume 60 days after the Department is permitted to implement the program or the litigation is resolved, which will give the Supreme Court an opportunity to resolve the case during its current Term. If the program has not been implemented and the litigation has not been resolved by June 30, 2023 – payments will resume 60 days after that.”

How does Student Loan Forgiveness affect physicians, dentists and veterinarians?

If the forgiveness program is implemented, it is important to note that many physicians, dentists and veterinarians make more than the $125,000 annual cap. This means these doctors will be excluded from this $10,000 forgiveness.

The good news is that these guidelines could benefit the doctor groups in medical school, dental school, or veterinary school, those in residency or fellowship, or doctors in certain low-paying specialties.

When do we have to start paying back student loans for medical school, dental school, or veterinary school?

The forbearance period will be extended through June 20, 2023 or 60 after litigation is resolved, whichever comes first. This extension will benefit all borrowers as interest will not grow on these federal loans until the forbearance period ends.

Though the forbearance extension is a win for some, it could hurt those considering student loan refinancing in the long run. Rates are rising and will continue to do so for the foreseeable future, which means if you put off refinancing until the forbearance period ends, your rate could be significantly more than it would be if you refinanced today. Deferring locking in a low rate could cost borrowers a lot more.

What is the plan to control education costs for physicians, dentists, and veterinarians?

Educational costs are continuing to rise, especially for medical, dental and veterinary students. According to US News, the cost of medical school has risen 3% to 4% over the last decade with no signs of slowing down.

This forgiveness may benefit some borrowers, but it does nothing to address the root cause of the issue. The burden of student debt needs to be handled with more substantial action. We hope this will be the first step toward more effective reform.

How do I apply for student loan forgiveness?

Because courts have blocked the student debt relief program, the Department of Education is not accepting applications at this time. If you have already applied, the department will be holding submitted applications until the decision is made. Click here and subscribe to receive updates.

Has President Joe Biden delivered on his campaign promises for student loans?

Biden had many plans for educational support post-high school, but let’s look at how the President has delivered on four major proposal points.

Make public colleges and universities tuition-free for students coming from families earning less than <$125,000

Most educational debt for medical school graduates (around 86%) comes from bills racked up in graduate education which this Biden policy does not affect. However, this proposed policy could save future medical school graduates around $27,000 (or around 14% of their total debt burden).

Update: As of the writing of this article, this plan has not seen any traction. It had potential to be included in the American Families plan or Build Back Better plan, but did not appear in either. However the effect of Biden’s new Income-Driven Repayment could make the amount they pay in student loan payments significantly reduced for many making less than $125,000.

Expand forgiveness in PSLF

Many residents, fellows, and attendings are currently enrolled in the Public Service Loan Forgiveness program. During his campaign, Biden proposed pushing through a previous Senate proposal from Tim Kaine (D-Virginia) that would have opened up the program to all federal loans and repayment types, and, most notably, would have forgiven half of the loan balance at 5 years of service with the remaining balance paid off after completing 10 years of service.

Update: In October 2021, the U.S. Department of Education announced a year-long PSLF waiver that could allow some borrowers who did not qualify previously to receive forgiveness. These changes ended on October 31, 2022, but as this deadline approached, the Biden administration announced some permanent improvements to the PSLF program.

Improvements include allowing borrowers to obtain credit for late, partial, and lump sum payments and awarding credit for certain months in deferment or forbearance, such as those tied to military service or deferments for economic hardship or cancer treatment. These updates will go into effect on July 1, 2023.

Expanded enrollment, reduced forgiveness in PSLF

Loan forgiveness programs still remain popular with medical school graduates, with around 34% expressing interest in PSLF specifically. For future physicians and physicians-in-training that wish to enroll in PSLF however, a Biden proposal could drastically change the potential benefits.

Under his plan, anyone that works for a qualifying employer would be automatically enrolled in the program and could earn $10,000 per year for up to five years of service (with a maximum benefit of $50,000). This could represent a huge cut to the potential PSLF benefit for medical school graduates who plan on entering this program.

Update: This proposal to cap PSLF forgiveness has fallen flat with no clear signs of follow-through. This is good news for doctors who plan to utilize PSLF.

Increasing value of and eligibility for Pell Grants

The Biden team proposed doubling the value of the Pell Grants and automatically increasing it yearly, tied to inflation. They proposed increases in value and expanding the eligibility for the Pell program.

Update: In the 2023 fiscal year budget, Biden proposed to increase the maximum Pell Grant by $2,175 over its current level, bringing the maximum annual amount to $8,670. The number of eligible lower and lower-middle class students that would benefit from this program would increase from 6.1 million to 6.7 million. Based on his plans, this is only the first step to providing better aid to eligible students.

At the time of writing, this budget has not been passed yet, so this proposed increase could be changed.

Post-2020 Updates on Medical School Debt

For any doctors or doctors-in-training, a lot has happened since the close of 2020. We’ve done our best to track those new developments as they happen here on the Panacea blog. Check out the list below for links to our articles on the dates we published them:

November 2021 – CARES Act for Healthcare Professionals
November 2021 – Changes in Federal Student Loan Servicers: Will Your Loans Be Impacted in 2022?
December 2021 – Biden Extends the Student Loan Payment Pause: What This Means for Your Medical and Dental School Loans
January 2022 – Will Biden Extend the Medical, Dental, and Veterinary Student Loan Payment Pause?
March 2022 – Public Student Loan Forgiveness for Doctors

Keep following Panacea Financial in the future for updates on these and many other topics in the doctor-financial space.

The post How Has The Biden Presidency Affected My Student Loans? appeared first on Panacea Financial.

Hard Credit Check Vs. Soft Credit Check: What Doctors Need To Know

Michael Jerkins, MD MEd — Tue, 30 Aug 2022 13:13:49 +0000

Hard credit checks are when a financial institution checks your credit before making a lending decision. These can negatively affect your credit score.
Soft credit checks are when a company reviews your credit score for things such as background checks or pre-approved products and do not affect your credit score.
There are special exceptions for “rate shopping,” so your credit score isn’t affected by looking for the best rate.

When searching for financial products, “credit check” is a phrase used often, but what does it mean and how does it affect doctors in need of financing?

Credit checks — also known as “credit inquiries” or “credit pulls” — refer to the action of reviewing your credit score and credit history, but it is important to understand the difference between hard and soft credit checks.

What is a hard credit check?

Hard inquiries take place when a financial institution, like a bank or credit card company, checks your credit before making a lending decision. If you are applying for a personal loan, mortgage or credit card, you will likely experience a hard credit inquiry. These require you to give written consent for a credit check.

How does a hard inquiry affect me?

Hard credit checks can affect your credit score, typically lowering it by five or fewer points. The damage to your score is removed from your credit report after 24 months, but your score could improve before those two years. Many consumers won’t see their score affected by the credit check after one year.

Just one hard credit check shouldn’t significantly affect your approval for a loan or credit card, but hard credit inquiries can become problematic if done too frequently. Multiple checks in a short period of time can signal to the lender or credit card company that you are low on money or will be racking up a lot of debt in the future, which would make you a lending risk.

One reason frequent hard credit checks can lower your credit score is that there is some data that suggests frequent hard credit checks are associated with an increased risk of not paying a financial institution back. According to FICO, individuals with six or more inquiries on their credit reports can be up to eight times more likely to declare bankruptcy than those with no inquiries on their reports.

Examples of hard credit checks

Common hard inquiries include:

Loan applications (mortgage, auto, student, personal, etc.)
Credit card applications
Requests for credit limit increases
Applications for lines of credit
New utility applications
Apartment rental applications
Collection agency skip tracing

What is a soft credit check?

Soft credit checks typically take place when an organization or individual reviews your credit score for a background check or pre-approved lending scenario. Unlike hard credit inquiries, institutions do not need your consent to perform these checks.

Do soft credit checks affect my credit score?

These inquiries will not affect your credit score and will only be seen on consumer disclosures. A consumer disclosure is the long version of your credit file and only you may request this document. It includes all inquiries on your file, including suppressed information.

Examples of soft credit checks

Common soft inquiries include:

Personal credit checks
Pre-qualified credit card offers
Pre-qualified insurance quotes
Employment verification (i.e., background check)

Is checking my own credit score a hard or soft credit inquiry?

Checking your personal credit score is considered a soft credit check, so your credit score will not be affected by this action. In fact, checking your credit score and report frequently is encouraged. At minimum, you should check it once a year.

Checking your credit information regularly will help ensure it is correct and there have been no breaches of your personal data. Watch out for signs of identity theft like incorrect information or errors like outdated information or payments wrongly reported as late.

Will shopping for the best rate affect my credit score?

Rate shopping is the exception to the negative effect multiple inquiries can have on your credit score. Looking for the best rate is financially responsible, and credit scoring models treat them as such.

As long as the multiple inquiries take place within a 45-day window, FICO considers all auto loan, student loan and mortgage inquiries as one hard check. VantageScore works similarly — treating all inquiries within a 14-day window as one, regardless of type.

Bottom line

You will encounter credit checks throughout your life. Whether purchasing a house, opening a new credit card, or searching for a loan, these inquiries shouldn’t affect you and your credit score too much, as long as you understand how to search and rate shop strategically.

At Panacea Financial, we understand that even a small dip in credit score can have a significant effect on doctors, especially those in training or early in practice. That is why we only use soft credit checks when you apply for a PRN Personal Loan or Student Loan Refinance.

For more information about credit scores, loans and more, visit our Resources page or check out one of our featured articles:

Credit score: How Doctors Can Improve Their Credit Score & Other Common Credit Score Questions
Personal Loans: Personal Loans for Doctors: What You Need to Know
Practice Loans: Finding a Practice Lender & Bank: Choosing Wisely Today for Your Practice Tomorrow

The post Hard Credit Check Vs. Soft Credit Check: What Doctors Need To Know appeared first on Panacea Financial.

Student Loans Archives - Panacea Financial

One Thing Financial Planners Wish Doctors Knew About Student Loan Debt

What is one thing you wish all your doctor clients knew about student debt?

Read more about student loans

Pros & Cons Of Paying Student Loans Off Early, According To Financial Planners

What are the benefits of paying off student loans early?

What are the downsides of paying off student loans early?

Read more about student loans

How Are Doctors Handling The Student Loan Payment Pause?

What is going on with the student loan payment pause and how are you seeing your doctor clients handle this?

If a doctor is not applying for PSLF should they be making payments right now?

Read more about student loans

You’re Not Alone: Many Doctors Need Help Navigating Student Loan Debt

How often are your doctor clients asking for advice on their student loans?

Read more about student loans

Get help with your student loans

What Doctors Need To Know About Biden’s Income-Driven Repayment Plan

What is income-driven repayment?

A brief history of the income-driven repayment program

What will change in the new income-driven repayment plan?

How do changes to income-driven repayment affect doctors?

How to take advantage of income-driven repayment changes

Why change the current income-driven repayment program?

How should I deal with my student loans?

More resources to help you:

As a Doctor, Should I Refinance My Student Loans?

Is Refinancing Your Student Loans from Medical, Dental, or Veterinary School the Right Decision?

What is refinancing?

What type of loans do I have?

Student loan forgiveness

PSLF eligibility

Income-driven repayment (IDR)

Pay As You Earn (PAYE)

Revised Pay As You Earn (REPAYE)

Income-Contingent Repayment (ICR)

Income-Based Repayment (IBR)

Does my employment qualify for PSLF?

Is there an income limit to PSLF?

Important things to know about PSLF

Student loan deferment and forbearance

Why should I be refinancing my medical school loans?

1. Fastest payoff, minimum total interest paid

2. Maintain lifestyle, lower interest rate

When is the best time to refinance?

How often should I consider refinancing?

Should I try to pay off my student loans ASAP?

Is refinancing student loans different than consolidating?

Special refinancing options for doctors

The bottom line on refinancing student loans from medical, dental, or veterinary school

Financial Tips For Doctors: Budgeting, Savings, Retirement & More

Managing your finances in every career stage

Building your savings

Learning the financial basics

Tackling student loan debt

Taking control of non-student loan debt

Preparing for retirement

Finding experts to help you along the way

There’s more!

What The Fed Rate Hike Means For Loans, Credit Cards & Savings

Understanding the interest rate hikes

How do rising interest rates affect my credit card?

How do rising interest rates affect my personal loan?

Fixed vs. variable loan interest rates

Is now a good time to get a personal loan for doctors?

How do rising interest rates affect my student loans?

How will rising rates affect my federal student loans?

How will rising rates affect my private student loans?

How do rising interest rates affect my high-yield savings account?

What should I expect with Federal Reserve rate increases?

How Panacea Financial can help you deal with rising interest rates?

How Has The Biden Presidency Affected My Student Loans?

What do I need to know about loan forgiveness?

How does Student Loan Forgiveness affect physicians, dentists and veterinarians?

When do we have to start paying back student loans for medical school, dental school, or veterinary school?

What is the plan to control education costs for physicians, dentists, and veterinarians?

How do I apply for student loan forgiveness?

Has President Joe Biden delivered on his campaign promises for student loans?

Make public colleges and universities tuition-free for students coming from families earning less than <$125,000

Expand forgiveness in PSLF

Expanded enrollment, reduced forgiveness in PSLF