Available at: http://www.ama-assn.org/ama/pub/category/5349.html

The MSS Task Force on Medical Education Debt reviewed data that were compiled over the last 20 years from the Association of American Medical Colleges, the federal government, and other sources concerning the cost of medical education and the debt burden of medical students.

Key findings include: the average graduating medical student debt has been rising faster than the consumer price index (CPI) for the past 20 years, and tuition at public and private schools has been growing faster than the CPI over these same 20 years.

If left uncontrolled, these exorbitant amounts of debt may cause shifts in specialty choice, increase burnout and decrease the numbers of minorities in medicine.

Statistics:

• $139,517 – According to the Association of American Medical Colleges, the average educational debt of indebted graduates of the class of 2007. The average debt of graduating medical students increased in 2007 by 6.9 percent over the previous year.
• 75.5 percent of graduates have debt of at least $100,000
• 87.6 percent of graduating medical students carry outstanding loans

Source: AAMC 2007 Graduation Questionnaire

Why medical education debt has increased

Medical education debt is driven by rising tuition. AAMC data show that median private medical school tuition and fees has increased by 50 percent (in real dollars) in the 20 years between 1984 and 2004. Median public medical school tuition and fees increased by 133 percent over the same time period. Other recent 20-year periods show similar trends. Figures 1 and 2 (PDF, 23KB) demonstrate an upward sloping curve juxtaposing the rising debt and tuition—both faster than inflation.

Tuition is just one source of increasing debt burdens. Some other causes include:

• Interest accrued on loans over time significantly adds to the total cost of student debt
• Students now entering medical school with more education debt from undergraduate education
• Increasing numbers of “non-traditional” students who have children to support

Debt crisis harms both students and patients

The increase in debt not only burdens medical students, but can have effects on the entire health care system. Some of correlations found include:

Decrease in primary care physicians

• Students with high debt are less likely to pursue family practice and primary care specialties and instead seek specialties with higher income or more leisure time

Decreased diversity of physician workforce

• The cost of tuition can prevent students from low-income/minority and those with other financial responsibilities from attending medical school
• Physician diversity is necessary to address the needs of heterogeneous, multicultural patient populations

Promoting unsafe physician behaviors

• Residents with high debt are more likely to moonlight
  • Increases fatigue and may contribute to medical errors (see Figure 4 (PDF, 39KB)
• Increasing debt leads to more cynicism and depression among residents (see Figure 5 (PDF, 41KB)

How can we reduce debt?

The MSS has come up with recommendations for legislative and administrative remedies to resolve the medical education debt crisis. These recommendations focus on controlling tuition, the principal component of education costs, but include a number of relatively simple administrative measures that could be taken immediately and at a low cost to individual medical schools.

Federal level

• Reauthorization of the Higher Education Act
• Securing adequate funding for Title VII health professions programs in the FY 2009 Labor, Health and Human Services, Education and Related Agencies appropriations bill and expanding and protecting the National Health Service Corps (NHSC) Loan Repayment Program
  • Read the AMA letter (PDF, 60KB) to the Chairman of the Senate Committee on Appropriations
• Broadening the tax-exempt status of medical scholarships

State legislative options

• Tuition caps
• State tax deductions for loan interest
• State service loan repayment programs

Reform individual medical school financial policies

• Tuition caps
• $50,000 private institutions
• $30,000 public institutions
• Change fee policy

Innovative strategies for reducing student loan needs

• Increasing grants and scholarships
• Collaborate graduate/undergraduate debt counseling
• Collective buying to reduce student expenses

Republished from the AMA-MSS

Available at: http://www.ama-assn.org/ama/pub/category/5349.html

On September 7, 2007, the House and Senate approved the Conference Report (100-317) for H.R. 2669, also known as the “College Cost Reduction and Access Act”. This Act was signed into law by the President of the United States on September 27, 2007 with an effective date of October 1, 2007.

Why should you care? The Act, while providing additional benefits to undergraduate students, eliminated the economic hardship deferment qualification known as “20/220”, used by many health profession students to delay loan repayment while in residency or fellowship. Prior to the passage of the Act, a borrower would be eligible for the economic hardship deferment if they met two requirements: 1) employed full-time with federal education debt burden equal to or greater than 20 percent of monthly income and 2) the requirement that income minus the education debt burden was less than 220 percent of the greater of the minimum wage rate or the federal poverty line for a family of two.

Under the new rule, in order to qualify for the economic hardship deferment, a borrower’s income cannot exceed the greater of either the minimum wage rate or 150 percent of the poverty line applicable to the borrower’s family size with no regard to the amount of repayment of loans. According to the American Medical Association (AMA), 67 percent of medical residents qualified for economic hardship deferment under the 20/220 criterion. As the American Association of Medical Colleges (AAMC) states the average medical student debt is over $120,000 a year for public schools and $160,000 for private schools, this new revision creates a fiscal dilemma for many residents.

Many organizations, including the AMA and AAMC, are lobbying for change because during the deferment period, the federal government pays interest on the subsidized portion of the loan, but interest continues to accrue on the unsubsidized portion. The AAMC reports “…at the end of a student’s three years of residency, the $120,000 median debt of a 2006 public medical school graduate using the federal direct loan program will have grown to $151,342, and the $160,000 median debt of a private medical school graduate will have grown to $205,707. These graduates’ monthly payments will be $1,718 and $2,336, respectively, if they pay over the default period of10 years, and $1,022 and $1,389, respectively, if they extend repayment over 25 years.” If the borrower is not eligible for economic hardship deferment or eligibility for economic hardship deferment has expired (either through no longer qualifying or having used all 3 years) this debt will be increased by the compounded interest on the subsidized Stafford loans (approximately $34,000 for the average public medical school in 2006) that usually are interest-free during deferment in residency.

The only options other than deferment are: repayment, pursue an income-contingent repayment plan available through the U.S. Department of Education, or go into forbearance. Forbearance is available for the entire duration of a medical internship or residency, regardless of the length of the program. Laws regarding forbearance are not impacted by the Act. Under forbearance, no payments are required; however interest continues to accrue and the federal government no longer pays interest on the subsidized portion of a borrower’s loans (which could be up to $8,500 of your Stafford loans a year.) An additional difference between deferment and forbearance is interest may be capitalized under forbearance, adding insult to injury in the form of additional debt.

On November 1, 2007, the AMA reported that the Department of Education has granted an extension until fall of 2008 for correction of this provision. On November 2, 2007, Senator Richard introduced a bill, S.2303, to amend the Higher Education Act of 1965 regarding the definition of economic hardship as well as there are revisions to the Higher Education Act circulating through Congress. So please remember to contact your Senators and Congressperson to support this new legislation! The AMA has a web site to make it easy to send a message to your Senators and Representatives and voice your concern.

AMA Statement
Introduction of bill S.2303
AMA Letter writing campaign
AAMC Updated Medical School Tuition and Physician Indebtedness

There are many lenders competing to meet your federal student loan needs, all with different terms and benefits. Which one is right for you? There are a few things you should know to help you choose.

Choosing a Lender for your Stafford and PLUS Loans

You have filled out your FAFSA and received your award letter — now it’s time to pick a lender. If your school is a Direct school you can only get your loans from Uncle Sam. This takes away the burden of choosing a lender but Direct loans do not offer much in the way of repayment incentives after you graduate. That’s not all bad though, you can still consolidate with a different lender once you graduate to get some interest rate reductions.

For non-Direct schools you have to choose from the over 3000 lenders that are capable of issuing federally backed loans. This can be a daunting task but there are a few things that can narrow them down.

• If your school still has a preferred lender list, start there. Ask the financial aid office how they screened the lenders on the list. Do they have an arrangement with them or were they chosen by performance? Some lenders will set up a fast-track system with schools to make the loan process easier on them so they are put on the preferred list. But that doesn’t benefit the student in any way. Remember: you are not required to choose a lender from this list. Federal law guarantees you the right to use any lender you wish, but your school may have some insight on the lenders on their list.
• Talk to your fellow students. Who did they use and were they happy with them?
• Use the Internet – research any lenders that look promising.
• Don’t forget your credit union if you or your parents are members.
• What origination fees do you have to pay?
• Do they offer deferral throughout residency?
• How easy is the application process? Can you apply online? How long do you have to wait to find out if you are approved?

Ask plenty of questions, take notes and arm yourself with as much information as possible. Keep in mind that lender’s terms and benefits may change over time so it is a good idea to look around every year at potential lenders. There is no inherent benefit to keeping the same lender all through your schooling — especially if you plan to consolidate after graduation. So if you find a better deal – take it!

Choosing a Lender for Your Federal Consolidation

You may choose to consolidate with your original lender but chances are you can find a better deal by shopping around. It doesn’t require any more work on your part to use a different lender for consolidation and will only add about 2 weeks to the process. Find the best deal you can, whether it’s from your current lender or a new one.

The fixed base interest rate for a consolidation loan is determined by a federally mandated weighted average calculation that every lender must use. The base interest rate should be the same no matter which company you speak to. The term of your loan is also determined by the federal government based solely on your loan balance. Your base interest rate, length of loan and deferral benefits will be the same no matter who you call. So why choose one lender over another? There are three points you should consider when comparing lenders: repayment incentives, the incentive terms and customer service.

Repayment Incentives

The government sets your base interest rate but there’s nothing that says a lender can’t charge you less in the form of repayment incentives. Some common repayment incentives are a percentage off of your interest rate for an automatic deduction from a checking or savings account, an interest rate percentage reduction after a certain number of on-time payments, or reduction or repayment of origination fees. Some companies offer cash up-front rebates for consolidation or rebates after set time periods. The lender should be able to provide you with an amortized repayment schedule showing you exactly what the loan will cost you. This will make it easier to compare lenders with different types of incentives.

Incentive Terms

Incentives aren’t any good if you can’t earn them or keep them. It can be harder than you think to make 24-48 on-time monthly payments. Ask the potential lender what percentage of borrowers actually receive their deductions. Don’t be surprised if it is only 10-20%. The first payment is the most commonly late payment and depending on the lender’s policy you could be disqualified before you even get started.

Questions to ask about their program:

• Once earned, are the benefits permanent?
• If a benefit is lost, can it be re-earned?
• Is there a grace period for late payments?
• Will using deferral or forbearance time affect benefits?
• If the loan is sold, will it retain the benefits?

Customer Service – The Deciding Factor?

• Can the lender provide all the types of loans you are interested in and handle your post-graduation consolidation or will you need multiple lenders?
• How hard is it to get an actual person on the phone?
• Are the customer service personnel friendly and knowledgeable?
• Do they have a Web site with 24 hour access to your account?
• Can you apply online?
• Do they have flexible repayment options?

These are all important questions when choosing a lender. No amount of incentives are worth it if you cannot deal with the company. Be sure to choose a lender who will treat you as a valued customer. This is another area where your school’s financial aid office can be handy. Students will often ask for their help when they have a problem with their lender, and they may be able to tell you some lenders to avoid.

Your student loans are a long-term commitment. Making an informed decision is imperative to your financial future. Start early so you don’t have to rush, gather as much information as possible and make your choice wisely!
To discuss this article on the SDN Forums, click here.
To visit the SDN Financial Aid forum, click here.

According to the Association of American Medical Colleges (AAMC), the cost of private medical schools has risen 165 percent and the cost of public medical schools has gone up 312 percent over the last 20 years.

Unless you were born with a silver spoon in your mouth, chances are you’re going to have to take out a loan or loans to get through medical school. And you’re not alone–according to the AAMC, the average educational debt of graduates of the class of 2006 (including pre-med borrowing) was $130,500, with 86.6 percent of graduating medical students carry outstanding loans, and 33 percent of students with educational debt reporting principle in excess of $150,000 and a significant minority reporting debt as high as $350,000.

If the thought of over $100,000 in debt isn’t hard enough to swallow, consider that accumulating loan debt can push back many of life’s milestones, this according to a 2002 survey for Nellie Mae, a major student lender. The report indicated that 38 percent of graduates held off buying their first house because of student loans, 14 percent put off marriage, and 21 percent delayed having children.

Luckily, there are ways to alleviate the debt you’re bound to have when you graduate. And one of the easiest ways to do so is to borrow less and save more, because when interest is factored into the equation, even a small change in the amount you borrow can result in big savings in the total cost of your loan.

First, decide how much loan you really need. Remember, the award letter indicates the most you can get, but you don’t have to take out the loan for that entire amount. Take a look at what you really need versus what you want. The difference might surprise you.

There are other options, including working while in school or on vacations to save money for school, or getting scholarships or other forms of need-based or performance-based aid that don’t have to be repaid. Now is also the time to tap into any savings or bonds that you may have accumulated over the years, because every little bit will help.

Experts agree that your end loan payments should never exceed 10 percent of your expected monthly gross income after graduation. There are several loan calculators available on the Internet that will help you estimate how much debt you can manage in relation to your expected starting salary.

• Loan calcuators at FinAid.com

The most important thing to remember is that anything you borrow now will have to be paid back eventually. It may seem like a basic concept to grasp, but it’s easy to forget when you’re still focusing on day to day life, not years (or decades) down the road.

There’s no question student owe a lot. The average debt (including pre-med borrowing) for the class of 2006 totals approximately 130,500, and 40.2 percent of 2006 graduates have non-educational debt averaging $16,689, this according to the Association of American Medical Colleges.

But there are ways to pay debt down, and even pay it quickly. The first step is to continue to live like you’re a student. Rather than taking your paycheck and spending it frivolous items, put your money towards your basic living expenses, and use any extra to start paying off your students loans immediately.

Most students repay their loans using a standard repayment plan, which typically consists of equal monthly payments over a 10-year period. No matter what loan period you may have, call your lender and find out how to go about making extra payments. Even as little as $10 per month can be huge in the long run.

There are other options, including graduated repayment plans, where payments gradually increase (usually every two years) to coincide with an expected rise in your income.

If you’re carrying more than one loan, loan consolidation is an option that combines several student loans into one bigger loan from a single lender, which is then used to pay off the balances on the other loans (private loans cannot be included in a consolidation loan).

Consolidation not only reduces the size of your monthly payment, but it can also extend the terms of your loan for up to 30 years. It also locks you into a fixed interest rate for the life of the loan, so you always know what your minimum payment will be.

If you find yourself in trouble, there are some circumstances where you can defer payment. Deferment is when your lender allows you to postpone repaying the principal of your loan for a specific period of time. Deferments are often granted to attend graduate school, or for unemployment or economic hardship.

In a worst case scenario, you can apply for forbearance, which is a temporary postponement of payments for up to 12 months. In this case, you would be able to postpone or reduce your payments, but the interest charges would continue to accrue.

Granting forbearance is entirely up to your lender, and is only granted in cases of extreme hardship or other unusual circumstances when you do not qualify for a deferment, such as if you’re unable to pay due to poor health or other unforeseen personal problems.

The most important thing to remember is that your lender(s) don’t want you to default on your loans. Of course they want you to pay back your loans, but they also want to help you make arrangements that will work for you, because paying off your loans is a win-win for everyone.