Everything You Need to Know To Get Rid of Medical Debt

In case you missed it, Pattern hosted a webinar with SoFi this past week to talk about all things debt!

In this webinar, Matt Wiggins, co-founder of Pattern, and Bruce Brotine from SoFi covered many medical student debt topics including refinancing, repayment, loan consolidation, PAYE, ICR, REPAYE, Hybrid, IBR, and how to pay less on your student loans and get out of debt faster.

This is a transcription from the Pattern/SoFi webinar on debt.

Matt: Obviously, this is a hot-button issue for most doctors especially in training or early in their career and so we want to make sure to provide some really great content! We've got Bruce Brotein from SoFi who will be presenting with me tonight.

Bruce: Quickly, we want to go through SoFi’s story and where we are in the marketplace.

SoFi started in 2011 when we thought there had to be a better way to pay back loans. SoFi is short for social finance because our four founders got the Stanford alumni base to crowdfund them and created their student loan refinancing marketplace.

In our 8 years of business, we have grown immensely. We've gone from our four original refinanced loans of our founders to a little over six hundred and eighty-nine thousand today.

In fact, we’re the market leader with about 60 to 65% of the student loan refinancing market on a monthly basis. We have 1,400 employees and we’re open 24 hours a day.

Matt: Just kind of to start this off, Pattern has actually worked with other groups that help doctors to consolidate or refinance their loans.

But I'll just say that out of all of them SoFi is probably the largest and certainly has the most resources. We're really glad to have Bruce here tonight.

A quick little introduction to the presenters: I’m Matt Wiggins, one of the co-founders of Pattern. We have worked with and educated over 6,000 doctors over the last decade plus.

Really our company is here to help doctors kind of break out of the old pattern. You know how the jokes go, doctors graduate from training and they make all these silly mistakes with their finances that cost them lots of money and set them back financially.

But it’s truly very common and we want to change that. We want to create a new pattern where physicians are prepared for life and for financial success.

We want to help create a culture of stewardship in the medical community such that those jokes and those trends are kind of old news.

Hopefully, by providing these types of webinars and educational downloads, by meeting with you and consulting with you on financial matters, we want to try and help you while you’re early in your career.

Federal loans are loans that you took from the government.

With federal loans, you have benefits like deferment, forbearance, and income-driven repayment. Some of you may even be in deferment right now. Just remember that interest is accumulating the whole time!

Many doctors take out a graduate PLUS loan with a high-interest rate starting at 6.8 or 7.6. And then we’re seeing that for a lot of physicians that don’t cover everything so they go to the private market.

There are also private loans that you took from a private institution

But on the private market you only have two repayment options, either the interest rate they gave you on that private loan or refinancing.

At SoFi we work hard to find you a better interest rate than you have on your current private loans.

BUT remember that if you do go to the private market you lose your federal benefits like forbearance and you lose access to options like federal loan forgiveness and income-based repayment programs.

On a federal loan, the standard repayment term is ten years, so we’re going to talk about other options like forgiveness or income-driven repayment plans.

If you move from the standard repayment plan to an income-driven repayment plan that payment term is extended and now you're going to be looking at a 15 or 20-year term.

So you'll actually have more to pay off in the tail end of it, but if you need a lower payment now then that could be the best option for you.

In the private market, you choose your term, anything from a five, seven, 10, 15, or 20-year term. You can choose your term with a fixed interest rate or variable interest rate.

90% of our physicians use a fixed rate because they want to know what their monthly payments are always going to be, so that lets you lock in a monthly payment amount for the life of your loan.

So let's go through the process of any of the income-driven repayment plans and the four types of plans: ICR: Income Contingent Repayment, IBR: Income Based Repayment, PAYE: Pay as You Earn, and Revised PAYE: Revised Pay As You Earn.

These plans either look at 10% or 15% of your discretionary income depending on which plan you’re on and that would be your monthly payment.

So it helps you immediately by lowering your payment, stretching out the loan term, and forgiving the balance at the end of the 15 or 20 terms.

The downside is that you’ll end up paying more interest which means that the overall amount that you’ll pay on the loans will be higher. Plus if you hit the income threshold, they could default you back to a standard ten-year repayment plan.

Speaking of interest, let’s do a quick refresher of the power of compound interest.

Let's say you have that 7% Graduate Plus interest rate and $100,000 in debt. At the beginning of year two, you’ll owe $107,000.

At the beginning of year three, you’ll owe $114,490. And at the beginning of year four, the amount will be $122,504. So compounding interest means that your debt gets bigger very quickly.

Matt: These are really important to know. We always recommend paying off your debt as soon as possible to avoid interest quickly making your debt higher.

Plus you’ve got lots of better things to do with your money and you don’t want to pay interest for a long period of time.

With some people we’ve worked with who needed some help, they didn’t realize that if they stayed on the minimum payment or used an income-based repayment they could almost end up paying for another person to go through medical school just in the accrued interest!

So pay attention to both the pros and cons of income-based repayment and make sure to figure out if it will be the best option for you.

Bruce: There’s a lot of buzz about the Public Service Loan Forgiveness program. To qualify, you need to make 120 qualifying payments under a qualifying repayment plan while working full-time for a qualifying employer.

You’ll notice there are a lot of “qualifyings” in there. So let’s break down what that means.

A qualifying employer is a government organization or a 501c3 tax-exempt nonprofit.

A qualifying repayment plan is one of the income-driven repayment plans.

And a qualifying monthly payment is a payment that you make while working for a qualifying employer under a qualifying repayment plan.

After you make 120 qualifying payments you’re eligible for PSLF and the balance of your loans is forgiven.

There are a couple problems with this programs that specifically apply to physicians.

First, if your income is high enough your qualifying payments under an income-driven plan will also be high, and you may be close to paying off your loans at the end of the 10 years anyway.

Secondly, there’s a lot of paperwork. Each year or if you change jobs you have to complete and submit an employment certification form, and you have to keep careful track of your qualifying payments.

And finally, you may have ended up paying more in interest and therefore on your total loan, even if forgiveness, than if you had shopped around for a lower interest rate.

If you do work for a non-profit and if you do think you are eligible for PSLF and you know your debt-to-income ratio would make it worth it, definitely at least fill out the paperwork with HR team.

If your circumstances or your employer changes, you don’t have to finish out the PSLF program. But if your income or your employer don’t change, then it would have been worth it to enter the program.

Matt: I’d like to talk a little bit about what SoFi. They allow people to refinance their loans with a lower interest rate.

SoFi has great member benefits like disability protection or the ability to pause payments for up to a year due to hardship.

Financial planning is really important. As I travel around the country talking with thousands of residents and physicians, I’ve learned that debt is a huge issue for them and I know it can be burdensome.

If you’re interested in refinancing and you use our link to refinance with SoFi, we’ll send you a $300 welcome bonus.

So whether you’re an attending physician or you’re still in training, I’d recommend at least checking out if refinancing would work for your financial situation as you pay back your student loans.