How to pay off medical student debt more quickly

Medical student debt

The burden of medical student debt is onerous; the average debt new doctors are left with is over $190,000. Sometimes it may feel insurmountable — but there are many solutions to paying off debt more quickly. Picking up locum tenens shifts during or soon after residency is one of them, even if you’ve already signed a permanent contract.

Many doctors have gone this route to help pay off medical student debt more quickly. Locums isn’t just a cross-country assignment where you live out of a hotel and are away from your family for an extended period — in many cases, you can take assignments within driving distance of your home. You can work locums just on the weekends, simply be on call for a week, or take a recurring locums position at a nearby facility.

Extra earning potential

“I think most doctors should be free of their student loans within two to five years of graduation,” says Dr. Jim Dahle, also known as The White Coat Investor. “I recommend refinancing early and often. Don’t borrow your way out of student debt.” Among other tips, Dr. Dahle says one of the ways to stick to this timeline is to pick up locums shifts.

“I was a full-time locum for nearly two years after residency,” he says. “This was great for me personally, professionally, and financially. Financially, locum tenens can be lucrative. I started an SEP-IRA and was able to sock away $45,000 a year, tax deferred; a solo 401(k) is also another option.”

Otolaryngologist Dr. Tom Wilson decided to try locum tenens to supplement his income, because he wasn’t earning the kind of money he felt he wanted to take care of his wife, five kids, and two dogs.

“Getting a bit of extra money helped us provide for our kids in a way that we might not otherwise be able to,” he says. “I looked into working locums when I have some time off to supplement my income and gain a bit of that lost earning potential.”

More than just a way to pay off debt

Not only can locums help chip away at your medical student debt, but it’s a great way to pad your resume with other experiences. Pediatrician Dr. Ravi Pujara decided to do just that.

“Locums is great if you’re in a permanent position; you can find jobs that open up your horizon to different ways of practicing and different avenues of supplemental income,” he says. “It’s also great for doctors who don’t yet know what specialty they want to focus on. It’s a great way to get your feet wet before you actually make the leap.”

Not only can you earn more income, but “working locums has the added benefit of improving clinical skills and establishing business contacts,” Dr. Dahle says.

Live like a resident

Dr. Dahle also points out that many doctors right out of residency begin living beyond their means, in anticipation of their salary bump as a fellow.

One rule of thumb is simple: live like a resident until your medical school loans are paid off. Hold off on buying that new car or new house.

“Living within your budget isn’t any easier when you earn $400,000 vs $40,000 a year. You’re just moving more money around. Additionally, living like you earn $40,000 annually gives you perspective on how your patients live.”

Unburden yourself

Hospitalist Dr. Lee Green has chosen to work locums as a way to earn extra money to pay off his medical student debt more quickly than he’d have been able to in an office setting. His ultimate dream is to return to his birth country, South Africa, to practice medicine there.

“The reason I’ve chosen to work locums is for the extra income to pay off my debts quickly and move back home,” Dr. Green says. “I want to practice there because there’s a much greater need. South Africa and sub-Saharan Africa are in much more of a crisis, and not just in terms of staffing issues.”

“The kind of money I’d make in South Africa would never enable me to pay off my loans,” he continues. “I’d basically be paying interest for the rest of my life. With the money I earn working locums, I can work locums in the U.S. for a few months and facilitate living the rest of the year in South Africa.”

Student loan management

It’s important to begin paying off your medical school debt immediately after graduation if possible, Dr. Dahle recommends. “As you near medical school graduation, enroll in an income-driven repayment program ASAP,” he says. “Many doctors have regretted their decision to put their student loans into forbearance or deferment.”

“While it is intuitively attractive to borrow at a low rate and earn at a higher rate, this decision ignores two factors: first, most people don’t simply invest the difference. Second, an investment that provides a rate of return higher than the guaranteed return available by paying off your loans usually involves significant risk of loss.”

Other suggestions to consider:

  • Pay as you earn (PAYE): Lowers payments from 15 percent to 10 percent of discretionary income
  • Revised Pay As You Earn (REPAYE): Lowers the effective interest rate for many residents

For more in-depth information as well as other options, visit White Coat Investor’s Ultimate Guide to Student Management.

The burden of medical student debt isn’t insurmountable. With a bit of research and the option of working locum tenens for that extra income early on, being debt-free within two to five years is doable.

“Delay gratification. Live within your means. Sit down and get started today. Figure out where you stand; list your loans by amount owed, payment, and interest rate and add up the total,” Dr. Dahle says.

“You can slay the student loan dragon.”

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