By Emily Dorn, PT, DPT
Physical Therapist
NJ Central 2

You’ve finally made it through school and you’re about to embark on this new chapter of your life. You’re making real money as a clinician — not just over minimum wage or part-time hours during school to help you get by — real hard cash. 

Everything is great until you see your first student loan bill. If you weren’t able to start paying off your student loans while you were in school, you’re most likely experiencing your first repayment — and it’s a big one. $500 to $1,000 or more with an added 7-9% interest on your possible 6-figure debt. 

Some students are lucky to have families, savings accounts, or bonds to help put them through school, but others rely on student loans for everything: books, housing, even food. Most of us don’t think about or can’t afford to pay for our student loans while we’re in school. But do the math. You’re racking up hundreds of dollars in just interest every month with a high minimum monthly payment. 

Like many incoming college students, when I was applying for student loans with the help of my parents, we didn’t know what we were doing. Trying to navigate the FAFSA page, figuring out the best “deals” on private loans… it was all a blur. One thing I never realized is that interest is always accruing and it can be your worst enemy. 

Understanding Student Loan Interest Rates

Let’s talk about how interest works and how it affects repayment. Your loans accrue interest from the day you get them — no matter if they’re in deferment or not. And on top of that, when you start repaying your loans, your payments are applied to interest first. 

Let’s say you have $85,000 in debt. $80,000 is principal and $5,000 is interest. Your principal will not be affected until that 5k is paid off. And the interest keeps growing. So your 9% interest on $85,000 is higher than your 9% interest on 80,000. It’s only once your interest reaches 0 that any remaining money is applied to your principal. That’s when you actually start paying down your loans. 

Of course, it won’t stay at $0 of interest.  Again, you start accruing interest the minute your loan goes through. So, even if you’ve paid off your interest this month, you can expect to see a few hundred dollars more next month.

My Experience Managing Student Loans as a Clinician

As I neared graduation from graduate school, I really started looking into what student debt means and how to tackle it. I was surprised to find out we never talk about it in school. I couldn’t exactly ask my parents, they never went to college or had student loans. I was relying on online articles, any information on federal websites, and many phone calls to my student loan servicers. I learned I should start paying ASAP—even though payments weren’t due yet. I started by making small payments each month, $50, $100, and $200 here and there. When I ran into some extra cash I tried putting larger amounts into my loans. It got to a point where I almost had no interest left to pay. 

I realize now that I was lucky to be able to make payments before they were due. Once my first payment was due, I tried to make payments over my minimum, about $50-$100 extra (or as much as I could). I noticed how badly my high-interest rates were affecting my payments, I wasn’t really making any headway with my overall principal balance. After some research, though, I decided refinancing was right for me. I had a mix of private loans and federal loans, with interest rates of about 8%. 

In approximately February 2020, I first refinanced all of my loans with Earnest— I knew I wouldn’t qualify for PSLF and I knew I didn’t want an IBR plan where I’d have debt for 25 years. I wanted to pay these down hard and fast.  I was approved for a 4% interest rate and increased my monthly payment to almost double what was required of me. I thought I was on top of the world! 

March 2020 was the beginning of the COVID pandemic, and federal loans were on pause. I realized I had just made a big mistake. I had lost all the benefits of having federal loans. I kept my head up and continued with my payments. I was lucky to have very little impact on my job from the pandemic and I paid almost ⅙ of my entire principal balance in that one year.

I kept these vigorous payments up for about a year until I had to change my outlook and my plan. I couldn’t keep up with the high payments and save for a down payment on a house. I had other goals than just paying my student loan debt. I refinanced my private loans once again, and because I had made such high payments consistently – and not many people were refinancing due to loans being on hold – I was able to refinance again with a  2.4% interest rate. I even received $300 in my bank account for changing to a different company, as a sign-on bonus. 

My student loan interest rate is now as low as my car loan interest rate, and I have paid almost ½ of my student debt in 4 years.  I never thought I would be able to say that. I think my student loans will always be a journey and a learning process. I may not always get it ‘right’, but I’m always trying and seeking ways to tackle these expenses. Everyone has a different outlook on their student loan debts, I have changed my outlook to realign my goals and that will probably continue until I reach full repayment. The good thing is, there are always options, we just have to explore them. 

Some Options for Repaying Student Loans

In case you aren’t aware of those options, here are some suggestions. Everyone’s financial situation is different and you need to do your own research or consult a financial expert to determine what works best for you. Remember, it might change over the years! 

1. Vigorous Repayment: Paying more than the minimum amount each month usually results in less interest accruing and more money going toward the principal amount. 

2. Minimum Repayment: This means paying only what is required each month. It will take longer to pay off loans when only making minimum payments. And because loans are always accruing interest, the total amount to pay off will be higher the longer it takes.  

3. Federal Loan Options: Student loans that come from the government (not a private company) offer a few options to help borrowers with loan repayment. 

Regular Payment Options

• Standard Repayment Plan: The same amount is paid over 10 years. This payment plan usually costs the least amount of money over time. 
• Graduated Repayment Plan: Payments are lower at first and then increase, about every 2 years so payments usually finish within 10 years. 
• Extended Repayment Plan: Whether through fixed or graduated payments, loans are typically completed within 25 years. These plans usually mean lower monthly payments than the 10-year plans.
• Income Sensitive Repayment Plan: For low-income borrowers who have Federal Family Education Loans (FFEL). Monthly payments increase or decrease based on annual income and are paid in 10 years. 

Income-Based Repayment Plans 

• Income-Based Repayment (IBR): Monthly payments are around 10-15% of calculated income, but never more than the monthly standard repayment plan. If you’re married, your spouse’s income and debt will only be considered if you file jointly. The outstanding loan balance will be forgiven after 20-25 years. IBRs are for those with a high debt to income ratio. Usually, income tax has to be paid on any forgiven debts.
• Pay As You Earn (PAYE): Similar to an IBR plan, monthly payments will be 10% of calculated income. If you’re married, your spouse’s income and debt will only be considered if you file jointly. Any outstanding loan balance will be forgiven after 20 years. Monthly payments will never be higher than the standard repayment plan of 10 years. PAYE is also for those with a high debt to income ratio and any forgiven debt is also taxable.
• Revised Pay As You Earn (REPAYE): Monthly payments are 10% of the calculated income. If you’re married, both spouses’ incomes and debts will be considered even when filing taxes separately. Any outstanding balance will be forgiven after 20 years for undergraduate study and 25 years for graduate studies. Income tax is likely to be withheld on these forgiven debts as well. 
• Income Contingent Repayment: Monthly payments will be less than on a fixed standard repayment plan of 12 years, adjusted based on 20% of calculated income, divided by 12. Outstanding balance is forgiven after 25 years. If you’re married, your spouse’s income and debt will only be considered if you file jointly. Income tax is likely to be withheld on these forgiven debts as well. 

Public Service Loan Forgiveness (PSLF) 

The Public Service Loan Forgiveness plan is an opportunity for those who meet certain criteria. PSLF requires an application and employment certification. Within the specific criteria, it will take at least 10 years before qualifying for forgiveness. There isn’t any income tax withheld on these forgiven loans. 

The criteria for PSLF are:

• Work for a U.S. federal, state, local, or tribal government or nonprofit organization
• Work full-time 
• Have direct loans (you can also consolidate other federal loans into direct loans)
• Repay your loans under one of the income-driven repayment plans listed above
• Make 120 qualifying payments (the full amount and no later than 15 days after your due date)

4. Refinancing 

There are many private companies out there inviting you to refinance your loans with them. Refinancing federal loans also means forgoing any benefits (the options listed above and things like the COVID-19 interest freeze). 

Refinancing usually requires a good credit score. Private companies will often pull a hard credit check, meaning credit scores will go down for a month or two afterward. 

5. Consolidation

For those with multiple federal loans, there’s sometimes an option to combine them into one payment. The interest rate will be determined based on the average of the loans taken. While consolidation can lower monthly payments, it often means a larger payment with more interest over time. 

Consolidation also means foregoing forgiveness through an IBR. All outstanding interest also becomes part of the principal balance, meaning new interest will now accrue on a higher principal balance. 

Student Loan Resources for Clinicians

There are many websites offering plenty of information on student loan debt, along with ways to manage student loans. Specifically, studentaid.gov has various topics and information about loan repayment, they even have a loan repayment simulator. You can call or chat with a representative if you have questions about a specific repayment type. 

Another resource is studentloanplanner.com. This site offers blog articles, podcasts, and various calculators to help you understand your loans. 

Finally, there’s also the option of hiring a financial advisor or someone who directly focuses on student loan debt. If the savings significantly outweigh the cost of hiring one, it might be worth considering. 

FOX is proud to offer a Student Loan Repayment Program for eligible clinicians. Learn more about the program and see if you qualify today.