Trying to figure out which of the nine Federal student loan repayment options is right for you is a daunting task. When it comes to your physical therapy student loan plan, the key is to develop a plan that complements your goals rather than dictate your life.
For context, we surveyed 200 of the 3,000 physical therapist we’ve helped and approximately 70% said the first job they took was dictated by their student loans. In other words, a vast majority of recent graduates did not necessarily pick the job they preferred, but rather the one that they thought would help them pay off their student loans faster, be it through student loan forgiveness, employer contributions, etc.
A number this high is worrisome: I fear that more and more physical therapist will burn out because working primarily to be able to make more money and manage student debt is not healthy in the long run. You have to be motivated by more…
In order to get out of that vicious cycle, you need to develop a sound student loan plan which should take into account your short-term and long-term goals. So the first step when starting to lay out your student loan repayment strategy is to clearly identify these goals:
The purpose of getting your DPT is to help people, not because you can’t wait to graduate and pay back our student loans. Therefore, identifying what you want to do as a PT is extremely important because it will help narrow down your student loan repayment options.
Determining what type of setting you want to work in, i.e. inpatient, outpatient ortho, home health, travel, etc… is the first place to start because this will help you figure out your income.
Where you will work is the next step. This means figuring out what state/city you will work in. This is important because the location will impact both your income and the expenses you will have such as rent and food. One major reason this is important for students is that each state has different licensing requirements which you need to start planning for early.
Will you do a residency or fellowship? Often times we hear from FitBUX Members that they want to use the standard 10-year repayment plan or refinance their loans. However, they want to do a residency and for 18 months their annual income is only going to be in the $30k-45k which means they most likely won't be able to refinance initially or cover the required monthly payments of a 10-year plan. If you know this, you can start implementing both a short-term and long-term plan.
Another big career goal that we often hear is becoming a business owner. This plays a serious role in you physical therapy student loan plan as well because it alters your cash flow tremendously.
When it comes to money, traditional personal goals are items like “I want to save X amount so I can buy a house”. However, when we talk personal goals for physical therapy student loan planning purposes, we need to focus on major life events that may change your income and financial picture.
Life events such as getting married, having children, starting a business, buying a house, getting an inheritance, etc…all need to be taken into account when developing your plan.
Below is an example of how knowing your goals matters and how taking this first step to student loan planning can save you a lot of money in the long run.
Planning Saves You Money
The following is a real example we see far too often.
A new grad physical therapist knows she will get married in a year. She wants to save in the short-run to pay for the wedding so she will use an Income-Driven Repayment plan (Pay As You Earn (PAYE)) and "enjoy" the lower monthly payments. Her payments will be low as long as she is not married. If she decides to file jointly once married, her payments will increase dramatically as they will be based on a percentage of their combined income the first time they file jointly. Let's assume they will file jointly 1 year after getting married, so our recent grad will stay on IDR for 2 years.
In this situation, many new grad physical therapist will then switch to a strategy to pay off their loans. Unfortunately, because they went on PAYE their loan balance actually increased and will cost them in the long run. The balance will increase because the difference between the interest charged on the loans and the actual IDR payment deferred (not ignored!). This difference gets added to the loan balance, i.e. you have to pay it back...with interest.
Let's look at an example:
- $144,000 in student loan debt
- Average rate of 6.0% on the student loan debt
- Deferring $320 per month for two years (i.e the loan balance is growing by this amount for 24 months)
- After getting married, the physical therapist will repay the loans in 10 years
In this scenario, a lack of student loan planning costs the physical therapist an extra $10,200 over 10 years. This could have been avoided had she planned for something she knew was approaching. In this case, she could have used an extended plan temporarily (ie resulting in lower required monthly payment) or REPAYE so she could have had half the interest on her loans forgiven each month.
In closing, do not let a lack of planning cost you in the future. This is the first step and where we start the planning process with SPTs and new grad DPTs.
We’ve developed physical therapy student loan plans for more than 3,000 PTs (over $400 million in student loan debt). Best of all, its free. Click here to get started.