- June 7, 2022
In Partnership with Financial Designs, Inc.
Many physicians and health care professionals leave their graduate education programs with a mountain of student loan debt from funding those hard-earned degrees. Navigating a strategy for paying medical school loans can seem daunting, particularly when also preparing for the next stage in a demanding career. The advisors at Financial Designs, Inc. pay close attention to the various options for setting up a practical approach to managing student loan debt, and they suggest the following considerations:
Keep a Close Eye on the Student Loan Extension
When the pandemic began, many Americans’ cash flow was greatly affected. One of the ways the government responded was to suspend federal student loan payments (aka forbearance) as well as the interest accumulation associated with these loans. Therefore, one could pause making payments altogether OR make payments to eliminate all previously accrued interest and ultimately begin tackling the principal balance.
The timeframe for this forbearance has been extended multiple times, but as it currently stands, the extension is scheduled to go through the summer. Paying off student loans during this time means keeping a close eye on that extension end date.
Interest rates are currently on the rise and are projected to continue along an elevating trend. The Federal Reserve approved a 0.25 percentage point rate hike in March of this year to help combat inflation and officials indicate an aggressive path ahead, with increases expected at each of the remaining Federal Reserve meetings in 2022. Despite these anticipated increases, most borrowers holding federal student loans are choosing to maintain those until the forbearance period officially ends.
Pay attention to when the student loan forbearance (grace) period officially expires. At that point, be prepared to refinance with private lenders with the purpose of securing lower interest rates. Work with your financial advisor to determine what terms best suit your specific situation. It’s essential to balance eliminating debt AND saving for retirement at the same time no matter how daunting that seems (compounding matters!). A good financial advisor can help break down what your long-term financial picture might look like based on the decisions you make now.
An Ounce of Forgiveness
The idea of student debt cancellation is still debated in a political context, but significant actions have been taken. Early April saw yet another student loan forbearance extension, with many speculating another upcoming extension that pushes out payments until the end of the year If you are seeking PSLF, don’t refinance (and do not make payments during forbearance). Keep your federal medical school loans and know this grace period COUNTS towards your 120 qualifying payments.
With so much uncertainty in today’s environment, it’s hard to know what to do. When in doubt, seek out qualified financial professionals for individual guidance.
ApolloMD Disclaimer: The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding federal tax penalties. Described in this text are some of the many advantages of being paid as an independent contractor (IC). The scenarios provided regarding tax saving and retirement planning strategies are neither recommendations nor suggestions but are merely examples. Individuals are encouraged to seek advice from their own financial advisor, CPA and/or legal counsel.
Financial Designs, Inc. Disclaimer: Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge does not offer tax advice. Financial Designs, Inc., Financial Designs Tax Services, LLC and Financial Designs Legal Services, LLC are not subsidiaries or affiliates of Cambridge Investment Research Advisors, Inc.