Tim Ulbrich, PharmD, is the co-founder and CEO of Your Financial Pharmacist (YFP). Founded in 2015, YFP is a fee-only financial planning firm and connects with the YFP community of 16,000 plus pharmacy professionals via the Your Financial Pharmacist Podcast, a weekly newsletter, and speaking engagements.
“I wasn’t prepared to pay back pharmacy school loans.” “I didn’t understand all of my options.” “I don’t know how to balance student loans with other financial goals.”
That’s what I hear from many pharmacists, and it’s precisely how I felt when I graduated from pharmacy school. I once bought into the illusion that my “awesome pharmacist salary” would enable me to repay pharmacy school loans quickly and put me in the fast lane to building wealth.
Unfortunately, it didn’t exactly work out like that, and I made a couple of critical mistakes that cost me hundreds of thousands of dollars! Because I didn’t know all the payoff strategies available, I failed to identify the best option and ended up paying way more than I should have.
With the multitude of student loan types, repayment plans, and forgiveness programs, devising a plan can be overwhelming. This article reviews three common student loan repayment strategies.
1. Tuition reimbursement programs
While they’re not abundantly available, tuition repayment programs essentially provide “free” money, typically from your employer or institution, in exchange for working a certain period of time. Pretty awesome, right? Other programs will require you to pay an amount toward your loans, and they will match or reimburse you.
The ones that tend to provide the most generous reimbursement are those offered by the federal government through the military, the Veterans Health Administration, and the U.S. Department of Health. Many state programs offer assistance as well. Because programs vary in amounts and payment structures, it’s essential to know all the details to determine how much to pay out of pocket to maximize the total benefit offered. Also, since many of these programs will not cover your entire student loan bill, you may have to combine them with one of the other payoff strategies to pay off your loans.
The most common federal tuition reimbursement programs include:
2. Forgiveness
If tuition reimbursement is unavailable, forgiveness is the next strategy to consider. You might think this strategy isn’t for you if you don’t work for the government or a nonprofit, but many borrowers aren’t aware that they can have their loans forgiven regardless of who their employer is.
Does this pique your interest? Let’s look at both federal forgiveness options, starting with the Public Service Loan Forgiveness (PSLF) program.
The PSLF program was created under the George W. Bush Administration via the College Cost Reduction and Access Act of 2007. With PSLF, there’s a minimum 10-year timeline for forgiveness, so the first group was eligible for forgiveness in 2017.
Despite its rocky past and uncertain future, the PSLF program is one of the best payoff strategies available for pharmacists. It is often the most beneficial to the borrower in terms of the monthly payment or the total amount paid over the course of the program.
The essential requirements to be eligible for tax-free forgiveness through PSLF include:
- Working for the right type of employer: government, 501(c)(3) nonprofit, and some other nonprofit organizations.
- Having the right kind of loan: Direct loans (this may require a consolidation process).
- Being in the right repayment plan: Income-driven repayment plan.
- Making the right number of payments: 120 monthly payments (they do not have to be consecutive, and they do not have to be with the same employer).
For the most up-to-date information regarding PSLF, visit https://studentaid.gov/manage-loans/forgiveness-cancellation/public-service.
Another federal forgiveness program is available if you don’t qualify for PSLF, which is most often due to working for a for-profit employer. Often referred to as “non-PSLF forgiveness” or “income-driven repayment (IDR) forgiveness,” this program allows for any remaining loan balance to be forgiven after 20 to 25 years depending on the repayment plan. A key difference between this plan and PSLF is that it is not tax-free forgiveness.
For the most up-to-date information on IDR forgiveness, visit https://studentaid.gov/manage-loans/repayment/plans/income-driven.
3. Non-forgiveness
Outside of tuition reimbursement and forgiveness programs, what’s left is paying off pharmacy student loans on your own. There’s no set timeline or years you have to wait; you determine the time to pay off. If you have the cash, you could pay off the balance today or extend payments as long as possible (generally up to 25 years).
Although your repayment plan will dictate your monthly payments, you are not bound to this and can always accelerate and pay more if you want to. To see how extra payments or a lump sum payment affects your savings or time to pay off, check out our early payoff calculator.
This strategy allows you to either pay off your loans through the federal loan program using one of the many repayment plans or refinance student loans through a private lender. While refinancing your student loans with a private lender may reduce your interest rate, remember that moving your federal loans to the private system is a one-way street. Once you make that move, those loans are no longer eligible for any benefits afforded to you through the U.S. Department of Education.
For more financial tips and information, check out YFP’s book Seven Figure Pharmacist (use coupon code APhA for 15% off), visit the YFP website, and listen to the Your Financial Pharmacist Podcast.
Disclaimer: The information in this article is provided to you for your informational purposes only and is not intended to provide, and should not be relied on for, investment or any other advice. Read our full disclaimer here.