What Biden’s student loan forgiveness plan means for doctors

President Biden has announced the cancellation of $10,000 to $20,000 of student loan debt for eligible Americans.^[] This decision, which marks the fulfillment of one of his key initiatives, has financial implications for physicians who are staggering under the weight of student-loan debt.

But debt relief for doctors will likely be limited. And the new policy doesn’t address the rising cost of medical and undergraduate education.

What has changed?

The August 24, 2022 announcement contains several core changes. Pell Grant recipients who hold federal loans issued by the Department of Education may be eligible for up to $20,000 in debt cancellation. Borrowers with other federal loans may receive up to $10,000.

In addition, the student loan payment freeze, which has been in effect since the onset of the pandemic, will continue through December 31, 2022. The administration said this is the final freeze extension; payments will resume in the new year.

The second core change is that people on income-driven repayment plans—which likely includes many residents—will see monthly payments for their federal loans capped at 5% of discretionary income for undergraduate loans, down from 10%.

Finally, the Biden administration has vowed to repair the “broken” Public Service Loan Forgiveness (PSLF) program, which is probably well-known to many indebted doctors. The plan is light on specifics, stating that the improvements will “build on the temporary changes the Department of Education has already made.”

In October 2021, the Office of Federal Student Aid announced changes to PSLF that gave doctors who were on the wrong payment plan, or physicians who had the wrong type of loans, time to correct their mistakes and qualify for PSLF.^[] The window to fix these issues was scheduled to close in October 2022. Now the administration appears to be signaling that may not be the case. Time will tell.

How does this affect doctors?

In short, Biden’s plan may amount to a drop in the bucket for physicians with student loans. Consider that the average undergraduate student completed their education in 2020 with about $30,000 in loan debt—that’s about 20% more than in 2010.^[]

Add to that $200,000, the median debt for medical students in 2019. More than 70% of graduates indicated that they had debt.^[]

Using these estimates, the average physician would see about a 4% reduction in their debt. That’s not nothing—interest rates for federal unsubsidized loans have ranged from 2.75% to 6.8% since 2013. But for many, it may not go far enough.

Also, many physicians earn too much to be eligible for student loan relief. According to Medscape’s 2022 physician compensation report, the average doctor earned nearly $339,000 in 2021. Average salaries ranged from $243,000 (public health and preventive medicine), to $576,000 (plastic surgery), omitting vast swaths of doctors from debt cancellation.

According to the AMA, the average first-year resident makes around $60,000, putting them under the eligibility threshold.^[] Those working toward PSLF could see their monthly payments reduced, and cancellation of $10,000–$20,000 of their qualifying undergraduate loans. 

What the changes don’t do

While this news provides some relief to many Americans, it doesn’t address the skyrocketing costs of medical and undergraduate education.

According to CollegeBoard, the price of attending a public 4-year college increased from about $4,000 in the 1991–1992 academic year to nearly $11,000 in the 2021–2022 academic year. The average student paid $10,740 for in-state tuition at a public college or university in that academic year.

On average, a 4-year medical degree in the 2019–2020 academic year set aspiring doctors back about $250,000 at public schools, and about $330,000 at private institutions.

According to the Education Data Initiative, the cost of undergraduate tuition increases about 5% annually.^[] If we use the CollegeBoard current estimate of $10,740 per year for in-state tuition at a public institution, that means we can expect a 4-year degree to cost about $68,000 in 2030.

According to the Education Data Initiative, the price of medical school has climbed about $1,500 annually since 2013.^[] If this trend holds, a 4-year degree at a public medical school could cost doctors $298,000 in 2030.

Aspiring physicians can always hope that other medical schools follow New York University’s example and go tuition-free. ^[] But for those who've completed med school and are contending with the resulting debt, staying current with ongoing developments in Biden's relief plan could be beneficial.

What's next?

The Department of Education plans to release information on the process for claiming debt relief in the coming weeks. Borrowers can sign up to be notified when the process is officially open, at StudentAid.gov/debtrelief.

To learn more about the ins and outs of the debt relief program and what the Biden-Harris Administration is doing to implement other improvements to student loans, visit this FAQ page.