The average medical school graduate holds $200,000 in student loan debt according to the most recent data available from the Association of American Medical Colleges (AAMC). In fact, the AAMC says 73% of all medical school graduates hold debt – a figure that includes not just doctors and surgeons, but also dentists, pharmacists, veterinarians, and other health care providers who hold expensive (but necessary) graduate degrees.
While some physicians draw in high salaries to help compensate for their heavy debt burdens, not all health care professionals feel secure in their ability to stay afloat financially even when times are good. One example is Tom Nigro, a certified registered nurse anesthetist who was recently profiled by CNBC. He’s been working on the front lines during the pandemic while also buckling under $160,000 of student loan debt.
“I don’t think I know anyone personally who doesn’t have debt in my profession,” Nigro told CNBC. He lamented his inability to buy a house, start a family, or serve the underprivileged because of his $1,400 monthly loan payments – even though he makes a respectable $200,000 salary.
Nigro is able to get by through a more lucrative job at a private company for now. But if a disability were to strike that impeded his ability to work, how would he continue to make the loan payments? Would his individual disability insurance (IDI) or employer’s group long-term disability (LTD) coverage be enough?
Healthcare professionals need a real backup plan for their loans.
Student loan amounts increase every year (currently up 2.5% from the previous calendar year) and only a few physicians are able to pay off their student loans quickly. A recent survey from Weatherby Healthcare found that 32% of doctors owed more than $250,000, 49% owed more than $200,000, and just 35% of them were able to pay off their debts in less than five years. Most professionals, then, are holding on to debt for years or decades while they work – debt that amounts to nearly $2,250 per month on a 10-year federal repayment plan at 6.25% interest (assuming the average debt of $200,000).
Disability policies usually cover 60-65% of income if a provider is suddenly unable to work. However, depending on how the plan was implemented, more of that income might be taxable than the recipient was expecting.
For example: If a physician were to purchase an individual plan with a $6,250 monthly benefit, and also has a group plan through their employer with a $10,000 monthly benefit, they might be expecting to receive $16,250 per month in the event of a disability. But due to federal taxes on the group plan’s benefit, the physician will receive only $12,250 of income replacement while they are disabled. This $4,000 difference could be what causes a default on the student loans.
The risk for a disability event before loans are paid off is real.
Brokers need to make sure their clients understand the real risk of a disability and the potential impact to their student loans if they cannot work. The U.S. Social Security Administration found that just over one in four of today’s 20-year-olds will become disabled before the age of 67, and that most of the private-sector workforce has no long-term disability insurance.
There are also currently no real options for healthcare providers to manage their loan debts – except through insurance – if they are suddenly unable to work. Income-driven repayment plans or loan refinancing reduce the amount they have to pay each month, but do not eliminate the need to pay. Loan forgiveness programs require a commitment to work in underserved areas for a certain employer or period of time, which they cannot do if they become disabled. Even the six-month student loan reprieve passed by Congress during the pandemic did not apply to loans financed through a private lender.
Brokers can provide peace of mind through supplemental policies or riders.
Missing out on the student loan piece could mean financial devastation in the event of a disability, despite having seemingly good coverage. Some questions to ask healthcare professionals as you help them navigate coverage options are:
- How much total student loan debt do you have, and what are your monthly payments?
- Have you considered the real possibility that you could become disabled over the course of your career?
- What percentage of your living expenses do your loan payments comprise, and how much longer do you have left to make payments?
- Do you know how much of your disability benefits are taxable at the time of payment, and is that final payout going to be enough to also cover your loans?
- If you have a rider or separate disability insurance policy for student loan debt, do you know under what circumstances it would go into effect?
Having a full conversation about all of the healthcare professional’s financial obligations – including their student loans – is the key to providing comprehensive coverage that offers enough protection in the event of a disability.