Listen and followApple PodcastsSpotifyYouTubeMore apps · Browse all episodes
“My wife is a urogynecologist lucky enough to get through her seven years of residency plus fellowship with “only” $124,000 of student debt. When we discussed how we were going to get rid of this debt, she had always assumed that it was going to take a couple decades to pay off.
With our combined income, we certainly could’ve lived like paupers and extinguished her loans rapidly. However, I knew a strategy that involved extreme deprivation after her long years of training could grow old and not be successful.
Instead, we targeted a repayment period of fewer than five years instead of 10 years or more. We focused on cutting our spending in three key areas that I typically see trip up physicians more than any others.”
Travis Hornsby is a chartered financial analyst.
He shares his story and discusses his KevinMD article, “3 ways to cut years off your medical school loan repayment period.”
Did you enjoy today’s episode?
Rate and review the show so more audiences can find The Podcast by KevinMD.
Subscribe on your favorite podcast app to get notified when a new episode comes out.
Click here to earn 1.0 AMA PRA Category 1 CME for this episode.
Also available in Category 1 CME bundles.
Powered by CMEfy – a seamless way for busy clinician learners to discover Internet Point-of-Care Learning opportunities that reward AMA PRA Category 1 Credit(s)™. Learn more at about.cmefy.com/cme-info
Do you know someone who might enjoy this episode? Share this episode with anyone who wants to hear health care stories filled with information, insight, and inspiration.
Hosted by Kevin Pho, MD, The Podcast by KevinMD shares the stories of the many who intersect with our health care system but are rarely heard from.
Transcript
Kevin Pho: Hi, and welcome to the show, where we share the stories of the many who intersect with our health care system but are rarely heard from. My name is Kevin Pho, founder and editor of KevinMD. Rate and review the show at KevinMD.com/rate. Subscribe at KevinMD.com/follow. Today on the show we have Travis Hornsby. He’s a chartered financial analyst. His KevinMD article is titled “3 ways to cut years off your medical school loan repayment period.” Travis, welcome to the show.
Travis Hornsby: Great to be here.
Kevin Pho: We’ll get to the article in a little bit, but first off, share your story and journey to where you are today.
Travis Hornsby: I used to be a bond trader and got good at Excel. I met my now wife, who had a lot of medical school loans, so I used those Excel tools that I developed trading bonds to come up with her optimal loan repayment strategy between forgiveness and refinancing. She said I should charge her friends, who were desperate for help, and that was back in 2016. Now we’ve got a team of nine consultants. We’ve advised on more student loan debt than anybody else in the country. It’s about $2 billion now.
Kevin Pho: Excellent. This episode is going to be focused on student loans. So before we get into your article, just give me the landscape in 2022. For the average medical student, what kind of student loan debt are they typically facing when they graduate?
Travis Hornsby: $200,000 to $300,000 is probably typical, but some people who go to private schools have as much as $400,000. And I would say 10 years ago, Public Service Loan Forgiveness was very much not a trusted program. People didn’t think it was going to actually happen. That’s really totally different now, where a lot of people are actually receiving forgiveness through that program, and there’s a lot more awareness that that’s an actual option for people.
Kevin Pho: So tell us a little bit more about that program and maybe some misconceptions about it that medical students may not be aware of.
Travis Hornsby: Well, there was a high rejection rate early on in the program. That’s because the program was designed in a flawed way from the beginning. So there’s a temporary program in place right now called the Public Service Loan Forgiveness waiver that, frankly, could result in a lot of your physicians that are in their late 30s, 40s, and 50s having their entire loan balance forgiven completely due to this program, which expires October 31st. This program got passed by an executive action from the Biden administration to deal with those bad headlines from PSLF about 99 percent of people getting rejected.
So the way that people can get credit for this is, regardless of what payment program you were on or what loan type you have, if you consolidate and apply at StudentAid.gov by October 31st, you could get, sort of retroactively, all of your nonprofit hospital or government hospital credit applied to your loans and have the whole thing forgiven tax-free, which is really transformational.
Kevin Pho: Now, is there a catch? Do they have to serve in a publicly needed area afterwards? What’s the commitment that a physician needs to do?
Travis Hornsby: So you basically can get as much credit as you qualify for added to your 10 years. You don’t actually have to wait and have the full 10 years to apply for this. So there’s really no catch. It’s retrospective. It’s looking backwards, so it’s based off of what you already did, not what you’re promising to do. The catch is that you had to have been working full time at a 501(c)(3) hospital or a government employer. And if you were, they’re counting most kinds of forbearances, most kinds of deferments, as well as any repayment plan on any kind of loan.
What we’re telling people is that most physicians should consolidate. Not all physicians should, though, because if your payment is scheduled to be $300 a month, consolidating will recalculate your payment. So if you were a resident or fellow the last time you recertified your income, then that could potentially reset your payments early, which we want to avoid. So not all physicians should do this, but a whole lot of physicians, especially the ones that are older physicians, might have loans at a 2 percent interest rate that they had from the mid-2000s or before, and they were just holding that debt around, because with inflation so high, a 2 percent rate is pretty good. So what people should be thinking about instead is, do they qualify for complete forgiveness, which is only available to a lot of these physicians due to this PSLF waiver program until October 31st, the application deadline?
Kevin Pho: All right, let’s talk more about student loans. Your KevinMD article, this was actually written back in 2018, but I think a lot of the points are still salient. It’s titled “3 ways to cut years off your medical school loan repayment period.” Now, for those who didn’t get a chance to read the article, summarize it and share the story of why you decided to write it.
Travis Hornsby: Well, I think that there are a lot of different hacks for people to get out of debt faster. So I think that you can certainly refinance your loans. I mean, during the two and a half years of paused interest that have been going on, most people that refinanced probably regret it, but I don’t think that that’s something that you should worry about, because you can’t change the past. You have to change the future, right?
So Public Service Loan Forgiveness is certainly one way to get rid of your loans faster. Another way is to sign up for one of the plans that get you interest subsidies in training. So you can sign up for Revised Pay As You Earn and get subsidies on your interest if you’re going through training, to pay back less of your debt and therefore get your loans paid off faster. And then probably third, I would say, is just refinancing to a lower interest rate, if that’s the right thing for you to do at the right time. So that means, when you are no longer getting any interest subsidies, when you’re an attending in a private practice, you can refinance to get your debt payments going a lot more towards principal than interest.
Kevin Pho: So normally, what’s the process for refinancing? Are there certain websites or consultants to help these physicians? What are some resources that they can look at to refinance their student loans?
Travis Hornsby: Well, I mean, there are a lot of conflicts of interest in this. Every website pretty much gets paid a percentage of the loan when you refinance, including ours. The way we mitigate the conflict of interest is to give cash rebates to people that are refinancing. Ours are the largest anywhere on the internet, so we’ll typically give somebody $1,000 or more for refinancing a medical-school-sized loan, and we take a lot lower commission than other websites. That’s intentional, because we have a consulting business where we’re trying to give paid advice from CFP professionals and CFA professionals, and we want the purpose to be getting people the best rate. The reason we’re in the refinancing business is because I feel like you’re going to get a better deal going through a place like Student Loan Planner than applying directly from the mailer that you get in the mail, where you’re not going to get any kind of bonuses or special deals.
So it’s kind of a weird market, right? In mortgages, you typically pay a fee. You might have an origination fee. Whereas in student loan refinancing, there’s a reverse origination fee. And I say reverse origination fee because we give a cash bonus to people that refinance through our site. But the problem with that is that you lose all the forgiveness. You lose all the options for the PSLF waiver. You lose income-based repayment. So there are a lot of reasons not to refinance, and that’s not a solution; it’s a tool. So we have to ask the physician, what’s their strategy? What are their goals? What are their dreams? And then you want to make the loan strategy match that, versus the other way around.
Kevin Pho: So we’re now in an era of tightening monetary policy, and interest rates in general are going up. How does that affect the student loan repayment market?
Travis Hornsby: I mean, it’s been really bad. In fact, I would say initially the administration was going to start payments January 31st of 2022, and then they extended that, kind of in part due to political pressures. From the Build Back Better Act not passing, they had to deliver something after that failed, because folks were disappointed. So what’s interesting is people could have locked in an interest rate, in most cases below 3 percent, for 20 years, back in January of 2022. Now we’re seeing more like 5 percent. So if you just do some math, anybody who is planning to pay back their loans over an extended period of time has actually lost a lot more money getting that 0 percent interest pause extended than if that had not been extended and people had been encouraged to refinance at ultralow rates back at the beginning of this year.
So one thing that I can say is, because interest rates are much higher now, you’re kind of losing out, I think, on less by not refinancing, which is kind of a good thing. It gives you a little bit more flexibility to just wait and see when interest does actually end. And then for those who are in high-income, private practice sort of specialties that do need to refinance, you could probably just apply whenever the pause does end. But it’s certainly something that we’re noticing.
There’s also a really weird effect with the yield curve, which is just the interest rates that the government pays investors to borrow at. It’s basically the same yield almost across the board. Short-term rates are about 3 percent; long-term rates are about 3 percent. Usually you get a much better rate for refinancing to a short-term, five-year deal, but we’re seeing there not being a huge difference between five- and 10-year deals and 15- and 20-year deals. So that’s one reason why we would maybe say, maybe do a longer-term refinance, because you’re not being rewarded for those much higher required payments if you do end up taking that path.
Kevin Pho: Now, you work with a lot of residents and physicians. What would you say are some of the biggest red flags or mistakes that you see?
Travis Hornsby: I mean, just focusing on the wrong things, right? Your student loan program is not going to be the thing that’s going to destroy your finances, but a lot of people act like their house is on fire if they don’t pay $10,000 a month on their loans. I think that there are just maybe other, more important goals to get secured first. I think for those who have families, you probably need to get a really good own-occupation specialty disability insurance policy. You need term life insurance if you have kids. You need to start an emergency fund and have the retirement account set up and brokerage accounts set up, and the student loans just need to be a thing that doesn’t stress you out. So for some people, that does mean refinancing, paying it back in five years, living like you’re still in training when you’re the first few years out of residency or fellowship. For others, though, it means going for a forgiveness plan and paying as little as possible.
I think that one thing that’s going to happen for physicians is more private practice physicians, I predict, are going to be going for student loan forgiveness programs in the future, because I think they’re going to continue to make them more and more generous. Right now, most physicians have this idea of, “The way I deal with my loans is I go for the loan forgiveness program for public servants, or I pay them back.” I think there’s going to be increasingly a third option, which is to keep your loans around for 20 years while paying based on your income. And I think that the tax consequences of loan forgiveness are probably also going to go away for that population.
So I think that the most common mistakes from a student loan perspective are filing taxes the wrong way. People often need to file separately for taxes, not realizing all the tools at their disposal, and just making the mistake that everybody should sign up for the Revised Pay As You Earn program, because that’s what my $15-an-hour loan servicer rep told me to do.
Kevin Pho: We’re talking to Travis Hornsby. He’s a chartered financial analyst. His KevinMD article is “3 ways to cut years off your medical school loan repayment period.” Travis, I said earlier there are a lot of consultants, a lot of companies that deal with loan consolidation. What are some things that physicians should look out for when researching or going to the websites of these companies?
Travis Hornsby: I mean, I would say financial advisors tend to use student loans as sort of a marketing tactic versus something that they actually are deep experts in. That’s not the case for everybody, but we did 370 individual plans last month, so we do more plans in a week than most financial advisors will do in their career. Just like if you’re going to a doctor for a particular procedure, you’d want to make sure that doctor was doing a lot of that procedure, right? That’s not the case a lot of times. Financial advisors are really afraid of looking incompetent on student loans, because they want to win your business for retirement and investing, and so they might try to manage your student loans when they, in fact, don’t really know that much about it.
So I would ask questions like, “When should two spouses use different repayment plans? When can spouses file separately in community property states? Explain the dozen different repayment programs that exist on student loans.” You want to make sure the person that’s giving you advice has enough knowledge, enough competence.
The second thing I would say is, if the person does offer student loan refinancing, are you being given any incentives to refinance? Are you getting any bonuses? The reason I bring that up is, if you’re not, then that means that they’re retaining that full commission for refinancing for themselves, which presents a very large conflict of interest. If you’re getting paid $1,000 to tell somebody to refinance and you’re giving away your advice for free, which is the model of some companies, that’s a very flawed model that’s going to result in advice that’s going to be tilted towards one solution, which might not be in your best interest.
So the way we run the business is different. It’s high volume, it’s a few hundred bucks, and it’s not trying to get a multi-thousand-per-year financial planning relationship. And so we would kind of say, “What are your results? What is your expertise? Are you a specialist in this area?” And I think that a lot of really ethical financial planners that we talk to often will outsource something like this to a specialist group like ours, because they’re trying to get their clients to optimal solutions. So that’s what I would say to look out for.
Kevin Pho: And in terms of specialist groups, we’re talking about specific groups that deal with physicians only?
Travis Hornsby: The math is the same for physicians and non-physicians when it comes to student loan advice. I mean, I don’t think that it necessarily has to be exclusively specializing in physicians. If I was going to work with a financial planner, I’d probably want a fee-only fiduciary planner that does specialize in physicians, because there are a lot of unique things that physicians do need. And I do think that it’s probably great to get advice from somebody that is exclusively paid by you.
The model, I think, for a generalist, and that’s kind of the idea, is that your financial planner is your generalist, your primary care physician, and then you might have other needs depending on the complexity of your financial situation. So a trust and estate attorney, a CPA if you’re a practice owner, a student loan specialist like us if you have complex, large student loans.
So that’s the way I would suggest that somebody think about dealing with financial professionals. Ask about conflicts of interest. Ask people to explain how their advice could be conflicted. If somebody’s got a very straightforward answer to that, I would trust working with that person. If the person tries to deflect, then that probably means they’re making a whole lot of money from financial products, so they don’t want to disclose that to you.
Kevin Pho: And my final question: What are some of your take-home messages that you want to leave with the KevinMD audience?
Travis Hornsby: Really pay attention to the PSLF waiver. This is the most transformational opportunity to get loan forgiveness I’ve ever seen in the six years I’ve been doing this. And please share the PSLF waiver opportunity with your friends and colleagues, because a whole lot of them, especially the non-financially oriented ones, are going to miss out on that. We certainly talk about it on the Student Loan Planner podcast that we do, and I just hope that people really learn about this opportunity. It’s just incredibly, incredibly important because of that expiration date of October 31st of this year.
Kevin Pho: And how can people reach you?
Travis Hornsby: The Student Loan Planner podcast, if you enjoy listening to podcasts, which I assume this audience does. And they can also reach me at [email protected], my email. And our website, obviously, StudentLoanPlanner.com, has a bunch of free and then paid one-on-one counseling resources that they can utilize.
Kevin Pho: Travis, thank you so much for sharing your time and insight, and thanks again for being on the show.
Travis Hornsby: Thanks for having me.
Listen and followApple PodcastsSpotifyYouTubeMore apps · Browse all episodes
