Many Americans carry student loan debt which, according to the Federal Reserve System, has reached an all-time high of $1.67 trillion – more than the nation’s total credit card debt. And although the new Biden administration just hit another pause button deferring payments until September of 2021, those loans will still have to be re-paid.
While the average U.S. household student loan debt is $47,671, students with professional degrees, especially healthcare professionals, take on much more. According to a
- The average debt for medical school graduates is $201,490.
- The average debt for dental school graduates is $292,169.
- The average debt for pharmacy school graduates is $179,514.
- The average debt for veterinary school debt graduates is $149,877.
According to an October 2020 report from the Association of American Medical Colleges, 73% of all medical school graduates hold debt – a figure that includes not just doctors and surgeons, but also dentists, pharmacists, veterinarians and other healthcare providers who hold expensive (but necessary) graduate degrees.
The Consequences of student loan debt
Student loan debt can be a source of everyday concern for certain types of healthcare professionals. 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.
But the bigger problem is that a sudden loss of income could impact even a highly paid surgeon’s ability to make payments. If they suddenly became disabled, for example, how would they continue to make the loan payments? Would their individual disability insurance or employer’s group long-term disability coverage be enough?
A backup plan: Disability policies
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 the group plan (e.g., employer paid) design may cause those benefits to be taxable income, resulting in a much lower monthly benefit. Differences like this can easily result in a default on the student loan.
The risk for a disability event is real
Advisers and 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.
Currently, there are 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.
Provide peace of mind through supplemental policies
Missing out on the student loan piece could mean financial devastation in the event of a disability, despite having seemingly good coverage. Some questions that advisers and brokers should ask healthcare professionals as they 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 during 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 aboutallof 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.
