Stick it out for PSLF or pay off student loans with a lump sum?

Sometimes we hear clients say something like, “If I could just win the lottery, I could pay off my student loans like (*snaps*) that!” Physicians, however, do sometimes encounter those sorts of windfalls and have tough decisions to make.

One example could be a hiring bonus from a hospital or health network; it’s increasingly common for student loan incentives to be included in an incentive package. What many doctors don’t realize, however, is that that bonus could actually increase their net student loan payment, rather than decrease it.

PSLF: A long-haul money saver

While it may sound attractive to throw a big sum of cash at your student loans to pay them down immediately, PSLF is the real money-saver for most physicians in qualifying employment. Consider the following scenario: you’re a new attending and are considering offers from different health systems.

You have $350,000 in student loans after graduating from medical school and are currently on the REPAYE income-driven repayment plan. Both offers include a $220k salary, which means your student loan payment will be $1,672 for the first year.

One employer, however, is offering a $100,000 student loan incentive if you come work for them—it’s a no-brainer, right? Well, let’s look at the real numbers: it’s not enough to pay off your student loan balance, and it will actually make your loan payment go up next year by almost $1,000 to $2,502/month.

If you continue paying your loans on REPAYE for 10 years and receive PSLF, that $100k incentive really doesn’t save you any money. With the incentive, you would have $159,330 forgiven after your 120 qualifying payments; without it, you would have $269,330 forgiven.

As you can see, that $100k would have been forgiven anyway and you end up paying $10,000 more on your monthly payments the year after the incentive is paid out. A major lump sum towards your student loans may look like an attractive, quick solution, but the real way to save big is with slow and steady PSLF.