5 sensible ways to decrease medical school debt

There is a tremendous amount of handwringing among students, workforce researchers, and medical school deans about the record amount of debt that medical students incur — more than $175,000, according to the Association of American Medical Colleges. This has unintended consequences, including student selection of more lucrative specialties and placing medical education beyond the reach of low-income and minority students. The average household income for a matriculating medical student is more than $110,000 per year. We must get serious about reducing this debt. A talented medical workforce is a national priority.

Dr. Louis Sullivan authored an op-ed piece published in the Washington Post, “The Outrageous Cost of Working in Medicine.” In the piece, Sullivan discusses this challenge from both diversity and equity perspectives. He wrote, “You shouldn’t have to come from a wealthy family (or be willing to tolerate a lifetime burden of debt or the deferral of buying a home and starting a family) to go into health care.” Yet 60% of medical students hail from families with incomes in the top 20 percent of the nation. Meanwhile only 3% come from families with incomes in the lowest 20%.

National policymakers believe that, because professionals  with medical degrees have high earning potential, they should therefore be in a position to repay loans in excess of $250,000 to $300,000. It simply hasn’t worked out that way for many talented young people who have turned away from the health professions altogether. The “gentrification of health care” serves no one well.

(In this post, I’m not talking about financing graduate medical education (GME), which is funded by Medicare, Medicaid, and academic institutions. In March 2001, Joe Newhouse and Gail Wilensky published an article in Health Affairs on GME asserting that it does not meet the economist’s definition of “public good”: benefits that are equally available to everyone that cannot exclude consumers from consumption. In the same issue, Uwe Reinhardt and Adepeju Gbadebo pointed out that if GME is indeed a public good, society must also be willing to pay reasonable costs. In return, the leaders of academic medicine must inform society what each component of their social mission really costs, and be willing to be held more formally accountable for their use of the resources.)

What options exist to decrease undergraduate medical school debt?

1. Decrease medical school tuition and increase efficiencies. Tuition is actually a small part of most medical schools’ revenue. Most revenue comes from clinical services, transfers from teaching hospitals, and research funding. Although less than 5% of total revenue at most schools, tuition payments are still significant enough that their loss would impair the institutions’ ability to sustain their missions. There is significant variation in medical school tuition between and among public and private institutions. We could analyze the costs of education to determine if efficiencies can be realized using shared core faculty, distance learning, and MOOCs (massive open online courses) “to inform society what each component of their social mission really costs, and be willing to be held more formally accountable for the use of resources,” per Reinhardt and Gbadebo.

2. Make medical school free and government-funded. Peter Bach and Bob Kocher propose that medical school should be free. In their New York Times editorial, they advocated a new way of paying for medical training to address the looming shortage of primary care doctors and to better match the costs of specialty training to the income it delivers. They proposed that the government pay medical school tuition and then defray the costs of $2.5 billion per year by charging doctors for specialty training. This is not the first proposal to recommend making primary care training more accessible. The National Health Service Corps helps doctors repay their loans in exchange for a commitment to work in an underserved area, but few doctors sign up.

3. Make medical school more affordable for students committed to public service. The Wall Street Journal published an analysis of federal student loan debt forgiveness programs, which increased nearly 40% in the past six months. One program, “Pay As You Go,” requires borrowers to pay 10% a year of their discretionary income — annual income above 150% of the poverty level — in monthly installments. Under the plan, the unpaid balances for those working in the public sector or for nonprofits are then forgiven after 10 years. At least 1.3 million Americans are enrolled in the program.

4. Apply work–study principles to medical school. One undergraduate school, The College of the Ozarks, is turning college debt on its head. Tuition is free but students work 15 hours a week on campus. Students from low-income homes can further defray debt by working over the summer to cover room and board. Part of their GPA is determined by how they do their jobs; those who shirk their duties are dismissed. In this school, there is an “unmistakable quest to succeed.”

I wonder what we could do with this model in medical education? Our applicants are talented, committed, and hard-working. Why extend their “adolescence” by keeping them in the arms’-length “learner space,” when there are many entrustable professional activities that students can perform skillfully while they train? Sometimes these frontline positions can be more instructive than hours of class time.

Student debt has nearly doubled since 2007 to $1.1 trillion, disproportionately driven in large part by graduate school debt. With pay-as-you-go shouldering $72 billion in debt, government officials are scrambling to find ways to rein in the costs of this program. However, many believe that these programs are necessary, particularly for those who want to take lower-paying jobs in the public sector. Some students who have over $300,000 in debt after undergraduate and medical education say that these programs will allow them to work in specialties that are less lucrative but important for the health of populations. These programs are notably one of very few ways to get out of student loan debt which, unlike consumer debt, not even bankruptcy or death will resolve.

5. Consider income-share agreements. An Wall Street Journal article, “A Better Way to Finance That College Degree,” suggested that it is time to look beyond traditional student loans.

“Today, easy credit from federal loan programs provides little incentive for campuses to keep tuition low, and many students and parents gladly borrow to pay these increasing costs, only to run into financial trouble when the loans come due,” write Miguel Palacios and Andrew P. Kelly. In the federal student-loan system, lenders don’t consider the likely return on degree programs when making loans, leaving students with no information about the value of different options. The standard 10-year repayment plan demands the heftiest percentage of a graduate’s income in the years immediately after graduation, threatening young adults with financial ruin if their choices don’t lead to a steady income.

Palacios and Kelly propose a creative alternative: “In capital markets, risky investments often are funded with equity instruments under which the investor shares in the profit or the loss of the investment … Enter income-share agreements (ISAs), which are essentially equity instruments for human capital. Investors finance a student’s college education in return for a percentage of their future income over a fixed period. ISAs are not loans and there is no outstanding balance. If students earn more than expected, they will pay more, but they also will pay less — or nothing — if their earnings do not materialize.”

This is catching on in areas of the country under different names. In Oregon, state legislators in 2013 introduced a “Pay it Forward” plan that would allow students to attend public colleges tuition-free in exchange for 3% of their income after graduation.

There is still much work to be done, but consider how this could be used for medical education debt. We have the income data. The United Kingdom has been doing this for a while. In the UK, repayments for medical student debt are based on earned income. Anyone earning over £21,000 per year is obliged to start paying back their loans. Repayments are made monthly at a rate of 9% of the income earned over the £21,000 threshold and is taken directly from salary by the employer. Borrowers continue to pay 9% of residual income for 30 years or until the loans are paid off. If their income drops because they work part-time, are on maternity leave, or stop working completely, the repayments stop.

We must seriously rethink how we finance medical education. Giving investors and the federal government a stake in the economic success of students could unleash more educational opportunity for all.

Joanne Conroy is chief health care officer, Association of American Medical Colleges.  She blogs at Wing of Zock and can be reached on Twitter @joanneconroymd.

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  • James O’Brien, M.D.

    If you signed up for medical school after 2010, I have to assume you knew the risks you were taking for an uncertain future. There has to be a price to pay for making unwise financial decisions and letting emotion put you into intractable debt. I do feel sorry for anyone who attended medical school from 2000-9 though. They’ve been dealt a really lousy hand.

    Given how medical schools are financially structured, I wouldn’t hold my breath waiting for a tuition decrease.

    ISAs are not a bad idea, but it’s going to hard to do the math given that no one knows how much doctors are going make in 20 years.

    • Dr. Drake Ramoray

      I hadn’t realized it at the time. The facility fee and all the changes started while I was still in training or shortly thereafter. Sadly, I fall in that group that has gotten hosed.

      • James O’Brien, M.D.

        Good luck with NZ. I get offers all the time from a company called IMR. Doesn’t seem like a bad deal. The only reason I haven’t jumped is I am pretty close to retiring and have a good situation outside general clinical practice. If I were 35-40 I would bite. You might make a little less but you don’t have a target on your back.

        • Dr. Drake Ramoray

          Yeah I had several offers a few years ago when I looked and have some contacts. My wife is very close to and had a lot of family here. It’s an option but not a done deal. The only thing that kept me from going before was the requirement to do primary care (Im an Endo). I’m softening some on that but I’d have to get my skills up a bit For now, it’s my safety valve. Plan on going direct pay thyroid only in the next 3-5 years.

          • James O’Brien, M.D.

            It’s a smart move. You want to get off the Titanic and into the lifeboat quickly. By the time doctors in America are paid the same as doctors in NZ, Oz, there will be an attempted mass exodus and it will be more difficult to find a spot.

  • William Viner

    You could also add paying the residents a fair wage while in training. I had over $100k debt (plus interest) and earned almost $30k per year while training. And you all know how many hours per week we worked. My friends that were ED residents were able to moonlight and make enough to pay off their loans while in residency. I didn’t have that option in Ob/Gyn. Here in NZ the average house officer makes $80-90k per year. The down side is they aren’t in much of a hurry to finish their training.

  • Thomas D Guastavino

    Why stop at medical school? This problem exists across virtually every college and graduate school. This is a simple problem of supply and demand. By combining low interest guaranteed loans, desperate parents, and the continual drumbeat that everyone needed a college education to survive, colleges used it as an excuse to jack tuitions up into the stratosphere. We should have run the student loan program the same way we run Medicare. If a college accepts government guaranteed student loan money then they must also accept “assignment”. That way if they attempt to charge more it can be considered fraud and trigger an audit.

    • James O’Brien, M.D.

      I’m amazed that your suggestion wasn’t implemented forty years ago because it makes such obvious sense.

      So who are the greedy Americans, private practitioners who work for a capped service fee or university professors and admins who criticize entrepreneurs but use the government as a limitless ATM?

      • Thomas D Guastavino

        Do you think that this might be the reason why colleges tend to have pro-governement, liberal tendencies?

        • James O’Brien, M.D.

          Which is why Wall Street investment banks give to big government types too. A sucking pig does not want to turn off the spigot of government money, taxpayers and inflation be damned.

          • Thomas D Guastavino

            17 trillion in debt and counting

    • querywoman

      Yup! The universities have these fat endowment funds that came out of federal school financial aid!

  • James O’Brien, M.D.

    I would have to assume that many people who signed up after 2010 are not only on board with ACA but have rich idealistic parents who will bail them out when it all comes crashing down.

    It is completely illogical for a 22 year old to take on that kind of debt and work 80 hours a week during the best years of his/her life for an uncertain overregulated future as a societal scapegoat. If someone spent 12 weeks in a real estate course or learned to be a general contractor, instead of 7-12 years in medical training and approached the nonmedical career with the same work ethic as a doctor in training, they’d probably end up ahead both financially and emotionally.

  • James O’Brien, M.D.

    Well obviously it was a generalization, but I’m pretty sure your’e the exception.

    “Creative” will be frowned on by your new masters. You will be asked to perform assembly line medicine. I’m glad you’re not on board with ACA but that might actually make things worse.

    There’s a reason 9/10 doctors are not recommending medicine as a career. I admire your enthusiasm but get back to us after a few years of dealing with administrative pinheads and their demands on you while you pile up ridiculous amounts of debt.

    If you want to be creative, you might want to get into research rather than clinic after you graduate.

  • Sara Stein MD

    Great ideas, some are major institutional and policy change driven. For the individual who needs relief now, another way to reduce debt is to work after medical school in underserved areas/clinics that offer participation in the Federal loan repayment program. Unfortunately I have heard of more than one doctor who was “let go” one week before their 2 years of service was completed in order for the agency to avoid paying their share of loan repayment. So make sure the agency actually has a history of repaying student loans, and that there are doctors who can attest to that. It’s worth 2 years to relieve a mountain of debt, and the practice experience can be invaluable.