A new approach to medical student debt

As a medical student, I’m no stranger to being stressed out. From passing board exams, to impressing my attendings on the wards, to matching into the best residency, there are plenty of things for me to worry about. But although these concerns are the ones that take up most of my time, there is one worry which hangs over all of them like a cloud, sure to cast its shadow when I would rather be focusing on school: student loans.

The average student loan balance of medical school graduates with student debt in 2018 was over $190,000. The cost of attending medical school has grown much faster than inflation. Once a six-figure loan burden was considered outlandish; today, many of my classmates will graduate with student loans larger than the average American’s mortgage. Medical student debt today is a sorry state of affairs, and it contributes to a host of problems in our health care system, from the primary care shortage — as indebted medical students shy away from lower-paid specialties towards ones that will let them pay off their loans more easily — to the epidemic of burnout and depression among medical students, residents, and physicians.

Is there any alternative? Today, personal debt is the dominant method of paying for higher education in the U.S. But in Silicon Valley, entrepreneurs are testing a new way. Lambda School, for instance, is an online education startup that teaches you how to program — and charges no up-front tuition. Instead, students enter into a contract called an income share agreement with the school. In this income share agreement, or ISA, Lambda School’s students pay nothing, and accrue no interest, until after they graduate and get a job that pays $50,000 a year or more. Then they pay 17% of their income to the school, for two years, after which the debt is paid. The school, therefore, receives a varying amount of tuition from each pupil; the more the graduates earn, the more they pay for their education.

The advantages of ISAs over traditional student loans are numerous. Because the school gets paid a percentage of the graduate’s earnings, and only once they are earning a decent living, it’s in the school’s best financial interest to do what it can to help its graduates land high-paying jobs, and quickly after graduation. And because students pay a percentage rather than a flat amount, they are freer to choose jobs based on fit rather than choosing the highest paying position they can find in order to repay their debt as quickly as possible.

Could medical schools offer ISAs to their students as an alternative to student loans? It’s hard to see why not. Medical education is more expensive than programming school, so medical schools would likely have to charge more than 17% for longer than two years. Repayment would also have to begin after the completion of postgraduate training. But a medical degree has a better rate of return than almost any form of higher education. With a reasonable repayment rate, medical schools should be able to make their money back on any student that graduates and matches to a residency.

ISAs would have other beneficial effects on medical education. Medical students would be freed from the crushing feeling of carrying hundreds of thousands of dollars in debt for years before their medical degree begins paying dividends. They could also feel assured that their school was doing everything in its power to ensure that they are able to graduate and match into competitive residencies in high-paying fields. After all, the school now has a direct financial incentive, on top of the reputational one, to maximize the future success of its graduates. And the few students who are unable to graduate or to secure a residency position in the Match can take some comfort in knowing that they won’t be saddled with an astronomical debt they have no means to repay.

Medical schools would benefit as well. Nearly all of them avow a commitment to training physicians to fill the growing need in primary care, medical research, and health care for underserved populations. The current system, which saddles most new physicians with huge debt burdens, pushes medical students away from these admirable fields, which generally pay less than going into subspecialty private practice. In contrast, students who had ISAs rather than student loans could choose their careers based on their interests, knowing that even a lower-paid primary care or academic career will allow them to pay off their education just as quickly as a more remunerative specialty.

The U.S. health care system is full of innovation when it comes to new procedures and treatments for our patients. But our method of financing medical education is largely the same as it was decades ago, when the cost was a fraction of what it is now. The result is that students feel overwhelmed by their debt, leading them to suffer from burnout and anxiety, and to make career decisions based on financial concerns rather than following their passion and their aptitude.

A new approach is desperately needed, and ISAs could be the ideal alternative. They would allow new medical school graduates to start their careers and their lives without crushing debt, and to choose the specialty where their talents fit best. For a medical school that wants to pioneer new solutions, to offer its students a fresh start, and to truly fulfill their commitment to the underserved areas of medicine, the only question is: why not give it a try?

Austin Reifel is a medical student.

Image credit: Shutterstock.com

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