When Courtney Bancroft finished psychology graduate school in 2014, she left with two things that would significantly impact the course of her future: a doctoral degree and student debt of $251,000.
Bancroft had attended a private university in Los Angeles and pursued a PsyD in clinical psychology with a focus on substance use, but she started doubting her career aspirations when she discovered the daunting reality of compound interest. Using a standard federal loan repayment program, she was expected to pay back $2,900 per month — and shell out more than $700,000 over the course of 20-plus years.
"It was really overwhelming," says Bancroft, 29. "I felt afraid, burdened and frustrated that I would be paying back more than double my loan for borrowing money to do something that would help people."
Her antidote for the fear was gathering as much information as possible about debt repayment optionsopens in new window. She talked to loan agents, colleagues from graduate school, psychology interns and professors, and slowly the sense of despair began to lift. By making a few strategic choices when selecting her first job and loan repayment plan, she could secure a more reasonable monthly payment — and get out of debt much earlier.
According to the APAGS 2014 Debt Studyopens in new window, Bancroft's situation mirrors the conundrum that many psychology doctoral students face upon graduation — particularly those in programs in which little funding is available for students. A survey of doctoral graduates from 2013 and 2014 found that 91 percent of the PsyD students and 77 percent of PhD students in clinical, counseling and school psychology programs graduated with debt. The median graduate loan debt was $200,000 for PsyD students, compared to $75,000 for PhDs.
The problem is compounded by the fact that the starting income level is often significantly lower than one's debt balance. The median full-time annual salary ranged from $55,000 to $65,0000 for recent graduates, according to the study. While it may be tempting for early career psychologists to avoid discussing their debt dilemmas with others, financial counselor Thomas Duffany urges them to fight the instinct to isolate.
"Most of us shy away from communicating with others when we are not coming through on an obligation," says Duffany, who works for the Association for Financial Counseling and Planning Education in Virginia. "If you are in a situation of financial hardship, it's important to talk to lenders or other financial professionals before you are in trouble. There are several alternatives for people who have considerable debt compared to their income, but once you have missed a payment and you become delinquent, you are not eligible for those options."
Lowering monthly payments
Bancroft, for example, learned that she was eligible for an income-based repayment program because her loans were federal and the payments were not manageable given her expected income. Under the program, she now pays $1,000 per month, though the amount could increase as her salary increases. After 25 years of payments, the remainder of the loan is forgiven, but Bancroft discovered an additional program that will shrink this number to 10 years.
She works for an agency that supports the Public Service Loan Forgiveness (PSLF) program, which means her remaining debt will be forgiven after she has made 120 payments, or the equivalent of 10 years. People who work for government or nonprofit organizations are eligible for PSLF programs. Bancroft had to turn down two desirable clinical jobs in the private sector because they did not qualify for the program, but she enjoys providing psychosocial education to medical residents in her current job — and is excited about being free of student debt before the age of 40.
Todd Hilmes, PsyD, also participates in a PSLF program as a psychologist for the Department of Defense. In hindsight, however, he wishes he'd applied for the program sooner because he would have been eligible as a postdoc while working for the Department of Veterans Affairs in Hawaii.
"One of the biggest mistakes I made was that I deferred during my postdoc year because I assumed I could not make loan payments while I was earning so little," he says. "I didn't realize how low my payments would be in an income-based repayment program. I missed out on a year of manageable payments."
Hilmes has been impressed with the helpful PSLF website and support from agents via phone, especially because he had negative experiences when trying to find answers to questions from large consumer banking organizations.
While income-based repayment programs usually cap payments at 15 percent of one's discretionary income, the pay-as-you-earn program caps payments at 10 percent of discretionary income. Bancroft did not qualify for this program because it was only available to people who were new borrowers as of Oct. 1, 2007, and who received a disbursement of a direct loan on or after Oct. 1, 2011. But that's about to change.
In mid-December, the Revised Pay as You Earn Plan (REPAYE) became available to borrowers regardless of when they first obtained the loans, which means an additional 5 million people will be eligible, according to the U.S. Department of Education. To be considered, people must apply for the program and demonstrate that they qualify for "partial financial hardship," which is determined by a formula that takes into account one's income and the number of family members in the household.
Options for both researchers and clinicians
For early career psychologists with research backgrounds, applying for the National Institutes of Health Loan Repayment Program may be worth considering. Rachel Millstein, PhD, heard about the NIH program while she was earning her doctoral degree in clinical psychology in San Diego. Although her doctoral education had been fully funded, she had almost $50,000 of student debt as a result of her master's degree training.
To be eligible for the NIH program, applicants must be conducting research funded by a domestic nonprofit or U.S. government entity, and the sum of educational debt must equal at least 20 percent of the base salary from the institution supporting the research. Participants can receive up to $35,000 for their loan repayment for working one to two years, and can apply for a renewal for an additional two years.
Millstein kept this in mind when she was applying for jobs after graduating, and now she is a clinical and research postdoctoral fellow at Massachusetts General Hospital. She conducts research about improving health behaviors and quality of life in patients with heart disease.
"It's a huge relief to pay off my student debt so quickly," she says. "If there is any way you can do research for two years after graduating, it is an excellent way of paying off debt."
For early career psychologists who prefer to work as clinicians, the National Health Service Corps Loan Repayment Program is an option for reducing student debt quickly. In exchange for serving in a high-need, underserved area for two years, accepted participants can get up to $50,000 to repay their student loans.
Plan early
Although lenders typically give graduates a six-month grace period before they are required to start making payments, Duffany urges students to familiarize themselves with the process of paying off debt long before this deadline.
"One of the things to consider doing is carefully examine your spending habits in school," he says. "Pay attention to whether your loan money is going toward the school costs versus funding a lifestyle. You can live like a college student now or after you graduate."
When Daniel Kennedy, PsyD, was a graduate student at Philadelphia College of Osteopathic Medicine, he was careful to take out only enough money to cover tuition to minimize his loan and the interest accrued over time. He worked as a full-time professional counselor during the day and attended classes at night, which allowed him to pay for housing, books and food without using student loans. He graduated in 2012 with $100,000 of debt.
"I still teach on the side, and all of the teaching money is going to loan payments," says Kennedy, who works as a clinical neuropsychologist at the Center for Neuroscience at Riddle Hospital in Pennsylvania.
Students and recent graduates with debt may also receive mailings or see online advertisements about loan consolidation programs, but Duffany has a word of caution. For students with federal loans, it's generally unwise to consolidate to a private loan, he says. Federal loans, unlike private ones, have more flexibility because programs like income-based repayment are available.
Although Hilmes wishes he had known about loan repayment and forgiveness programs sooner, he has redeemed the experience by proactively teaching other students what he learned.
"One thing that is extremely unhelpful is the fact that the topic of money seems to be taboo," he says. "Students and graduates are usually hesitant to share with one another about their income or the amount of debt they have. If I had known earlier about the numbers I would be dealing with, that would have been very helpful."
Hilmes has led didactics for students about school debt and shared detailed figures about his debt and monthly payments — which are $190,000 and $1,100, respectively. He discussed different options available for paying off debt, and the fact that his monthly payment would be twice as high if he were not participating in an income-based repayment plan.
He acknowledges that it's slightly unnerving to be dependent on government loan programs that could be cut at any time, but it's a price he's willing to pay.
"My training has given me the opportunity to spend my days working with active duty soldiers and providing PTSD treatment," Hilmes says. "I find it extremely rewarding because it's an area where you can see positive changes in a relatively short period of time."
