Medical Residents

Options Exist to Make Student Loan Payments Manageable Gao ID: HRD-92-21 November 26, 1991

On the basis of its analysis of medical residents' debt scenarios, GAO concludes that requiring medical residents to begin repaying their Stafford loans could cause them financial hardship. Third- and fifth-year residents would use about 17 and 18 percent, respectively, of their gross income to meet student loan obligations. This would exceed 10 percent of gross income--a point at which the Department of Education considers educational debt to be unmanageable. Medical residents can, however, make their student loan debt more manageable by exercising debt relief options. For example, they could obtain forbearance of principle and interest for Stafford loan payments. Lenders, however, are not obligated to provide medical residents complete forbearance. While partial forbearance reduces residents' loan payments, it does not provide adequate debt relief under GAO's scenarios. To remedy this situation, the Department of Education plans to revise its regulations to require that lenders honor residents' requests for complete forbearance.

GAO found that: (1) medical residents who are required to make principal or interest payments on their Stafford loans could incur financial hardship; (2) without forbearance, third- and fifth-year residents would spend about 17 and 18 percent, respectively, of gross income to repay their student loans, exceeding the Department of Education's 10-percent level for manageable nonhousing debt; (3) while partial forbearance mitigates medical residents' debt burden, it may not shield them from financial hardship; (4) third- and fifth-year residents who obtain complete forbearance would incur debt burdens of 4 and 7 percent of gross income, respectively, which are comparable with nonmedical borrowers' debt burdens; (5) although legislation to restrict the medical residency deferment to 2 years provides residents with access to forbearance, neither the legislation nor Education regulations require complete forbearance; and (6) if physicians need further debt relief after residency, they can lower their debt burdens by extending repayment schedules through loan consolidation or graduated repayment plans.

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