Few individuals can afford to pay the full cost of a medical education out of pocket. The percentage of medical students who graduate with student loan debt has remained relatively constant since 1998, at about 86 percent. However, during that same period, medical student debt has grown at an average of 4.2 percent for private school students and 5.7 percent for public school students, from an average of $85,200 to $161,300 (Fig. 1).

The Budget Control Act of 2011 included provisions that could dramatically change the way medical education is funded, and it could have a significant impact on the size and composition of the medical work force.

Impact on medical student debt
Although the Budget Control Act of 2011 attempted to reduce the budget deficit, it simultaneously changed the potential future debt burden of medical students across the United States. Federal Stafford loans provide the main source of medical student loans. Under the provisions of these loans, medical students may borrow up to $32,000 annually. The loans carry a 6.8 percent interest rate for graduate students, but no payments are due while students are enrolled in classes.

Before passage of the Budget Control Act of 2011, the government subsidized the interest on a portion of these loans while students were enrolled in school. As a result, the principal of the loan did not increase during a student’s time in school. Now, however, interest is assessed from the initial date of the loan. This provision is estimated to save the government $18.1 billion over the next 20 years.

Another provision of the Act eliminated origination fee rebates, resulting in a loan fee increase from 0.5 percent to 1 percent. This provision is estimated to save the government $3.6 billion over the next 20 years. The changes, however, will result in roughly a $10,000 increase in debt for medical students who accept 4 years of federal loans.

Long-term implications
This change in debt burden could profoundly influence the future healthcare work force in the United States. From 1971 to 2004, the rate of underrepresented minorities matriculating into medical school more than doubled. During the same period, female enrollment increased from nearly 20 percent of graduates to roughly 50 percent. Among one demographic group, however, medical school enrollment did not increase and, in fact, decreased during this period.

In 1971, 27 percent of medical students came from families whose household income ranked in the lowest 40 percent of household income nationally. By 2004, only 10 percent of medical students came from this group. Although many factors could contribute to this decline, a recent study reported that cost of attendance was the top deterrent to applying to medical school for underrepresented minority students who considered medical school and then chose another career path.

The increasing burden of medical student debt not only affects minorities and those from lower socioeconomic classes, but also may deter talented applicants away from medicine and into other career paths. This loss of potential applicants is a large, unseen cost to the medical system.

Medical student debt has implications beyond the loss of potential students. Studies are mixed as to whether or not debt levels affect the choice of specialty by medical students. Medical debt could certainly affect career decisions such as serving underserved populations or entering academic medicine. These two areas are projected to experience workforce shortages, which might be exacerbated if medical graduates base career decisions on the need to generate income and repay medical school loans.

Potential solutions
Medical schools around the country are addressing these issues through increased efforts to raise endowment funds for medical student scholarships. The shift from loans to grants to fund medical education is one method to decrease the student debt burden. For example, Vanderbilt University School of Medicine has implemented a successful campaign to increase endowed scholarships for medical students with the goal of removing debt as a deterrent for accepted applicants. This strategy is extremely appealing because current scholarships can be funded with interest earned on the endowment while the principal is left untouched to fund future scholarships.

Several loan forgiveness programs are now available to medical students. The military will fund a student’s entire tuition in return for a multiyear commitment of military service. For students going into primary care, the National Health Service Corps (NHSC) offers $100,000 in loan forgiveness for a 3-year commitment. Students who work for 10 years in government or nonprofit organizations can qualify for the Public Service Loan Forgiveness (PSLF) program. Under the PSLF program, students make loan payments for 10 years, and any remaining loan balance is forgiven.

Although government-subsidized loans offered low interest rates for students that the private sector could not hope to match, these recent changes have prompted innovative solutions to decrease medical students’ debt burden. One example is Social Finance (SoFi), a startup company from Stanford Business School.

SoFi aims to help graduates find jobs by connecting students with alumni investors. The alumni investors offer 6 percent fixed-rate loans to MBA graduate students attending Stanford Business School. This rate is much lower than that available to most students in the private loan market. A similar structure could hold promise in the medical school community. Creating financial ties to students in the institution could increase the involvement of alumni. Given the high graduation rates of accepted medical school students and the strong demand in the physician job market, loans to medical students may carry less risk than comparable loans to graduates of other professional schools.

As the U.S. debt continues to soar, government support of medical education will become increasingly difficult. The Budget Control Act of 2011 demonstrates that difficulty and the trade-offs and sacrifices it requires. However, innovative private-sector solutions such as SoFi offer a potential path to foster a diverse and talented future physician workforce.

Tyler Davis; Daniel J. Stinner, MD; Jordan C. Apfeld; William T. Obremskey, MD; A. Alex Jahangir, MD; and Manish K. Sethi, MD, are all associated with the Vanderbilt Center for Health Policy.

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