Congress Pushes Through Legislation to Reduce Long-Term Student Debt

Congress has approved, and President Bush has signed, a bill that promises to reduce long-term educational debt for most students, including medical school students, by making key changes to the Higher Education Act.

Congress passed the College Cost Reduction and Access Act, H.R. 2669, (at the Library of Congress' THOMAS Web site, type "HR 2669" in the search bar after selecting "Bill Number") earlier this month, essentially creating a "different repayment schedule for medical students and residents," under the Higher Education Act, said Matthew Shick, legislative analyst for the Association of American Medical Colleges, or AAMC.

The final legislation, which Bush signed on Sept. 27, creates two new programs to reduce long-term debt for medical school students and residents: an income-based repayment program and a loan forgiveness program for direct loans and the consolidation of loans. The bill's effect on physicians in the near term of their residencies still is not clear, said Shick.

It is important to note that H.R. 2669 does not extend the amount of time residents have for deferring repayment of their loans under the economic hardship program, which allows medical residents to defer payments for three years. Although the House and Senate both approved bills that would have extended the number of years for deferring payment under the hardship program, enabling family medicine residents to defer student loan repayments until after they complete additional education, House and Senate conferees removed the extension from the final bill that was sent to Bush. Congress also tightened eligibility standards for the hardship program, making it more difficult for residents to quality for the program.

The AAFP, as part of its policy on medical student debt relief, has called on Congress to expand deferment of interest and principal payments on medical student loans until completion of postgraduate training. Not surprisingly, the AAMC pushed for an extension of the three-year loan provisions contained in the hardship program, but for some reason, House and Senate conferees dropped the extension from the final bill, Shick said.

"We don’t know why that was dropped," he said.

However, one of the newly created programs -- the income-based repayment program -- caps the level of loan repayments at 15 percent of a resident’s income that exceeds 150 percent of the federal poverty level. A medical resident with $130,000 in debt, for example, would normally make payments of $1,800 to $1,900 a month under a regular 10-year repayment plan. But under the newly created program, payments are capped at $300 to $400 a month based on an average resident’s stipend, which is about $43,000 a year, according to Shick. This will, in turn, "result in a substantial decrease" in what medical residents are required to pay each month, said Shick.

He adds that more medical school residents will qualify for the repayment program than the hardship program. "Previously, residents were able to (defer payments) under the economic hardship plan," Shick said. "But they now can start making payments under the income-based repayment program immediately after they graduate."

In addition, the loan forgiveness plan created under the newly passed legislation allows the federal government to partially forgive or partially repay loans for physicians who have been making loan repayments for 10 years while working in public service jobs, public health jobs or for nonprofit organizations, according to Shick.

"This will be a substantial benefit for our students who have direct loans or who consolidate their loans under the direct loan program," said Shick. "It will forgive a significant portion."