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Education, Medical Schools

It’s time for innovation in how we pay for medical school

handstiedThere is a tremendous amount of handwringing among students, workforce researchers, and medical school deans about the record amount of debt that medical students incur – more than $175,000, according to the Association of American Medical Colleges. This has unintended consequences, including student selection of more lucrative specialties and placing medical education beyond the reach of low-income and minority students. The average household income for a matriculating medical student is more than $110,000 per year. We must get serious about reducing this debt. A talented medical workforce is a national priority.

[Louis Sullivan, MD,] authored an op-ed piece published in the Washington Post on June 9, 2014, “The Outrageous Cost of Working in Medicine.” In the piece, Sullivan discusses this challenge from both diversity and equity perspectives. He wrote, “You shouldn’t have to come from a wealthy family (or be willing to tolerate a lifetime burden of debt or the deferral of buying a home and starting a family) to go into health care.” Yet 60 percent of medical students hail from families with incomes in the top 20 percent of the nation. Meanwhile only 3 percent come from families with incomes in the lowest 20 percent.

National policymakers believe that, because professionals with medical degrees have high earning potential, they should therefore be in a position to repay loans in excess of $250,000 to $300,000. It simply hasn’t worked out that way for many talented young people who have turned away from the health professions altogether. The “gentrification of health care” serves no one well.

(In this post, I’m not talking about financing graduate medical education – GME – which is funded by Medicare, Medicaid, and academic institutions. In March 2001, Joe Newhouse, PhD, and Gail Wilensky, PhD, published an article in Health Affairs on GME asserting that it does not meet the economist’s definition of “public good:” benefits that are equally available to everyone that cannot exclude consumers from consumption. In the same issue, Uwe Reinhardt, PhD, and Adepeju Gbadebo, MD, pointed out that if GME is indeed a public good, society must also be willing to pay reasonable costs. In return, the leaders of academic medicine must inform society what each component of their social mission really costs, and be willing to be held more formally accountable for their use of the resources.)

What options exist to decrease undergraduate medical school debt?

Decrease medical school tuition and increase efficiencies. Tuition is actually a small part of most medical schools’ revenue. Most revenue comes from clinical services, transfers from teaching hospitals, and research funding. Although less than 5 percent of total revenue at most schools, tuition payments are still significant enough that their loss would impair the institutions’ ability to sustain their missions. There is significant variation in medical school tuition between and among public and private institutions. We could analyze the costs of education to determine if efficiencies can be realized using shared core faculty, distance learning, and MOOCs (massive open online courses) “to inform society what each component of their social mission really costs, and be willing to be held more formally accountable for the use of resources,” per Reinhardt and Gbadebo.

Make medical school free and government-funded. Peter Bach, MD, and Bob Kocher, MD, propose that medical school should be free. In their May 28, 2011, New York Times editorial, they advocated a new way of paying for medical training to address the looming shortage of primary care doctors and to better match the costs of specialty training to the income it delivers. They proposed that the government pay medical school tuition and then defray the costs of $2.5 billion per year by charging doctors for specialty training. This is not the first proposal to recommend making primary care training more accessible. The National Health Service Corps helps doctors repay their loans in exchange for a commitment to work in an underserved area, but few doctors sign up.

Make medical school more affordable for students committed to public service. The Wall Street Journal on April 22, 2014, published an analysis of federal student loan debt forgiveness programs, which increased nearly 40 percent in the past six months. One program, “Pay As You Go,” requires borrowers to pay 10 percent a year of their discretionary income – annual income above 150 percent of the poverty level – in monthly installments. Under the plan, the unpaid balances for those working in the public sector or for nonprofits are then forgiven after 10 years. At least 1.3 million Americans are enrolled in the program.

Apply work–study principles to medical school. One undergraduate school, The College of the Ozarks, is turning college debt on its head. Tuition is free but students work 15 hours a week on campus. Students from low-income homes can further defray debt by working over the summer to cover room and board. Part of their GPA is determined by how they do their jobs; those who shirk their duties are dismissed. In this school, there is an “unmistakable quest to succeed.”

I wonder what we could do with this model in medical education? Our applicants are talented, committed, and hard-working. Why extend their “adolescence” by keeping them in the arms’-length “learner space,” when there are many entrustable professional activities that students can perform skillfully while they train? Sometimes these frontline positions can be more instructive than hours of class time.

Student debt has nearly doubled since 2007 to $1.1 trillion, disproportionately driven in large part by graduate school debt. With “Pay As You Go” shouldering $72 billion in debt, government officials are scrambling to find ways to rein in the costs of this program. However, many believe that these programs are necessary, particularly for those who want to take lower-paying jobs in the public sector. Some students who have over $300,000 in debt after undergraduate and medical education say that these programs will allow them to work in specialties that are less lucrative but important for the health of populations. These programs are notably one of very few ways to get out of student loan debt which, unlike consumer debt, not even bankruptcy or death will resolve.

Consider income-share agreements. An April 13, 2014 article, “A Better Way to Finance That College Degree,” suggested that it is time to look beyond traditional student loans.

“Today, easy credit from federal loan programs provides little incentive for campuses to keep tuition low, and many students and parents gladly borrow to pay these increasing costs, only to run into financial trouble when the loans come due,” write Miguel Palacios, PhD, and Andrew P. Kelly, PhD. In the federal student-loan system, lenders don’t consider the likely return on degree programs when making loans, leaving students with no information about the value of different options. The standard 10-year repayment plan demands the heftiest percentage of a graduate’s income in the years immediately after graduation, threatening young adults with financial ruin if their choices don’t lead to a steady income.

Palacios and Kelly propose a creative alternative: “In capital markets, risky investments often are funded with equity instruments under which the investor shares in the profit or the loss of the investment… Enter income-share agreements (ISAs), which are essentially equity instruments for human capital. Investors finance a student’s college education in return for a percentage of their future income over a fixed period. ISAs are not loans and there is no outstanding balance. If students earn more than expected, they will pay more, but they also will pay less – or nothing – if their earnings do not materialize.”

This is catching on in areas of the country under different names. In Oregon, state legislators in 2013 introduced a “Pay it Forward” plan that would allow students to attend public colleges tuition-free in exchange for 3 percent of their income after graduation.

There is still much work to be done, but consider how this could be used for medical education debt. We have the income data. The United Kingdom has been doing this for a while. In the UK, repayments for medical student debt are based on earned income. Anyone earning over £21,000 per year is obliged to start paying back their loans. Repayments are made monthly at a rate of 9 percent of the income earned over the £21,000 threshold and is taken directly from salary by the employer. Borrowers continue to pay 9 percent of residual income for 30 years or until the loans are paid off. If their income drops because they work part-time, are on maternity leave, or stop working completely, the repayments stop.

We must seriously rethink how we finance medical education. Giving investors and the federal government a stake in the economic success of students could unleash more educational opportunity for all.

Joanne Conroy, MD, is chief executive officer of Lahey Clinic & Medical Center in Burlington, Mass. This post originally appeared on Wing of Zock.

Previously: 8 reasons medical school debt won’t control my life
Photo by Hanna-

3 Responses to “ It’s time for innovation in how we pay for medical school ”

  1. Stephen Says:

    Thank you for bringing this issue to light.

    The mean debt numbers are misleading. 175k is not that bad. Most people I know will be closer to $300,000 at graduation. Someone paying full freight at a place like Georgetown or Rocky Vista would be closer to $400,000 by graduation day and well over that by the end of residency. Hard to be a family doc with that debt slung around your neck.

    Why do only 1/6 applicants get selected for the NHSC? Why did the PPACA do nothing to address the debt problem that disproportionately affects people who would go into rural primary care (older, low-SES medical students). Why are medical school financial aid officers telling applicants it will all be ok because of PSLF (which will soon be capped and/or eliminated altogether)?

  2. Julie Fresne Says:

    While I’m encouraged that this post addressed the important topic of medical education cost and debt, it’s unfortunate that it reinforces misperceptions that exist about education debt and repayment.
    While many claim that debt leads medical students to choose more lucrative specialties, AAMC research indicates that debt does not play a determining role in specialty choice for most students. The AAMC report “Physician Education Debt and the Cost to Attend Medical School” includes a section outlining evidence on the “minor role of debt in specialty choice.” Studies show that specialty choice is a complex and personal decision involving many factors. Some students with high debt do in fact choose primary care and AAMC data suggests that there is no systematic bias away from primary care specialties by graduates with higher debt levels. In addition, an Academic Medicine article co-authored by AAMC staff concluded “a primary care career remains financially viable for medical school graduates with median levels of education debt” after rigorously analyzing the household finances of a typical physician repaying education debt.
    Finally, the post fails to mention that the new income-driven repayment plans for federal loans make repayment affordable for all indebted medical students, regardless of their specialty or debt level. These plans, such as “Pay As You Earn” link payments to income, not debt levels, providing all indebted students, not just those seeking a public service career, with a manageable monthly payment and potential forgiveness options.
    I appreciate discussion of this important topic and hope that these posts stimulate useful discussion. I also hope that some of the evidence cited here offers encouragement for those considering a career in medicine who may be deterred by misperceptions about medical student debt. The AAMC has a wealth of useful resources for those aspiring to a medical career at

  3. Michelle Brandt Says:

    Julie, thanks for your comments. We posted a blog entry today that excerpts your recent Wing of Zock post on the issue:
    -Michelle (Scope Editor)


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