GUEST POST: Student Loan Repayment Assistance Beats Sign-on Bonuses


[FPMD: The following guest post is authored by Jacob Evans of Dollar Diligence. We have no financial relationship.]

For major healthcare organizations, sign-on bonuses have long been a recruiting tool for enticing the best and the brightest doctors, nurses, and specialists. A lump sum paid directly to the new hire shortly after on-boarding is a smart way to show how invested an employer is in the new employee and his or her success on the job.  According to the Medicus physician recruiting firm, nearly 90% of physicians hired through the firm received a signing bonus last year, up from 68% in 2015.  On average, a sign-on bonus for a new physician is $24,802. However, employers may benefit in attracting top talent through student loan repayment assistance programs rather than sign-on bonuses in the near future.

A Powerful Recruitment and Retention Tool

According to the Association of American Medical Colleges, the median four-year cost of medical school attendance is $243,902 for public schools and $322,767 for private schools. These astronomical costs cause 75% of all students pursuing a degree in medicine to take out student loans to get by. Although there is some grant funding available for some individuals, the average student loan debt for med students is now $190,694. Add the responsibility of managing repayment of student loans to an already high-stress career, new doctors and other medical professionals are fighting an uphill battle to get ahead financially.

Student loan repayment assistance offers some solace to new medical graduates, more so than the allure of a hefty sign-on bonus. Employers have the option to establish an assistance program that either matches payments made by the employee, or pays a fixed amount regardless of how much the employee pays toward his or her loans.

Over time, a loan repayment assistance program has the potential to pay off far more debt than a single lump sum bonus, giving employees a sense of ease as they start down their career path. In taking this route, employers set themselves apart from other healthcare organizations by showing a vested interest in the financial success of employees. Lately, there has been a growing trend among employers that are recruiting Millennial workers.

Considerations for Employees

Although receiving unsolicited help with student loan repayment is a significant plus for most new medical professionals, there are a number of considerations to be made when accepting assistance.

As it stands under the current tax law, student loan repayment assistance contributions made by an employer are taxable to the employee. Unlike retirement plan contributions, such as to a 401(k) or 403(b), or tuition reimbursement programs, repayment assistance is not a tax-protected benefit under federal or state law.

The employers who have experienced success in offering such a program simply withhold the taxes associated with the repayment amount from an employee’s paycheck, making it easy to account for the benefit over time. Employees do need to be made aware that taxes eat away at the total amount of the benefit, but overall, repayment assistance is a strong addition to an employer’s benefit lineup.

While sign-on bonuses remain a strong aspect of the recruitment and retention plan for most healthcare organizations around the country, new medical graduates may be looking for a different type of financial incentive. Student loan repayment assistance not only provides the monetary help doctors and other professionals need to offset their substantial student loan debt; it also shows that a healthcare employer understands the current and long-term financial challenges faced by their workforce, and a commitment to lend a helping hand.

[FPMD: Student loans repayment assistance has been common in underserved areas among high-demand specialties such as primary care and internal medicine. With the future of PSLF uncertain, I expect to see more employers offer student loan repayment assistance to new medical grads. Ongoing efforts in Congress to allow employers to contribute to an employee's student loan assistance on a pretax basis may dramatically increase employer interest in offering such a program. If such a law passes, you would be the first to know.]

Guest author Jacob Evans is the blogger behind Dollar Diligence. While not a physician, Jacob and I share the common goal of reaching financial independence sooner rather than later. However, Jacob's goal of being able to retire by 35 is much more ambitious than mine. Follow him on Twitter to stay up-to-date with his latest articles and advice.

Future Proof, MD

Dr. Bo Liu is an aspiring radiologist-in-training and the founder and editor of the White Coat Money Blog.  He has an interest in interventional radiology and helping his medical colleagues get ahead in this mad world of medicine and money.  When he's not crushing the list at the PACS station or typing up your next favorite blog post, you can usually find him at the local badminton club, movie theater or the most recently opened restaurant.