AAO is working hard to ease the burden of student debt.
Orthodontists must complete 10 to 11 years of post-secondary education before practicing their specialty. The average graduating orthodontic resident today owes approximately $428,150 in student loan debt. Current federal student loan policy does not really account for a profession’s ability to repay student loans, resulting in policies that compound the student loan crisis and undermine a federal goal to expand the number of medical professionals in the United States.
The AAO is concerned about the burden of such large amounts of debt on its current members, in addition to discouraging future members – particularly those from underserved communities – from entering the profession. The pressure created by the need to service high student debt loads often discourages medical professionals from establishing services in lower income communities that need access to more healthcare providers, while also affecting other career and personal decisions like purchasing a home. As such, many new orthodontists feel financial pressure that dissuades them from opening their own small businesses or practicing in the preferred location of their choosing. A January 2019 report issued by the Federal Reserve found that student loan debt was responsible for approximately 20 percent of the decline in homeownership rates since 2005 and that individuals with the highest student loan balances are the mostly likely to leave rural areas.¹
As Congress prepares to reauthorize the Higher Education Act, policy solutions are essential to provide a fair and equitable loan system for future borrowers and also to maintain a strong U.S. economy. While the AAO supports general policies to make college more affordable, our top priorities for easing the burden of student debt are below. The AAO has endorsed previous legislation to address many of these issues. The Student Loan Refinancing and Recalculation, or SLRR, Act (H.R. 4001, 115th), in particular, would preserve the in-school interest subsidy, reduce origination fees and borrowing rates, provide for federal student loan refinancing, and allow for residency deferments.
Keep Borrowing Affordable
Preserve the In-School Interest Subsidy
The AAO is concerned about the potential elimination of the undergraduate inschool interest subsidy, knowing the financial burden felt by our members when Congress eliminated the subsidy for graduate borrowers in 2011. In addition to supporting the preservation of the in-school interest subsidy in current law, the AAO supports the SLRR Act, which would delay student loan interest rate accrual for low- and middle-income borrowers while they are in school.
Reduce Fees and Rates for all Future Federal Borrowers
Currently, student loan interest rates are established at the 10-year Treasury note rate, plus a margin of 2.05% for Undergraduate Stafford Loans, 3.60% for Graduate Stafford Loans, and 4.60% for PLUS Loans. Recently, the Treasury note rate increased, which increased all student loan interest rates. Additionally, origination fees on Undergraduate and Graduate Stafford Loans are set at 1.062%, and for PLUS loans they are 4.248%. The marginal rates that are added to the market rate should be reduced on all federal Direct Loans, and the origination fees should be removed. Because orthodontists tend to borrow heavily to complete 6 to 7 years of graduate school, such rate reductions would be of great value to orthodontic students.
Support Student Loan Refinancing
In 2013, Congress passed the Bipartisan Student Loan Certainty Act, which set student loan interest rates to the financial markets for the life of the loan. While the legislation provided a degree of certainty to borrowers, students now face limited options to refinance their federal loans once they have graduated from college. Instead, borrowers should be able to refinance their undergraduate and graduate federal student loans whenever borrowing rates are reduced, just as with the home mortgage market. There are a number of bipartisan bills previously introduced to allow for student loan refinancing, and the AAO has endorsed several, including SLRR and the Student Loan Refinancing Act (H.R. 1614, 115th).
Defer Residency Payments
Unlike almost all other medical residents, most orthodontic residents do not receive a stipend or salary, leaving most to borrow large sums of money. As a result, few orthodontic residents can make payments on their student loan debt while in their residency. For example, interest alone for some residents can total $40,000 per year. Default for such borrowers is not a huge risk, given their high rates of repayment after they enter the workforce. SLRR and the Resident Education Deferred Interest (REDI) Act (H.R. 5734, 115th) would allow for deferment.
Protect the Teaching Profession
Given the large debt load required for orthodontic students, it is a significant challenge to recruit and retain qualified individuals to fill faculty positions in the field. The AAO appreciates Congress’ support of new dental faculty loan repayment grant cycles in recent years. However, that repayment assistance is currently taxed. The AAO supports legislation like the Dental Loan Repayment Assistance Act (H.R. 7259, 115th), which would exclude certain federal loan repayments made to dental faculty from being included as gross income and prevent a potentially hefty tax bill on those federal loan repayments defined in the Public Health Service Act.
Preserve Access to Federal Loans and Grants for Graduate and Professional Students
Preserve the Direct PLUS Loan Program for Graduate Students
The Grad PLUS Loan is a federal loan available to students attending graduate school and professional school. The loans were included as part of the Bipartisan Student Loan Certainty Act, which means their interest rates are tied to market rates and provide certainty over the life of the loan to graduated borrowers. Grad PLUS Loans help pay for educational expenses up to the cost of attendance (minus all other financial assistance), which is crucial for many orthodontic students given the cost of orthodontic programs. They also come with additional protections (i.e., loan terms, forgiveness opportunities, and repayment options) since they are federal loans. Any efforts to cap the borrowing amount for graduate and professional students would be devastating to future classes of orthodontic graduate students. The AAO fears future students may be forced to choose between entering the private loan market to pay for the cost of orthodontic school or will decide to forgo the profession entirely due to the loan burden. Moreover, graduate and professional student borrowers have much higher repayment rates and have fewer default issues than other borrowers, meaning their repayment helps support the other loan programs
administered by the Department of Education.
Permit Unused Pell Dollars for Graduate School
Federal law limits the amount of federal Pell Grant funds individuals can receive over their lifetime, which is the equivalent of six years of an individual’s maximum scheduled annual Pell award. Some individuals graduate using only part of their lifetime Pell eligibility. For instance, if a student graduates in four years, she may have two more years of lifetime eligibility, but students may not apply that remaining eligibility to graduate school. The Aim Higher Act of 2018 (H.R. 6543, 115th) would have permitted the use of remaining Pell eligibility towards graduate programs. Given the AAO’s concern that the cost of orthodontic school can be prohibitive to students with exceptional financial need, we support efforts to broaden eligibility to graduate and professional programs to help pay for the cost of attendance.