Student Loans for Locum Tenens Physicians and the 50/25/25 Rule
/Congrats! You have completed four years of college, four years of medical school, numerous years of residency and possibly even a fellowship, an absolutely amazing accomplishment. What is even more amazing is you have managed your finances, licensing, and loans throughout this time period (not to mention juggling your friends and family responsibilities). I remember sitting in the hospital cafeteria as an intern, having lunch with the PGY-11 cardiac surgery fellow, and his biggest stressor was not the upcoming surgery but figuring out how his loans had grown so large over all those years. Despite time working against us, as physicians we have several options, big paychecks and the cognitive resources to quickly overcome this obstacle. So, what are these options and what are the upsides and downsides of being a locum tenens doctor? From the government assisted plans, to loans, to old fashioned hard work, we hope to help you understand your options.
In the early 1960s, family contributions accounted for 83% of medical school tuition in the United States. At that point, only 31% of all medical students required loans, with only a small amount paying for their entire tuition with loans. Over the next 25 years, everything changed. By 1985, data published by the Association of American Medical Colleges showed that 86% of medical students were graduating with debt. Interestingly, the percent of medical students graduating with debt has not changed since 1985, but what has changed is the amount. In 2018, the average loan debt per medical school student was $190,000. The reason is crystal clear, it is not a lack of fiscal responsibility or overspending by students, it is the cost of medical school. In the last 5 years alone, the cost of public medical school has increased by more than 20%!! The bigger problem is this issue isn’t going away. Assuming the average physician makes $250,000-$300,000 a year, by 2030 medical school debt will consume greater than 50% of your after-tax income. Clearly a change is needed, but for now, let’s explore our options to get rid of your debt.
We should start by explaining that some debt can be avoided prior to even starting medical school. There are several programs that will pay for your medical school if you agree to provide medical care for them for an agreed upon time. The Health Professions Scholarship Program is a United States military program that will pay your tuition, a monthly stipend, a sign on bonus, and several other small benefits if you work for the military after graduation. For every year of payment, they provide you, you will owe them a year of work. Similarly, The National Health Service Corps and the Indian Health Services offer loan repayment for years of medical care. For physicians who plan on serving communities in need, especially in primary care, these opportunities are vital to avoiding the burden of heavy loans. That said, if you plan on doing full time locum tenens work, these options are not available based on their requirements. Considering part time locums work? Unfortunately, these programs often exclude providing medical care outside of their infrastructure.
Once you have finished your residency, there are several major ways physicians approach student loan debt. The first, taking advantage of loan forgiveness and subsidy programs at the federal level. Programs such as Public Service Loan Forgiveness (PSLF), established in 2007, allows for physicians to have the balance of their loans forgiven. However, they require doctors to work specific types of specialties (think government or nonprofit health systems), work “full time” and complete 120 consecutive loan payments without errors. The catch here is the full-time status, which makes it almost impossible for locum tenens doctors to take advantage of this major loan forgiveness program. In addition to the PSLF program, many physicians will take advantage of the Income Driven Repayment Programs. These programs base their payment structure on your current salary and can allow doctors to take advantage of post medical school residency years to pay down loans or avoid mounting debt accumulation on a resident salary. The most current program, Revised Pay As You Earn (REPAYE), allows you to pay 10% of your discretionary income (adjusted gross income minus the poverty line) toward your loans taken after 2007. The approach allows income-based repayment and effectively “lowers” your interest accumulation with a repayment strategy by waving half of the interest you pay on the 10% you are currently paying. This subsidy can add up over time and is a huge benefit. However, just like PSLF, these subsidies have strict rules and it is near impossible for a full-time locum tenens doctors to maintain the needed requirements. Issues with income verification and long-term employment requirements can be major pitfalls.
With the government programs out of the way, it is time to really address student loan debt for vast majority of locum tenens physicians. We are going to systemically develop a plan for you, one based on prior personal experience and the advice of other locum tenens physicians (and their accountants!) Together, we hope this framework helps you overcome the debt fast. We have found being a locum tenens doctor allows for a faster elimination of debt because of several factors. Let’s start with the basics.
First thing is first, you need to understand the interest rates on all your loans. We recommend getting these on paper, all of the amounts and all of the rates. Once these are written down, the next step is to negotiate the lowest interest rates you can and consolidate the loans if possible. This is important for the basic math, but also the psychological process of wrapping your head around exactly where you are and where you need to be. There are numerous companies designed to help you refinance your medical school loans. Consider this, lowering your payments by 1% could mean the difference of $25,000-50,000 over several years. Each percent adds up and we highly recommend you shop around. Get as many quotes as you can and start the process early. The quicker you lower these rates, the easier it is to pay them off. We also recommend you refinance as many times as you can, keep getting these rates lower and lower! That said, some locum tenens doctors have difficulty refinancing secondary to obstacles with income verification. A W2 employed doctor can easily prove a consistent income stream and the underwriting process is smooth. We have found the greatest success with refinancing by providing at least one year of income guarantee in the form of tax documents. This obstacle is made lower by utilizing an LLC and its tax infrastructure to validate salary. The take home is you need to keep diligent records of your income and be prepared to produce proof for over one year. Once you have this, its time to get to work on lowering those rates!
You may have heard “live like a resident” as famously said by the White Coat Investor and we think this is the single most important factor in getting out of debt. Being a locum tenens doctor can make this significantly easier on you for numerous reasons. Consider this, every month or year you live with medical school debt, someone else is making money off of your hard work. The quicker you pay off these debts, the quicker the negative interest rate turns positive and all your hard work begins to pay off. How do we recommend you do it? We have found that for most physicians, the 50/25/25 rule works best, and we strongly believe locum tenens doctors are in the best position to even take this a step further. Let’s break it down. Every time you get a paycheck, take 50% of your net salary and paydown your loans. Prior to any other purchase each month, this payment should be made. This large payment every month will without question eat away at the debt fast. If 50% sounds too small to you, then you can always increase this, but we have found 50% is a nice starting point for most young doctors. Keep in mind, as a locum tenens doctor, if you are focused on savings, you can pick high paying assignments in less desirable locations and earn more than your peers. You can easily increase your total income, thus increasing the impact of the 50% loan repayment.
Next, we recommend you use a maximum of 25% of your net income to pay for your entire living expenses. This includes rent, mortgage, water bill, cable, electric, and any other expense that comes with where you sleep at night. Keeping your living expenses in this range ensures you have the extra money to rapidly pay down debt, but also ensures you have enough money to live and enjoy post residency life. For most doctors, the 25% housing rule is just enough to buy a house or pay rent. However, for locum tenens doctors, your living expenses can be largely paid for by the staffing agencies or your assignments. This offers you two possible big wins. First, you can maintain a permanent residence in a low cost of living area and save the additional money to put toward your loans. This strategic move can reduce this 25% down to 10-15%, allowing for an additional chunk of change for your loan repayment. Another locums hack is to look at this differently. We know living in New York and San Francisco is near impossible with the 25% rule, and we can’t stress how smart it is to live in these areas but on the locum tenens staffing agencies dime (just keep your permanent residence somewhere far away and cheap)!! We have found smart locum tenens doctors can continue to stay in the 25% living expense by utilizing paid housing from assignments in highly desirable areas. Imagine living in San Francisco for half the price!
The final 25% should be for everything else. All expenses outside of loan repayment and housing must fall into this 25%- this includes your cell phone bill, car, entertainment, food, vacations and hobbies. This opens another huge benefit for locum tenens doctors. Your travel, car, meals and expenses can be covered by your staffing agency or tax deductible, so this 25% can easily by cut down by several percentage points as well. Add in the layer of tax benefits of being a locum tenens doctors, and there is no reason a locum tenens doctor would not be able to contribute 75% of their take home pay toward loans!
We have also found that many employed physicians will pick up locum tenens assignments on the side. This extra work, done on weekends or vacation time, can easily produce large amounts of income for loan repayment. In addition, creating 1099 based income can allow for more tax deductions for young physicians. Items can be deducted, and the saved income can be allocated toward medical school loans. Consider this, if an employed hospitalist can pick up an extra weekend of two 12-hour shifts per month, assuming a pay of $200 per hour, that is potentially $50,000 of extra income per year for loans.
Remember, the quicker you pay down your student loan debt, the quicker you can start building wealth and enjoying life. We hope the 50/25/25 rule works for you!!
~The Locums Life~
FAQS
1) I’m a new attending—what’s the very first step I should take with my loans?
Get absolute clarity. Before you refinance, consolidate, or accelerate payments, you need a one-page “loan map”: lender/servicer, balance, interest rate, loan type (federal vs private), and repayment status. If you can’t explain your loans in 60 seconds, you’re not ready to optimize them. Clarity turns stress into a plan—and helps you avoid accidental mistakes like refinancing federal loans you may want to keep for protections.
2) What’s the biggest mistake locum tenens physicians make with student loans?
The most common mistake is making decisions too fast: refinancing federal loans into private loans before confirming you truly won’t use federal benefits (like IDR options, forbearance flexibility, disability discharge rules, or PSLF eligibility if you ever return to qualifying employment). The second biggest mistake is inconsistent cash flow management—locums income can be lumpy, and people overspend in “high months,” then feel trapped in “low months.”
3) Federal vs private loans—why does it matter so much?
Federal loans often come with protections: income-driven repayment options, hardship protections, and forgiveness programs (even if you don’t use them). Private loans may offer lower rates, but fewer safety nets. Your “best” answer depends on stability, specialty, income trajectory, and risk tolerance. If you’re going full-time locums (and confident you won’t pursue PSLF), private refinancing can be a powerful tool—but it’s a one-way door for federal loans.
4) Should I consolidate my loans?
“Consolidation” means different things:
Federal Direct Consolidation: combines federal loans into one federal loan. Useful for simplifying or certain eligibility moves, but can change interest calculations and may impact certain program timelines.
Private consolidation/refinance: replaces old loans with a new private loan (often at lower rate).
Consolidation can simplify your system and improve your “execution,” but the math only works if the interest rate and terms are favorable and you don’t lose valuable protections you might need.
5) Should I refinance right away after residency?
Often, yes—but not always. It depends on:
Your interest rates now vs market offers
How confident you are you won’t need federal protections
Whether your income documentation is strong enough to get top-tier rates
Whether your near-term cash flow will be stable
Many locums physicians do best by working a few months, building documentation, then refinancing when they can demonstrate consistent income.
6) How do I refinance successfully as a locums physician if my income is variable?
Underwriting likes predictability. Your best tools are:
A strong tax return (often the gold standard)
Consistent 1099s, bank deposits, and contracts
A CPA-prepared financial statement if needed
Clean credit, low revolving utilization, and stable DTI where possible
If you’re new to locums and your income looks “spiky,” you may get better offers after you’ve built a 12-month track record.
7) Should I form an LLC (or S-corp) to make refinancing easier?
An LLC can help organize your locums business—contracts, expenses, bookkeeping, and professionalism. It may help with documentation by making income easier to present cleanly (especially when paired with a CPA). However, you don’t form an entity “for refinancing.” You do it because it improves operations, taxes, and recordkeeping. The correct structure (sole prop vs LLC vs S-corp) is case-dependent and worth discussing with a CPA.
8) What’s the simplest method to pay loans off fast?
A boring, repeatable system beats cleverness. Pick one:
Avalanche method: pay extra to the highest interest loan first (usually mathematically best).
Snowball method: pay extra to the smallest balance first (motivational momentum).
Then automate:
Minimum payments on all loans
A scheduled extra payment (weekly or per paycheck) to your target loan
Reassess interest rates annually
9) Is “live like a resident” actually realistic?
Yes—if you define it correctly. It doesn’t mean misery; it means keeping your lifestyle anchored while your income jumps. Your lifestyle doesn’t have to be residency-level forever—just long enough to break the back of your debt. Locums makes this more achievable because you can:
Choose higher-paying assignments
Use employer-provided housing/travel
Temporarily “compress” expenses while you attack principal
10) What’s the 50/25/25 rule and why does it work?
It’s a practical budgeting framework:
50% of net pay → loans
25% → housing/living base
25% → everything else
It works because it’s simple, aggressive enough to matter, and flexible enough to live with. Locums physicians can often outperform it because travel/housing may be subsidized and many expenses can be structured more efficiently.
11) Can I really put 75% of my take-home pay toward loans?
Some can—especially during a focused 12–24 month sprint. The formula:
Keep a low-cost “home base”
Take assignments with housing covered
Avoid lifestyle inflation
Use a clean, consistent budgeting system
Treat debt payoff like training: a season of intensity with a clear finish line
It’s not forever. It’s a campaign.
12) How should I handle “lumpy” income months?
Use a two-account system:
Operating account: your monthly “salary” to yourself
Buffer account: receives all locums income deposits
Each month, you transfer a consistent amount into Operating, and your loans/bills are paid from there. In high months, the buffer grows. In low months, the buffer stabilizes you. This is the difference between feeling “rich then broke” versus feeling steady.
13) How big should my emergency fund be if I’m doing locums?
Most W2 physicians can live with 3–6 months of expenses. Locums physicians often benefit from 6–9 months, depending on specialty, market, and family obligations. If your income is highly reliable and demand is strong, you might lean smaller. If your assignments are seasonal or credentialing delays are common, go bigger.
14) What about credentialing delays—how do I plan for that?
Credentialing can be a silent cash-flow killer. Plan a “dead zone” buffer: assume 6–12 weeks where paperwork, licensing, hospital onboarding, and scheduling reduce your take-home income. If you already have debt payments scheduled aggressively, you need enough buffer cash to cover them without panic.
15) Do I need to pay quarterly taxes as a locums physician?
If you’re 1099, usually yes. Many physicians get burned the first year by under-withholding because no employer is withholding for them. A safe approach is:
Set aside a percentage of every deposit into a “tax” savings bucket
Pay quarterly estimated taxes based on CPA guidance
Keep clean books so your CPA can adjust quickly
If you’re not planning for taxes, you’re not planning—you’re gambling.
16) Can I deduct travel, meals, car, and housing?
Sometimes—but it depends on your “tax home,” assignment structure, and documentation. This is where locums can be extremely beneficial, but it’s also where people make the most mistakes. The key is: you must have legitimate business reasoning, proper records, and a tax home that meets requirements. Work with a CPA who understands locums and keep receipts and logs.
17) What’s a “tax home” and why does it matter?
A tax home is generally your principal place of business—or, in some cases, where you maintain your main residence and incur regular living expenses. If you’re claiming travel-related deductions or receiving tax-advantaged stipends, the definition matters. Without a legitimate tax home, certain reimbursements can become taxable, and deductions can get disallowed. This is worth professional advice early.
18) How do I avoid lifestyle inflation while earning locums money?
Decide in advance where your extra money goes. If you don’t give it a job, it will disappear into “nicer everything.” Try this:
A fixed “fun” percentage (e.g., 5–10%)
A fixed “future” percentage (loans/investing)
A fixed “family upgrades” budget (limited, intentional)
Lifestyle inflation isn’t evil—it’s just uncontrolled. Make it deliberate.
19) Should I pay loans down first or invest first?
If your loans are high interest (often 6–8%+), aggressive payoff can be a strong “guaranteed return.” If rates are low (say 3–4%), investing while paying minimums can be reasonable. Many physicians choose a hybrid:
Refinance to lower rates if appropriate
Pay aggressively until debt hits a manageable threshold
Then split between investing and remaining payoff
Your psychology matters here. If debt keeps you up at night, paying it down faster is a quality-of-life upgrade.
20) What about retirement accounts if I’m locums?
If you’re 1099, you may have access to powerful options like:
Solo 401(k)
SEP-IRA
Defined benefit plans (for very high income and strong savings intent)
These can reduce taxable income and help you build wealth while still paying loans. The catch is complexity—this is best designed with a CPA/financial planner.
21) Is PSLF completely off the table for locums?
For most full-time locums physicians, PSLF is very difficult because it requires qualifying employment (generally W2 with qualifying employers) and strict payment rules over time. However, some physicians do a mix: a period of qualifying employment (nonprofit/government) plus moonlighting/locums on the side. The moment you’re thinking, “Maybe PSLF later,” you should be careful about refinancing federal loans into private loans.
22) What are income-driven repayment plans actually good for?
IDR plans can be useful when your income is low relative to debt—like during residency or early career transitions—or when you need flexibility during life events. They can also reduce monthly burden while you stabilize. But once you’re earning attending-level locums income, the benefit often shrinks, and strict documentation rules can become annoying.
23) What happens if I refinance, and then I want to go back to a nonprofit job?
If you refinance federal loans into private loans, you generally cannot “go back” to federal benefits later. So if you even suspect you’ll switch into PSLF-qualifying employment, you might keep some federal loans intact and only refinance certain tranches—or delay refinancing until you’re sure.
24) What interest rate should I aim for when refinancing?
There’s no universal number, but the goal is “meaningfully lower than what you have” without sacrificing your cash-flow flexibility. Even a 1% drop can be huge over time. Shop multiple lenders, compare fixed vs variable carefully, and don’t treat the first offer as “the offer.”
25) Fixed vs variable rate—what’s better for physicians?
Fixed rates provide certainty. Variable rates can start lower but introduce risk. Many physicians prefer fixed rates because:
debt payoff is already stressful; certainty helps
rates can rise and change your plan midstream
Variable can make sense if you plan to pay off very quickly and can handle rate volatility. Risk tolerance matters.
26) How often should I refinance?
You can refinance multiple times if it meaningfully improves your rate and your terms. Common triggers:
your credit score improved
your income documentation is stronger
market rates dropped
your debt-to-income improved
Just don’t refinance so frequently that you lose focus. Your primary weapon is consistent principal reduction.
27) How do I decide between paying extra monthly vs making occasional big payments?
Monthly extra payments are better for behavior and momentum; occasional big payments can be effective if your income is seasonal. A great compromise is:
Minimum payments monthly
Extra payments per paycheck
A “bonus sweep” quarterly if your buffer exceeds target
Debt payoff is a process, not a one-time decision.
28) Should I make biweekly payments?
Biweekly payments can reduce interest slightly and match payroll rhythms. The bigger benefit is psychological: paying more often keeps you disciplined. If your servicer supports it cleanly, it can help. If it creates confusion or misapplied payments, keep it simple with one extra monthly principal payment.
29) How do I stay motivated through a multi-year payoff plan?
Give yourself milestones:
“First $50k eliminated”
“Under $150k balance”
“Loan #1 gone”
“One year to freedom”
And reward milestones in a controlled way (a weekend trip, a nice meal, a small upgrade) without breaking the system. Motivation fades; structure remains.
30) What if I feel behind because my peers are buying houses and upgrading lifestyles?
This is the psychological trap. Many high earners look wealthy because they spend like it. You are building actual freedom. Remember: debt-free is a lifestyle upgrade that compounds forever. Locums gives you the unique ability to run a short, intense payoff campaign, then enjoy your income without chains.
31) What if I’m married and my spouse has different priorities?
Treat it like a shared mission: agree on a timeline and define what “enough sacrifice” looks like. Consider:
A fixed “fun budget”
A fixed “family comfort budget”
A clear payoff date
A plan for what comes after (investing, home, travel)
Conflict comes from uncertainty. A timeline and structure reduce friction.
32) What if I have kids—does this plan still work?
Yes, but you need realism. You may not hit 75% to loans, and that’s okay. What matters is:
consistent, automated extra payments
avoiding lifestyle leaps that lock you into high fixed costs
using locums benefits (housing/travel) intelligently
A slower plan executed consistently beats an aggressive plan you abandon.
33) What if I have multiple loan types and rates?
Start with the highest interest rate (avalanche) unless you need the motivation of quick wins. If you have both federal and private loans, consider a segmented strategy:
Keep federal loans that preserve flexibility
Refinance high-interest private loans or eligible federal tranches only if you’re sure
Attack the costliest debt first
34) What if my loans feel so big they’re hopeless?
That’s normal. The trick is to stop staring at the mountain and start counting steps. You don’t pay off $300k in a single heroic move—you pay it off with a system that keeps working on your worst days. Your plan should be simple enough to execute when you’re tired, busy, and annoyed.
35) What’s the “one sentence” takeaway for locums physicians with debt?
Use locums to increase income and reduce expenses, keep your lifestyle steady, refinance wisely when appropriate, and deploy an automated payoff system that crushes principal month after month.