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Smart Medical School Loan Repayment Strategies

March 25, 2021 · 4 minute read

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Smart Medical School Loan Repayment Strategies

If you’re a doctor or studying to be one, you probably have student loans. For most medical school students, student loans are a necessary—and stressful—part of taking on four or more additional years of schooling.

In fact, 73% of all med school graduates have student loan debt, according to the Association of American Medical Colleges, with a median of $200,000 for the Class of 2020.

The amount is higher for nearly a quarter of medical residents, who carry debt of over $300,000, a 2020 Medscape survey found.

For medical students and doctors, it’s important to understand how increasing debt affects your financial life.

The Costs of Medical School

In the blur of an incredible workload and demands, you may not have paid total attention to the costs of med school. Here’s the tab, according to the Association of American Medical Colleges.

The median four-year cost of attendance for an in-state resident graduating in 2021, not including grants or stipends, comes to:

•  $259,350 at a public school
•  $347,000 at a private school

Why Medical School Debt Matters

While big debt figures can feel overwhelming, they only tell part of the story. By the time you’re done paying back your loans, it’ll cost more than the principal you left school with, thanks to the interest that accrues during the life of your loans.

The more debt you have and the longer you take to pay it off, the more interest accrues.

Many medical school grads find it difficult to make payments while they are in residency, living on an average salary of $63,400 in 2020, the Medscape report shows. (Average pay in the first through eighth years of residency ranges from $57,100 to $68,500, according to the report.)

Some residents request forbearance during those years. During normal forbearance, loan payments are not required, but interest accrues, ultimately adding to the balance of a loan if interest payments are not made. When interest is capitalized, or added to the loan, you’ll end up paying interest on the accumulating interest.

Say you have $192,000 in medical school debt and take a three-year forbearance. If your loans have an interest rate of 6%, after the period of deferred payments, your new loan balance would be $226,560, including $34,560 in accrued interest. Your monthly payment would also rise significantly.

How Long Does It Take to Pay Off Medical School?

Depending on the repayment plan you choose, it could take 10 to 25 years. But you can always pay back your loans faster if you pay more toward them.

The plan you choose will largely be based on how much you’re able to pay toward your medical school debt each month.

Though everyone’s financial situation is different, someone with a high student loan balance might opt for a repayment plan with lower monthly payments over a longer time frame. (A standard 10-year repayment plan could be difficult for medical students about to start their residency to afford, because the payments might be especially high.)

Medical School Repayment Options

Here are the different repayment plans for federal loans and how long each plan could feasibly take:

Standard Repayment

The standard repayment plan takes 10 years. This is the default plan, so if you want a different plan, you have to tell your loan provider.

A standard plan is solely calculated using the balance of your loans (not your income). You can opt to extend the payment period with an extended repayment plan, which extends the loan to up to 25 years.

You can also select a graduated repayment plan, with smaller monthly payments during the first two years and then payments increasing every two years in the remaining eight years. For consolidation loans, payments under the graduated plan can extend to up to 30 years.

Income-Driven Repayment

These four plans are available to federal loan borrowers who exhibit a partial financial hardship, for which most medical students will qualify. They offer lower monthly payments based on your discretionary income .

How long it will take to pay off your medical school debt will depend on which type of plan you select and your salary. (If you have a higher salary, your monthly payments will be higher, and the loan will be paid faster.)

Income-Contingent Repayment

Your payment is capped at 20% of your discretionary income. The maximum ICR plan is 25 years. After that, any unpaid balance is forgiven.

ICR has a higher required monthly payment than the other income-driven repayment plans. (This option isn’t available for all loan types, so check with your loan servicer.)

Income-Based Payment

Capped at 15% of your discretionary income or whatever your standard 10-year payments would have been, these plans last up to 25 years.

Under both ICR and IBR, it is unlikely that a practicing doctor’s loans would last the full 25 years. If you have loans from after July 1, 2014, any remaining balance is to be forgiven after 20 years on an IBR plan.

Pay As You Earn

PAYE bases monthly payments on 10% of your discretionary income. The repayment term is up to 20 years.

Revised Pay As You Earn

REPAYE was made available in 2015 and comes without the income or hardship requirements of other income-driven repayment plans. Under this plan, any loan balance can be forgiven after 25 years.

Public Student Loan Forgiveness

This is a program for doctors working in public service (such as a government nonprofit), and allows forgiveness for qualifying loans after 10 years of on-time income-based payments.

Refinancing Medical School Debt

With the median medical school debt load hovering around $200,000, you might be wondering if there’s anything else you can do to relieve some of the burden.

Refinancing could save doctors money by reducing the amount of interest they pay over time. You might even want to consider refinancing high-interest loans during residency.

Student loan refinancing, which is essentially replacing your existing school loans with one new loan that has a lower interest rate, is done through a private lender, not the government.

Generally, student loan refinancing requires good credit and good financial standing.

It’s also a good idea to see what features your private loans do or do not offer, such as grace periods, forbearance, or unemployment protection. If you refinance, you might want to look for a lender that offers these perks.

The Takeaway

Anatomy of a future physician: Persevering, brainy, dedicated, and possibly not prepared to manage education debt. Getting a handle on student loans can enhance your financial health for years to come.

SoFi offers refinancing specifically for medical residents and fellows. The plan will allow you to make low minimum monthly payments for four years, until you become an attending physician.

You can also refinance both your federal and private loans all into one loan, which will simplify your repayment.

SoFi offers fixed- and variable-rate loans of five to 20 years. Interested? Check your interest rate.


IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF JANUARY 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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