Paying off medical school debt can be a bitter pill. As a resident, you are probably not earning enough to make the full monthly payments on your student loan. As an attending physician, you are likely facing a balance of several thousand dollars more than it was when you graduated.
1. Make payments during residency
Medical school loans earn interest while you are in school and are usually repaid six months after you graduate.
It is possible to defer student loan payments during your residency or scholarship, but it will cost you dearly. Interest accrues during deferral and forbearance periods, increasing your total balance.
For example, suspending payments for three years on $ 201,490 – the average debt of medical schools among the Class of 2019 – would add approximately $ 37,779 to your balance, assuming you had an average interest rate of 6.25%, made no interest payments during that time, and you didn’t had no subsidized loans.
To save on interest, make at least partial payments during residency and only use deferral and forbearance as a last resort. If you can’t afford full payments during residency, sign up for an income-based repayment plan.
2. Switch to income-based reimbursement
An income-based repayment plan is the best option for residents who cannot afford to make full payments.
They are four federal income-based plans that cap monthly payments at a percentage of your income, extend the repayment period to 20 or 25 years, and write off any remaining balance after the repayment period. Many doctors choose Pay As You Earn (PAYE) or Revised Pay As You Earn (REPAYE) when paying off medical school debt.
Monthly payments can be significantly lower on an income-driven plan: with an annual income of $ 57,191 – the average allowance for first-year residents in 2019, according to the Association of American Medical Colleges – you should $ 320 per month if you had no dependents.
The downside to income-based repayment is that your monthly payment may not cover all of the interest as it accrues, which means your total loan balance may go up. REPAYE compensates for this with its one-time partial interest subsidy which waives half of the unpaid interest.
Payments will increase as your income increases, which means you risk exceeding the income-based repayment as your career progresses. On REPAYE, for example, your monthly payment might end up being higher than it would be on the standard 10-year federal repayment plan.
3. Request a loan discount
There are many medical school loan exemption programs, including the Public Service Loan Discount, available to physicians who wish to work in the public sector or in underserved areas for a period of time. Loan cancellation may be a good option if your career goals match one of the requirements of these programs.
Depending on whether you have federal or private student loans, you may be able to combine a physician loan forgiveness with another repayment strategy to maximize the amount you get.
4. Refinance to save on interest
Refinancing student loans is probably the best option for physicians who are aggressively paying off medical school debt. If you can get a lower rate, you could save thousands of dollars in interest over the life of your loan.
Doctors are generally ideal candidates in the eyes of student loan refinancing lenders. Qualifying for the lowest rates requires excellent credit and high income against your debt. You may want refinance medical school loans during or after your residency, or both.
If you refinance while in residence, you may be able to pay as little as $ 100 per month. However, those low monthly payments won’t be enough to cover the interest as it accumulates, meaning your balance will increase.
Before you refinance – whether as a resident or as a participant – make sure you are comfortable giving up access to public service loan forgiveness and income-based repayment. Refinanced loans are not eligible for these federal programs.
How much could refinancing save you?
5. Live like a resident, even when you are not.
After years of study and training, you will finally reap the benefits of your career once you become an attending physician. But if you can live as a resident for a few more years, you’ll have more money to spend on saving, investing, and paying off your medical school debt.
You may want make additional payments to get rid of medical school loans more quickly. But before you do, focus on other financial priorities, including:
Establish an emergency fund of at least $ 500, but ideally enough to cover three to six months of living expenses.
Invest in a retirement fund, at least enough to get your employer’s 401 (k) match.
Pay off high interest debt like credit cards.
How long does it take to pay off medical school debt?
Your repayment strategy will determine how long it takes to pay off the medical school debt. For example, continued forgiveness of civil service loans will mean 10 years of repayment, while income-based plans can last up to 25 years.
There is never a penalty for prepaying student loans, and many physicians choose to aggressively pay off their medical student debt.
According to a 2019 survey by recruiting agency Weatherby Healthcare, 35% of doctors paid off their loans in less than five years. They did this through strategies like making additional payments and refinancing student loans. Of those doctors who still had loans, the majority expected it to take at least 10 years to complete the repayment.