People choose to attend medical school for a variety of reasons. Some come from a long line of doctors and want to carry on a family tradition of practicing medicine. Others go into medicine because they feel a need to heal people and believe that becoming a licensed physician is the best way to follow that calling. Still, others go into medicine because it offers financial stability and a secure future as a profession. Without considering someone’s personal reasons for going to medical school, almost all of them will have one thing in common: significant student debt after graduating from medical school.

Average Medical School Debt – Is it Too Costly?

Many people think that doctors have it easy when it comes to student loans despite the fact that this profession often graduates with debt in the six figure range. The public perception is that doctors, with their relatively high earning potential, will pay their student debt bill in just a few years. However, the truth is more complicated than that.

Having medical school loans and figuring out how to best repay them can be complicated, and most medical school graduates do not start making high salaries until several years out of medical school. In fact, many make an average of $56,000 per year when starting out in residency. This means they may struggle with costly student loan debt until they can afford to make larger, impactful payments later in their careers.

By some estimates, the average debt for a 2016 graduate straight out of medical school is roughly $190,000. However, this only includes medical school. When factoring in debt incurred during premed, a whopping 47 percent of debtors owe more than $200,000, and 13 percent owe over $300,000. The same source claims that 44 percent of medical school graduates are considering a loan forgiveness program of some sort.

These statistics beg the question of whether medical school and a future as a physician is a smart financial decision. In addition, some studies find that doctors are dissatisfied with their job, for various reasons involving insurance issues and workplace environment. Unlike other career paths, it is very difficult for a doctor to change jobs and start over again in a new profession. The problems can become much more acute when factoring in stress caused by student debt.

For all of these reasons, it’s important for students to enter medical school with a secure knowledge of the debt incurred while becoming a physician. Is it worth it in the long run? Are there ways to make repayment a bit easier? What funding options are ideal for medical students?

Available Medical School Loans

Medical students are eligible for both federal and private student loans. On the federal side, several different student loan programs are available. Unsubsidized loans, which accrue interest during the borrower’s time enrolled in school, are available for graduate and professional students through the Direct Stafford Loan program with the Department of Education. This program does not require the student to make payments while they are enrolled in either undergraduate or medical school. Unfortunately, subsidized Stafford loans are no longer available to those entering med school, but they would be an option for an undergraduate with medical aspirations later on.

In addition to the Direct Stafford Loan program, the government also offers Grad PLUS loans, Perkins loans, and HRSA Primary Care loans. The Grad PLUS program is an unsubsidized student loan offered to graduates and professional students specifically who are looking to continue higher education. It offers a fixed 7 percent interest rate for loans taken out after July 1, 2017.

The Perkins loan program is available only to medical students with exceptional financial need. There is a limited amount of federal funding for this loan program, and the loans are offered at a low, fixed 5 percent interest rate. The last type of loan, the HRSA Primary Care loan program, is available to financially needy students and also offers a 5 percent interest rate. However, these loans are available only to medical students who agree to practice in primary care until the loans are paid off after 10 years.

When the student is exceptionally well-qualified in terms of income and credit, private student loans are available. Private student loans often fill the gap between federal financial aid and the cost of attendance when federal funding falls short. Many large financial institutions offer private student loans to medical student borrowers such as Wells Fargo and Discover. However, Sallie Mae is probably one of the most recognized lenders for private medical school loans.

The interest rates offered by private lenders fluctuate considerably depending on several factors. First, the financial standing and qualifications of an individual student play a part. Those with establish credit in good standing have a better chance of obtaining lower interest rates. The next influence would be the market and Prime Rate since many lenders base their rates on this benchmark. In some cases, applicants who bring in a cosigner with an ideal credit history can improve their chances of getting a lower interest rate.

Medical School Loan Repayment Options

With many student loans, the standard repayment term is 10 years. It is always possible to pay off student loans early if you can handle an expedited pace. Most federal student loans don’t exact a penalty for doing this; however, some private lenders will charge a prepayment penalty for early payoff of private education loans. The only way to know whether a prepayment penalty applies is to check the loan agreement. With that out of the way, it is possible to extend the repayment term beyond 10 years for both federal and private loans.

Strictly on the federal side, the government has many extended repayment plans including several that will also reduce the monthly payments for borrowers based on income. Extended repayment and graduated repayment plans can extend the term of a borrower’s federal loan between 10 and 25 years. If a borrower is having difficulty making their monthly payments because their income is very low relative to their monthly payment, then they could look at the government’s income-driven repayment plans.

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Income-Driven Repayment Program

An income-driven repayment plan (IDR) will evaluate the borrower’s income once a year and set the next year’s monthly payments at a capped percent (10 or 15 percent) of discretionary income. Medical students often enroll in these plans when they are in their residency period because their salaries start low while their monthly student payments are still hefty. An IDR plan can help keep loans out of default until salaries are high enough to repay both interest and principal.

There are four main different types of IDR plans. The different IDR plans are: Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR). While the details of the plans differ, two things they all have in common is an extended loan repayment term and a monthly payment amount that is capped based upon the borrower’s discretionary income. Depending upon the program, the repayment period might be 20 or 25 years. After the term is over, any remaining balance on the loan is forgiven. The cap on monthly payments will differ depending upon the program. The best way to compare different programs is for graduates to contact their loan servicer, determine which programs they qualify for, and then find out what their terms, caps, and monthly payments will be under each one.

Federal Consolidation Loan Program

There is one other extended repayment program to consider with the federal government: the federal consolidation loan program. Under this program, any federal (not private) student loans can be consolidated together into one consolidation loan held by the government. This loan comes with a new, weighted average interest rate, and it allows you to extend repayment up to 30 years, offering relief from monthly payments. While this can provide relief from high payments initially, it will almost always end up costing the borrower more over the life of the loan. This is due to the weighted average interest rate as well as the repayment term extension; both of these rack up the bill.

Extended Repayment Plans From Private Banks and Lenders

It isn’t as common to find extended repayment options with private lenders, but some do exist. In particular, if a borrower finds that they might default, a private lender may consider extending the repayment term in order to lower the monthly payments. Borrowers should remember, though, that in the long run this increases the interest they will pay since the loan is not paid off as quickly. Keep in mind that this section refers to standard repayment options offered by lenders; there are still options through other services to extend repayment terms.

Refinancing and Consolidating Medical School Loans

Refinancing and consolidation through a private lender is a viable option for many doctors with student loans. During this process, one or more loans (federal, private, or both) are essentially consolidated together into one new loan held by a private lender. Using this loan, previous debt obligations are paid off, leaving all debt owed to the consolidation loan originator. This new loan comes with a new interest rate that is defined by an underwriting criteria that typically takes into account income as well as credit history. Due to these standards, refinancing through a private lender or bank is considered a more difficult process to take advantage of for graduate borrowers in general.

There are several benefits to refinancing. First of all, there is a chance for a reduced interest rate which will reduce monthly payments as well as the repayment term typically. Second, all loans are consolidated together, making it just one, easier payment a month. Finally, and optionally, the loan term can be restructured to fit one’s plan or financial situation. It can be shortened to expedite repayment aggressively, or it can be extended to alleviate the monthly financial burden.

Student loans taken out during undergraduate school and medical school could be refinanced as soon as the borrower is able to qualify for a lower interest rate. Previously a borrower had to wait until they passed out of residency to refinance because lenders wanted to see a higher income. These days, many lenders will refinance student loans while the borrower is still in their residency, taking into account the borrower’s future earning capacity. Needless to say, for doctors with student debt, both new and old, consolidating with a private lender has more of a chance of success.

Keep in mind that federal loans will lose their old benefits when they are converted to private loans during the refinancing process.

Student Loan Forgiveness for Doctors

There are a few options for doctors when it comes to student loan forgiveness. The main opportunity to have loans forgiven is through the Public Service Loan Forgiveness Program (PSLF). This program only applies to federal loans, and only if the borrower has made 120 monthly payments while working for the government or a qualified non-profit. After 120 payments, the remaining balance is forgiven. Many hospitals and medical centers are not-for-profit entities, and doctors working there will qualify for forgiveness under PSLF no matter how high their salaries are. However, jobs at those entities do tend to pay less than working in private practice. Medical school graduates looking ahead to the job market face the decision of whether to take a lower paying job, with the possibility of loan forgiveness, or go into a higher paying position and pay their loans off on their own.

In addition, there are many state programs that will pay off some of a doctor’s student loans. These programs usually require that the doctor practice in rural, underserved, or poverty-stricken areas. The programs available differ by state, but taking advantage of these programs presents the same financial dilemma as PSLF. In addition, most of these programs offer only partial relief and doctors will still have to repay a significant portion of their loans on their own. When these programs can be combined with PSLF, that will afford doctors the best way to eliminate student loans through a combination of forgiveness programs.