Douglas Olsen
Paying off medical school loans can be a daunting task, but there are several strategies that can help. It's important to understand the different repayment options, such as income-driven plans, loan refinancing, and loan forgiveness programs. Medical students can also seek advice from financial advisors or loan specialists to determine the best approach for their unique circumstances. Additionally, some hospitals and employers may offer student loan repayment as an incentive to recruit physicians. Understanding the intricacies of loan repayment can help medical students make informed decisions and effectively manage their debt.
| Characteristics | Values |
|---|---|
| Loan repayment options | Public Service Loan Forgiveness (PSLF), income-driven repayment plans, refinancing, forbearance, deferment, and loan forgiveness programs |
| PSLF requirements | Work full-time for a qualified employer, have PSLF-qualified direct loans, and be enrolled in an income-driven repayment program |
| Income-driven repayment plans | Pay As You Earn (PAYE) or Revised Pay As You Earn (REPAYE) |
| Loan forgiveness programs | NHSC Students to Service Loan Repayment Program, NHSC Scholarships, Indian Health Service (IHS) Loan Repayment Program, Health Resources & Services Administration (HRSA) Faculty Loan Repayment Program (FLRP), state loan repayment programs |
| Refinancing options | Laurel Road, Link Capital, Splash Financial, SoFi |
| Other considerations | Understanding repayment options, seeking advice from experts, managing interest and fees, avoiding credit card debt, considering residency salary and loan accrual |
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What You'll Learn
Income-driven repayment plans
There are four types of income-driven repayment programs to choose from, and the right program depends on several factors, including marital status, a spouse's student loan status, and the age of the loans. Consulting an experienced student loan advisor can help medical students select the most suitable program for their needs.
It is important to note that deferring student loans during residency can impact eligibility for Public Service Loan Forgiveness (PSLF). PSLF is a federal program that forgives the remaining loan balance tax-free after 10 years of full-time service for a qualified employer, such as a hospital or university. To be eligible for PSLF, individuals must have PSLF-qualified direct loans and be enrolled in an income-driven repayment program.
Additionally, medical students should be mindful of the consequences of defaulting on their student loans, which can include the entire unpaid amount becoming immediately due, the federal government collecting loan payments from tax refunds or garnished wages, and ineligibility for future federal or state financial aid. Lenders may grant forbearance or adjust payment terms in cases of financial difficulty, but interest may continue to accrue.
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Loan forgiveness programs
The Public Service Loan Forgiveness (PSLF) program is a good option if you plan to work for a non-profit organization, such as a hospital or university, instead of a private practice. This federal program forgives the remaining loan balance tax-free after 10 years of full-time service for a qualified employer. To qualify for PSLF, you must have Direct Federal Student Loans and be enrolled in an income-driven repayment program. There are four income-driven programs to choose from: Pay as You Earn (PAYE), Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), and the Department of Education's SAVE Plan. These programs determine your monthly payments based on your discretionary income and can lower your payments to the low $1,000s, freeing up cash flow for other financial objectives.
The National Health Service Corps (NHSC) offers a loan repayment program that provides up to $75,000 in loan forgiveness for physicians who commit to serving at least two years at an NHSC-approved site in underserved communities. Tiers of forgiveness are available for full-time and half-time service commitments, with additional awards for providers proficient in Spanish.
The Indian Health Service (IHS) Loan Repayment Program awards up to $40,000 for repayment of student loans in exchange for a two-year commitment to practice in health facilities serving American Indian and Alaska Native communities.
The Health Resources & Services Administration (HRSA) offers the Faculty Loan Repayment Program (FLRP), which is open to faculty members. HRSA will repay a portion of your health professional student loan debt ($40,000 max over two years).
Additionally, there are state loan repayment programs that provide loan forgiveness in exchange for practicing in designated health professional shortage areas (HPSAs). These programs are sponsored by state governments and can offer loan repayment of up to $20,000 or more annually.
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Refinancing options
Refinancing is a common strategy for paying off medical school debt. The best refinancing option for you will depend on factors like the type of loans you have and your career goals.
If you have federal student loans, consider refinancing if you don't need an income-driven repayment plan and aren't pursuing loan forgiveness. While there are several forgiveness programs, only federal loans qualify for the most widely available one: Public Service Loan Forgiveness (PSLF). PSLF is a good option if you plan to stay in the nonprofit world, working for a hospital or university once you become an attending physician. This federal program forgives the remaining loan balance tax-free after 10 years of service of working full time for a qualified employer.
If you have private medical school loans, there is little downside to refinancing if you can qualify for a lower interest rate. Student loan refinancing involves seeking out a private lender to replace those loans with a brand new loan at a new interest rate and terms. Refinancing is free and can be done repeatedly, saving you money by lowering your interest rate.
If you have a mix of federal and private student loans, you may want to refinance only the private loans to maintain access to federal loan forgiveness programs. It is important to note that once you refinance federal student loans with a private lender, you lose access to loan forgiveness options.
There are several companies that offer refinancing options specifically for medical professionals, including:
- Laurel Road
- Juno
- Splash Financial
- Panacea Financial
These companies often provide discounted interest rates and benefits tailored for medical professionals.
It is recommended to consult with a loan advisor or financial expert to determine the best refinancing option for your unique situation.
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Forbearance and deferment
Forbearance
Forbearance is a temporary postponement or reduction of payments, or an extension of time for making payments. It is granted by the lender if the borrower is having difficulty repaying their loan but isn’t eligible for a deferment. Forbearance is not automatically granted and must be applied for. Interest continues to accrue during forbearance, and the borrower is responsible for paying it. Forbearance can be a good option if the borrower's financial challenge is temporary.
Deferment
Deferment allows borrowers to pause student loan repayment for up to three years. In some cases, interest is also suspended. Deferment is generally better if the borrower has subsidized federal student loans or Perkins loans, and is unemployed or dealing with financial hardship. The Department of Education will pay the interest for federal subsidized student loans during deferment. Deferment must be applied for before loan payments are more than 180 days overdue.
Other Options
In addition to forbearance and deferment, medical students can also consider income-driven repayment plans, refinancing, and loan forgiveness programs. It is important to carefully consider all options and seek advice before making any decisions regarding student loan repayment.
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Loan repayment assistance
Public Service Loan Forgiveness (PSLF)
Public Service Loan Forgiveness is a federal program that forgives the remaining loan balance tax-free after 10 years of service working full time for a qualified employer. Qualified employers include government employers and many nonprofit organizations. PSLF is a good option if you plan to stay in the nonprofit world, working for a hospital or university. However, it is not an option if you plan to work for a private practice or a for-profit group.
Income-Driven Repayment Programs
There are several income-driven repayment programs that can help keep your payments low. An income-driven plan will lower the payments to the low $1,000s, which frees up money that can be used towards other financial objectives. An experienced student loan consultant can help you select the right program for your individual needs and circumstances.
Loan Repayment Programs
There are various loan repayment programs offered by national, state, and local governments, as well as some private organizations. These programs typically involve a commitment to practice in designated health professional shortage areas (HPSAs) for a specified number of years. For example, the NHSC Students to Service Loan Repayment Program offers up to $120,000 in the final year of school in exchange for a three-year commitment to serve at an approved NHSC site in an HPSA of the greatest need.
Hospital and Employer-Based Repayment
Some hospitals and other employers will offer student loan repayment as an incentive to recruit physicians. This can be a substantial benefit for residents with significant residual medical education debt.
Refinancing
Refinancing with a private lender can be an option, although it closes the door on loan forgiveness options. The AMA provides additional help with refinancing medical student loans, including AMA-negotiated options through Laurel Road.
It is important to carefully consider your unique financial situation and seek advice from a loan advisor or financial expert before deciding on a loan repayment strategy.
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Frequently asked questions
Enrolling in REPAYE during residency and then refinancing when you start practicing is the cheapest way to pay off medical school loans in the private sector. REPAYE benefits from a monthly payment of only 10% of discretionary income, and the government subsidizes half of the interest that would accrue.
Public Service Loan Forgiveness (PSLF) is a federal program that forgives the remaining loan balance tax-free after 10 years of service working full time for a qualified employer. PSLF is not an option if you plan to work for a private practice or a for-profit group.
There are many state and national loan forgiveness programs with some offering loan repayment of up to $20,000 or more annually. For example, the NHSC Students to Service Loan Repayment Program offers medical students up to $120,000 in their final year of school in exchange for a commitment to serve at least three years at an approved NHSC site.
An income-driven repayment plan is a way to keep your payments low so you can have increased cash flow for other priorities. There are four federal income-driven plans that cap monthly payments at a percentage of your income, extend the repayment period to 20 or 25 years and forgive any balance that’s remaining after the repayment period.
Forbearance is a temporary end to or reduction of payments, or an extension of time for making payments. Lenders may grant forbearance if you are having difficulty repaying your loan but aren’t eligible for a deferment. Interest continues to accrue on your account during forbearance.
