Ibrahim Gardner
Paying off medical school debt can be a daunting task, but there are many repayment options available to help you find the best plan for your financial situation. Medical education loans may carry lower interest rates than other student loans and may be subsidized by the government. It's important to start planning how to handle loan payments before your grace period ends, as interest accrues during this time. To lower the amount of accrued interest, request that any money paid above the minimum payment is applied towards the principal balance. There are also loan forgiveness programs available, such as Public Service Loan Forgiveness (PSLF), which forgives the remaining loan balance after 10 years of service in the public sector.
| Characteristics | Values |
|---|---|
| Interest | Charged daily on Federal Direct Loans and Federal Perkins Loans |
| Payment allocation | First to interest and fees, then to the principal balance |
| Variable-rate loans | Lender notifies annually of interest rate changes |
| Direct Subsidized Loans | No interest charged during school or grace period |
| Deferment | Only for certain federal loans, must be applied for before payments are 180 days overdue |
| Forbearance | Temporary reduction or end to payments, not automatic, interest continues to accrue |
| Loan forgiveness | Available through national, state, and local governments, and some private organizations |
| Loan forgiveness eligibility | Work for a government or not-for-profit organization, make 120 qualifying monthly payments under a qualifying repayment plan |
| Loan forgiveness programs | NHSC Students to Service Loan Repayment Program, NHSC Scholarships, Public Service Loan Forgiveness (PSLF) Program, Health Resources & Services Administration (HRSA) Faculty Loan Repayment Program (FLRP), Indian Health Service (IHS) Loan Repayment Program |
| Federal loans | Repayment tied to income during residency |
| Loan repayment options | Standard repayment plan, income-driven repayment programs |
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What You'll Learn
Loan forgiveness programs
- NHSC Students to Service Loan Repayment Program: Medical students may earn up to $120,000 in their final year of school in exchange for a commitment to serve at least two to three years at an approved NHSC site in a Health Professional Shortage Area (HPSA) of greatest need.
- NHSC Scholarships: Scholarships are offered to students dedicated to a career in primary care. After residency completion, recipients serve at a practice site in an HPSA of greatest need for one year for each year of scholarship support, with a minimum commitment of two years.
- Public Service Loan Forgiveness (PSLF): PSLF is a federal program that forgives the remaining loan balance after 10 years of service, working full-time for a qualified employer, such as a government agency or a nonprofit organization. To qualify, individuals must have PSLF-qualified direct loans and be enrolled in an income-driven repayment program.
- Indian Health Service (IHS) Loan Repayment Program: The IHS Loan Repayment Program awards up to $40,000 for repayment of student loans in exchange for a two-year commitment to practice in designated areas.
- U.S. Department of Health and Human Services Health Resources and Services Administration Primary Care Loans: These loan programs provide long-term, low-interest loans to full-time, financially needy students pursuing a degree in allopathic or osteopathic medicine. Students must complete residency training in primary care within four years of graduation and practice in primary care for the life of the loan.
- Health Resources & Services Administration (HRSA) Faculty Loan Repayment Program (FLRP): The HRSA loan program is open to faculty members. HRSA will repay up to $40,000 of your health professional student loan debt over two years.
- National Health Service Corps Loan Repayment Program: This program offers up to $50,000 in tax-free student loan repayment for primary care physicians who work at least two years in a Health Professional Shortage Area (HPSA). Specialists in fields such as family medicine, internal medicine, pediatrics, obstetrics/gynecology, geriatrics, or psychiatry may qualify.
- U.S. Military Loan Repayment Programs: The U.S. military offers student loan repayment benefits to doctors who serve. For example, the Navy Health Professions Loan Repayment Program provides up to $40,000 per year in loan repayment for up to three years.
It is important to carefully review the requirements and eligibility criteria for each program, as there are strict guidelines regarding which payments qualify for forgiveness. Additionally, some states and local governments may offer their own loan forgiveness or repayment programs, so it is worth exploring options specific to your state or region.
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Loan repayment programs
Public Service Loan Forgiveness (PSLF) Program
The PSLF Program is a federal program that forgives the remaining balance on an individual's Direct Loans after they have made 120 qualifying monthly payments while working full-time for a government or not-for-profit organization. This program is a good option if you plan to stay in the nonprofit world, working for a hospital or university. To qualify, you must have PSLF-qualified direct loans and be enrolled in an income-driven repayment program.
National Health Service Corps (NHSC) Loan Repayment Program
The NHSC offers up to $50,000 toward loan repayment for licensed healthcare providers in exchange for two years of service at an approved site. The NHSC Students to Service Loan Repayment Program allows medical students to earn up to $120,000 in their final year of school by committing to serve at least three years at an approved NHSC site in a Health Professional Shortage Area (HPSA) of greatest need.
Health Resources & Services Administration (HRSA) Faculty Loan Repayment Program (FLRP)
The HRSA loan program is open to faculty members. HRSA will repay up to $40,000 of your health professional student loan debt over two years. In return, you must serve at an eligible health professions school.
Indian Health Service (IHS) Loan Repayment Program
The IHS Loan Repayment Program awards up to $40,000 for student loan repayment in exchange for a two-year commitment to practice in health facilities serving American Indian and Alaska Native communities.
It is important to carefully review the requirements and eligibility criteria for each program before applying. Additionally, some states offer their own medical student loan forgiveness programs, so be sure to explore all your options.
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Managing interest
Understanding Interest: Interest is the cost of borrowing money, calculated as a percentage of the principal balance, which is the original amount you borrowed. The interest rate determines the cost of your loan over time and can be fixed or variable. A fixed-rate loan, such as a fixed-rate repayment option offered by Sallie Mae, maintains the same interest rate throughout the repayment period. On the other hand, a variable-rate loan's interest rate can fluctuate, leading to adjustments in your monthly payment amount.
Staying Informed: Keep yourself updated on the interest rates and any changes to them. For variable-rate loans, your lender is required to notify you annually about upcoming interest rate changes. Being aware of these changes helps you anticipate adjustments to your monthly payments.
Making Payments During Grace Periods: A grace period is the time before your repayment period begins, usually lasting six months. While payments are not required during this time, you can choose to make them. Any payments made during the grace period will reduce your loan debt before entering medical school. This proactive approach can help you save money by lowering the total cost of your loan.
Minimizing Interest Accrual: Interest accrual increases the total cost of your loan. To minimize interest accrual, focus on reducing the principal balance. Request that any payments above the minimum amount be applied to the principal balance. This strategy will help reduce the amount of interest accrued over time and lower the overall cost of your loan.
Considering Deferment and Forbearance: Deferment allows you to temporarily postpone or reduce your payments. Certain federal loan types, such as subsidized and unsubsidized Stafford, SLS, PLUS, or Direct Consolidation loans, are eligible for deferment. Interest may still accrue during deferment, increasing the total loan cost. Forbearance is another option if you're facing repayment challenges but don't qualify for deferment. During forbearance, interest continues to accrue on all your loans, but no payments are required.
Staying Organized: Keep track of your student loans using tools like the MedLoans Organizer and Calculator (MLOC) by the Association of American Medical Colleges (AAMC). Staying organized helps you navigate loan repayment options and ensure your loans are properly accounted for.
By understanding interest, staying informed, making strategic payments, minimizing interest accrual, considering deferment and forbearance options, and staying organized, you can effectively manage the interest on your medical student loans.
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Loan deferment and forbearance
Loan Deferment
Loan deferment allows you to postpone making payments on your student loans. During this time, interest does not typically accrue on the loan, and you are not required to make monthly payments. However, you can choose to make voluntary payments, which will not affect your deferment status. To obtain a deferment, you must apply through your loan servicer and meet certain eligibility requirements. Only certain federal loan types are eligible for deferment, including subsidized and unsubsidized Stafford, SLS, PLUS, or Direct Consolidation loans. It is important to note that you must apply for deferment before your student loan payments are more than 180 days overdue.
Loan Forbearance
Loan forbearance is another option to postpone or temporarily reduce your loan payments. During forbearance, interest continues to accrue on your loan, and you are responsible for paying the accrued interest. Forbearance is typically granted in yearly increments and is not automatic; you must apply for it. Lenders may grant forbearance if you are facing difficulties in repaying your loan but do not qualify for deferment. The terms of forbearance may vary depending on the loan type and lender.
Both deferment and forbearance can provide temporary relief from loan payments, but it is important to understand their differences and potential implications for your overall repayment plan.
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Loan refinancing
Refinancing is one of the three main options for relief for medical student loans, alongside income-driven repayment plans (IDRs) and student loan forgiveness. It involves replacing your current student loans with a new loan from a private lender, ideally with a lower interest rate and more favourable terms. By refinancing, you can save money on interest payments, especially if you have a significant amount of student loan debt.
For example, if you have $300,000 in student loans at an average rate of 7% and refinance that to 2.5%, you will spend $13,500 less in interest in the first year alone. That is $13,500 that can go toward the principal instead of interest. The same monthly payment that would pay off a 7% loan in 20 years pays off a 2.5% loan in less than 10 years. A 10-year loan becomes a 6-and-a-half-year loan. A five-year loan can be paid off in less than four years.
However, it is important to note that when you refinance your medical school loans, they are no longer eligible for Income-Driven Repayment programs (lower payments with a taxable forgiveness option) and other federal benefits. If you file for bankruptcy, you may still be required to pay back this loan. Additionally, refinancing may not be the best option if you are a resident with a lower income, as an income-driven repayment plan may be more suitable in this case.
To qualify for a lower rate when refinancing, you need to have a good credit score and a history of paying your bills on time and in full. Some lenders offer refinancing with no maximum loan amount and no requirement for a cosigner. You can also consolidate multiple loans from across your education, including undergraduate and graduate school loans.
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Frequently asked questions
This will depend on your personal circumstances, but there are many repayment options available. It is recommended that you speak to a financial advisor or a loan advisor at your school to determine the best plan for you.
The PSLF Program is a federal program that forgives the remaining loan balance tax-free after 10 years of service of working full-time for a qualified employer, such as a government or not-for-profit organization.
There are many other loan forgiveness programs available, including the NHSC Students to Service Loan Repayment Program, the Health Resources & Services Administration (HRSA) Faculty Loan Repayment Program (FLRP), and the Indian Health Service (IHS) Loan Repayment Program.
