Ibrahim Gardner
Paying off student loans during residency can be a challenging task, with the average student loan debt for a medical student exceeding $200,000. Residents have the option to postpone payments or make payments during residency. Those who choose to pay during residency can benefit from lower interest accrual over time. However, postponing payments may be more realistic depending on personal circumstances and the flexibility of repayment plans. Residents can also consider refinancing their loans or taking advantage of loan repayment assistance programs, such as the Public Service Loan Forgiveness Program, which offers debt relief for physicians working for nonprofit or government entities. Additionally, residents may choose to supplement their income by moonlighting, but this depends on the residency program's policies.
| Characteristics | Values |
|---|---|
| Average student loan debt for a medical student | $200,000 |
| Average annual salary of residents | $64,700 |
| Average annual income for family physicians | $231,000 |
| Loan management options | Make payments during residency or postpone payments |
| Mandatory residency forbearance | No payments during residency |
| Mandatory forbearance request form | Available on the FSA website or by contacting the loan servicer |
| Repayment plans | SAVE, PAYE, NEW IBR |
| Student loan refinancing lenders | Laurel Road |
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What You'll Learn
Payment plans and loan forgiveness
There are a variety of payment plans and loan forgiveness programs available for those looking to pay back student loans during residency. Here are some options to consider:
- Mandatory residency forbearance: Medical and dental residents can qualify for mandatory forbearance while in residency, which allows them to postpone payments on their federal student loans. This option may be suitable if you want to focus on your residency without the burden of loan payments. However, it's important to note that any interest accrued during this period will be added to the loan amount.
- Income-driven repayment plans: With the new income-driven repayment (IDR) plan from President Biden, your loan payments are based on your discretionary income. This means that if you have a lower resident income, your loan payments will also be lower. IDR plans can help you qualify for lower payments and maximize loan forgiveness.
- Public Service Loan Forgiveness (PSLF): The PSLF program offers tax-free loan forgiveness after 120 qualifying monthly payments. To qualify, you must work for a PSLF-eligible residency program, typically a 501(c)(3) nonprofit organization or state hospital. Each year of medical residency counts toward the 10 years of qualifying payments needed for loan forgiveness. You can submit the PSLF form annually or when you change employers to indicate your interest in the program.
- REPAYE: This income-based repayment plan is based on your adjusted gross income. It typically results in monthly payments of around $300-$400, which is much more manageable than standard payment plans. However, it's important to note that these payments may not qualify for PSLF if you are also enrolled in a mandatory residency forbearance plan.
- PAYE/NEW IBR: These plans allow for capped payments, providing a predictable and stable repayment option.
It's important to carefully consider your personal and financial goals when choosing a repayment plan. Understanding the various plans available and seeking financial advice can help you make an informed decision. Additionally, consolidating your federal student loans into one federal Direct Loan at the beginning of your residency can simplify the process and ensure all your debt is eligible for PSLF.
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Forbearance and postponement
Grace Period
A grace period is a time during which no payments are required. Interest continues to accrue on unsubsidized loans, but the government pays the interest on subsidized loans. A 6-month grace period is automatically applied to federal Direct Subsidized and Unsubsidized Loans when a borrower graduates or is no longer enrolled at least half-time. Direct PLUS Loans for graduate or professional students do not have a grace period but offer a post-enrollment deferment period that mimics a grace period, allowing for the postponement of payment for 6 months.
Deferment
A deferment allows borrowers to temporarily reduce or postpone payments on their loans if they are returning to college, attending graduate school, or entering an internship, law clerkship, fellowship, or residency. During this time, borrowers are not required to make principal and interest payments. Interest will continue to accrue, increasing the total loan cost. Deferment requests can be made in increments of up to 12 months, up to a maximum of 48 months for certain loan types.
Forbearance
Forbearance is a way to postpone payments on federal student loans. During this time, no monthly payments are required, but interest continues to accrue, and the borrower is responsible for paying it. Forbearances are typically granted in yearly increments, and borrowers must submit a request form to their loan servicer for approval. Federal student loan borrowers can elect to have their loans put on mandatory forbearance while completing a medical residency, and the servicer is required to grant this forbearance if the borrower requests it. It is important to note that if borrowers choose to make voluntary payments during a mandatory forbearance, these payments will not count toward Public Service Loan Forgiveness (PSLF) as they are not enrolled in an eligible repayment plan.
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Refinancing and consolidation
Refinancing
Refinancing medical school loans can provide a lower interest rate, potentially resulting in significant savings over the loan term. It is available for both federal and private loans, but there are important considerations for each:
- Federal loans: Refinancing federal loans means giving up access to benefits such as Income-Driven Repayment (IDR) programs and Public Service Loan Forgiveness (PSLF). Therefore, it may be advisable to wait until the end of residency to refinance federal loans and take advantage of these benefits first.
- Private loans: Refinancing private loans is often a more straightforward decision, as it usually results in a lower interest rate and more manageable monthly payments. Some lenders even offer cash bonuses or other incentives for refinancing.
To qualify for refinancing, a good credit score is generally required, typically in the high 600s or higher. It is recommended to shop around and compare rates from multiple lenders to get the best offer.
Consolidation
Consolidation is the process of combining multiple loans into a single loan, which can simplify repayment by having just one monthly payment. This option is available for federal student loans, and it makes all the consolidated debt eligible for PSLF. However, it is important to note that consolidation does not reduce the interest rate or provide significant savings like refinancing can.
Additionally, residents have the option to postpone payments on their federal loans during residency through a mandatory residency forbearance. This allows them to focus on their financial goals without incurring penalties.
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Moonlighting for extra income
Moonlighting is a common way for medical residents to earn extra income. It refers to working a second job as an independent physician while still in residency. Residents who moonlight can earn an average of $100-$200 per hour, depending on the location and job duties. This extra income can be used to pay down student loan debt faster or to invest and save for retirement.
There are several benefits to moonlighting. It provides an opportunity to gain experience in new settings, broaden career horizons, and enhance one's resume. Moonlighting can also offer insight into how other hospital units operate and provide exposure to interesting cases and procedures that may not be available during regular residency hours.
However, there are some downsides to consider. Moonlighting can increase your monthly loan payments if you're on an income-driven repayment (IDR) plan. It may also interfere with your free time and affect your work-life balance, especially if you have family commitments. Additionally, you may need to purchase professional liability insurance for external moonlighting positions, which can be costly.
Before deciding to moonlight, it is essential to weigh the pros and cons and consider your personal circumstances, financial goals, and work-life balance. Consulting or other side gigs may be alternative options to generate extra income without the same level of time commitment as moonlighting.
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Budgeting and financial planning
Understanding Your Loan Options
Firstly, it is crucial to understand the different loan repayment options available to residents. Federal student loans offer various plans, such as the new Saving on a Valuable Education (SAVE) plan, which provides lower monthly payments and favourable interest terms. Other options include PAYE or NEW IBR, which allow for capped payments. Residents should carefully review these plans and choose the one that best aligns with their financial goals.
Postponing Payments vs. Making Payments
Residents have the choice to postpone student loan payments during residency through mandatory residency forbearance. This option allows residents to focus on their training without the burden of immediate loan repayments. However, it is important to note that interest will continue to accrue, increasing the total amount owed over time. On the other hand, making voluntary payments during residency can help residents save money in the long run by reducing the overall interest paid. Residents can also choose to make strategic voluntary payments towards the most expensive loans first.
Consolidating Loans and Loan Forgiveness Programs
Consolidating federal student loans into one federal Direct Loan can simplify repayment and make residents eligible for the Public Service Loan Forgiveness (PSLF) program. Each year of residency counts towards the 10 years of qualifying payments needed for tax-free loan forgiveness. Additionally, some hospitals and employers offer student loan repayment assistance or recruitment incentives, which residents can take advantage of.
Budgeting and Extra Income
Creating a budget that considers both expenses and savings is vital. Residents should strive to set aside a portion of their earnings, no matter how small, into a savings account. Additionally, some residents choose to supplement their income by moonlighting or taking on a second job, which can help accelerate loan repayment. However, it is important to carefully consider the policies of the residency program regarding moonlighting and the potential impact on performance measures.
Seeking Professional Advice
Finally, residents should not hesitate to seek professional financial advice. A financial planner can provide personalised guidance based on an individual's unique circumstances, goals, and future income prospects. They can assist in navigating complex repayment options, budgeting, and investing decisions, ensuring residents make informed choices about their financial future.
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Frequently asked questions
You can choose to either make payments during residency or postpone them. If you decide to make payments, you can choose to make voluntary payments while enrolled in a mandatory residency forbearance or pay off the loan early without penalty. If you decide to postpone payments, you can apply for a mandatory residency forbearance, which is approved in annual increments.
Paying on your loans during residency can help you save money over time by keeping your interest from adding up too quickly. Additionally, if you are pursuing forgiveness via the Public Service Loan Forgiveness (PSLF) program, making payments during residency can help you maximize student loan forgiveness.
Postponing payment may be more realistic depending on personal priorities, responsibilities, and the flexibility of the repayment plans available to you. Additionally, medical/dental residents qualify for mandatory forbearance while in residency, which allows you to postpone payments without penalty.
Here are some strategies to consider:
- Consolidate all your federal student loans at the beginning of residency into one federal Direct Loan.
- Consider refinancing your student loans to take advantage of lower interest rates.
- Choose the right student loan repayment program, such as the new Saving on a Valuable Education (SAVE) plan, which offers lower monthly payments and changes the way interest accrues.
- Set aside a small portion of your earnings in a savings account, even if you are postponing payments.
- Consider moonlighting to earn extra income during residency, but check with your program about moonlighting eligibility.
