Paying for Medical School: Loan and Repayment Options

FT Contributor
A folder with money sticking out of it lies next to a pen and under a stethoscope.
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Acceptance to medical school is an incredible accomplishment and one that takes enormous time and effort. There are many high-paying careers in medicine, but medical school itself is expensive. The average cost of medical school at an in-state private school is over $60,000 per year for tuition, fees, and health insurance. It’s enough to make you wonder whether medical school is worth the cost.

Thankfully, there are student loans to help, and they are a popular way to pay for medical school. Read on to discover some of the factors you should consider before choosing the right loan and repayment options for your medical school education.

Medical Student Loans

There are several types of loans to consider for your medical school career. These include federal loans, private loans, and residency and relocation loans.

Federal Loans for Medical School

All students are encouraged to apply for financial aid via the FAFSA, or the Free Application for Federal Student Aid. Filling out your FAFSA is necessary to be eligible for any federal student loans. Federal loan interest rates are determined on a year-to-year basis and are different for different types of loans, including:

Direct unsubsidized loans, or Direct Stafford Loans, are popular for low, fixed-rate interest, but your debt will accumulate interest as you go through medical school.

A Direct PLUS Loan is also unsubsidized and is an additional loan that you or your parents can receive to pay for any costs not covered by your other loans.

You could also qualify for program-specific aid, such as the Primary Care Loan for aspiring primary care doctors.

Private Medical School Loans

Federal loans are not the only kind of loan you can use to pay for school —  private loans are another option for medical students.

Sallie Mae and Wells Fargo are popular private lenders, but a private medical school loan could come from any bank, credit union, or even an online lender. Because of this, these loans tend to have more of a profit-forward mentality, offering higher interest rates with more stringent repayment terms. Fewer than 8% of student loans are private loans.

Private student loans also have different eligibility requirements. While federal student loans are need-based, private loans will look at factors such as credit score and employment history to determine your creditworthiness. A higher credit score could help you qualify for a lower interest rate. A credit score that’s too low may mean private lenders won’t lend to you at all.

Residency and Relocation Medical School Loans

Residency and relocation loans are privately funded loans for fourth-year medical students. This is a kind of personal loan that not only covers your board exam fees and travel expenses, but will also pay your moving expenses once you are assigned to a program.

These loans are given by private lenders, meaning that things like credit score and ability to repay your loan are important factors for determining eligibility and rates.

How Much Can You Borrow for Medical School?

While your school may determine which loans you can receive, there are also limits on how much you can borrow through subsidized and unsubsidized loans each academic year.

The total amount is calculated based on what year you are in school and whether you are dependent or independent. Graduate and professional students do not qualify as dependents, so you could receive up to $138,500 total in student loans for your entire schooling.

Once you receive $138,500 in loans, you are no longer able to receive any additional aid, but, much like credit card debt, you can make payments to reduce your total loan amount, and then you could qualify for additional loans if you need them.

There are also programs for students studying a healthcare profession that may allow you to exceed this loan limit. However, they vary from program to program, so you should contact your school’s financial aid office for more information.

How Much Should You Borrow for Medical School?

When it comes to determining how much you should borrow, there are federal limits set for medical students, but it is also essential to consider the total amount of debt you take on. It is easy to get caught up in the pressing needs of tuition coming due, but you should also take care not to bury yourself in debt you cannot repay.

As you’re thinking about the amount of student debt you should take on, consider your possible future earnings and weigh them against your monthly payments according to a variety of repayment plans.

Don’t forget about the 50/30/20 rule. You’ll want to spend only 50% of your income on needs, which includes unavoidable monthly student loan payments. Twenty percent of your surplus income can be placed into savings or used to pay down your debt even more quickly, saving you money on interest payments in the long run.

How to Pay Off Medical School Debt

For many students, student loans are an unavoidable part of medical school, but there are some smart tactics you can employ to get rid of your student loan debt faster.

Some loans will allow deferment, where you can postpone your loan payments until after you graduate. It certainly allows for more stress-free studying, but it can also mean enormous debt when you do graduate. Even though you may not have payments due, the total loan still accumulates interest during deferment and forbearance.

One way to tackle your payments is to enroll in an income-driven repayment plan. Instead of a standard plan that assesses payments based on your total debt over a 10-year term, an income-driven plan considers your monthly income and then determines your payments based on that. It means more affordable payments each month, so your debt is more manageable, but it can also mean more interest and more payments over time.

There is also a graduated repayment plan which grows with you. The payments begin low with affordability in mind, and over time, the payments slowly increase. This allows you a chance to get settled into your new career and start making a higher income before those larger payments come due.

The most important thing is never to overextend yourself with large amounts of debt that you cannot repay. A career in medicine can be very lucrative, but it may be some time until you start earning higher salaries, and your debt will not wait.

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