Medical

A Beginner’s Guide to Paying For Medical School

You got into medical school! Now how do you pay for it? You already sold a kidney and your grandma disinherited you after your last arrest. What options are left?

In this guide, I’ll provide a rundown of some basic options for funding medical school. This subject is very complex and my guide won’t be 100% comprehensive, but it’ll be a good starting point. As you prepare to matriculate, work with your school’s financial aid office to explore these and other options.

There are several options for funding medical school:

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  1. Cash (your own money)
  2. Scholarships and grants (other people’s money)
  3. Loans (other people’s money that you’ll have to pay back someday)
  4. Service programs (everybody’s money that you pay back with years of your life)

But first things first: the Free Application for Federal Student Aid (FAFSA).

The FAFSA

My wife says if you aren’t familiar with the FAFSA, you should talk to your mom because she’s been filling it out for you every year. Filling it out is the first step to securing financial aid. It’s super annoying to fill out for the first time, so you should block out like six hours and have your parents on speed dial because you’re going to need all sorts of info including their SSN, income, assets, dependents, shoe size, BMI, MELD score, and whether they know all the words to “Ice, Ice Baby”. (Hopefully your mom already filled this out once for you in the past, so all you need to do is update it with last year’s tax numbers.)

By the way, current law makes professional students “independent”, meaning their parents’ income and favorite color aren’t used when determining eligibility for federal loans. However, many schools do consider parental information when deciding whether to award institutional aid.

After you submit the FAFSA and any additional paperwork your school gives you, you’ll receive an award package. This will include a letter from the Department of Education stating which loans/grants you’re qualified to receive. In addition, it’ll contain information on any other sources of financial aid that are being offered to you. You’ll work with your financial aid office to accept the package and secure loan money. This brings us to…

The Funding

1. Cash Pretty self-explanatory. If you’re independently wealthy from your Russia-based software piracy ring, you can always cut checks directly to your school. Schools may also accept rolls of $20 bills (contact the cashier’s office to confirm).

2. Scholarships and grants – Scholarships and grants are often confused with one another, but they are different. Grants are most often from public funding sources (although they can also come from private groups and institutions) and are generally awarded on basis of need. Scholarships are more often merit-based (sometimes with a need component) and derived from non-public sources.

Too many scholarship and grant opportunities exist for me to discuss them specifically in this guide. Accepted students should research available funding sources themselves, as well as with their schools’ financial aid offices. As part of my preparation to matriculate, my school’s financial aid office sent me a packet to fill out. Later, they returned with an award package containing a mix of scholarships and grants that helped defray some of my costs. You can click here to find a list of outside scholarships for medical students compiled by the UC Irvine financial aid office.

3. Loans

Federal Loans – There are two main types of federal loans for medical students: Unsubsidized Direct (Stafford) loans and Grad PLUS loans. Students with “exceptional” need may also qualify for Perkins loans. (Note that Congress sets the terms of these loans annually, and the numbers contained in this section are valid for the 2017-18 academic year.)

Unsubsidized Stafford loans (Unsubsidized Direct loans) – These are fixed-rate loans, and med students may borrow up to $40,500 each year and $224,000 in their lifetime (including any Stafford loans used to finance undergrad). Interest begins accruing when the loans are disbursed, but it doesn’t capitalize until the loans enter repayment. The loans remain in deferment as long as you’re enrolled in school at least half-time. Afterward, you have a six-month grace period before repayment begins. The repayment period is 10 years. During residency, they can be put in forbearance; in this case, interest continues to accrue but payments aren’t required.

  • Origination fee: 1.066%
  • Interest rate: 6.00%
  • Grace period: 6 months
  • Repayment term: 10 years
  • Limits: $40,500 annually, $224,000 lifetime (including undergrad loans)

Grad PLUS loans (Direct PLUS loans) – These are fixed-rate loans used to cover the difference between your other sources of funding and the annual cost of attending your school. The annual cost of attendance is determined by your school and includes tuition and fees, books and supplies, room and board, transportation, and personal expenses. An adverse credit history can disqualify you from these loans. Interest begins accruing when your school receives the funds and capitalizes when the loan enters repayment. The timing of repayment is identical to that of Stafford loans.

  • Origination fee: 4.264%
  • Interest rate: 7.00%
  • Grace period: 6 months
  • Repayment term: 10 years
  • Limits: up to the full cost of attendance as determined by your school, minus any other financial aid received (including scholarships)

Perkins loans – These are federal loans with even more favorable terms than the two types listed above. They have the same repayment period, but a longer grace period and a lower interest rate.

  • Origination fee: none
  • Interest rate: 5.00%
  • Grace period: 9 months
  • Repayment term: 10 years
  • Limits: $8,000 annually, $60,000 lifetime (including undergrad loans)

Direct consolidated loan – After graduation, you can consolidate multiple federal loans to have a single fixed-rate, fixed-payment loan. The interest rate is the weighted average of the rates of the loans being consolidated, rounded up to the nearest 0.125%. The repayment period is anywhere from 10 to 30 years depending on the amount consolidated. $60,000 or more qualifies for 30-year repayment.

State loans – Some states offer medical school loan programs. Generally, you automatically apply for these programs by submitting your FAFSA.

Private loans – If you need additional funding beyond the sources listed above, you can always approach private lenders. These loans’ terms won’t be subject to the same regulations as the federal loans, but lenders tend to offer competitive repayment terms.

Institutional loans – Some schools also offer loans from their own monies. These are often “emergency” loans.

4. Service programs

Health Professions Scholarship ProgramThe most well-known public service program for medical school funding is the HPSP. The Army, Navy, and Air Force all participate in the program with some differences between the specifics (for example, the Army and Air Force offer scholarships for one to four years; the Navy only offers three- and four-year scholarships). During med school, students are commissioned O-1 reservists (i.e., Second Lieutenant for the Army and Air Force, Ensign for the Navy) and funded by their sponsoring service branch. Covered expenses include tuition, mandatory books and equipment, some fees, laptop rental, and a monthly stipend.

HPSP students must spend 45 days on active duty each year. This requirement is met during officer basic training between MS-1 and MS-2; for other years, it can be waived based on the student’s academic requirements. MS-3 and MS-4 students have the option to complete some clinical rotations at military hospitals, and they’re on active duty during those rotations (which means more pay!).

Upon graduation, students are promoted to O-3 (i.e., Captain in the Army and Air Force, Lieutenant in the Navy) and commence active duty. Students may complete their residency as an active duty service member at a military site. Alternatively, they may apply for a deferment so they can complete a civilian residency. Remember: the military owns your butt and doesn’t have to approve a request for deferment! Military physicians do not deploy during residency. And contrary to what that one misinformed premed doofus told you, the military does not dictate your specialty. You apply for what you want.

After residency, you begin your payback period. Without going into too much detail, payback duration is either the number of years of scholarship you took or the length of your residency minus intern year (assuming a military residency), whichever is longer. If you take a two-year scholarship and do a four-year residency, for example, your payback period will be three years (four-year residency minus intern year equals three). I don’t know about the Air Force and Navy (and don’t care to Google it right now), but I know the Army has a minimum two-year payback requirement.

Uniformed Services University of the Health Sciences (USUHS)Students who attend USUHS enjoy a tuition-free education with a military service commitment afterward. At the time of their interview, students rank the Army, Navy, Air Force, and Public Health Service, and accepted students are then assigned to one of those branches depending on the needs of each. Once they start school, students are commissioned as O-1’s on active duty, and they receive full active duty pay while in school (currently about $65K for O-1’s, $30K of which is tax-exempt). Upon graduating, students are advanced to O-3 and complete their residencies.

By attending USUHS, students incur a seven-year active duty service obligation (ADSO). After completing the ADSO, they may elect to remain in the military or separate. Those who serve fewer than ten years on active duty after residency will remain in the Individual Ready Reserve (IRR) two to six years after separating. Those in the IRR don’t have to drill or train, but they are subject to call-up by the President in event of an emergency.

NHSC Scholarship program – This program awards scholarships to medical (and other health professional) students in exchange for a commitment to provide care in underserved areas. It covers tuition, fees, and a living stipend. Participants repay their scholarship with a two- to four-year period providing primary care in a high-need health professional shortage area.

A couple final notes

Assuming you don’t run away to Canada or some other backwards country, you’ll eventually have to pay back any loans. I have a couple tips to make this less painful.

How to prioritize loans

People who don’t understand finance often think you should pay down the biggest loan first. This is not the best strategy! (The cake is a lie.) Pay down the one with the highest interest rate first, regardless of how large or small it may be.

Think of interest rates as the price tag to borrow money. If you have a 10% interest rate, the annual cost of borrowing $1 is 10¢; for a loan with a 2% interest rate, that cost is 2¢. That means each dollar in the 10% loan is five times as expensive as every dollar in the 2% loan.

Example: Suppose you borrow $1,000 at 10% and $10,000 at 2%. You don’t have any mandatory payment this year, but you do have $1,000 of money that you found hidden in your freezer. You have two options:

Option A: Put the money against the 10% loan. It’s paid off and accrues no interest. The other loan accrues $200 of interest ($10,000 x 2% = $200).

Option 2: Put the money against the 2% loan. Now the 10% loan will accrue $100 of interest ($1,000 x 10% = $100) and the 2% loan will accrue $180 of interest ($9,000 x 2% = $180). Total interest for the year is $280.

In this scenario, option A saves you money. This is true no matter what the actual numbers on your loans may be. Once more: you should always prioritize paying whichever loan has the highest interest rate.

Loan Consolidation

You can also consolidate many of your loans to simplify things. Suppose you get three loans from Lender A, then use Lender B to consolidate. Lender B will buy your loans from Lender A (by paying off everything you owe that lender), and now all your debt will be combined in a single loan from Lender B. It means simpler monthly payments, but more importantly, it gives you the option to change the terms of your repayment. And you don’t have to consolidate all of your loans if you don’t want to.

Here’s a practical example of how it works:

  • You have two loans with different interest rates from Lender A, and one loan from lender B. Then you decide to consolidate with Lender C.
  • Lender C says, “We’ll allow you to consolidate at interest rate X.” X is lower than the interest rate for your loan from B, as well as one of your loans from A.
  • You decide to consolidate the loan from B and the high-interest one from A.
  • Now you owe Lender C money, which is accruing interest at a lower rate than it would have in the original loans. And you also owe some money to Lender A, which has an even lower interest rate than your new consolidated loan.

When consolidating, you’ll be offered different terms of repayment: “A years at X interest, B years at Y interest, C years at Z interest.” A longer repayment term means lower monthly payments but a higher interest rate. (Again, think of interest rate as the price tag. If you want to tie up a lender’s money for ten years, they won’t charge you as steep an interest rate as if you want to tie it up for thirty years.) So pick a repayment term that’s aggressive so you can get a lower interest rate, but not so aggressive that the monthly payments become a hardship.

Find the original post of this article and further discussion in the Pre-Medical Forums.

M
Matt Sutton is a practicing anesthesiologist at a well-known US medical school. He earned his MD in 2009 and completed an anesthesiology residency in the US Army. After residency, he earned his MBA while continuing full-time clinical practice. If he had free time, he would probably enjoy fitness, mu... Matt Sutton is a practicing anesthesiologist at a well-known US medical school. He earned his MD in 2009 and completed an anesthesiology residency in ...