By Dave Rathmanner
Unless you’re one of those people who wins every scholarship you apply for, you’ve likely had to take out student loans to pay for your medical degree. In fact, if you’re like most doctors or medical students, you’ve likely had to take out many, many student loans. After all, according to the Association of American Medical Colleges, doctors graduate with an average of $190,694 in student debt.
That’s an overwhelming amount of debt to be carrying and, like most medical students or graduates, you’re likely worrying about your repayment. But despite having large amounts of student loan debt, most doctors don’t default on their student loans since their degrees allow them to earn high-paying salaries which make student debt easier to pay off.
But that doesn’t mean that doctors don’t sometimes struggle to repay their student debt. This is especially true for doctors at the beginning of their careers. After all, you graduate and immediately have to complete residencies and fellowships. These don’t pay well, and yet your student loan payments start 6 months after you graduate.
While there are income-driven repayment options for those who have federal student loans, private student loans don’t allow that flexibility. Which means that it can be a struggle to repay student debt and stay on top of rent early in your career. For many recent medical school graduates, that means living in cramped apartments or subsisting on the cup of soup you got out of the vending machine while you were on call. But there are some student loan repayment strategies for medical professionals that could make your repayment easier, faster, and cheaper.
1. Refinance your student loans
One of the downsides of student loans is that most people start taking them out soon after they turn 18. At that age, you haven’t had a chance to establish a credit history or credit score and you don’t make a lot of money if you have a part-time job. That makes you a big credit risk to private lenders and they’ll often charge you higher rates or require that you get a co-signer before they will offer you private loans. But once you graduate with your medical degree, you aren’t just older and wiser, you also likely have a better credit score and a higher income. For that reason, you can often refinance your student loans at a lower rate. That’s not just because interest rates might have gone down while you were in school. It’s also because you’re seen by lenders as more trustworthy and more likely to be able to repay your loan.
When you lower the interest rates on your loans, you can save money by paying less in interest over the life of the loans and you can also reduce your monthly payments. You can then decide to change the term length on your loan in order to reduce your monthly payments further, or reduce your payments that way if you don’t qualify to save on interest. Nowadays, there are even some lenders that offer student loan refinance options for medical residents that allow them to pay nominal amounts or put off their repayment until after they’re done with their residencies.
One thing to watch out for if you’re looking to refinance is the fees. Some refinance lenders will charge you an origination fee on your loan which increases the costs of refinancing, and others charge pre-payment fees which means that you’ll have to pay a penalty if you pay off your debt early.
You can refinance your federal and private student loans, but you only want to refinance your federal student loans if you don’t care about the extra benefits like forbearance, deferment, or income-based repayment programs that federal loans offer. That’s because you’ll lose those benefits when you refinance your loans with a private lender.
2. Make extra payments… or not
If you want to get out of student debt faster, you can try to make extra payments towards your debt. Since those extra payments will go towards the principal of your loan, it will reduce the amount you’ll pay in interest over the life of your loan and help you get out of debt more quickly. How much extra do you have to pay to make a difference? As little as $10, $50 or $100 extra per month can make a huge impact, but the more you pay in addition to your payment the more impact you’ll have.
Of course, you might decide not to try to repay your loans quickly and instead put that extra money towards your retirement plan. Many financial experts say that you’re more likely to get a better return on your money if you do that. That’s because stock markets have historically provided an averaged 6% to 7% return on investments. If you’re paying less than that in interest on your student loans then it makes sense to invest. One of the challenges that doctors face is that they start earning income and investing for retirement later than people in other professions, so your money has less time to grow. By getting started right out of medical school, you will help make up for lost time.
3. Student loan forgiveness programs
There are a lot of different kinds of student loan forgiveness programs available to doctors. For example, if you’re working in the public service, you could qualify for the Public Service Loan Forgiveness Program. There are also programs aimed at those in the military or those who work in research.
These programs will forgive part of your federal student loans after a certain number of years of service. Every program is different and forgives different amounts of your loans. Some will forgive them after ten years of service, while others forgive a portion each year you work in a qualified position. If you were planning on a career in these fields, then this is an added bonus that likely makes up for the cut in salary you’re taking to be there.
But does it make sense to choose your job in order to qualify for student loan forgiveness? It depends. In all likelihood, you would be able to make more money in another type of position—either by opening your own practice or by working for another employer. Of course, you might like more of a work/life balance or want to serve in the military. What it comes down to is what’s right for you—just make sure to do the math before you get swayed by student loan forgiveness programs.
4. Income-Driven Repayment Plans
If you have federal student loans, you can sign up for an income-driven repayment plan. There are a number of different options, but basically different programs like Income-Based Repayment, Income-Contingent Repayment, Pay As You Earn, and Revised Pay As You Earn allow you to pay between 10% to 20% of your discretionary income towards your student loans each month depending on the program. Also depending on the program, after 20 to 25 years of on time payments, your student loans are forgiven. Income-driven repayment plans allow you to save money on your monthly payments while you’re doing your residency and not making as much money. However, it could mean you pay more over the life of your loan since you’ll pay more in interest as you’re repaying your loans more slowly—at least initially while you’re not making as much income.
5. Medical school loan repayment assistance programs
Many states have medical school loan repayment assistance program for physicians who decide to practice in areas that are underserved. The amount that you get in benefit ranges depending on the state and where you live and practice. In Arizona, for example, you can get $65,000 in student loans forgiven if you commit to working in an underserved area for two years. You’ll also get an extra $35,000 in the third year and $25,000 in the fourth. Other states like Colorado give up to $90,000 for three years contracts. Here’s a database that lists what each state provides.
Other things you can do to repay your debt
While these are some great options to help you fast-track your student loan repayment and save money, there are a number of other things that could help you repay your student debt. For example, you might try to get a signing bonus from your employer that you could use as a lump sum payment towards your student debt. Or you might look for an employer who has a student loan repayment program to help you pay off your student debt.
Regardless of how you manage to pay off your student debt, it’s important to remember that though it feels overwhelming, it’s doable. Doctors have significant earning potential, and while it might keep you up at night when you think about how much money you owe, it’s critical that you remember that getting an education was an investment—and it’s one that’s likely going to pay off very well.
About the Author
Dave Rathmanner is the VP of Content for LendEDU – a site dedicated to helping consumers with their personal finances. In his free-time, you can find Dave working out, playing lacrosse, or dreaming about his next dog.