Repaying medical student loans is a tough pill to swallow.
You're likely earning little income as a resident to repay your student debts each month. As a practicing physician, your debt is likely to be much higher compared to when you managed to graduate.
Luckily, there are debt-management options available, including income-driven payments and medical school debt forgiveness.
If you're feeling overwhelmed by your student debts, here are some tips to simplify repaying your medical school loans.
1. Pay Medical School Loans While You're In Residency
While in school, your medical school loans collect interest, and you'll typically start repaying them six months from graduation.
It is viable to defer repaying student loans while completing fellowship or residency, but this will come at a cost.
During times of forbearance and deferment, interest accumulates, raising your total sum.
Make at least half-payments while on residency to save money on interest, and only utilize deferment or forbearance as the very last choice.
Registering for an income-driven payment method is helpful if you can't manage to make entire payments while on residency.
2. Change To A Payment Plan Based On Your Income
For people who cannot afford full payments, an income-driven payment method is the best alternative.
There are various income-driven payment programs that limit repayments at the percentage of a physician's salary, extend the payback duration to around 25 years, and forgive any residual amount at the close of the payment period.
When it comes to paying off medical school debt, many physicians opt for REPAYE (Revised Pay As You Earn) or PAYE.
On an income-driven program, monthly payments might be significantly lower.
If you had no dependents and earned $57,191 per year, the average salary for first-year residents in 2019, based on data collected, would be $320 every month.
The disadvantage when it comes to income-driven payments is a practitioner’s monthly payment won’t be able to cover all the interest that accumulates, resulting in a rise in your overall loan balance.
REPAYE compensates for this by offering one-of-a-kind partial interest subsidies, which waivers half the unpaid interest.
Note that payments will rise in tandem with your salary, so you might grow beyond an income-driven payment method as you progress in your career.
Your monthly payment on REPAYE, as an example, could be more under the typical 10-year loan repayment plan.
3. Loan Forgiveness As An Alternative
There are various medical school loan forgiveness schemes, like the public service student loan forgiveness schemes offered to practitioners who are ready to work for the state or in underprivileged areas for a length of time.
If your professional ambitions coincide with the requirements of such a program, loan forgiveness may be a viable option.
You can combine debt forgiveness for medical practitioners with an additional repayment option to build up the amount forgiven, based on whether you currently have federal or private student loans.
4. Refinance And Save Money On Interest
For physicians who want to quickly pay off their medical school debt, loan refinancing is usually the best choice.
You might save a fortune in interest if you can secure a cheaper rate.
Physicians are usually perfect candidates from the perspective of loan refinancing lenders.
A high monthly income and good credit can make you qualify for the lowest rates.
You may choose to refinance your medical school debts during your residency or even after your residency.
You'll be able to pay as low as $100 per month if you refinance during residency.
However, those modest monthly payments will not be sufficient to pay off the interest while it accumulates, resulting in a rise in the amount owed.
Ensure you're okay passing up income-driven payments and loan forgiveness before refinancing, whether as a resident or an attending physician because those two federal programs do not apply to refinanced loans.
5. Live As If You're A Resident
After schooling and training as a medical student, you'll finally be able to enjoy the financial rewards of your profession as a general practitioner.
You'll likely have more income to save, invest, and pay off your medical school loans if you decide to live your life as if you were a resident for several extra years.
If you want to pay off your medical school debts faster, making extra payments may be an option.
But first, prioritize your other financial objectives, such as:
- Putting aside a $500 emergency fund, preferably to take care of at least three months’ living costs.
- Earn a 401(k) match from your employer by funding your retirement plan.
- Getting rid of other high-interest loans, and paying off credit cards.
- Making mortgage and car payments.
- Consider compound interest investments.
The Period It Takes To Get Out Of Debt From Medical School
The time it takes to pay off medical school loans is determined by your repayment method.
Seeking loan forgiveness, for instance, will need 10 years of payments, but income-driven programs might take up to 25 years.
Based on a survey conducted by an employment firm in 2019, 35% of physicians paid their loans in less than 5 years.
Refinancing medical student loans and making additional payments was the strategy they used to accomplish this.
The majority of doctors with outstanding debts estimated repayment to take a minimum of ten years.
There are no penalties for paying student loans earlier than usual, and many doctors prefer to pay off their medical student loans quickly.
Keeping your medical school loan repayment, a high priority can save you years.
You'll also save big bucks avoiding accumulating interest.
Although managing your student loan payments may appear time-consuming, your bank account will be grateful in the long haul.
It may seem like a lifetime until you can pay off your medical student loans, which for most, may often extend into six figures.
However, there are several options for repaying such debts on a schedule that suits you.
If you're having trouble repaying your medical student loans, look into all your choices.
A loan servicer can provide you with an analysis of all the possibilities available if need be.