A New Doctor’s Guide to Paying Off Medical School Debt
October 13, 2016
It’s no secret that medical school is costly — in 2015, the average new medical school graduate had accumulated around $180,000 in debt. Including interest, this number inflates even further.
The average interest rate of a Direct Stafford loan is 6.8%, and if you graduate with the average amount of debt and choose a ten year term, that original $180,000 could turn into $250,000.
Luckily, there are several options to decrease your payments and interest rates, and maybe even eliminate your debt altogether. Keep reading for tips on paying off your medical school debt:
1. See if You Qualify for a Student Loan Forgiveness Program
After crunching the numbers and figuring out how much you owe, your next step should be finding out if you qualify for federal student loan forgiveness programs. Here are some programs to look into to help reduce your debt:
- Public Service Loan Forgiveness (PSLF): This program forgives the remaining balance of your federal loans after 120 monthly payments while working full-time for certain employers. To qualify, you are required to work for one of three types of employers: a government organization, a non-profit organization that is tax-exempt under Section 501(c)(3), or other types of non-proft organizations that provide certain types of public services.
- Income-Driven Repayment Plans: If you feel like your monthly payments are disproportionate to your income, consider an income-driven repayment plan like PAYE, REPAYE, IBR, or ICR. These plans base your monthly payment on a percentage of your income, making payments more affordable.
- Deferment and Forbearance: With these plans, you may be able to postpone your federal student loan payments, which can be ideal for residents. However, keep in mind that while the payments are postponed, interest is still being accrued.
Also, there are other student loan forgiveness programs by your state. Check out this website for more information and programs you may qualify for.
2. Refinance Your Loans
If you have multiple loans, refinancing and consolidating your loans might be beneficial. This is especially helpful if you have private loans — refinancing can significantly lower your interest rates and save you money.
However, acknowledge that you must have a good credit score to qualify for these options.
3. Get a Signing Bonus
Healthcare careers may come with large signing bonuses when you accept a job offer. If you opt to join a health system or practice after residency instead of setting up your own practice, employers offer incentives if you come work for them.
The average signing bonus in 2015 was around $20,000, and if you put the entire sum toward your debt, it is a great way to get a head start on paying off your loans.
4. Live Modestly
According to Jim Dahle of The White Coat Investor, one of the biggest mistakes new physicians make is growing into their income too fast. He recommends “living like a resident” for the first few years post-residency.
Try to live a lifestyle similar to that of when you were a resident instead of buying that brand new car or a dream home. This way, you’ll have extra money to pay off your loans.
With the high salaries that come with medical jobs, many students think they will have no problems paying off their loans. However, going to medical school carries a hefty price tag, and experts recommend that you pay off your loans as soon as you can to avoid the large interest payments that come with them.
Qualifying for a federal forgiveness program, refinancing your loans, getting a signing bonus, and continuing to live on a budget after residency are ways you can decrease your debt and pay off your loan as soon as possible.