HOW TO BREAK FREE OF MEDICAL SCHOOL DEBT
Medical school costs are continuing to increase. If you’ve gone to medical school, you may have graduated with a pile of debt. For 2018 medical school graduates, the median medical school debt was $195,000!
That much debt is a huge financial burden, and if you’re a resident or fellow it can be hard to make a dent in it.
Debt can feel impossible to bounce back from and can cause you to feel stressed and overwhelmed.
So what now?
It is important for medical students, residents, fellows, and attending physicians to seriously consider their options for how they will pay back their student loans.
The median debt of $195,000 easily racks up over $10,000 in interest every year!
Check out these options that will help you deal with medical school debt repayment.
A repayment plan will help you tackle your student loans in the fastest and cheapest way possible, and help you feel less overwhelmed by repayment.
WHAT TYPE OF LOAN DO YOU HAVE?
There are many types of student loans, and each type can have different payback options. The first step is determining what type of student loans you have. This will help you to get a plan and decide what options are open to you.
These are loans that you take from the government. Federal loans are the most common type of student loans.
Most of the time they come with federal benefits like deferment, forbearance, and income-driven repayment.
These are loans you took from a private bank or lender. These types of loans don’t come with federal benefits; however, some lenders offer some benefits like pausing payments.
Private loans also do not qualify for federal loan forgiveness programs.
REPAYMENT PLAN OPTIONS
After you have determined what type of loan you have, you can start to look at your repayment options.
It is important to remember that these options differ for federal and private loans.
Federal Student Loan Repayment
For federal student loans, the standard term is ten years. If you extend the term on an income-driven repayment plan, you will have lower monthly payments.
Be careful though! You will pay more interest over the life of the loan.
Private Student Loan Repayment
Private student loan repayment terms can vary depending on what conditions you had initially.
If you refinance your loans, you will be able to decrease the amount of interest you will end up paying over time.
REPAYMENT PLAN STRATEGIES
When deciding your repayment plan, you need to ask yourself whether you want to
Minimize your monthly payment? or Minimize the total amount you pay?
If you are looking to minimize your monthly payment, the best option for you would be to use an income-driven repayment plan that would bring down the amount you pay monthly.
Income-driven repayment plans base your payments on the income you make per year and are usually in the range of 10-20% of your monthly income.
There are many options with income-driven repayment including:
PAYE: PAY AS YOU EARN
Available for Direct Loans Only, payments are based on your adjusted gross income, total federal student loan balance, and family size.
Your loans are eligible for forgiveness after 20 years of qualifying payments.
In order to be eligible, you need at least one Direct Loan that was disbursed on or after October 1, 2011, and you can't have a student loan that was disbursed prior to October 1, 2007, that had a remaining balance on that date.
REPAYE: REVISED PAY AS YOU EARN
For Direct Loans only, payments are calculated on your adjusted gross income, total eligible federal student loan balance, and family size.
You can qualify if you make qualifying payments for 25 years to graduate-level borrowers.
IBR: INCOME-BASED REPAYMENT
Available for both Federal Family Education Loan Program (FFELP) and Direct Loans, IBR bases your payment amount on your adjusted gross income, total indebtedness, and family size.
After 20 or 25 years your remaining loan balance is eligible for forgiveness.
ICR: INCOME-CONTINGENT REPAYMENT
Available for Direct Loans only, ICR payments are based on your adjusted gross income, total Direct Loan amount, and family size.
Your remaining loan balance is eligible for forgiveness after 25 years.
Income-driven repayment programs can be a great option during training when your standard monthly payment is a much higher percentage of your discretionary income than it will be later.
But remember that even though your monthly payments are lower, you’ll pay more in the long run.
The reduction in monthly payment can result in something called "negative amortization."
This is where your payments don't cover the interest, which causes your balance to grow even though you're paying every month.
Loan consolidation is where you combine all of your debt into one loan.
This simplifies your repayment since you have one monthly payment instead of multiple payments through different companies.
Federal student loans are eligible for government-backed consolidation, while you can consolidate private loans only through a private lender.
While loan consolidation may decrease your interest rate, it primarily focuses on getting your loans into one monthly payment.
Like loan consolidation, loan refinancing allows you to combine your loans. You take out a single new loan to pay off your existing loans.
Loan refinancing lets you look for a lower interest rate, which would save you money on interest payments. Both federal and private loans can be refinanced.
While loan refinancing can save you money if you have federal loans and refinance you will lose access to income-driven repayment plans and public service loan forgiveness.
In addition, the interest rates are based on your credit score so if your credit isn’t great, you may not get a better interest rate than available on your federal loans.
But if you have more than $10,000 in student loans and good credit, it can be worthwhile to check out your refinancing options.
When deciding what direction is best for you in repaying your medical school loans it is essential to look at your specific and current situation.
Be sure to get an assessment from an expert when deciding what your best choice is.
Or if you’re interested in learning more about refinancing, check out our refinancing calculator.