Most doctors, especially those graduating in recent years, take on a large amount of debt to finance their medical school tuition. According to the Association of American Medical Colleges, 75 percent of medical students in the class of 2018 carry student loan debt, with an average balance of $196,520. These numbers combine loans from undergraduate degrees, medical school, and other forms of higher education. Repayment on this debt, based on an average 6.25 percent interest rate and a ten-year repayment plan, will calculate to $2,212 per month, according to an article by Teddy Nykiel at NerdWallet.
A $2,212 payment likely comprises a significant portion of your financial puzzle, even if you’re bringing in a healthy income. While paying off student loans is a headache, it doesn’t have to be a heartbreaker. A career in medicine comes with all kinds of stressors: physical, emotional, mental, and financial. Eliminating student loan debt can help with several of those stress-inducing factors. With those numbers in mind, consider these eleven strategies for tackling your medical school debt as efficiently and cost-effectively as possible.
1.0 Trim Costs & Maximize Financial Aid from the Beginning
The American Association of Medical Colleges suggests that starting in the application process, trim unnecessary costs. Target specific schools during the application process and once you’ve been accepted to a program, reduce costs and travel expenses by ruling out other schools. Apply for scholarships and other financial assistance programs. Check out schools that offer generous financial aid packages.
2.0 Don't Defer Your Medical Student Loan
If you’re still in residency, if you can afford it, don’t defer loan repayments. Yes, you have the option of deferring payment until you’re in a permanent position post-residency, but remember that loan interest will accrue during deferment, which adds to the overall cost of the loan. Student Loan Hero recommends making payments to stay on top of the interest on your loans as a minimum. Even though you won’t be eliminating the principal, you’ll at least avoid adding to it with accumulated interest.
3.0 Consider Options to Refinance Medical School Debt
Several lenders offer options specifically for medical residents, as well as options post-residency. A few factors when determining if refinancing is a good option: remember that refinancing means you might give up federal loan benefits, including the option for income-based repayment. If your debt is a mix of federal and private loans, you may want to only refinance the private loans, keeping federal loan benefits intact. You may be able to refinance while in residency and qualify for another refinance post-residency. An income-driven refinancing option may be a good choice: both PAYE (Pay As You Earn) an REPAYE (Revised Pay As You Earn) are income-based repayment schedules.
If you decide to refinance, you can significantly reduce the amount you pay over the life of the loans. Elyssa Kirkham details an example in an article for Student Loan Hero: say your debt is $164,800 (based on the 2016 average). If you can refinance from 6 percent interest down to 4 percent, you’ll reduce your monthly payment from $1,830 to $1,669, a savings of $161 per month and a lifetime savings of $19,332. As your income increases post-residency, you may be able to qualify for lower interest rates.
4.0 Look into Medical Loan Consolidation
By consolidating your debt into one monthly payment, you can stay on top of your debt payments and perhaps save some interest costs in the process. Additionally, an article for Student Loan Hero explains that by consolidating loans, you may be able to release the obligation of any co-signers from the original loans. Consolidation is an option if you’ve got good credit and a healthy income stream.
5.0 Determine if you Qualify for a Loan Forgiveness Program
If your income is low relative to your loan debt, the Public Service Loan Forgiveness Program(PSLF) may be a fit to reduce your loan debt. To receive assistance from PSLF, you must work full-time for a government agency or qualifying non-profit, make 120 income-based loan repayments, and have Direct Loans (or other federal student loans). Dr. Karla Smith paid off $100,000 in medical school debt in four years as she worked for a rural health program run by the Office of Rural Health in North Carolina. She notes:
"When you’re looking at six figures of debt, you want to put a dent in that debt as soon as possible. If you [get a job at] a loan repayment site working for the government, you can receive help paying off your loans, all while practicing medicine with challenging patients. I think [a loan repayment site] can be a good place for a new doctor to start right out of school, because it can make them more prepared for private practice. The work is so challenging, it just makes anything else feel a little easier."
6.0 Make Extra Payments on Your Medical Student Loan Balance (Once you can afford it)
Sure, if you’re just out of residency, making extra payments might be a stretch. But if you’re a bit more established in your career and making more money, throw an additional chunk of change toward your loans each month. The discipline of paying ahead can shorten the overall life of the loan repayment, resulting in a lower total over time. Consider the rate of return on that extra money: is it better used for new golf clubs, a new car, or a vacation, or are you better off in the long-run to decrease your loan balance, save interest costs, and shorten the life of your loan? Simple sacrifices early in your career can pay handsome dividends later.
7.0 Live Modestly & Within (or below) Your Means
When your paychecks increase, it can be tempting (and often natural) to increase your spending. However, think long-term: if you challenge yourself to live like a resident even when you’re an attending physician making more money, you’ll have the extra cash to pay toward loans, or, at minimum, you won’t feel the financial crunch of loan payments quite as significantly. An ophthalmologist in New Jersey says: “I wouldn’t go buy the most expensive car; I’m not going to buy a Ferrari. At this point, I’m not going to buy a house or anything. I wouldn’t go out and eat at nice restaurants every night. I’m just trying to live a modest lifestyle, so I have a one-bedroom apartment, the most modest I could find in the area where my work is, things like that.
8.0 Use Your Signing Bonus to Pay Down Debt
The 2017 Physician Placement Report from the Medicus Firm notes that 90 percent of physicians received a signing bonus, a figure that averaged just under $25,000 in 2016. In an example from Student Loan Hero, if you applied a lump-sum of $25,000 to a debt of $164,800 at the beginning of your 10-year repayment period, your payment period would be shortened by two years, saving you nearly $18,000 in interest. You would be wise to use this strategy any time you have additional cash flow: rather than spend cash windfalls, use them to reduce the principal on your debt. Sure, you’ll make a few sacrifices now, but you’ll appreciate the interest savings and the shortened repayment time-frame.
9.0 Stick to a Sound Financial Plan with a Trusted Financial Advisor
In order to pay down medical school debt, commit to a consistent plan. The American Association of Medical Colleges suggests that taking a realistic interest in your debt, rather than an attitude of avoidance, will help you pay off the debt and enjoy life --- within your means. Take advantage of financial counseling while in school and upon graduation.
10.0 Consider Military Service
According to an article on Student Loan Hero, several branches of the military offer assistance in repaying student loans. The Army offers several options, from financial assistance during residency to grants toward medical school debt. The Navy offers a range of assistance programs for residents, including stipends for living expenses. Substantial signing bonuses are available for Navy service members. The Air Force program provides scholarships for medical students as well as loan repayment options.
11.0 Level-Up Your Financial Literacy
Take advantage of financial literacy trainings offered by your school. According to the American Association of Medical Colleges, many schools offer and even require counseling at the beginning of medical school and prior to graduation. The AAMC provides a calculator to run loan repayment scenarios.
The investment, financially and otherwise, in your medical career is one that pays off --- eventually. Whatever you loan balance, the key is building and sticking to a plan to repay the debt as efficiently as possible. You’ll eliminate the debt faster if you apply extra lump-sums of cash to the balance or consider the refinancing options available to you. Work with a financial professional who can help you calculate the costs and returns on different options available to you.
A lot of people --- doctors included --- assume that all doctors, even new ones, rake in boatloads of cash from the get-go. By changing your mentality, living within your means, and making additional payments, you can free yourself from medical school debt.