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How to Pay off Medical School Debt
Updated On September 11, 2022
Editorial Note: This content is based solely on the author's opinions and is not provided, approved, endorsed or reviewed by any financial institution or partner.
Paying off medical school debt can be daunting. The latest student loan debt statistics show that medical school graduates can have $175,000 of student loan debt. If you feel stressed about student loan repayment, you’re not alone. Many doctors face the same financial hurdle, even if practicing medicine is a lucrative profession.Here are the best ways how to pay off medical school debt:
- Enroll in an income-driven repayment plan
- Make extra student loan payments
- Explore student loan forgiveness
- Don’t defer your medical school student loans during residency
- Refinance medical school student loans
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1. Enroll in an income-driven repayment plan
An income-driven repayment plan helps doctors lower their monthly medical school loan payments. Income-driven repayment plans are best for doctors or residents who are struggling to pay student loans.There are four types of income-driven repayment plans:
- Income-Based Repayment (IBR)
- Pay As You Earn (PAYE)
- Revised Pay As You Earn (REPAYE)
- Income-Contingent Repayment (ICR)
The advantage of income-driven repayment plans are that you can lower your monthly payment for your federal student loans with an income-driven repayment plan. Monthly payments are based on discretionary income, family size and state of residence.The advantage of income-driven repayment plans are that you can lower your monthly payment for your federal student loans with an income-driven repayment plan. Monthly payments are based on discretionary income, family size and state of residence.
2. Make extra student loan payments
The advantage of income-driven repayment plans are that you can lower your monthly payment for your federal student loans with an income-driven repayment plan. Monthly payments are based on discretionary income, family size and state of residence.
This student loan payment calculator shows you how much you can save when you make an extra student loan payment for your medical school debt.
For example, let’s assume that you have $200,000 of medical school student loans, and an 8% interest rate and 10-year repayment term. If you pay an extra $200 each month, you would save $11,106 total and pay off your student loans 1.08 years earlier.
3. Explore student loan forgiveness
If you work as a doctor in public service or for a non-profit, you may qualify for student loan forgiveness or student loan repayment assistance programs.
The Public Service Loan Forgiveness program offers student loan forgiveness after 120 monthly payments if you work full-time for a qualified non-profit or a public service employer. The advantage of public service loan forgiveness is that you can receive federal student loan forgiveness after 10 years of qualifying payments. The disadvantage is that you may earn a lower income during this period compared to working in private practice, for example.
There also may be other opportunities for student loan forgiveness from state governments, medical organizations and other foundations and non-profits. If you don’t work in public service, you can still receive student loan forgiveness for your federal student loans for medical school after 25 years of monthly payments. Importantly, you would income tax on the amount of student loan debt that is forgiven. In contrast, if you get student loan forgiveness through public service loan forgiveness, there is no income tax liability.
4. Don’t defer medical school debt during residency
Many residents decide to defer medical school debt during residency. Specifically, they choose to defer federal student loan payments, which pauses student loan payments. Why? The goal of deferment is to save money each month. This can be especially helpful if your salary is relatively low, which is the case for most residents.
However, unsubsidized medical school debt still accrues interest, which can grow your student loan balance. If you have $200,000 of medical school debt and defer your student loan payments for three years, you could owe more than $30,000 of additional student loan interest.
Ideally, even if your salary is low, try to make student loan payments at least to cover the accrued interest.
5. Refinance medical school student loans
Student loan refinancing can save you tens of thousands of dollars on your student loans. For medical school debt, there are two challenges: a high interest rate and a high student loan balance. Student loan refinancing can get you a lower interest rate, which can lower your monthly payment and limit the amount of interest that accrues.
You can refinance student loans when you are a practicing physician. Alternatively, you can complete medical school refinancing as a resident or fellow. When you refinance federal student loans, you won’t have access to student loan forgiveness programs such as public service loan forgiveness or income-driven repayment. So, you should decide whether the amount of savings is worth the trade-off for you.
How much money can you save with student loan refinancing? This student loan refinancing calculator shows you how much money you can save.
For example, let’s assume you have $200,000 of student loan debt, a 7% interest rate and a 10-year repayment term. If you refinance medical school debt with a 3% interest rate, you can lower your monthly payment by $391 and save $46,915 total.
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