According to the Association of American Medical Colleges, the median education debt for medical school graduates in 2019 was $200,000. Just two years earlier in 2017, they reported that 75% of medical students graduating in 2017 borrowed an average of over $170,000.
The fact is, medical school costs a LOT of money. So it’s only natural to assume those who put themselves through the rigor are going to need some type of support in terms of loans.
In this article, I’ll give you everything you need to know about getting medical student loans. From there, you can decide which options are the best for you.
How do medical student loans work, and what are the different types?
After you’ve exhausted scholarships and grants, it’s time to look into loans to pay for medical school. If you’re looking to get loans for medical school, I’d always start with Federal loans.
You should target Direct Subsidized Loans first, then Direct Unsubsidized. The key difference is that the government will pay your interest while you’re in school on a Direct Subsidized loan—versus interest beginning to accrue right away with Direct Unsubsidized.
Direct Subsidized Loans
Must have financial need
These loans are available to those who show a financial need. The latter, Direct Unsubsidized Loans, are given to individuals regardless of their financial status. Many may find that they qualify for a combination of both.
Interest rates are subject to change
Interest rates on Federal loans are preset by the government and can change periodically. On average, interest rates can vary between 4% and 8%. These fixed interest rates, as well as income-driven repayment plans, make these attractive loans for those who may be looking at upwards of $200,000 in debt at the end of their schooling.
If you’ve already taken advantage of the above loans to their maximum, then Direct Plus Graduate Student Loans may be your next option. These loans will often provide enough financial resource to bridge the gap and finish paying your medical education.
They offer the highest interest rates among Federal Loans so it’s best to research your options thoroughly. They also come with a credit check so if you have poor credit, look into the other options discussed below.
These are sometimes called Alternative Student Loans and they have both pros and cons and typically should be researched after Federal Loan options have been exhausted. While there are some key advantages you should research, there are drawbacks as well.
Your credit matters
Private Loans do check your credit, unlike many of the Federal Loan options. If you have excellent credit this will be advantageous as interest rates may be lower than the set Federal rates set by Congress.
Higher borrowing caps
Another advantage you will find with Private Loans, is there are higher borrowing caps. Federal Loans restrict the amount borrowed based on either undergraduate or graduate school and if you are attending a pricey school or perhaps are attending medical school, this type of loan will allow you to borrow up to 100% of the cost of attendance.
You’re ineligible for income-driven repayment
Serious drawbacks of private loans include that you are ineligible for income-driven repayment or federal forgiveness. As mentioned above, with Federal Loans, you can turn to income-driven repayment which could lower your monthly student loan payment to as little as 10% of your discretionary income.
With Private Loans, this is not an option. In addition, Private Loans are not eligible for Federal Forgiveness Programs. Additionally, while some lenders offer fixed interest rates many do not and you may find yourself with a variable interest rate.
Lastly, many federal student loans come with an interest subsidy. Assuming eligibility, the government will pay your interest while you’re in school or even in repayment. This could save you thousands on your debt.
Private loans do not offer this. Interest begins from day one. Some students will need a cosigner to be eligible for this loan.
Where can I find the best loans for medical school?
When you’re ready to apply for Federal student loans, use the Free Application for Federal Student Aid (FAFSA) each year you are in college or grad school. This will determine your eligibility for Federal Student Loans.
Once you’re ready to explore Private Loans, we have some recommendations. If you have excellent credit, compare your options below by using some of our favorite lenders—Ascent Loans, SoFi, and Credible.
If you’re pursuing medical degrees which include optometry, osteopathic, podiatric, veterinary medicine, and dentistry, Ascent can quickly (in 4 easy steps) help you with your student loans. There’s no application fee and checking your pre-qualified rates does not impact your credit score.
With Ascent, you can choose from either fixed or variable interest rates:
- Fixed Interest Rate graduate school loans are between 4.63% - 14.52%.
- Variable Interest Rate graduate school loans are between 1.62% - 10.98%.
Loan terms for variable rates include 5-year, 7-year, 10-year, 12-year, 15-year, or 20-year repayment terms; for fixed rates they include 7, 10 or 12-years. Ascent does not penalize you for early repayment.
SoFi provides medical student loan refinancing at a very competitive rate. While you can’t originate new loans with them, you can refinance any clunky old ones you’ve got.
You can choose from either fixed or variable interest rates:
- Fixed Interest Rate Loans – 3.12%–6.78% (includes autopay discount)
- Variable Interest Rate Loans – 2.38%–6.78% (includes autopay discount)
SoFi says that “you can refinance your federal and private student loans and reduce your payment to just $100/month for up to four years.” But one of the things we like best is that there’s no compounding interest during your residency.
Credible shops multiple private lenders to find rates for you. Rates will vary, and you’ll need to check the terms of any loan you choose. Credible offers a variety of different types of loans including personal loan rates starting at 4.49% APR (with AutoPay), See Terms*; student loan refinance rates starting at 2.43% APR (with AutoPay)* and 1.86% Var. APR (with AutoPay), See Terms*, and private student loan rates starting at 3.24% APR (with AutoPay)* and 0.94% Var. APR (with AutoPay), See Terms*.
One thing that makes Credible stand out is that the flexibility in the degree options. Lenders who provide quotes for Credible provide student loans for undergraduate and graduate degree types.
How else can I pay for medical student loans?
There are a few different types of loan repayment programs for medical school. According to Debt.org,
“the Standard 10-year Repayment Plan is by far the most popular plan with 11.37 million borrowers enrolled in 2017, but that doesn’t mean it is the best plan for you. This is the default plan. Borrowers are automatically enrolled in the Standard Repayment Plan unless they choose a different one.”
The standard program is where you just pay back around $2,000-$4,000 per month (depending on the size of your loan of course). With an average residency salary of about $60,000 a year, it’s just not possible.
Most people in residency will make an income-based loan repayment. And there are three different types of income-based loan repayment programs: Income-Based Repayment Plan (IBR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE).
Income-Based Repayment Plan and Pay As You Earn
Basically, the first two—Income-Based Repayment Plan and Pay As You Earn—are based on your income. After 20 years of paying on these loans at a specific rate, the government will forgive your loans. That’s an awesome deal.
These plans charge you 10% of your discretionary income as your payment. Discretionary income is considered the income you have after your key obligations—like your mortgage, utilities, and necessary bills—are paid. So whatever cash you have left for spending is your discretionary income. And the government will calculate 10% of that to conclude how you much you owe each month.
The government estimates this based on your tax forms from the previous year. Naturally, as you go on in your career, you’re assumed to earn more money, and so the payments will steadily rise. With these programs, though, there are limits to how much you’ll have to pay.
So, if after 20 years in these two programs you haven’t paid off all your medical loans, whatever is left will be forgiven by the government.
But here’s the kicker. Since your payments are going heavily toward interest and not the principal balance, whatever amount is left can be taxed.
So say after 20 years they forgive $50,000, but of that, you will get taxed that year saying your income is whatever it is, plus $50,000. Some people call this the tax bomb.
Revised Pay As You Earn
Revised Pay As You Earn is a modified pay-as-you-earn program. It’s only for those who took out loans prior to October 2007 and don’t qualify for Pay As You Earn, so most of you reading this don’t have to worry.
With Revised Pay As You Earn, the key difference is that you have to count spousal income, so whatever your joint income is, your payment will be 10% of that discretionary income.
With the newer programs, the payments will cap. But with Revised Pay As You Earn, there is no cap. So if you took out loans more than 10 years ago and have a large balance, you may end up getting stuck with a huge payment. In that case, I’d look to refinance.
If you’re looking to compare all three of these repayment programs in-depth, US News put together an easy-to-read comparison chart.
Public Service Loan Forgiveness Program
The Public Service Loan Forgiveness Program (PSLF) is another option if you work for public service or somewhere that’s government-run. If your employer qualifies, your residency will count toward this.
All you need to do is apply and be in the right loan repayment program. You also have to be part of a program or work with an employer that qualifies for Public Loan Service forgiveness. Every year after that you’ll have to submit the application to qualify.
The Office of the U.S. Department of Education has a full area of their website dedicated to PSLF, where you can learn more.
While not discussed explicitly in this article, it is important to research medical school specific loans that may assist you in your journey through medical school.
The Health Resources & Services Administration provides low-cost loans to medical students who meet certain criteria.
Mistakes to avoid when taking out medical school loans
While in medical school, you’ll be looking at a very large sum of student loans in most cases. This can become tricky since you may have never seen that much money before. So you have to proceed with caution when handling loans this big.
Here are some common mistakes to avoid when taking out medical student loans.
1. Using your loans to upgrade your lifestyle
Times can get tough during medical school. We have a friend who went through it and it’s exhausting and you get paid peanuts if anything. It’ll be tempting to tap into some of that cash you have lying around for your tuition to upgrade your lifestyle a little bit.
Don’t do it.
Strictly use the money for your loans and nothing else. You’ll be thankful you did once you get out of medical school and you have upwards of $300,000 to pay back.
2. Not doing your homework
Compare your options. Shop around. Consider fees and interest rates. Always research grant and scholarship options prior to seeking loans.
What might make sense for one person might make no sense for you. Don’t jump at the first option you have simply because it’ll help you pay for school. If you’re using the options I’ve outlined above, you will be presented with a multitude of lenders and loans to choose from. So take your time, do your homework, and pick the best loan for you.
3. Ignoring your credit score
Credit may be the last thing on your mind when it comes to medical school, but believe it or not, it can cost you a lot of money down the road. If you’ve ignored your credit up to this point, it’s time to start working on rebuilding it. If you have good credit, do everything you can to maintain that good credit score.
Let me give you an example of why this is so important. Let’s say you’re using SoFi to borrow $100,000. Borrower A might qualify for a 9% interest rate because their credit score is under 700. Borrower B might qualify for a 5% interest rate because their credit score is over 800. Same loan, same terms, just a different credit score.
How does this look after 20 years of repayment? Borrower A will pay about $115,932.50 in just interest over the life of the loan. Borrower B with the 800+ credit score, on the other hand, pays only $58,388.65 over the course of 20 years in interest.
Taking out loans for medical school is no small decision. Going through medical school itself will be taxing on your personal and work life, so adding hundreds of thousands of dollars in debt on top of that is enough reason for pause.
Think through all the ins and outs of applying for, and taking on, medical school debt before you sign anything. Hopefully, this article gave you everything you need to know to get started.