A Financial Planning Guide for Residency

For many, becoming a doctor and choosing a career helping others is an innate calling. For others, it may be a family tradition. Or for some, the lure of being at the forefront of medicine is irresistible. But whatever your motivation, becoming a skilled medical professional is expensive. To help you better navigate your finances during this exciting time, we’ve created a guide to help you plan and budget during residency.

Medical School Debt by the Numbers^[1]

Residency Budget

While the costs of applying to medical residency programs may appear almost insignificant in comparison to the total cost of your education over time, the overall cost of the process will vary widely. To help forecast associated costs and fees, keep in mind factors such as: potential specialty/specialties, number of applications submitted and programs ranked, and proximity to these programs, including travel to resident interviews and relocation.

To better understand how far you can stretch your dollar, there are several popular budgets you can use to help you organize your finances, or you can use the calculator below to gain more insight.

The 50/30/20 Plan: Allocate 50% of your income towards essentials such as housing, transportation, and groceries. Then, 30% can go towards discretionary items like entertainment and travel. Lastly, 20% should be set aside for financial goals such as saving for retirement or paying off debt.

The Debt Snowball Method: If you have multiple debts with different interest rates, start by paying off the debt with the highest interest rate first. Once that debt is paid off, you can focus on the next highest interest rate, and so on.

The Envelope System: This budgeting method involves setting aside cash for specific expenses like housing, transportation, and groceries. Once the cash for that category is gone, you cannot spend any more in that area. This can help you better stick to your budget.

The Zero-Sum Budget: To create a zero-sum budget, simply allocate every dollar of income towards a specific expense until your income is gone. This can help ensure that you do not overspend in any one area.

Learn more about creating a budget as a physician here.

Application Fees

Your most predictable costs are the application fees associated with the residency selection process.

• Electronic Residency Application Service (ERAS) streamlines the process for applicants, their Designated Dean’s Offices, Letter of Recommendation authors, and program directors. ERAS starts at $99 for up to 10 programs per specialty with fees increasing per application above 10. While you can submit for as many programs as you want, you will pay $19 per submission for applications 11-20, $23 for each for application 21-30, and $26 each for any applications of 31 or more.^[2]
• National Resident Matching Program (NRMP) matches medical school students to US-based graduate medical education training programs. The NRMP standard registration fee is $85 and covers the submission of up to 20 ranked programs and access to data and reports. Additional programs ranked are $30 per program.^[2]

Interviewing Expenses

Separate from the application fees are interview expenses, which can be more varied and are driven by specialty choice and geography. In fact, they can add up to the biggest cost of the residency process. AAMC estimates a median cost of $3,000 but says the total cost of interviewing can range from $600 to $24,000.^[3] When budgeting for residency interviews, you want to plan for transportation—don’t forget shuttles/cabs/ride-shares if you’re not driving to the destination yourself—as well as accommodations, appropriate dress, and meals.

To keep total costs down, you could:

• Group interviews so you only travel once to a centralized location
• Stay with friends or family in the area
• Coordinate travel with fellow students headed to the same area
• Leverage your alumni network or fraternity/sorority connections

Relocating

If you anticipate having to move for your residency match, start planning—and saving—early no matter whether you are headed across town or across the country. Moving costs can add up quickly, especially if you have to make several trips to secure housing, pick a roommate, and sign a lease. The summer is a busy time for movers, so get quotes from several companies and book in advance. To keep costs down, consider moving only what is essential as it can be cheaper to buy new items than pay to move them. If your mover charges by the hour, get yourself ready before they arrive. Box your possessions and break down the bigger items—like a dresser or bed—yourself. Also, don’t forget to ask what insurance requirements your building requires of your movers.

If you need help financing your move, or paying for other expenses, there may be personal loan options available for residents that can help you pay for relocation or interview expenses.

Congrats! You’ve Been Matched! Now What?

Now is the time to get your finances in order. With graduation in May, followed closely by move in and the start of residency, there will be less free time available for dealing with finances than you might think. So, what should you do?

Early Financial Considerations During Residency

1. Live like a resident. The average yearly salary for residents in 2022 was $64,200 according to a Medscape survey.^[4] So while there is the potential to make more in the future, you should budget based on your current financial situation. Set up a budget early, whether you use a budget app, a simple spreadsheet, or a budget method like the 50-30-20 budget. And as you progress in your medical career, here are some things every resident should know about lifestyle creep.

2. Get insurance. As a new doctor, you’ll want to consider getting life insurance and disability insurance for doctors even early in your career. Disability, life, and umbrella liability help preserve your investment in yourself, your assets, and your capacity to earn future income. To learn more about other financial tips for residents, click here.

3. Build an emergency fund. Since insurance can’t cover every eventuality, having a financial cushion, or “rainy day fund,” can help get you through any unexpected financial challenges. If you can start by saving a small amount each month, while how much you’ll need will vary, having emergency savings can give you peace of mind. Read more about how much doctors should save for an emergency fund here.

4. Save early for retirement. While it may seem far away, it’s never too early to start your retirement savings. If your employer provides retirement savings, consider these plans and take advantage of any employer-matching contributions.

Doing the Math: Student Loan Repayment

As you enter residency it is important to consider how you will pay back your student loans. First, you’ll want to understand all your repayment options, depending on if you have federal or private student loans. Let’s look at some of the main options for repaying your student loans, including direct consolidation loans, income-driven repayment, refinancing, and public service loan forgiveness.

Direct Consolidation Loan
Forbearance
Income-Driven Repayment (IDR)
Public Service Loan Forgiveness (PSLF)
Student Loan Refinancing
Repayment Strategy

Direct Consolidation Loan

Consolidation can help simplify repayment by combining two or more federal loans into one loan with one fixed interest rate. Depending on the types of federal loans you have, you may need to consolidate your loans to begin an income-driven repayment plan.

Keep in mind:

• New interest rate is based on the weighted average of the original loans’ rates
• Can extend loan period (terms are usually 10 to 30 years)

Forbearance

While not a form of repayment, forbearance allows you to temporarily postpone loan payments or reduce the amount you pay for up to 12 months at a time. There are two types, and both are short-term solutions:

• General forbearance or discretionary forbearance, in which your lender decides whether or not to grant forbearance
• Mandatory forbearance, which is only for direct loans and FFEL programs, in which as a medical resident, you are entitled to a forbearance in annual increments to postpone payments throughout residency. Learn more at studentaid.gov

Keep in mind:

• Interest typically still accrues during this time and is added to the principal loan amount, so, depending on your situation, it may not be the best option during training.

Income-Driven Repayment (IDR)

Income-driven repayment plans allow you to reduce monthly payment amounts for federal loans according to your income.

Keep in mind:

• Interest rates and terms are based on when you originally took out the loan and may not reflect your current financial situation and creditworthiness
• The monthly payment amount may increase as your income rises
• Amount forgiven may be taxable (unless forgiven through PSLF)

And if you’re going to pursue PSLF, you will need to enroll in an IDR plan.

Public Service Loan Forgiveness (PSLF)

Qualifying borrowers working in public or non-profit organizations can have their loans forgiven after 10 years of working in these sectors and making 120 payments on their direct loans.¹ Qualifying employers can include 501(c)(3) nonprofits, government agencies, and other not-for-profit organizations, qualifying medical schools and teaching hospitals, military service, public health, and public safety.

Keep in mind:

• The amount forgiven is not taxed
• Money saved needs to be balanced against income lost if you’re on the fence about public vs. private sector work
• It’s important to keep abreast of the U.S. Department of Education policies to ensure continued qualification under program guidelines

If you’re considering pursuing student loan forgiveness through PLSF or IDR, our Gradfin specialists can help you understand all your repayment options with a free consultation.

To learn more about your federal loan repayment options, including PSLF, check out our Guide to Federal Loan Repayment.

Student Loan Refinancing

Refinancing provides the opportunity to pay off your original student loans and obtain a new loan with different terms or a lower interest rate. For those in good financial standing, it can be an opportunity to save money over the life of the loan or simplify the repayment process.

Keep in mind:

• Unlike refinancing a mortgage, there are typically no costs associated with refinancing student loans
• Many lenders even offer online applications, so you can find out quickly if you qualify
• Remember, by refinancing your federal student loans you will lose federal benefits such as deferment and forbearance or access to repayment options like IDR and PSLF. For more information, visit studentloans.gov.

Learn more about your refinancing options and other private student loan repayment options with Laurel Road’s Guide to Student Loan Repayment.

Plan your student loan repayment strategy

There are several strategies you can explore which we’ve detailed below, but key factors to keep in mind are:

Repayment Strategies:

• If you are in deferment or *forbearance periods or still in school, consider making some sort of payment on the interest that is accruing on the costliest loans, particularly private in-school loans, federal unsubsidized loans, or Grad PLUS loans.
• Pay off higher interest rate loans first to save on interest.
• Eliminate the smallest balance to free up more money to tackle the next-largest balance.
• Make every effort to make on-time payments. A late payment may result in late fees and/or a negative hit to your credit score.
• Whatever you decide, do the math to ensure the plan makes financial sense.

Planning for Medical Residents: Bottom Line

Managing the cost of medical school debt can be challenging, especially during residency. Now that you understand the options, you can choose the best way to manage your debt and finances during training. If you’re looking to learn more about managing your finances as a resident, check out some of our financial resources for medical residents and fellows here.