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The Physician’s Guide to Manage Medical Student Loans

Published January 16, 2018


Student Loan Repayment

Anyone who’s had to deal with the Financial Aid office during undergrad knows that the student debt world is a confusing and intimidating place. Unfortunately, it’s much worse for postgrad physicians, residents & fellows. Below is a guide on how to manage medical student loans.

So what are your options?

Option 1: Procrastinate (The Loan Payment)

This has to do with a little something called Forbearance. Forbearance (also known as deferment) allows you to temporarily postpone loan payments or temporarily reduce the amount you pay. Forbearance allows the borrower to stop making payments or reduce monthly payments for up to 12 months.

Within that, there are two types of forbearance

Discretionary forbearance is when your lender decides whether to grant forbearance.

Mandatory forbearance occurs when you meet the eligibility criteria for forbearance and the lender is required to grant forbearance. Some eligibility criteria include:

  • Service in medical/dental internship or residency program (met with other specific requirements)
  • The total monthly amount the borrower owes for all of their loans is 20%+ of their total monthly gross income
  • The borrower is performing a teaching service that qualifies them for teacher loan forgiveness

Disadvantages of Procrastinating (the Loan Payment)

  • It is only a short-term solution
  • Unpaid, accrued interest is added to the principal loan amount
  • The borrower pays more over the lifetime of their loans
  • It is often difficult to qualify for forbearance
  • Forbearance is a short term solution, not a long term strategy

Option 2: Create the Super Loan

What is consolidation under the Federal program?

Upon graduation, students have the option of consolidating their federal loans. When a borrower consolidates their loans, they are combining their individual loans into one bigger loan from a single lender, which is then used to pay off the balances on the other loans. The loan consolidation process is irreversible.

Direct Consolidation Loans have fixed interest rates. The rate is based on the weighted average of the interest rates of the consolidated loans. Repayment terms range from 10-30 years depending on loan amount.

Disadvantages of Creating the Super Loan

While consolidation may help lower monthly payment and prove to be convenient, the borrowers should keep in mind that this loan may accrue more interest in the long term and that they may have reduced flexibility with repayment options. Another disadvantage is that when you consolidate with the federal government, they take the weighted average interested rate and round it up to the nearest eighth of a percent. It may not sound like much, but over time, it definitely adds up.

This program is only recommended if you need to reduce your payment, but are not eligible for income-based payment programs.



Your term length is inversely proportional to your standard payment amount, which is good. The longer the term length, the smaller the standard payments. The bad part is the interest paid over the life of the loan is significantly higher. The interest paid essentially doubles every 10 years.

Option 3: Plans Based on Your Income

What are Income-Driven Plans (IBR and PAYE)?

Income-driven plans adjust a borrower’s payments by reducing their monthly payment amounts according to their income. The payment amounts under income-driven plans are generally a portion of the borrower’s discretionary income. Repayment periods for all plans generally range from 20-25 years.

There are 2 main plans: Income-Based Repayment (IBR) and Pay As You Earn (PAYE)

  • IBR Payments = 10-15% of your discretionary income and forgives your loan after 25 years
  • PAYE payments = 10% of your discretionary income and forgives your loan after 20 years

Eligibility will depend on when you graduated and when your loans were disbursed

For all income-driven plans, any remaining loan balance is forgiven if the borrower’s federal student loans are not fully repaid at the end of the repayment period.

Disadvantages of Income-Based Plans

These are probably the best deal of the existing options so far, however, there are a few things to consider.

  1. Need low income to be eligible
  2. Over time interest accrues and you could end up paying more interest over time
  3. Amount forgiven is taxable
  4. Needs annual documentation of income which can be burdensome

Option 4: Be a Do Gooder

What is Public Service Loan Forgiveness?

Borrowers working in the public or non-profit sector can get their loans forgiven after 10 years of working in these sectors. If the borrower is employed in certain public service jobs and has made 120 payments on their direct loans, the remaining balance that they owe may be forgiven. Qualifying employment is any employment with a federal, state, or local government agency, entity, or organization or a not-for-profit organization that has been designated as tax-exempt by the IRS.

Disadvantages of the Do Good Path

This can save money for people with lower income jobs at not-for-profit institutions for a long period of time (e.g., a long residency or fellowship). Another advantage is that the amount forgiven is not taxed. One major factor when considering PSLF is that money saved need to be balanced against income lost.

Consider the following situation:

Gross Income $150,000
Total Debt $303,000
Term 10 yrs
Rate 7%
Standard Payment $3,518
Total Paid Over Life of Loan $422,170
Poverty Line for Family of 2 $15,730


Monthly Payment Total Paid Over Life of Loan
IBR Payment (15% Discretionary Income) $1,580 $189,608
PAYE Payment (10% Discretionary Income) $1,053 $126,405

PSLF and Income based payment: He could save $200,000 to $300,000. Is this worth taking a job that pays $100,000 less per year?

Option 5: Private Loans

What are Private Refinance Loans?

Refinance loans with private lenders that may allow you to lower your rate in exchange for giving up protections and benefits of Federal loans. Terms range from 5 to 20 years with fixed and variable options. Lenders will look for borrowers with high credit and high income. Borrowers who do not meet these credit criteria might need a co-signer and/or need to work for some time before refinancing.

Advantages of Private Loans

Borrowers can lower their rate by refinancing their medical student loans in the private sector, but in exchange, they give up Federal programs and protections.

The key factors to consider are: Rate, Term, and Fixed vs. Variable. As the borrower, you will need to balance low rates with terms and payments you are comfortable with.

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