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Medical Student Loan Repayment

Published August 17, 2020

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Student Loan
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A medical education is one of the most expensive career paths there is, with arguably one of the most rewarding payoffs — becoming a medical professional.

Despite the rising costs, many hopeful physicians continue to seek out top medical programs, and should feel confident in doing so. However, the substantial stress of medical school debt means that these future care-givers need more help in managing the heavy financial burden that follows these rigorous years of training.

If you’re an aspiring medical professional, you’ve likely seen the numbers. According to the Association of American Medical Colleges (AAMC), 75% of the graduating class of 2018 reported leaving medical school with student loan debt. Across the country, the median level of medical school debt for each member of the class of 2018 was a staggering $200,000.

With graduation in May, a move in June, and residencies beginning in June/July, there will be less free time available for dealing with finances than you might think.

What should you do to prepare for residency?

  1. Get organized.

    Gather the records of all your debt, e.g., student loans, car payments, mortgage, personal loans, credit cards, etc., and keep them in one safe place. Be sure your records include balances, terms, payments, interest rates, and any other key information.

  2. Know what you owe.

    Familiarize yourself with the full picture of your debt so you can make informed financial decisions. This should encompass how much you owe, monthly payment due dates, and your current payoff dates, even if they are 10, 15, or 20 years away.

  3. Map your personal and professional goals.

    House, kids, private practice, lifestyle—include it all. Even if plans and circumstances change, thinking about where you want to go now will help you be better prepared for the future.

  4. Determine when and how you will be paid.

    Weekly, bi-weekly, or monthly – and if direct deposit is available, take advantage of it.

  5. Create—and stick to—a monthly budget.

    • Live like a resident on a resident’s salary – the average yearly salary for a resident is $59,300 according to a Medscape survey.1
    • Remember that location matters to total cost of living.
    • Don’t forget about retirement – it’s never too early to start saving for retirement. If your workplace provides retirement account plans—and almost all do—take advantage of them and any matching-funds options offered.
  6. Protect yourself with insurance.

    Disability, life (if you’re married and/or have children), and umbrella liability insurance coverage preserves your investment in yourself, your assets, and your capacity to earn future income.

  7. Establish an emergency savings fund.

    Since insurance can’t cover every eventuality, having a financial cushion could help get you through an unexpected challenge.

  8. Maximize your tax deductions.

    For example, you may be eligible to deduct up to $2,500 of student loan interest paid in a given year. There are some restrictions, though, so check the income requirements each tax year and consult a tax professional for more information.

  9. Set a loan repayment strategy.

    • Do the math to ensure your repayment plan makes financial sense.
    • If you are in a period of deferment or forbearance, 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 impact to your credit score.

Medical Student Loan Forgiveness Programs

Public Service Loan Forgiveness (PSLF)

Borrowers while working in public or non-profit organizations may have their loans forgiven after making 120 qualifying monthly payments under a qualifying repayment plan on their direct loans. Qualifying public service employment includes work in 501(c)(3) nonprofits, government agencies, and/or some other not-for-profit organizations, such as qualifying medical schools and teaching hospitals, employment with AmeriCorps or Peace Corps, military service, public health, and public safety.

Learn more about the PSLF Program to see whether you might qualify.

Key considerations:

  • The amount forgiven is not taxed.
  • Money saved needs to be balanced against income lost if taking a job that pays significantly less than private or for-profit sectors.
  • U.S. Department of Education policy for PSLF may change, so borrowers should monitor developments.

Medical Student Loan Repayment Assistance Programs by State

In certain states, the government offers funding to help physicians and doctors repay their medical school loans. For a comprehensive list of medical student loan repayment assistance programs by state, please visit the Association of American Medical Colleges (AAMC) website or this resource from Student Loan Hero that allows you to search by location and occupation.

The Best Ways to Repay Medical Student Loans

Direct Consolidation Loan

If you have federal student loans, a Direct Consolidation Loan can help simplify loan repayment. Consolidation combines two or more loans into a single loan with one fixed interest rate, which is based on the weighted average of the original loans’ rates. Repayment terms vary from 10 to 30 years.

Learn more about Direct Consolidation Loans

Key considerations:

Pros Cons
If you currently have federal student loans that are with different loan servicers, consolidation can greatly simplify loan repayment by giving you a single loan with just one monthly bill. Because consolidation usually increases the period of time you have to repay your loans, you will likely make more payments and pay more in interest than would be the case if you didn’t consolidate.
Consolidation can lower your monthly payment by giving you a longer period of time (up to 30 years) to repay your loans. When you consolidate your loans, any outstanding interest on the loans that you consolidate becomes part of the original principal balance on your consolidation loan, which means that interest may accrue on a higher principal balance than might have been the case if you had not consolidated.
If you consolidate loans other than Direct Loans, consolidation may give you access to additional income-driven repayment plan options and Public Service Loan Forgiveness (PSLF). (Direct Loans are from the William D. Ford Federal Direct Loan Program.) Consolidation may also cause you to lose certain borrower benefits—such as interest rate discounts, principal rebates, or some loan cancellation benefits—that are associated with your current loans.
You’ll be able to switch any variable-rate loans you have to a fixed interest rate. If you’re paying your current loans under an income-driven repayment plan, or if you’ve made qualifying payments toward Public Service Loan Forgiveness, consolidating your current loans will cause you to lose credit for any payments made toward income-driven repayment plan forgiveness or PSLF.

Income-driven Repayment Plans

Income-driven repayment plans allow you to reduce monthly payment amounts for federal loans according to your income. The payment amount is typically calculated as a percentage of your discretionary income, and is updated annually to account for changes in your income.

Learn more about Income-Driven Repayment

Plan Monthly Payments Repayment Period
Income-Contingent Repayment (ICR)

The lesser of the following:

  1. 20% of your discretionary income (and your spouse’s if filing taxes jointly) or
  2. the amount you would pay under a Standard Repayment Plan with a 12-year repayment period, adjusted using a formula that takes your income into account.
25 years
Income-Based Repayment (IBR)
  • 10% or 15% of your discretionary income (and your spouse’s if filing taxes jointly) depending on when you became a New Borrower2
  • Never more than the federal 10-year Standard Repayment Plan amount
20-25 years depending on when you became a New Borrower2
Pay as You Earn (PAYE)
  • 10% of your discretionary income (and your spouse’s if filing taxes jointly)
  • Never more than the federal 10-year Standard Repayment Plan amount
20 years
Revised Pay as You Earn (REPAYE)
  • 10% of your and your spouse’s discretionary income, regardless of filing status
  • Can be more than the federal 10-year Standard Repayment Plan amount
20 (undergraduate) or
25 (graduate) years

Note: These plans have different terms and conditions, and not all borrowers or all loan types qualify for all income-driven plans.

For the first three years of IBR, PAYE, and REPAYE income-driven repayment, the government pays the difference between your monthly payment amount and the remaining monthly interest that accrues on your subsidized loans when your monthly payment amount doesn’t cover the full amount of monthly interest due. Under REPAYE, the government also pays half of the difference on your subsidized loans after this three-year period and will pay half of the difference on your unsubsidized loans throughout the life of those loans.

Key considerations:

  • The monthly payment amount is recalculated each year and can increase as your income rises.
  • These plans offer some relief should your financial situation change for the worse during repayment.
  • Savings can be achieved if your student loans are forgiven; however, any amount forgiven is considered taxable income.

Medical Student Loan Refinancing

Refinancing provides the opportunity to pay off your original student loans by obtaining a new, consolidated loan with different repayment terms and a potentially lower interest rate. Each lender has its own criteria for determining eligibility and rates, such as your credit history, total monthly debt payments, and income. Those who are in good financial standing, demonstrate a strong career trajectory, have good credit scores, and have shown they are responsible with debts and monthly budgeting are more likely to be approved with a potentially lower interest rate.

Student loan refinancing could provide an opportunity for those who are looking to:

  • Consolidate their private and/or federal loans into a single loan at a lower interest rate
  • Save money over the life of their loans
  • Pay off their loans more quickly
  • Lower their monthly payments
  • Change from a fixed rate to a variable rate, or vice versa
  • Reduce the number of loans in repayment
  • Gain terms and rates based on their current financial situation and creditworthiness

Student Loan Refinancing: Questions to Ask Your Lender

Interest rates, fees, and terms
  • How is the interest rate calculated?
  • Is it a fixed or variable rate loan?
  • What are the terms of the loan?
  • What is the monthly payment?
Loan application process
  • Is there an online application?
  • Can rate options be checked instantly?
  • Is a co-signer required?
  • If a co-signer is needed, can the co-signer eventually be removed from the loan and what is the process?
Repaying student loan refinancing
  • When does repayment start?
  • Are deferment and forbearance options offered after graduation and during residency?
  • Are incentives offered for on-time or electronic payments?
  • Are there any pre-payment penalties?

To learn more about what Laurel Road offers, check out our FAQs

REPAYE vs. Student Loan Refinancing: Doing the Math

For residents it is important to consider how you will pay back your student loans, especially for those not pursuing PSLF. To make your monthly payments more manageable, you might consider an IDR plan like REPAYE—the newest option available—or refinancing with a company like Laurel Road, which offers special repayment options specifically tailored to residents.

A resident’s decision to REPAYE or refianance can be complex. On average, medical students enter their residency with about $200,000 in graduate school loans and an additional $25,000 in undergraduate loans. This means monthly payments in a standard student loan repayment plan would likely exceed $2,000—a tough pill to swallow when residents only earn around $5,000 a month.

The benefit of REPAYE while in residency is that monthly payments are based on your income, and not the potentially massive outstanding loan amount. With that same $5,000 a month salary, monthly student loan payments would be just under $350. After residency, however, that payment jumps significantly. For a doctor making $250,000 a year, monthly payments would be just under $2,000.

The other benefit to REPAYE is that the unpaid loan balance at the end of the term is forgiven. This is likely irrelevant as the higher monthly payments made after residency will likely cover the rest of the loan before the 25-year term is up.

Alternatively, Student Loan Refinancing with a company like like Laurel Road offers an opportunity for residents to pay lower monthly payments during training without having to enter into a longer term, potentially saving money on interest. During training, residents only pay $100 a month, which is applied to the interest that is accruing during this time. Afterwards, they begin paying full monthly payments for a similar term as their original loans, which are manageable given the higher earning potential. For our doctors, this might be around $2,700 a month for only 10 years, which is about half the time they’d be in REPAYE.

Single Doctor Repayment Example3

Student Loan Debt: $225,000
Residency: 3 years
Salary during training: $60,000
Salary after training: $250,000

APR Residency monthly payment Post-training monthly payment Number of payments Total amount paid
REPAYE 6.72% $344 $1927 252 $426,221
Refi 5% $100 $2706 156 $328,351

One thing to note if you’re married

REPAYE takes into account your domestic partner’s discretionary income regardless of whether you file your taxes together or separately. Plus, residents are responsible for their percentage of the total student loan debt.

This means a resident making $60,000 with $225,000 in outstanding debt married to someone making $65,000 with $25,000 in outstanding debt would have a combined income of $125,000 and $250,000 in debt. Since the medical school debt accounts for 90% of the total student debt, our resident’s monthly payments would be almost $750.

Married Doctor Repayment Example4

Doctor
Student Loan Debt: $225,000
Residency: 3 years
Salary during training: $60,000
Salary after training: $250,000

Spouse
Student Loan Debt: $25,000
Salary: $65,000

APR Residency monthly payment Post-training monthly payment Number of payments Total amount paid
REPAYE 6.72% $747 $2172 203 $386,459
Refi 5% $100 $2706 156 $328,351

So, what are some of the other factors that could impact this decision toward refinancing?

  • If you earn more income during training (or have a high-earning spouse)
  • If you are able to make extra payments while in residency
  • If you have a short residency period
  • If you might need to take advantage of federal benefits in the future

How Refinancing Can Help you Repay Medical Student Loans

According to White Coat Investor, student loan refinancing is something that many doctors and medical professionals “wish they had done earlier…because it was much easier than they thought.” With that in mind, Laurel Road truly understands the unique stresses of medical residents and professionals, as they have been one of our main focuses from the very start. That’s why we offer special terms tailored to the unique needs of medical residents and professionals. To see if refinancing is right for you, find out how much you could save, today.

  1. Medscape 2018 Residents Salary Debt Report
  2. You’re considered a new borrower on or after July 1, 2014, if you had no outstanding balance on a Direct Loan Program loan or FFEL loan when you received a Direct Loan on or after July 1, 2014.
  3. Assumptions: Single Doctor Example

    The Single Doctor Example compares an unmarried individual with no dependents residing in New York and repaying a total of $225,000 in federal loans under the REPAYE repayment option to the same individual repaying a $225,000 in student loans refinance by a private lender.

    Under both the REPAYE and Private Loan Options, the borrower is a resident earning $60,000 annually during three (3) years as a resident. Upon finishing the residency program, the borrower’s annual salary will increase to $250,000.

    The example does not consider any other changes to the borrower’s annual salary. Under this example monthly payments under the REPAYE option are calculated based off these two salaries and the poverty guidelines published by the U.S. Department of Health and Human Services (HHS) in 2019.

    Under the REPAYE Option, the individual is repaying one undergraduate Federal Direct Unsubsidized Loan in the amount of $25,000 with an interest rate of 4.5% and one graduate Federal Unsubsidized Direct Loans in the amount of $200,000 with an interest rate of 7%. Neither loan has been consolidated under the Federal Direct Consolidation Loan Program and both remain unconsolidated throughout the example. The example assumes that the borrower is not eligible for Public Student Loan Forgiveness.

    Under the Private Loan Option, the borrower makes $100 monthly payments during the borrower’s three (3) year residency period. During this time any unpaid accrued interest is added to the loan principal once the borrower exits his residency program and monthly payments of principal and interest will begin when the Residency Period ends.

  4. Assumptions: Married Doctor Example

    The Married Doctor Example compares a married individual with no dependents (with a spouse repaying $25,000 in undergraduate Federal Unsubsidized Loan with an interest rate of 4.5%) residing in New York and repaying a total of $225,000 in federal loans under the REPAYE repayment option to the same individual repaying a $225,000 in student loans refinance by a private lender.

    Under both the REPAYE and Private Loan Options, the borrower is a resident earning $60,000 annually during three (3) years as a resident. Upon finishing the residency program, the borrower’s annual salary will increase to $250,000. During both the borrower’s residency program and thereafter the spouse earns $65,000 annually. The example does not consider any other changes to the borrower’s or the spouse’s annual salary. Under this example monthly payments under the REPAYE option are calculated based off these three salaries and the poverty guidelines published by the U.S. Department of Health and Human Services (HHS) in 2019.

    Under the REPAYE Option, the individual is repaying one undergraduate Federal Direct Unsubsidized Loan in the amount of $25,000 with an interest rate of 4.5% and one graduate Federal Unsubsidized Direct Loans in the amount of $200,000 with an interest rate of 7%. Neither loan has been consolidated under the Federal Direct Consolidation Loan Program and both remain unconsolidated throughout the example. The example assumes that the borrower is not eligible for Public Student Loan Forgiveness.

    Under the Private Loan Option, the borrower makes $100 monthly payments during the borrower’s three (3) year residency period. During this time any unpaid accrued interest is added to the loan principal once the borrower exits his residency program and monthly payments of principal and interest will begin when the Residency Period ends.

If you are refinancing any Federal Student Loans with us, you will no longer be able to take advantage of Federal Student Loan repayment options, including but not limited to Income Based Repayment (IBR), Public Service Loan Forgiveness (PSLF), or Pay As You Earn (PAYE) or Revised Pay As You Earn (REPAYE). Additionally, Federal Student Loans offer deferment, forbearance and loan forgiveness options that may not be available with Laurel Road. For more information about these benefit programs and other Federal student loan programs, please visit https://studentloans.gov.

In providing this information, neither Laurel Road or KeyBank nor its affiliates are acting as your agent or is offering any tax, financial, accounting, or legal advice.

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