There has been a dramatic increase in the amount of student loan debt over the years. This is especially true for medical students, who often face very high tuition for medical school.
Whether you’re a current medical student or soon-to-be resident with a bunch of debt, these 3 steps can help you deal with loan payments and improve your well-being over time.
1. Know Your Options.
The first step in managing your student debt is to understand and be familiar with the options that are available to you:
Loan acquisition:
- Federal Direct Loan Programs
The department of Education oversees the largest federal loan program. During medical school, you may have accepted Subsidized, Unsubsidized, PLUS, or Consolidation loans.
The subsidized loans are generally for undergraduate education and charge no interest while you’re a student, as long as you are at least half time, or in a deferment or grace period.
If your loans fall under the Unsubsidized loans, you have been accruing interest on these during all periods since acceptance of the funding.
PLUS loans are generally used by graduate and professional students, or may be taken out by parents with a dependent undergraduate student.
On average, federal loans come with a 10 to 25 year repayment period, and if you opt to consolidate, this may be extended to 30
- Perkins Loans
Perkins are low interest rate loans reserved for students demonstrating strong financial need. These are lent out by the educational institution itself.
- Loans for Disadvantaged Students
These loans are provided by the health resources and services administration as low interest loans for those that qualify as defined by the U.S Department of Health and Human Services as:
“one who comes from an environment that is inhibited from obtaining knowledge, [and] or come from a family with an annual income below low income thresholds according to family size.”
- Private Loans
Private lenders are also an option. However, you should try to limit private loans in particular since they are not covered under Title IV programs and may not be as flexible in repayment options. In addition, they may be accompanied by a higher interest rate.
Loan repayment:
- Standard repayment Plan
This plan can save you money by reducing interest accrued, since it’s based on a 10 year timeline. However, that also means higher monthly payments for you. As borrowers enter repayment, if they do not specify a repayment plan, this is the default repayment that is usually put in place.
- Income-Based Repayment (IBR) / Pay As You Earn (PAYE)
As of Oct 2015, the department of education finalized a new income-driven repayment plan called the Revised Pay As You Earn (REPAYE) plan. This plan will allow for direct loan borrowers to cap monthly student loan payments to 10% of monthly income, as well as provide an interest subsidy. As long as a borrower is compliant with the REPAYE, the debt will be forgiven after 20 years for undergraduate school debt and 25 for graduate.
- Public Service Loan Forgiveness (PSLF)
PSLF allows for loan forgiveness after borrowers have made 120 qualifying payments whilst working for a qualifying employer. Employers that fall under this category are government organizations and tax-exempt non-profits under 501c(3).
- Loan Forgiveness for Service in Areas of National Need:
There continues to be a need for providers in underserved regions. The national health service corps is an option for health providers and professionals to receive up to 50,000 tax free dollars in loan repayment for a two-year commitment.
- Loan Refinancing or Consolidation
As more competitors enter this space, refinancing and/or consolidation is worth considering for those with high loan burdens and high interest rates.
2. Have a Plan.
The second step is to have a plan of attack and set SMART goals in achieving repayment of your loans.
- It is important to track your loans and keep track of your lenders.
- The National Student Debt Data system is a great resource to periodically check your loans.
- Once you have a repayment plan, stick with it and be consistent in taking strides in debt relief.
Financial research and studies have shown evidence that having an actual plan that you understand and can implement is correlated with dealing with debt successfully.
3. Resist Lifestyle Inflation.
Once you’re out of medical school and starting your professional career, try to resist lifestyle inflation for 2 to 3 years if possible. If you can instead reallocate that capital to building a health financial program, it can and will make a very positive difference in your long term financial well-being.
The saying that “If you live like a professional as a student, you will live like a student as a professional” rings true, but does not have to always be the case.
At the end of the day, it boils down to taking the time to increase your financial literacy in regards to your loans and executing on a set plan to deal with debt.
