Paying Off Medical School Debt: 5 Strategies for Doctors

The best strategy to pay off medical school loans will depend on your career, salary and financial priorities.

Teddy Nykiel, Ryan LaneJuly 2, 2020

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Paying off medical school debt can be a bitter pill. As a resident, you’re probably not earning enough to make full monthly student loan payments. As an attending physician, you’re likely facing a balance that’s thousands of dollars more than it was when you graduated.

These five strategies can help make paying off medical school loans a bit easier.

1. Make payments during residency

Medical school loans accrue interest while you're in school and typically enter repayment six months after you graduate.

It’s possible to postpone student loan payments during your residency or fellowship, but it will cost you. Interest accrues during periods of deferment and forbearance, increasing your total balance.

For example, pausing payments for three years on $201,490 — the average medical school debt among the class of 2019 — would add about $37,779 to your balance, assuming that you had a 6.25% average interest rate, didn’t make any interest payments during that time and had no subsidized loans.

To save on interest, make at least partial payments during residency and use deferment and forbearance only as a last resort. If you can’t afford full payments during residency, sign up for an income-driven repayment plan.

2. Switch to income-driven repayment

An income-driven repayment plan is the best option for residents who can’t afford to make full payments.

There are four federal income-driven plans that cap monthly payments at a percentage of your income, extend the repayment period to 20 or 25 years and forgive any balance that’s remaining after the repayment period. Many doctors choose Pay As You Earn (PAYE) or Revised Pay As You Earn (REPAYE) when paying off medical school debt.

Monthly payments can be substantially lower on an income-driven plan: With a $$57,191 annual income — the average stipend for first-year residents in 2019, according to the Association of American Medical Colleges — you’d owe $320 a month if you had no dependents.

The downside of income-driven repayment is that your monthly payment may not cover all of the interest as it accrues, meaning your total loan balance may increase. REPAYE offsets this with its unique, partial interest subsidy that waives half of the unpaid interest.

Payments will increase as your income increases, meaning you may outgrow income-driven repayment as your career advances. On REPAYE, for instance, your monthly payment could end up being higher than it would be on the standard, federal 10-year repayment plan.

3. Seek loan forgiveness

There are several medical school loan forgiveness programs, including Public Service Loan Forgiveness, available to doctors who are willing to work in the public sector or in underserved areas for a certain period of time. Loan forgiveness may be a good option if your career goals align with one of these program’s requirements.

Depending on whether you have federal or private student loans, you may be able to combine loan forgiveness for doctors with another repayment strategy to maximize the amount you get forgiven.

4. Refinance to save on interest

Student loan refinancing is likely the best option for doctors paying off medical school debt aggressively. If you can get a lower rate, you could save thousands of dollars in interest over the life of your loan.

Physicians are typically ideal candidates in the eyes of student loan refinance lenders. Qualifying for the lowest rates requires excellent credit and a high income relative to your debt. You may want to refinance medical school loans during or after your residency, or both.

If you refinance during your residency, you may be able to pay as little as $100 a month. However, those low monthly payments won’t be enough to cover the interest as it accrues, meaning your balance will increase.

Before refinancing — either as a resident or as an attending — make sure you’re comfortable giving up access to Public Service Loan Forgiveness and income-driven repayment. Refinanced loans aren’t eligible for those federal programs.

How much could refinancing save you?

5. Live like a resident — even when you’re not

After years of education and training, you’ll finally reap the income benefits of your career once you become an attending physician. But if you can live like a resident for a few more years, you’ll have more money to devote to saving, investing and paying off medical school debt.

You may want to make extra payments to get rid of medical school loans faster. But before you do, focus on other financial priorities including:

  • Establishing an emergency fund of at least $500, but ideally enough to cover three to six months of living expenses.

  • Investing in a retirement fund, at least enough to get your employer’s 401(k) match.

  • Paying down high-interest debt like credit cards.

How long does it take to pay off medical school debt?

Your repayment strategy will determine how long it takes to pay off medical school debt. For example, pursuing Public Service Loan Forgiveness will mean 10 years in repayment, while income-driven plans can last as long as 25 years.

There's never any penalty for paying off student loans early, and many doctors choose to aggressively repay their medical school debt.

According to a 2019 survey from staffing agency Weatherby Healthcare, 35% of doctors paid off their loans in fewer than five years. They did this via strategies like making extra payments and refinancing student loans. Of the doctors who still had loans, the majority expected it to take at least 10 years to finish repayment.

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