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5 Strategies for Paying Off Pharmacy School Loans

Refinancing, income-driven repayment and forgiveness are among the options for pharmacists.
May 17, 2019
Loans, Student Loans
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The best strategy for paying off pharmacy school loans depends on your career plans and financial situation. A pharmacist in a residency program has different challenges and priorities than a Walgreens pharmacist, for example.

Based on your post-graduation plans, use these guidelines as a starting point for mapping out your repayment approach.

  • Residency program: Income-driven repayment or forbearance.
  • Community pharmacy: Standard repayment or student loan refinancing.
  • Private hospital or clinic: Standard repayment or student loan refinancing.
  • Nonprofit or government-run hospital, clinic or other employer: Public Service Loan Forgiveness and income-driven repayment.

Paying off pharmacy school loans

There are five main options to pay off pharmacy school loans:

Switch to income-driven repayment

Best for: Pharmacy residents and pharmacists working in the public sector.

Income-driven repayment is likely the best option for pharmacy residents, and it’s also a strategy to maximize forgiveness for borrowers who are pursuing Public Service Loan Forgiveness. It’s available to any borrower with federal student loans.

Income-driven plans cap monthly payments at 10% to 20% of your discretionary income and offer taxable loan forgiveness on the remaining balance after you make payments for 20 or 25 years.

If you’re doing a residency program, you’re likely not earning enough to afford monthly pharmacy school loan payments on the standard repayment plan. The average pharmacist salary for residents is about $40,000 a year, while the typical pharmacist owes over $160,000 in student loans.

Switching to an income-driven plan can make monthly payments manageable. For example, monthly payments could be as low as $177 if your adjusted gross income — the amount you pay taxes on — is $40,000 and you’re single with no dependents.

Stick with the standard repayment plan

Best for: Pharmacists working for a private employer like a retailer, private hospital or pharmaceutical company.

The standard repayment plan is what all federal student loan borrowers are put into by default. On it, you’ll make equal monthly payments for 10 years.

If you’re employed full time and can afford to make payments on the standard plan, you should. Monthly payments will be higher, but you’ll pay less in interest than on an income-driven plan.

For example, with a 7% interest rate and a $166,000 student loan balance — about the average pharmacist student loan debt among class of 2018 graduates with college debt — you would owe a little over $1,900 per month on the standard plan.

When you’re on the standard plan, you have the option to switch to an income-driven repayment plan if money gets tight — if you get a reduction in hours or lose your job, for example.

Refinance to save on interest

Best for: Pharmacists working for a private employer like a retailer, private hospital or pharmaceutical company.

If you’re on the standard repayment plan and don’t anticipate needing income-driven repayment or pursuing Public Service Loan Forgiveness, consider student loan refinancing through a private lender. Refinancing can save you money and help you pay off debt faster if you’re eligible for a lower interest rate.

Refinancing can save you money and help you pay off debt faster if you’re eligible for a lower interest rate.

For example, refinancing a $166,000 student loan from 7% to 5% would save $167 a month and more than $20,000 total if you had 10 years of payments remaining before refinancing and kept the same repayment schedule. Or you could aim for faster repayment. If you refinanced and repaid the loan one year sooner, you would save almost $25,000 total and still cut your payment by $16 a month.

The higher your credit score and lower your debt-to-income ratio, the better the rate you’ll likely get. To qualify for refinancing, you need a score in the high 600s or above and a monthly income that’s higher than your total monthly debt payments and other financial obligations.

Once you refinance federal loans, they’re no longer eligible for income-driven repayment and Public Service Loan Forgiveness.

Pursue loan forgiveness

Best for: Pharmacists working for the government or a nonprofit, or in an underserved area.

Most pharmacists work in the private sector. But if you’re pursuing a career in government or with a 501(c)(3) nonprofit, the federal Public Service Loan Forgiveness program may be an option for you. Additionally, there are a few other pharmacist loan forgiveness programs you may be eligible for if you commit to working in an underserved area for a certain period of time.

Public Service Loan Forgiveness, or PSLF, wipes out the remaining balance on your pharmacy school loans after you make 10 years’ worth of full, on-time payments while working for a qualifying employer. To maximize the amount you eventually get forgiven under PSLF, make payments on an income-driven repayment plan. Forgiveness is tax-free.

Postpone payments during residency

Best for: Pharmacy residents who don’t want to make any payments during residency.

Income-driven repayment is the best option for pharmacy residents who can’t afford full monthly payments. Postponing payments during residency via forbearance is another option.

However, interest will accrue even while you’re not making payments, increasing your total loan balance. For example, a $166,000 student loan with a 7% interest rate would gain $11,000 in interest if you paused payments for one year.

To request a forbearance on federal student loans, contact your federal student loan servicer. For private student loans, contact your lender.

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