Medical School Loans: Types, Interest Rates, How To Refinance & Consolidate

Loans are an absolute necessity for the majority of medical students. They enable medical students to attend medical school and assist with living expenses. Find out more as you proceed reading. This article covers medical school loans, interest rates, refinancing medical school loans, private and federal medical school loans. Therefore, take a chill and dig deep through the rest of the topic, there is so much more to learn. Enjoy!

Medical School Loans

Loans are a requirement for the majority of medical students. They enable students to attend medical school and assist with living expenses. There are numerous loan types, and students frequently take out a combination of loans from a variety of lenders. In other to ensure they have enough funds to last the duration of their training.

However, each lender and loan type has its own set of provisions, qualifications, and requirements. Also, come with a wide range of interest rates. Being informed and strategic about the types of loans you apply for and accept can assist you in making sound financial decisions. Federal and private loans account for the majority of medical school loans.

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Therefore, maintain both physical and electronic copies of all loan documentation. Ascertain which loans, if any, are conditional on academic progress by requesting detailed information about any aid you receive from your financial aid office. Nevertheless, when it comes to financing medical school, there are both federal and private options. When it comes to taking on debt for medical school, federal student loans should be the first port of call.

Deeper Explanation

For instance, to many, becoming a doctor is unaffordable, as well the average medical school debt is $232,200. Thus, in order to finance medical school, you will almost certainly need to take out student loans to cover at least a portion of the cost. However, the loan type you select can have a significant impact on your overall student loan debt burden. By understanding your options and selecting the appropriate loans, you can minimize the financial impact of student loans.

Federal Medical School Loans

Understand one thing, when it comes to taking on debt for medical school, federal student loans should be the first port of call. They typically have lower interest rates on student loans and offer additional benefits over private loans, including the following:

#1. Eligibility for income-driven repayment plans

Federal loans are eligible for income-driven repayment plans, in which the loan servicer extends the term of the loan and caps your monthly payment at a percentage of your discretionary income.

#2. Loans can be placed in forbearance or deferment

Federal loans can be placed in forbearance or deferment, which allows you to temporarily defer payments without becoming delinquent or defaulting.

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#3. PSLF Eligibility

If you work for a qualifying nonprofit organization or government agency, you may be eligible for Public Service Loan Forgiveness on your federal loans. This program forgives your remaining balance after you make 120 qualifying payments.

Further Explanation

Furthermore, if you took out federal loans during your undergraduate studies, a portion of them may be subsidized. Thereby reducing the borrower’s burden of interest capitalization during medical school and residency. However, each year, the Department of Education updates federal loan interest rates. Meanwhile, Government loan amounts are limited, which means you can only borrow from the federal government a limited number of times per year.

Government loan eligibility is determined by your Free Application for Federal Student Aid (FAFSA). Meaning that each medical student applying for loans should submit a FAFSA. While deadlines vary by school and state, the federal deadline is typically June 30. However, you need to verify your application deadlines with the financial aid offices of the schools to which you are applying.

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In addition, the financial aid office is required to inform you of their aid procedures and deadlines. Moreover, let you know also how and when your federal aid award will be distributed. Nevertheless, you will receive an award package (based on your FAFSA information). Which includes your Expected Family Contribution (EFC), your family’s federal loan eligibility, and your work-study status.

Basically, Federal Direct Loans are available in four different types and are administered through the William D. Ford Federal Direct Loan Program. However, this program administers the majority of federal loans. In addition, Direct Loans are the loans eligible for forgiveness under the Public Service Loan Forgiveness program at the moment.

Notwithstanding, as a medical school student, you have two primary options for federal loans. They are:

  • Direct Unsubsidized Loans

Direct Unsubsidized Loans are available to graduate and professional degree students. Also are available to anyone attending school, regardless of financial need. In contrast to some other types of federal loans, interest accrues immediately, and you are responsible for all interest charges. Meanwhile, loans disbursed after July 1, 2018, and before July 1, 2019, for medical school have an interest rate of 6.6 percent.

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  • Direct PLUS Loans

If you are enrolled at least half-time in an accredited school, you may be eligible for Direct PLUS Loans, which are available to graduate and professional degree students. The interest rate on PLUS Loans is 7.6 percent.

Meanwhile, bear in mind that student loan limits apply. Therefore, before turning to PLUS loans, medical school students can borrow a total of $224,000 in subsidized and unsubsidized direct loans. Additionally, while in medical school, you may qualify for mandatory medical residency forbearance, which allows you to defer payments until your residency is completed.

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Medical School Loans Preview

The Perkins Loan is another type of federal loan that can be used to pay for medical school. These are administered by the medical school and are available to students who have exceptional financial needs. However, not every student in need of financial assistance receives assistance. Otherwise, it is critical to apply for this aid early via the FAFSA and to speak with the financial aid office at your school about assistance as soon as possible.

In summary, the Health Resources and Services Administration (HRSA) offers several scholarships for medical students based on their academic performance. However, one of these, the Primary Care Loan, is available to needy students planning to specialize in and practice primary care. It is advised you find out if your school participates in this program by conducting a search for it. Also, contact a representative in your financial aid office for additional information.

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Private Medical School Loans

Each private lender offers unique loan programs to assist you if federal loans are insufficient to cover the costs of medical school. Compare interest rates and ensure that you understand all of the contract’s terms. For instance, some private lenders require that you begin repaying your loans while still enrolled in school. Moreover, private loans may occasionally have variable interest rates, which means the rate will fluctuate or increase over time. Certain students, such as parents, require a cosigner in order to qualify for private loans.

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Although private loans typically have higher interest rates and stricter repayment terms than federal loans, you can qualify for a competitive interest rate by comparing private student loan lenders. Indeed, if you have a good credit score and credit history, you may qualify for a rate that is lower than that offered by federal loans.

Loans for Residency and Relocation

Residency and relocation loans are a type of private loan that some students use to cover the costs of matching into a residency program. These expenses include board exam fees, travel expenses for interviewing during Match season, and moving expenses once you’ve chosen your program. However, the costs accumulate, but not every student requires this type of loan to complete the process. Bear in mind that the fewer loans you take out, the more of your salary you will retain early in your career as a physician.

Refinancing Medical School Loans

Physicians can refinance their medical school loans during their residency or wait until they become attending physicians before refinancing. Early refinancing can make a significant difference if you are not eligible for federal student loan benefits such as Public Service Loan Forgiveness or income-driven repayment.

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Deeper Definition

Refinancing is one option for repaying medical school debt. The best course of action for you will depend on a variety of factors, including the type of loans you currently have federal or private, and your career objectives.

If you have federal loans, consider refinancing if you will not require an income-driven repayment plan and do not intend to seek loan forgiveness for medical school. While several forgiveness programs are available, only federal loans are eligible for the most comprehensive one: Public Service Loan Forgiveness.

There are few disadvantages to refinancing private medical school loans if you qualify for a lower interest rate. This could occur during your residency after you earn your attending physician status or both.

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Refinancing student loan debt during residency

Student loans can be a financial burden while you are a resident earning less money. You have two primary options for assisting with payment management:

#1. Utilize a government-sponsored income-driven repayment plan

This may result in a reduction of your federal loan payments to zero during residency, depending on your income. Income-driven repayment may make sense if you want to keep your options open post-graduation. For example, to pursue nonprofit work or a lower-paying career or if you do not meet the financial criteria of a refinance lender.

#2. Refinance your mortgage during your residency

A few lenders offer refinancing programs specifically for medical residents. These allow you to pay as little as $100 per month until your residency ends and full payments begin. Consider this option if refinancing medical school loans fits your long-term career goals and you qualify for a lower interest rate while a resident. However, you may need a co-signer to qualify for a lower interest rate.

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Whichever strategy you choose, interest will almost certainly accrue faster than you can pay it. Nevertheless, you may end up with a balance greater than what you started with at the end of your residency. Therefore, making payments that are greater than the minimum required can help keep the interest at bay.

After residency, refinance medical school loans

If you decide not to refinance during your residency, use that time to work on improving your credit score in order to qualify for the best rate possible in the future. Refinance as soon as you qualify to maximize your savings.

For example, refinancing $201,490, the average medical school debt in 2019 from a 7% APR to a 5% APR would result in a monthly savings of about $200 and a total savings of more than $24,200. However, this assumes you have ten years remaining on your loan term. If you wait a few years, the amount of money you could save will decrease.

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As your income increases, you’re likely to have more refinancing options and will qualify for lower interest rates. Therefore, refinancing medical school loans multiple times may make sense because lenders typically do not charge fees, which means you can begin saving immediately. Exciting!

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Chiemerie Ozurumba

How You Can Refinance Your Medical School Loans

  • Ascertain that refinancing is the best option for you

Prior to refinancing federal student loans, ensure that you are comfortable with the prospect of giving up federal loan benefits such as Public Service Loan Forgiveness and income-driven repayment plans. If you have a combination of federal and private student loans and wish to continue receiving benefits from those programs, refinance only the private loans.

  • Determine your eligibility

To qualify for student loan refinancing, you generally need a credit score in the high 600s. The higher your credit score, the lower your rate is likely to be. Certain lenders offer pre-qualification processes that allow you to see a personalized rate before you apply, they’ll conduct a soft credit pull to determine your rate, which will have no effect on your credit score.

  • Investigate and apply

Request rate quotes from several lenders and choose the one with the lowest rate.

Best Medical School Loan Options

How To Consolidate Medical School Loans

Only private lenders make it possible to refinance at lower medical school loans interest rates. While some companies may refer to their products as medical school consolidation loans, private consolidation and refinancing are synonymous.

Federal consolidation, similar to refinancing, allows you to consolidate your debts into a single loan. However, if you have federal student loans, you can consolidate your med school debt with the government.

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Consolidating your medical student debt will not save you money, your interest rate will be determined by the weighted average of your original loans. Consolidation, on the other hand, may make sense as a loan management strategy. For instance, you may wish to take this step prior to applying for Public Service Loan Forgiveness; this way, you will only have to track one loan payment.

Medical School Loans Interest Rates

Given that you’re almost certainly borrowing substantial sums of money to pay for medical school loans, the interest rates on your loan can make a significant difference in the total amount you pay over the course of the loan’s life. Compare several lenders to determine which ones offer the lowest interest rates for which you believe you qualify.

How To Manage Your Medical School Loans

Attending medical school entails taking on a significant amount of debt. The average debt incurred by members of the class of 2019 was $201,490.

Prior to borrowing, consider strategies for repaying medical school debt. Depending on your career goals and the type of loans you have, the best course of action may be to refinance medical school loans during or after residency, to seek loan forgiveness for doctors, or to ride out an income-driven repayment plan. Meanwhile, understand your medical school loans interest rates.

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Prepayment penalties are not charged by the majority of lenders who offer private medical school loans if you pay off your loan balances early. However, before applying, it is prudent to review the lender’s policies. Meanwhile, consider first the medical school loans interest rates before applying.

Chiemerie Ozurumba (Adorablepen) is a freelance writer & Computer Science degree holder, a personal finance expert, blogger, public speaker, and poet. He is also a relationship & life coach. Currently a writer at BusinessYield.

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