Many people know that medical school students, on average, graduate with nearly $200,00 in loans owed. Just because physicians make a high income doesn’t mean they can easily handle their debt. We explore medical school loan repayment options for new medical school graduates.
According to the Association of American Medical Colleges (AAMC), about 81% of medical school grads are walking away with an average medical school debt of $183,000. Because of the high incomes physicians make, many people (new medical school graduates included) think that their loan repayment is something they can easily handle.
However, with ever increasing costs and significant declines in physician reimbursements from Medicare and Medicaid, some doctors are finding trouble paying off their loans without accruing tons of interest. Physicians still accepting Medicare and Medicaid patients are expected to see reimbursement rates drop as much as 21 and 43 percent, respectively.
A Numbers Game
Let’s put this into perspective with some numbers. Let’s pretend you’re a fresh medical school graduate with $175,000 in medical school debt. At a 6% interest payment over 10 years, you’re going to be paying about $1,943 a month every month. By the time you pay it all off, you will have also paid over $58,000 in interest.
Now taking $2,000 out of the paycheck of a physician may be a relatively small portion, but what about the $58,000 in interest? We all know that when you borrow money, you’re always going to have to pay interest. That’s the name of this numbers game, but if you can reduce your student loan debt, you could use your money on other things instead of high-interest loan repayments.
Exploring Loan Repayment Options
After 12 to 15 years of rigorous schooling and training and with a large pay increase on the way, of course, these new doctors are going to increase their spending, upgrading cars or moving from an apartment to a house. By taking some time to crunch the numbers before doing any of that, you can find loan repayment options to avoid large interest payments.
Refinancing Medical School Loans
Consider refinancing your student loans. Refinancing can help you save interest over time and is especially beneficial for those with high-interest private loans.
The process is fairly simple: in essence, you would work with a new company that will pay your loan, and then repackage it in order to be able to provide you with a lower interest rate. Typically, you need a good credit score to be able to get loans refinanced.
If you choose this loan repayment option, be certain. Once federal loans have been refinanced, you cannot miss a payment, as you will not have other flexible payment options. Some companies, however, do offer benefits like unemployment protection.
Two Birds, One Stone: Health Shortage Areas
The AAMC has a list of over 60 loan repayment or forgiveness programs for new doctors, and those still finishing their residency. In general, you would sign a contract to practice in areas with staff shortages. You may then receive large repayment amounts.
For example, if you chose the Nebraska Loan Repayment Program, you would be required to work a 3-year contract. For each year, you could receive up to $60,000 in loan repayments. The actual amount depends on a few different factors, but you can see how a program like this can make a significant difference in student loan repayment in a short amount of time.
New doctors will be able to bring quality healthcare to underserved areas, helping with staffing shortages, and be able to pay off significant portions of medical school debt, greatly reducing their interest paid over time.
Serving Your Country
I’m sure you’ve heard of the military covering tuition expenses, but did you know that medical students and doctors could take advantage of this too?
Let’s use the navy as an example. Firstly, cue the jeopardy music and think about what could be better than a loan repayment or forgiveness plan. How about not acquiring any medical school debt in the first place?
With the Navy Health Professions Scholarship Program (HPSP), students can receive 100% tuition coverage for attending a medical school of their choosing. But that’s not all. They will also receive a monthly stipend of $2,200 to help cover living expenses, and up to a $20,000 sign-on bonus.
If you join the Navy Health Services Collegiate Program (HSCP), you can receive anywhere from $157,000 to $269,000 while attending medical school. This allotment includes a monthly military salary, a generous housing allowance, and a healthcare benefits package.
Through the Navy Financial Assistance Program, those in medical residency are able to receive the typical resident salary of about $50,000, an annual grant of $45,000 for up to four years, and a monthly stipend of $2,200 for living expenses.
There are some qualifications and requirements to be eligible for these programs. For more details on these programs, visit the Navy site, or find a local recruiter to talk to.
Sign-on Bonus, Anyone?
Sign-on bonuses are becoming more common as the physician shortage forges on. When you complete your residency and are negotiating your contract, ask for a sign-on bonus. Bonuses can range anywhere from around $20,000 to upwards of $100,000!
If you are able to negotiate a bonus, it is just that: a bonus. It is not something that you will have pay back over time. A large bonus may allow you to relocate, or pay off a large chunk of your medical debt. This ultimately leads to lower interest paid over time.
Pay As You Earn (PAYE) or Income Based Repayment
Finally, when looking at loan repayment options, you should definitely consider applying for a PAYE program. There is a Repayment Estimator tool on the Federal Student Aid website. Use it to see which programs your loans are eligible for.
These type of programs allow for your loan repayment to be contingent on how much you are earning. Fo some programs, if you pay for 20 to 25 years, the rest of your student loans will be forgiven. Medical students, who incur some of the highest student loan balances, can greatly benefit from these programs.