Higher education is expensive enough as it is, but its cost can rocket to even more extreme levels should one want to attend medical school. Some fortunate students will receive scholarships or will have parents who saved substantially enough to put a dent in the total cost of medical school. But others will need to use medical school loans to close the gap between their funds on hand and the price of their education. In 2016 the average medical school debt was $190,000, with it expected to have increased in 2017.
We’ve put together a guide to break down the loan options available to those who hope to make their way through medical school. We also cover repayment plans available to those who complete their education and are ready to start paying their loans down. We hope that, by covering these loans and the paths toward repayment in more detail, we can demystify the process and make it less intimidating for those who need to borrow to reach the career of their dreams.
Loan Options
Unsubsidized Direct Stafford Loans
These loans are the same ones available to undergraduate and graduate students whose need surpasses what is made available by subsidized loans. With Unsubsidized Direct Stafford Loans, repayments are postponed while you’re still in school, and you’re granted a grace period post-graduation to look for and obtain a job. You can only borrow up to $40,500 in these loans annually, with a total cap of $224,000 total, and you’ll pay a 5.84% interest rate on your outstanding loan balance until it’s paid off. You must complete the FAFSA (Free Application for Federal Student Aid) in order to qualify for Unsubsidized Direct Stafford Loans.
GradPLUS Loans
If you’re in graduate school or professional school — which medical school qualifies as — you can take out a GradPLUS loan. This loan takes on a higher interest rate at 7%, but there are benefits in the amount you can borrow is only limited by the cost of attendance at your medical school of choice. You also do not have to demonstrate financial need to obtain a GradPLUS loan, but you do have to have decent credit in order to be approved. Just like the Stafford loans, this loan requires you to complete the FAFSA in order to qualify.
Perkins Loans
In order to take out a Perkins Loan, you’ll need to be able to demonstrate “exceptional” financial need. If you’re able to qualify, however, you’ll find the Perkins Loan is one of the more friendly medical school loans in existence. The interest rate is capped at 5%, and borrowing limits sit at $8,000 annually and $60,000 total for professional students. This loan also requires the FAFSA as part of the qualification process.
HRSA Primary Care Loans
If your plan is to train in and work in primary care following graduation, you’ll find the HRSA’s Primary Care Loan program extremely helpful. The PCL program provides loan amounts up to the cost of attendance at a 5% interest rate, with the stipulation that you work in a primary care setting for up to 10 years, or until the loan is paid off. Should you fail to meet the required service period in a primary care setting, your loan interest rate will change to 7%.
Private Medical School Loans
You can obtain private loans for your medical schooling through lenders like Sallie Mae, Wells Fargo, and Discover. What you won’t find, however, is consistency across the board. Interest rates vary depending on who you borrow from, and you could either wind up with a variable interest rate loan or a fixed interest rate loan. Private loans often have better interest rates than federal student loans, but you miss out of federal forgiveness programs such as public service loan forgiveness, and income-driven repayment plans. Here are three top lenders for private student loans:
Repayment Options For Federal Loans
Making your way through and out of medical school is a feat you should be proud of. But as far as your financial obligations are concerned, there’s still more to do. Depending on how much you needed to borrow in medical school loans, you could be staring down a hefty amount of debt by the time you graduate. And chances are, you won’t be making six figures right out of the gate. This is why examining your income-driven loan repayment options is the best thing you can do.
Income-Based Repayment (IBR)
In order to get the full benefit of an IBR plan, you will need to be a new borrower as of July 1, 2014. The IBR plan then limits the amount you need to pay toward your medical student loans to 10% of your discretionary income per month and holds you to a 20-year repayment plan. If you borrowed your loans before that date, loan repayment amounts are capped at 15% of your discretionary income per month, but fortunately, you won’t ever pay more than you would under the standard 10-year repayment plan. The repayment period for borrowers in the latter category is 25 years.
Income-Contingent Repayment (ICR)
Monthly repayment amounts under the ICR plan are limited to whichever is less: 20% of discretionary income, or what your monthly payment would be if you repaid your outstanding loan balance over a 12-year period. The repayment period for this plan is 25 years, and eligible loans you’ve taken out under the federal student loan program qualify.
Pay As You Earn (PAYE)
The PAYE program is not all that dissimilar to the IBR program: your repayment amount is limited to 10% of your discretionary income per month, and can never surpass what you’d pay per month under a standard 10-year repayment plan. You also receive a repayment period of 25 years. However, there are additional boxes you must check off to qualify for PAYE. You cannot have borrowed your loans before October 1, 2007, and you must have received a Direct Loan disbursement on or after October 1, 2011.
Revised Pay As You Earn (REPAYE)
REPAYE is a revised version of the PAYE program, modified in 2015 to help more borrowers qualify for an income-based repayment option. Under REPAYE, you’ll pay 10% of your discretionary income per month toward your outstanding loan balance, with eligible federal student loans qualifying for the program. The repayment period for REPAYE, unlike PAYE, is 20 years.
We hope this guide proves beneficial in helping you grasp the different options you have for your medical school loans, as well as the repayment options you’ll have available to you once you graduate and begin your career. Good luck!
