5 Ways to Reduce Medical School Debt

Last Updated on December 12, 2019

According to the Association of American Medical Colleges, 2015-2016 figures show that U.S. medical students with medical school debt have, on average, $180,723 of medical school-related debt (in 2019 the average is $196,520).This debt comes from public and private medical schools with median, four-year costs of $232,838 and $306,171, respectively. Medical school graduates, both those accepted or failing to find acceptance into a residency program, usually have a tough time repaying these loans, as yearly residency stipends (or income) are estimated to begin around $52,200 and end around $58,100 for the first and fourth years of residency. It is not until medical residents graduate from residency and move onto their first clinical or hospital job (usually as old as age 30) that they begin to earn what is considered traditional physician wages. However, along with these wages comes the ability — and requirement — to repay larger sums of their hefty student loan debts.

Unfortunately, student loan debt associated with a medical school will likely continue to rise, but there are ways to battle these ever-increasing costs, thereby ensuring that these hard-earned degrees remain a good investment and continue to attract quality applicants.

Expert Recommendations to Effectively Repay Medical School Loans:

1. Apply the Sign-On Bonus Towards Loans

Many healthcare agencies, clinics, and hospitals offer physicians sign-on bonuses when hired. An easy way to significantly reduce medical school loan debt figures — and the associated interest — is to apply all or a good portion of this bonus towards student loan repayment. For instance, a lump sum of $25,000 could help reduce the interest amount as well as remove an entire year’s worth of loan payments. Keep in mind that some portion of the sign-on bonus may need to be used to pay for moving expenses (if separate moving expense coverages are not negotiated), any licensing or certification expenses, or simply saving for future tax payments.

2. Consider the Practice Area/Negotiate Loan Repayment

According to the Association of American Medical Colleges, a number of states offer loan repayment programs when medical professional contracts to work in underserved areas — medically underserved or simply rural areas. With a variety of loan repayment opportunities available, it is important to look for a program that meets a physician’s geographic and service-oriented goals. For example, physicians who are interested in helping medically underserved areas, which may include larger cities, may want to look into programs such as the National Health Service Corps. On the other hand, physicians who are interested in practicing in a rural area should look into state-specific rural health partnerships, some which may offer a stipend (in addition to the residency income) during residency. To receive this extra income, without repayment, applicants must agree to work in an assigned area after residency and for a certain amount of time. Physicians aiming to work in other areas may still be able to negotiate some contractual form of loan repayment along with the sign-on bonus — just be sure to ask!

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3. Join the Military for Residency or as a Practicing Physician

The Navy is known to offer its medical residents a four-year annual grant of $45,000, in addition to residency income. This grant, used each year during a four-year program, effectively pays off $180,000 in debt in a relatively short amount of time, especially when compared to medical residents in the civilian world. Additionally, the military pays a stipend of more than $2,000 a month (for 48 months) for living expenses on top of an average resident salary of $50,000 per year. In return for this financial assistance, physicians will owe service to the military, which may include 3-5 years of active duty and several years in the reserves.

For practicing physicians (those who have graduated from residency), the Navy offers significant sign-on bonuses ($220,000-$400,000), all of which depend on qualification, the physician’s specialty, and service requirements. For more information, review the details on the Navy Financial Assistance Program (FAP).

4. Consider Student Loan Refinancing Programs

Holding multiple student loans, both private and federal, can be confusing and expensive. Refinancing medical school loans into one refinanced and consolidated loan offers a great opportunity to reduce interest rates, monthly payments, or terms. For the best offer from a lender such as Education Loan Finance, be sure to keep all forms of credit in good standing: make regular payments and never default on student loans. Furthermore, applicants with a higher credit score are more likely to be offered lower interest rates with the refinanced loan, thereby saving thousands over the life of the loan.

5. Live Like a Resident

During residency years, physicians learn to live on very little. To quickly reduce and pay off medical school loans and gain financial independence, physicians should consider creating a budget that is more typical of a resident. Once a physician starts making significantly higher wages, if he or she continues to live on a resident’s budget — and with very little unnecessary expenses — he or she will likely be able to pay off medical school loans much faster, which means they can finally start saving for vacations, investments, and possibly [early] retirement.

Need Help Managing Medical School Debt?

The team of lenders at Education Loan Finance is specialized in working with college graduates who have accumulated higher amounts of debt – particularly medical professionals and physicians – to pursue advanced degrees. Education Loan Finance’s personal loan advisors will be happy to assist you in choosing a repayment plan that best aligns with your financial goals. Contact an Education Loan Finance representative today by calling 1-844-601-ELFI.*

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