Working as a healthcare professional can be lucrative, but the cost of your education can be overwhelming. According to the Association of American Medical Colleges, the average cost of medical school at a public university is $243,902, while the average price at a private school is $322,767. With such expensive totals, most students have to borrow a significant amount of money to pay for medical school; the median amount of student loan debt for medical school graduates was $200,000 as of 2018. You could spend 20 to 30 years repaying your debt, and with high-interest rates, pay hundreds of thousands in interest charges. Paying off medical school debt can be challenging, but there are ways to manage your loans more effectively.
7 best ways to pay off medical school student debt
Follow these tips to save money, reduce your monthly payments, or pay off your medical school loans early.
1. Make payments during your residency
Many medical school students opt to defer their payments during residency so they can focus on this grueling stage of their education without worrying about their loan payments. However, deferring your payments can cause more interest to accrue on your loans, adding to your overall cost. If possible, make partial payments during your residency. The American Medical Association reported that the average first-year resident makes around $60,000, so you’ll have some income coming in that you can use. If you can’t afford to make full principal and interest payments, even making interest-only payments or flat $25 monthly payments can reduce charges and help you save money over the long run.
2. Pursue Public Service Loan Forgiveness (PSLF)
As a medical school graduate, you may qualify for medical school loan forgiveness through PSLF if you work for a non-profit hospital, medical facility, or government agency. If you have federal student loans and work for a qualifying employer full-time for ten years while making 120 monthly payments, your remaining loan balance will be forgiven tax-free. The following loan types are eligible for PSLF:
- Direct Subsidized Loans
- Unsubsidized Loans
- PLUS Loans
- Direct Consolidation Loans
3. Apply for an income-driven repayment plan
If you have federal loans and cannot afford your monthly payment under a 10-year Standard Repayment Plan, apply for an income-driven repayment (IDR) plan. Under an IDR plan, your payment is based on your income and family size. During your residency and while establishing your career — while your income is relatively low — an IDR plan will reduce your monthly payments. Plus, if you still have a balance after 20 to 25 years of making payments, the remaining loan balance is forgiven. However, the discharged amount is taxable as income.
4. Use your physician signing bonus to make a lump sum payment
To recruit healthcare professionals, some hospitals and healthcare facilities offer signing bonuses. According to the American Medical Association, the average physician signing bonus is $32,692. If you’re eligible for a signing bonus, use it to make a lump sum payment against your student loan debt. It can make a significant impact on your balance and repayment term. For example, let’s say you left medical school with $200,000 in student loan debt at 6% interest with a 10-year repayment term. If you received a signing bonus of $32,692 and applied the entire amount toward your student loans, you’d pay off your loans 25 months ahead of schedule. Plus, you’d save $23,274 in interest charges.
5. Research loan repayment assistance programs
If you’re willing to work in an underserved or rural area as a healthcare practitioner, you may qualify for loan repayment assistance and get some or all of your student loans repaid. There are national and state programs. For example, the National Health Service Corps Loan Repayment Program provides primary care clinicians who serve for at least two years at approved sites with up to $50,000 in loan repayment assistance. For a list of potential loan repayment programs, check out the Association of American Medical Colleges’ database.
6. Refinance your student loans
If you’re wondering how to pay off medical school debt faster, student loan refinancing* is one of the most effective techniques. When you refinance, you work with a private lender like Education Loan Finance to take out a new loan for the amount of your existing debt. If you have private loans or a mix of private and federal loans, you can consolidate them together and qualify for a new interest rate and loan term. If you have good credit, you may qualify for a lower interest rate, allowing you to save a substantial amount of money. How much could you save? Consider this example. If you had $200,000 in loans at 6% interest and a 10-year repayment term, you’d pay $66,449 in interest charges by the end of your repayment term. However, let’s say you refinanced your debt and qualified for a 10-year loan at 4.25% interest. Your monthly payment would drop, but you’d still repay just $45,850 in interest charges. By refinancing your loans, you’d save $20,599 in interest.
Original Loan
Balance: $200,000 Loan Term: 10 Years Interest Rate: 6% Minimum Monthly Payment: $2,220 Total Interest Paid: $66,449 Total Repaid: $266,449
Refinanced Loan
Balance: $200,000 Loan Term: 10 Years Interest Rate: 4.25% Minimum Monthly Payment: $2,049 Total Interest Paid: $45,850 Total Repaid: $245,850 Use the student loan refinance calculator to find out refinancing could help you cut down on interest charges.*
7. Make extra payments
Instead of making only the minimum payments, pay extra each month to reduce the interest that accrues. Over time, paying extra will help you save money and pay off your debt ahead of schedule. Increasing your payment by just $100 per month can make a difference, even if you have six-figures of student loan debt. With $200,000 of student loans at 6% interest and a 10-year term, your minimum monthly payment would be $2,220. If you increase your monthly payments by $100 — paying $2,320 toward your debt each month — you’d pay off your loans six months early. And, you’d save $4,147 in interest charges.
The bottom line
Medical school can be expensive, and if you’re like most students, you had to borrow money to pay for your education. Paying off medical school debt may seem intimidating, but you likely earn a good income with your degree. You have multiple options for managing your debt, and you are likely a strong candidate for student loan refinancing. If you decide that refinancing is right for you, you can check your rate online with ELFI.*
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