Medical Student Loans: Your Complete Guide
It comes as no surprise that doctors often graduate from medical school with mortgage-sized student loans. According to a study from the Association of American Medical Colleges (AAMC), nearly 73% of doctors reported having education debt. The median medical school loan balance for new grads in 2020 was $200,000. But there are many of you out there strapped with much higher debt loads in the $300-$500k+ range.
Med student loan debt is even more burdensome among younger doctors, as tuition costs have continued to skyrocket over the years. Unfortunately, salary increases have not been commensurate with tuition increases, putting some doctors in an even more precarious position with respect to their medical school loan debt.
Paying for medical school can get overwhelming quickly. There are federal loans and private loans with different rules, eligibility, and repayment plans. There’s private refinancing, consolidation, forbearance, etc. Just figuring out what this stuff means might require hours and hours of research poring over student loan literature. But don’t worry, SLA can help walk you through it.
If you need help understanding the terminology, check out our Student Loan Terms glossary.
Med student loans can impact a doctor’s ability to:
- Save for retirement
- Purchase a home
- Get married or have children
- Attend medical appointments
- Pay off credit cards
- And much more
StudentLoanAdvice.com (SLA) was created to provide a third-party option to help doctors, dentists, and high earners save money on their student loans. Our team of student loan experts have met with hundreds of doctors making them some of the most knowledgeable in the industry. The student loan landscape is growing more complex each day with a multitude of repayment plans and loan forgiveness options—each with varying advantages and disadvantages which touch on your income, tax-filing status, and even how you’re contributing for retirement. It’s no surprise that many of our clients, prior to our consultations, were making five- and six-figure mistakes through mismanagement of their student loans.
For a few hundred dollars, we’ll meet with you one-on-one, review your situation, and provide you with a customized student loan plan to help you optimize your student loan management.
This post discusses some of the basics of student loans for medical school, repayment plans, and student loan debt forgiveness options.
How Do Student Loans Work for Medical School?
Medical school student loans are issued to med students to finance their education and associated living expenses. They are not to be used for any other purpose. Unlike a mortgage or auto loan, creditors have no direct asset to seize if you default. As such, they tend to be offered at rates significantly higher than mortgage rates, usually around 5%-8%.
Student loans are almost never discharged in bankruptcy. However, sometimes they will be discharged due to death or total and permanent disability. They can also be discharged if your school closes before you complete your program or if the institution defrauds you and other students.
How Much Student Loan Money Should I Borrow for Medical School?
Don’t borrow more money than you need for medical school. Financial aid offices may recommend taking out additional loans to cover living expenses. If this is needful in your situation, take out the least amount necessary to cover your living expenses. Some of your friends may borrow more than they need to live a lavish lifestyle on their loans. This is never a good idea.
Every dollar of loan money you spend ends up costing you more by the time you pay it back. Live, but be mindful that the gallon of milk you just bought actually cost you $15 or the steak dinner really cost $300.
How Do I Receive Medical School Loans?
Your medical school’s website or financial aid office will direct you to the federal student aid form or FAFSA form to receive student loans. After filling out the form, federal student aid will provide you with details on your financial aid package.
Prior to receiving federal student loans, you’ll complete entrance counseling and sign a legal document called a master promissory note in which you promise to agree to the loan obligations. If you have additional questions, contact your school’s financial aid office.
Financial aid offices may offer other types of federal and non-federal loans but it varies by institution. Learn more about non-federal loans below.
Loan Companies for Medical School
Student loan lenders are usually the government, a school, or a private lender. If you apply on FAFSA for a student loan, you will receive a student loan from the federal government. Currently, the majority of federal student loans are called direct federal student loans. Studentaid.gov is the home website where they have all of your loan information.
Your med school can lend to you directly through institutional loans and/or Perkins loans. These loans are not as common as direct federal student loans or private loans issued by private lenders.
If you want to receive additional loans, you’ll need to contact a private lender. A private lender is typically a bank or financial institution that will issue loans for education. Private loans have less flexibility and protections than federal loans.
Although federal loans come from the federal government, it typically outsources the loan servicing. Loan servicers manage the day-to-day aspects of your loan payments. Unlike federal loans, private lenders will typically issue and service your student loans.
What Is a Student Loan Servicer?
A student loan servicer oversees the administration of your student loans. Your servicer will keep track of your monthly payments, forgiveness credits, late payments, applicable tax forms, payment history, etc. Periodically, your student loan servicer can change. You will be told via email or snail mail when this happens. Make sure you log in regularly to ensure your contact information is up to date.
Paying for Medical School: Federal vs. Private Student Loans
Whenever possible, we recommend you take out federal student loans before private loans when paying for medical school. There is no limit on how much you can borrow federally for medical school. In addition, federal student loans tend to have lower interest rates initially and a plethora of federal protections that private student loans don’t offer. Such as:
- Income-Driven Repayment (IDR) – payment based on income
- Public Service Loan Forgiveness (PSLF) – 10-year tax-free loan forgiveness
- Taxable Income-Driven Repayment Forgiveness – 20-25 year taxable loan forgiveness
- Death and Disability Discharge – student loans are discharged tax-free in the event of death or total and complete disability
- Forbearance – temporarily putting federal student loan payments on hold while private loans offer little to no flexibility if you can’t make your payments
Federal Student Loans
Federal student loans are the most common type of loans med students borrow to finance their education. They come with a variety of loan types, repayment plans, and loan forgiveness options. Most US medical schools will qualify for federal student loans, but for those who attend medical school outside of the US will most likely have to look to the private sector for student loans.
Subsidized vs. Unsubsidized Federal Student Loans
Subsidized federal student loans don’t grow or accrue interest while you are in school. Subsidized loans were discontinued for medical school programs in 2012, and they are now only offered at the undergraduate level. Those who attend medical school now or who are planning to attend will have to utilize unsubsidized loans. These loans begin accruing interest the moment you receive them.
