Paying off your medical school debt might seem impossible, but there is a way through the seemingly endless cycle of monthly payments and high interest rates. As a student, you knew that med school loans were just a part of the deal. You would sacrifice future earnings to fulfill your dream of being a practitioner. After all, saving someone’s life and providing them with the highest caliber of care is more important than debt. But that doesn’t mean your current student debt doesn’t have a serious impact on your financial and mental health.
Full-fledged doctors can find themselves barely getting by, crippled by repayments and other expenses. You have other dreams outside of work that feel impossible given the amount of money you owe, and even with a six-figure salary, you won’t be out of the cycle anytime soon. With some financial planning and practical strategies, you can begin to pay back your student debt faster. It won’t happen overnight, but these tips will allow you to make significant strides toward repaying debt without having to lose your entire income or reduce your quality of life in the process.
Start Paying During Your Residency
A lot of med students defer their payments throughout their residency, but you should avoid this common mistake. If you have unsubsidized student loans, you’ll still accrue interest that makes your future monthly payments even higher. Although the option of deferment can lower some of your stress right now, it will likely only cause you more in the future. The monthly cost of your repayments on a 10-year plan could cost $300 to $500 extra than if you started paying right away. Although you might not be earning a lot during your first year of residency, you can still make small contributions that prevent the interest from piling up and negatively impacting you later.
Use an Income-Driven Repayment Plan
IDRs give graduates the greatest protection against overwhelming debt by factoring their income level and living expenses into the equation. Rather than demanding a certain percentage of your loans be paid back each month, an IDR is flexible and allows you to only pay a certain portion of your income. This ensures you’ll have enough money left over to pay for housing, food, bills and other costs without having to trade off anything to stay current with your payments.
An IDR also earns subsidy, which means federal loans will eventually have 50 percent of their interest rate covered. The thing to keep in mind about all debt repayments is that it takes time for most of the long-term benefits to take effect. Just because you are going to have the expense for 10 or more years doesn’t mean there are no advantages to paying regularly.
Look into Refinancing
You might not mind having to make payments for longer terms if you ultimately have to pay less. Residents and doctors who want to start families, buy houses and invest their earnings in other areas of their life might look into refinancing student loans in order to save money on their regular payments. Extending the term of a loan agreement can significantly reduce the cost you own each month, and it gives you greater flexibility in how you pay back your debt. Refinancing with a private lender allows you to trade your existing loans for a new one that has more agreeable terms and possibly a lower interest rate.
Explore Loan Forgiveness Programs
Public Service Loan Forgiveness (PSLF) allows graduates who work in the military, academic settings, public and nonprofit hospitals the ability to have their remaining balance forgiven after 10 years of public service. If your current repayment plan is 10-years, this might not seem great, but for someone who has a 25-year agreement and owes well over $200,000, you can not only build a rewarding career but also look forward to your remaining balance being relieved after a decade. For a student who becomes a practicing physician in their mid-20s, PSLF would allow them to become debt-free before 40.
Use Your Signing Bonus to Make a Big Payment
Most new physicians receive a signing bonus of around $34,000. Placing a large lump sum payment on your student loans can drastically lower the monthly expenses and cut interest rates. Any type of extra income you earn that can contribute a significant amount toward your debt should be considered as well; that annual bonus of $20,000 can even be cut in half and be used to both lower your costs and build financial security.
Doctors earning a good salary should also consider ways they can cut back on living expenses as much as possible to pay larger sums of money to their lenders. Although living like you’re in college for a few more years isn’t the most desirable, it can also help you save an additional 30 to 50 percent of your income and gain serious headway in living debt-free.