Effective Payoff Strategies for Med School Loans
This guest contributor post comes to MSF from Jacob who runs Dollar Diligence where he blogs about debt repayment, saving money, and side hustles.
Strategies Toward Paying Off Your Med School Loans
The average student debt is $30,100, according to The Institute for College Access & Success. An increase of 4% when compared with college graduates from 2014. In the case of new physicians, one can expect an average of $166,750 in medical school debt.
There are a lot of numbers out in the world regarding student loan debt. However, debt is debt. Medical school loans and how they can be paid off are no different than average student loan debt. The difference is the amount of money involved.
Because of the higher loan balance after medical school, it can take much longer for doctors to pay off their student debt. Yes, earning capacity can help. However, it can take doctors years to pay off their loans because of the amount of debt accrued. Thus, only making the minimum monthly payment can be one of the most dangerous things a new doctor can do because the loan could take decades to pay off.
Effective Payoff Strategies
The good news is that there are some strategies that can help you pay off medical school loans. To be successful with this, you absolutely don’t want to defer your medical school debt during your residency. Instead, opt for an income-driven repayment plan that bases your repayment on income. As your income increases, your payment increases. And as a doctor, you know you are going to see an increase eventually.
Other things you can do:
- Pay off your private loans first. These loans tend to have higher interest, so they are costing you more. Putting more money into these loans pays down the principal faster so you don’t have to pay more than you have to.
- Refinance your student loans after you have established credit. Since your debt is very high, refinancing for a lower interest rate can reduce the amount of money the loan costs you and the amount of time it takes to pay it off. Most doctors will be eligible once they start earning a higher income – a major factor of the eligibility requirements for refinancing.
- There may be a forgiveness program that you can participate in. For instance, working in a specific community, such as an economically depressed area, can earn student loan forgiveness via the Public Service Loan Forgiveness program. Public non-profit hospitals, the military, and the public health sector may have opportunities available. Teaching a medical-based class at a local college or university could also earn forgiveness.
- A hospital or medical facility may pay a percentage of your loans in exchange for you working with them. Not all of them do, but you may want to consider this when deciding which hospital system you would like to join.
- Make extra payments even if you are on an income-driven repayment plan. Anything extra you can put into the loan will help you pay it off faster. This is a strategy that works for any type of student loan and any type of debt.
- After your residency is finished, continue living the residency Your income is usually relatively low during residency. If you keep living that lifestyle, you will have more money in the bank so you can pay it toward your student debt.
- Many physicians get a signing bonus. It is wise to apply that bonus to your student loan debt. The average signing bonus is less than $25,000. However, it’s an amount that is enough to make an impact on your loan balance.
Budget Your Heart Out
Just like anyone else paying off student loan debt, you want to create a budget. Yes, doctors also need budgets sometimes. This is one of those times. When you are clear of the debt, the fruits of your education will certainly be evident. Your money can go toward the life you want to lead rather than the life medical school loans force you into.
All you have to do is sit down and determine where you need to cut expenses and establish a goal for your loans. Determine a date you want to have them zeroed out by and work toward that goal. Yes, it can be challenging considering that you have enough to think about as you practice medicine. However, the effort can be worth it when you remove years off your loans and save thousands of dollars in interest.
Sadly, student loans even keep doctors from achieving some of their goals, like buying a brand new car or the house of their dreams. Having $200,000 or more in debt can create a very high debt-to-income ratio that makes a bank extremely hesitant to approve a loan. Paying them down lowers the ratio and makes achieving life’s milestones much easier. This is good, because medical school was hard, and you deserve the personal rewards that come with being a great doctor.
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