Average Medical School Debt Is $200k: Pay It Off Quickly and Easily

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Whether you’re just starting a residency program or in your first years of practice, you may be wondering how to pay off medical school debt quickly and easily. It’s a common question for eight out of ten new doctors as they come to grips with the reality of loan repayment.

Following an extensive medical school education, new doctors are saddled with an average of $200,000 in student loan debt with high interest rates. Then once the academic coursework has come to a close, you are required to participate in a residency program that will last between three to five years (or possibly more depending on your chosen specialty).

In 2019, new doctors in residency were paid an average stipend of approximately $61,200 per year, with family medicine, internal medicine, and emergency medicine trainees bringing in the least at about $57,400 per year. This makes paying large amounts of student debt nearly impossible and causes many residents to defer federal student loan payments during their residency or fellowship.

Unfortunately, this is a double-edged sword. While the relief from some debt payments is welcome, pausing loan payments doesn’t stop interest from accruing. With an average debt of $200,000 at about 6% interest, this adds an additional $37,000 in interest to the principal during the deferment period.

How to pay off medical school debt faster

The good news is that once residency is completed, doctors are well compensated and that gives them the means to accelerate medical school debt repayment.  By reducing their loans quickly, doctors are then able to focus on buying homes, retirement goals, and plans for the future.

Here are some of the best ways to speed up paying off medical school debt, which can often become even more effective when implemented in tandem.

Student loan refinancing

Refinancing medical school loans is a terrific way to create a more manageable student loan situation. Starting out with substantial debt is tough for anyone entering the work force, but as a new physician, student loan refinance companies see value in your long-term potential earning capabilities and may offer you excellent terms.

In addition, both federal and private student loans can carry a high interest rate. By refinancing to a lower rate, you could save you a lot on interest charges over the life of the loan.  Let’s look at several reasons to consider a private refinance loan to pay off your student loan debt:

  • With a lower interest rate, you would save money both month-to-month and long term as you pay off your loan. Plus, you’ll be better positioned to pay the loan back ahead of schedule by using your savings to pay toward your principal.
  • You have the ability through refinancing to consolidate debt into one loan. If you are like most people coming out of medical school, you have several student loans all with different lenders, due dates, and interest rates. By consolidating all of your student loans into one straightforward payment, you alleviate the need for multiple disbursements.
  • Refinancing gives you the flexibility to tailor your repayment plan to your specific needs. You work with a lender to determine the length of time you want for repayment; do you want a lower monthly payment or are you interested in paying off the loan as quickly as possible so that you can focus on future plans?
  • By using Purefy’s Comparison Rate Tool, you are able to view up-to-the-minute rate comparisons from highly trusted lenders. There are no charges or fees for acquiring a refinancing loan and no penalties if you choose to pay off the loan early.

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Make larger monthly payments

Another solution to pay down medical school debt quickly is to include additional principal with each monthly payment to reduce the overall balance and save even more money on interest charges. 

Use cash windfalls to make lump sum payments

Early in your medical career, there is an excellent chance that you will receive a signing bonus that may, on average, exceed $25,000 for primary care doctors and over $75,000 to $100,000 for specialty doctors. When you are thinking about how to pay off medical school debt, this type of cash windfall is a perfect way to reduce the principal in one fast payment. Other helpful windfalls could include tax returns, work bonuses, or monetary gifts.

Other repayment solutions for medical school loans

If now is not a good time to consider the refinancing option, there are additional ways to navigate medical school loan repayment and make them easier to manage. Consider these options as well which could be a better fit for you and your loan payoff needs:

  • Public Service Loan Forgiveness — This may be a good solution if you are willing to work in the public or not-for-profit sector for a period of time. Public Service Loan Forgiveness (PSLF) is for federal student loans only and requires you to work at a PSLF-qualified full-time job while making 120 payments; any debt remaining after the 120 payments will be forgiven.
  • Income-driven repayment plans — If you hold federal student loans, enrolling in an income-driven repayment plan may make sense. These types of plans will reduce your monthly payment to between 10% and 20% of your discretionary income taking into consideration household size, income, and geographic location. 

These plans will also extend your repayment period to a maximum of 25 years. At the end of the term, any remaining principal will be forgiven by the U.S. Department of Education.  Remember: the amount forgiven will have tax consequences because it will be recognized as income, but it will be much less than the amount owed.

While this isn’t the fastest way to pay off debt, it does stop the balance from inching upward too quickly with accrued interest until you are able to more fully participate in repayment.

  • State-level repayment programs — There are many programs sponsored by individual states to help physicians and nurses repay their school loans.  These types of programs provide incentives for professionals to practice in “health professional shortage areas” (HPSA) that are designated by the federal government as medically underserved.

Most of these programs have a defined period of time that a physician must commit to work before receiving a loan repayment or special payout.

Without a doubt, becoming a doctor is an expensive proposition. After a grueling educational process, you are faced with significant student loan debt. As you consider the options on how to pay off medical school loans, remember that refinancing will allow you to reduce your interest rate, consolidate loans, and define more desirable terms, such as lower monthly payments or shorter payment terms.  

Compare rates today to see the best options for saving money when refinancing medical school loans.

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