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Top 9 Strategies for Paying Off Medical School Debt

Kat Tretina
strategies for paying off medical school debt
strategies for paying off medical school debt

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It’s no secret that medical school debt can be staggering.  According to the Association of American Medical Colleges (AAMC), 73% of medical school students graduate with debt. Worse, the median amount of student loan debt per borrower topped $200,000.

Even though medical school graduates can command high salaries — the median salary was $208,000 in 2021 — it can take years to start earning that much, and student loan payments can eat up a significant portion of your income in the meantime.

If you are interested in paying off medical school debt as quickly as possible, the key is understanding all of your options.

How to pay off medical school debt

Whether you have federal or private student loans (or a mixture of both), your debt may be overwhelming. However, you can tackle your loans, get rid of your debt faster, and save a substantial amount of money with these tips:

1. Make payments during your residency

After medical school, you’ll typically enter a residency program. Residencies last for several years and give you on-the-job training under the supervision of licensed physicians.

During your residency, you will earn a salary. The American Medical Association reported that residents make $60,000 per year on average.

Although that amount is lower than what you’d earn as a licensed physician, it can still give you a livable income. And if you can make payments on your student loans during your residency instead of deferring them, you can cut down on interest charges and save money.

2. Take advantage of tax deductions

With the student loan interest tax deduction, you can deduct up to $2,500 in student loan interest or the actual amount of interest you paid, whichever is less. The student loan interest tax deduction is an above-the-line deduction, so you can claim it even if you don’t itemize your deductions.

You likely won’t qualify for the student loan interest tax deduction once you begin working full-time as a physician, but during your residency, you might. You can claim the full value of the deduction as long as your modified adjusted gross income (MAGI) is below $70,000 ($140,000 if married filing jointly). You may be able to claim a reduced amount if your income is $70,000 to $85,000 ($140,000 to $170,000 if married filing jointly), and you’re ineligible for the deduction if your MAGI is over $85,000 ($170,000 if married filing jointly). 

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3. Enroll in automatic payments

Most lenders offer a 0.25% interest rate reduction if you enroll in automatic payments. That may sound small, but consider this example:

Jeff has $200,000 in student loans at 5.0% interest and a 10-year loan term. He enrolled in automatic payments right away and qualified for an autopay discount, reducing his rate to 4.75%. Thanks to the automatic payment discount, Jeff would save over $2,900 over the life of his loans.

4. Explore loan forgiveness

As a doctor, you may decide to work for a non-profit hospital, health clinic, or government agency. If that’s the case and you have federal student loans, you may be eligible for Public Service Loan Forgiveness (PSLF). Through PSLF, the government will discharge your federal loans if you work for a qualifying employer for 10 years while making 120 monthly payments under a qualifying payment plan.

Loans forgiven through PSLF aren’t taxable as income, so loan forgiveness can provide you with significant relief.

5. Utilize income-driven repayment plans

Federal loan borrowers who can’t afford their payments can lower them by enrolling in an income-driven repayment (IDR) plan. Your monthly payments are calculated as a percentage of your discretionary income, and if you make your payments for 20 or 25 years (the repayment term varies depending on the plan), your remaining balance may be forgiven.

There is a provision in place that makes loans discharged through IDR plan forgiveness excluded from federal income taxes, but that provision is currently scheduled to expire in 2025. Although it could be extended, there is a chance that it won’t be, and any loans that are discharged will be considered taxable income.

Talk to a tax professional to discuss the potential tax implications if you plan on pursuing loan forgiveness through an IDR plan.

6. Look for signing bonuses

Signing bonuses for physicians are common, and they can be lucrative.

According to Merritt Hawkins, a physician search firm, The average signing bonus for a physician was $32,692. If you use your signing bonus to make a lump sum payment against your student loans, you can save a substantial amount of money.

For example, Jeff received a $30,000 signing bonus. He applied it to his $200,000 of student loans with a 4.75% interest rate and a 10-year repayment term. Thanks to his lump sum payments, he will save over $18,000 in interest charges and will pay off his loans two years sooner.

7. Consider moonlighting or side gigs

As a medical school graduate, creating additional streams of income can be a great way to pay off your student loans faster.

     Moonlighting: One of the most common ways to earn extra money is through moonlighting. If you’re not familiar with the term, moonlighting is when physicians work additional shifts, either for their current employer or another healthcare facility. Your primary employer may have limits on how many hours you can work per week or month, but moonlighting can be lucrative. According to the Student Doctor Network, you can earn $100 to $200 per hour. You can find potential moonlighting opportunities on Moonlighting.org.

     Side gigs: If you don’t want to spend more time working in a hospital, another option is to take on other side gigs. Medical school graduates may find they can earn significant amounts of money by tutoring premed students, for example, through the Princeton Review or MedSchoolTutors.

By earning more money, you can make additional payments toward your student loans. Here’s how additional payments would affect a borrower’s repayment cost with $200,000 in student loans at 5.00% interest and a 10-year term: 

 

Minimum Monthly Payment

Additional $100 Per Month

Additional $500 Per Month

Additional $1,000 Per Month

Payment Amount

$2,121

$2,221

$2,521

$3,121

Time in Repayment

10 Years

9 Years 6 Months

7 Years 9 Months

6 Years 3 Months

Total Repayment Cost

$254,562

$251,229

$241,200

$233,153

Total Savings

 

$3,333

$13,362

$21,409

 

To find out how extra payments can affect your repayment cost, use the student loan payoff calculator

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8. Research loan repayment assistance programs in your area

Depending on your practice and your location, you may be eligible for national or state loan repayment assistance programs. These programs will give you money to pay off some or all of your medical school student loans. In exchange, you’re required to work in high-need areas for a specific amount of time, such as one to three years. For example:

     National Health Service Corps (NHSC) Loan Repayment Program: The NHSC loan repayment program provides loan repayment assistance to licensed primary care clinicians in eligible disciplines that make two-year service commitments. Qualifying physicians can get up to $50,000 for the two-year service term to repay their student loans, and you can extend your contract for additional repayment assistance.

     Arizona: The Arizona Department of Health Services operates a loan repayment program that provides up to $65,000 in student loan repayment assistance for physicians and dentists that make two-year service commitments to work in facilities located in health professional shortage areas.

     Washington, D.C.: The DC Health Professional Loan Repayment program encourages physicians to work full-time for facilities in health professional shortage and medically underserved areas. Qualifying healthcare providers can get up to $151,849 in loan repayment assistance if they commit to a four-year service term.

To find other programs you may be eligible for, you can search the AAMC database or your state education agency.

9. Refinance some (or all) of your student loans

As a medical school graduate, you’re a prime candidate for student loan refinancing. You likely have a higher-than-average income, so you have a better chance of qualifying for a loan and securing a lower interest rate than you have now on your existing student loans.

When you refinance, you combine some or all of your existing student loans into a new loan. You can change your loan terms, such as qualifying for a lower rate, switching from a variable rate loan to a fixed rate loan, or even change your repayment term to get a lower payment.

Medical school graduates usually focus on getting the lowest possible interest rate to help them save money and get out of debt faster. The savings can be significant.

For example, Jeff refinanced his $200,000 of student loans. He wants to get rid of his debt as soon as possible, so he chose a 7-year loan term at 3.5% interest. Not only would Jeff eliminate his debt three years earlier than originally scheduled, but he’d also save over $28,000.

 

Original Loan

Refinanced Loan

Loan Term

10 Years

7 Years

Monthly Payment

$2,121

$2,688

Total Interest

$54,562

$25,792

Total Repayment Cost

$254,562

$225,792

Overall Savings

 

$28,770

 

Keep in mind that refinancing has some drawbacks. If you have federal loans, they’ll become private debt, and they’ll no longer be eligible for federal benefits. Some borrowers opt to refinance only their private loans, or they may refinance only the federal loans with the highest interest rates, such as Grad Plus Loans.

Paying off medical school debt

Now that you’ve learned how to pay off medical school student loans, you can come up with a strategy for managing your debt. Combining a few of the tips we’ve outlined in this article, such as refinancing medical school loans, repayment assistance programs, and moonlighting, should help you pay off your loans faster and save a lot of money.

If you’re ready to start the student loan refinancing process, you can use Purefy’s Compare Rates tool to get quotes from top refinancing lenders without affecting your credit score. 

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Education Loan Finance is a nationwide student loan debt consolidation and refinance program offered by Tennessee based SouthEast Bank. ELFI is designed to assist borrowers through consolidating and refinancing loans into one single loan that effectively lowers your cost of education debt and/or makes repayment very simple. Subject to credit approval. See Terms & Conditions. Interest rates current as of 09-01-2022. The interest rate and monthly payment for a variable rate loan may increase after closing, but will never exceed 9.95% APR. Interest rates may be different from the rates shown above and will be based on the term of your loan, your financial history, and other factors, including your cosigner’s (if any) financial history. For example, a 10-year loan with a fixed rate of 6% would have 120 payments of $11.00 per $1,000 borrowed. Rates are subject to change.

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Fixed rates range from 3.99% APR to 8.24% APR with a 0.25% autopay discount. Variable rates from 2.24% APR to 7.99% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.

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Actual rate and available repayment terms will vary based on your income. Fixed rates range from 3.99% APR to 8.74% APR (excludes 0.25% Auto Pay discount). Variable rates range from 2.74% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account.

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Fixed Rate Loan Terms: 5 years/60 monthly payments, 7 years/84 monthly payments, 10 years/120 monthly payments, 15 years/180 monthly payments, or 20 years/240 monthly payments. Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. This rate is expressed as an APR. Fixed APRs range from 3.94% to 8.48% APR [low to high range with 0.25% auto-debit rate reduction]. Rates are subject to change without notice. Fixed rates will not change during the term. Since there are no fees associated with this loan offer, the APR is the same percentage as the actual interest rate of the loan including a 0.25% auto-debit rate reduction. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. All estimates are based on information provided by you and are for informational purposes only, accuracy is not guaranteed and may not reflect actual rates or savings and do not constitute an offer of credit. Your actual rate, payment and savings may be different based on credit history, actual interest rate, loan amount, and term, including your cosigner [if applicable]. If applying with a cosigner, we use the higher credit score between the borrower and the cosigner for approval purposes. All loans are subject to credit approval.

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