The price of a good education has been rising steadily for decades. While students in the past could work their way through debt-free schooling with just a summer job, it's become nearly impossible to finance your education without taking out a loan. This has affected one degree track more than most – medical students.
Those who've chosen to study medicine often have a harder time paying off student loans. Not only do they usually spend more years in school than other majors, but they also face low salaries and long hours after graduating – making it harder to pay off the debt, and nearly impossible to generate any income on the side. While doctors can generally look forward to high salaries after they've paid their dues, that often doesn't come until they've spent a decade or more struggling.
Opt for Nonprofit or Government Work
One of the most popular strategies for doctors with high federal loans is to take the public service loan forgiveness route. To qualify, they have to work at a nonprofit hospital or otherwise eligible program and make 120 consecutive payments in order to have their loan forgiven. During this time, they should choose a repayment plan with the lowest monthly payment so their loan will only take a small slice of their income.
After 10 years of regular payments, the remaining balance will be forgiven and they won't owe taxes on that amount.
The government-sponsored National Health Service Corps will repay up to $120,000 in loans for doctors who work in underserved communities that lack access to physicians. Doctors will have to work for at least three years in order to receive the maximum repayment offered.
Refinance Your Loans
If you're going into private practice or aren't sure you want to spend 10 years in the public sphere, refinancing your loans should be your first step. Refinancing will lower your interest rate and could save you thousands or tens of thousands of dollars over the life of the loan.
Some lenders even offer refinancing to medical residents, so they can pay less interest now instead of waiting until they're earning full doctor's salaries.
Lenders have both variable and fixed rate interest loans, the former of which means that the interest rate could change during the life of the loan. The initial rate is often less than the fixed rate loan, which can benefit those who think they can pay off their loans faster. Fixed rate loans are better for those who don't want their monthly payment changing at any point.
Make sure to compare the various interest rates that lenders offer as well as any fees they might tack on. If your goal is to repay your loans as quickly as possible, check that your new loan doesn't extend the payment terms. This will decrease your monthly payments, but increase how much interest you pay over the life of the loan.
Make Extra Payments
When you start making the big bucks after more than a decade of training, it can be easy to finally upgrade your lifestyle. But if you're careful and deliberate, you can use that new salary to increase your student loan payments.
For example, the average resident earns about $55,000 a year while the average physician earns somewhere between $156,000 and $309,000. Instead of buying a BMW or luxury condo, you can take the difference and apply it toward your loans.
You can be debt free after a few years of living this way. Making extra payments will have an even more significant impact if you also refinanced your loans, since you'll owe less in interest.