Medical Residency Personal Finance

5 ways to manage federal medical student-loan debt


When it comes to handling their federal student-loan debt, many medical residents don’t realize how many options they have. With 80 percent of residents reporting student-loan debt of $100,000 or more, it’s critical that you get up to speed to ensure you’re on the right road to repayment.

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Here are five key options medical residents and fellows need to understand about their options for managing this debt, as shared with the AMA by Alex Macielak, who as a veteran of the student-loan industry has helped thousands of physician borrowers determine their optimal repayment strategy.

Student-loan refinancing allows you to change your loan terms and lock in a lower rate. When refinancing, the lender will take current income, credit and overall financial health into account when assessing what your new student-loan rate will be.

Refinancing will allow you to pay down the debt much more economically, and in many cases, a shorter period of time, said Macielak, who manages business development and partnerships for Laurel Road. The company is a preferred provider of student-loan refinancing of the AMA and collaborated in the creation of this story, which contains links to advertising content.

Between September 2013 and December 2017, MD- and DO-degree holders who refinanced with Laurel Road and shared information about their previous rates saved more than $29,000 on average over the life of their loans. That figure assumes the same loan terms for the previous and refinanced loans, and payments made to maturity with no prepayments. Of course, Macielak noted, actual savings for individual loans vary based on your loan balance, interest rates and other factors.

AMA members get an additional 0.25 percent rate discount when refinancing with Laurel Road.

“Sometimes life gets hard, and that means that making your student-loan payments is just not possible. And that’s where forbearance comes in,” Macielak said. College graduates who took out federal student loans to pay for school have the option to forbear their student loans for up to 36 months without having to give a reason or cause.

During forbearance, interest is accruing—with no subsidy on subsidized loans—and is capitalized every 12 months. As a result of this capitalization, borrowers accrue more interest in each subsequent year that they use forbearance.

“The loans start to snowball,” Macielak said. “Forbearance is the costliest way to approach loans during residency.”

There is another option that residents and fellows might consider to make their student-loan payments more manageable during a time of financial distress.

Under certain circumstances, Laurel Road may offer residents and fellows the option to pay $100 a month during training and for up to six months after. You may qualify if you’re employed full-time as an intern, resident, fellow or in a similar postgraduate training position at the time of loan disbursement.

The default repayment plan if no action is taken on your loans is a 10-year standard plan, meaning you’ll make the same payment every month for 10 years, which will result in the loan being completely paid off. 

Ten years is the shortest standard repayment term offered by the federal government. If you want a longer term, you need to first consolidate your loans to reach loan balance thresholds allowing you to qualify for longer repayment periods.

Keep in mind that consolidating your loans with the federal government results in one new loan that has the weighted average interest rate of your original loans rounded up to the nearest one-eighth percent. 

“A federal loan consolidation actually causes your interest rate to rise slightly,” Macielak said.

Income-driven repayment was introduced in 2009 to provide borrowers with liquidity needs an outlet other than forbearance. There are three primary income-driven options: income-based repayment, pay as you earn, and revised pay as you earn. All three require the borrower to make payments based solely on their adjusted gross income and family size—not how much they owe.

Monthly payments are calculated using the following formula: Adjusted gross income minus 150 percent of the federal poverty line for the borrower’s family size multiplied by 10 percent or 15 percent, divided by 12 months. 

Those planning to work in nonprofit or government facilities for at least 10 years can use income-driven repayment to pursue the Public Service Loan Forgiveness (PSLF) program. This option allows nonprofit employees to have their federal loans entirely forgiven—tax-free—after making 10 years of income-based payments. This program can be valuable to those who anticipate working in qualifying organizations for at least 10 years.

But if you’re considering PSLF, keep an eye on Congress because there has been talk of eliminating the program.

“Clearly, there is no one-size-fits-all approach to student-loan repayment,” Macielak said.

To help AMA members develop or refine their optimal repayment strategy, Laurel Road has created a free student-loan assessment tool. It takes just a couple of minutes to enter your loan and financial information into this online calculator. You will then get a personalized breakdown of all available repayment options—both federal and private.

This tool gives physicians the information necessary to make an informed decision regarding medical student-loan repayment.