For many future physicians, managing medical student-loan repayment starts long before the first bill comes due. It is essential to understand how student-loan interest accrues, which repayment plans make sense, the rules on Public Service Loan Forgiveness (PSLF) eligibility, and the consolidation opportunities available.
With federal student-loan repayment options now shifting based in part on when loans were first disbursed, borrowers need to know how those changes could affect monthly payments, Public Service Loan Forgiveness pathways and overall debt management.
Understanding medical student-loan interest
Interest is the cost of borrowing the principal balance, which is the original amount of money borrowed. The interest charged on Federal Direct Loans and Federal Perkins Loans is calculated on a daily basis. This means interest will be calculated each day over the course of a year. This type of interest is called compound interest.
In most cases, each payment you make toward your loan is applied first to any interest and fees that were added during the previous month and then to the principal balance. It is important to request that any money paid above the minimum payment is applied toward the principal balance. Lowering the principal balance is key to lowering the amount of accrued interest and can reduce the amount of money you owe in the long run.
If you have a variable-rate student loan, your loan servicer or lender will notify you each year in writing about changes to the interest rate that will take effect July 1. Your monthly payment amount will be adjusted to account for changes in the interest rate.
Most medical students have Direct Unsubsidized Loans. In that circumstance, you do not pay the interest as it accumulates—even while in school. Rather, it will be capitalized to the loan when you enter repayment. Capitalization means the interest earned will be added to your original loan amount, making your principal balance larger.
How medical student-loan repayment options are shifting
As medical students approach graduation, choosing a federal loan repayment plan can be a major financial decision. That decision is becoming more complicated because federal repayment options now depend in part on when a borrower’s loans were first disbursed.
Reforms to the federal student-loan landscape—passed as part of the One Big Beautiful Bill Act, which took effect July 1 this year—have ushered in changes that could reshape (PDF) how medical students borrow, repay, and plan for the cost of their education.
Under shifts in student-loan repayment policy, borrowers with any new federal student loans disbursed on or after July 1, 2026, only have two repayment plans: the Tiered Standard Repayment Plan and the Repayment Assistance Plan (RAP). Borrowers taking new loans no longer have access to some of the repayment plans that have long been most relevant to physicians and physicians-in-training, including Income-Based Repayment (IBR), Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE).
A recent webinar hosted by AMA partner KeyBank aimed to help students translate those policy changes into effective decisions about borrowing, repayment, and financial planning based on their own situations.
“This is a very complicated topic with a lot of different avenues, especially as it pertains to people working in the medical field,” said webinar host Joseph McGrath, a relationship manager at KeyBank Student Loan Solutions. “A lot of programs are changing. Certain repayment options that were available at some points are no longer available or are being tweaked in some way.”
KeyBank is one of the nation’s largest full-service banks, offering banking, lending and student loan solutions for physicians at every stage of their careers. For medical students to better understand their loan options, AMA members get a free, 30-minute consultation with a student-loan expert.
What to know about new student-loan repayment plans
With most student-loan repayment plans being eliminated in the coming years, medical students will likely repay federal loans through one of a few channels.
The Tiered Standard Repayment Plan: Under this plan, how long a medical student has to repay federal loans will depend on how much they borrowed in loans first disbursed on or after July 1, 2026. Borrowers with lower balances would repay over a shorter term, while those with higher debt loads would pay back the loans over the prolonged window. Under this plan, a medical student who borrows $25,000 or less would have a 10-year repayment term, while someone with more than $100,000 in eligible loans could be placed on a 25-year schedule.
Income-Based Repayment (IBR): This legacy plan still exists, but it will work very differently for many borrowers than the version medical students have traditionally known. Payments are still based on income and family size, and borrowers with older loans can still use the plan under its basic 10% or 15% formulas. But access is now much narrower: only loans taken out and disbursed before July 1, 2026, remain eligible for IBR. The updated rules also drop the partial financial hardship requirement.
Repayment Assistance Plan (RAP): This will become one of the main repayment options for borrowers with newer federal loans. Monthly payments are based on a borrower’s adjusted gross income, with a $10 minimum payment, and the amount owed rises on a sliding scale from 1% to 10% of income. Borrowers also get a $50 monthly payment reduction for each dependent listed on their federal tax return.
What about Public Service Loan Forgiveness (PSLF)?
While repayment pathways are changing for medical student borrowers, Public Service Loan Forgiveness remains an option to help alleviate medical school debt burden. Under the program, physicians and others who make 120 payments on their educational loans while working at least 10 years for a nonprofit or government entity have the remainder of their debt forgiven.
Physicians who are seeking PSLF relief must enroll in the RAP repayment program. Only on-time full payments will count toward the 120 payment total.
What medical students must know about grace periods
A student-loan repayment grace period ordinarily is six months. For medical students transitioning to residency, the post-medical school graduation grace period typically lasts into the fall of their PGY-1 year. During this time no payments are required, but it’s important to understand how it works.
For one thing, during a grace period, borrowers may be able to secure a lower interest rate on your loans by consolidating them. Consolidation can affect repayment-plan eligibility, grace-period timing and access to certain legacy plans. With all those moving parts, borrowers should understand the impact of loan consolidation by reaching out to their servicer or medical school financial aid office before consolidating.
Other key factors that medical students should keep in mind about student-loan repayment grace periods are that:
- The grace period begins on the date of school separation or graduation.
- At the end of six months, the grace period ends and monthly payments begin.
- You may be able to secure a lower interest rate on your loans by consolidating them during the grace period.
- You can ask your lender for more information and be aware that consolidation sometimes shortens or ends the grace period on a loan.
- To meet the consolidation requirements, you must process and verify your application with a consolidation lender.
- The time to complete student-loan consolidation may vary, so experts advise borrowers to consolidate their loans at least 30 days before the grace period ends.
Deferment, forbearance and defaulting
Student-loan deferment is a period of time during which you are not required to make payments. Note the following:
- During the period of deferment, interest continues to accrue on the loan.
- Deferment is not automatic; you must apply for it.
- The terms of deferment may differ based on the type of loan or the type of lender. Contact your lender for more information.
Some student-loan deferment options remain available to medical students and other borrowers, but federal rules are changing. For example, economic hardship and unemployment deferments are scheduled to be eliminated beginning July 1, 2027.
Forbearance is a temporary end to or reduction of payments, or an extension of time for making payments. Lenders may grant forbearance if you are having difficulty repaying your loan but aren’t eligible for a deferment. When you’re in forbearance, interest continues to accrue on your account.
Federal forbearance rules are also changing beginning July 1, 2027. To understand forbearance eligibility and options, borrowers should confirm current limits and eligibility with their loan servicer.
If you are late on a scheduled payment, you are considered to be delinquent on the loan. This delinquency can be reported to national credit bureaus and may remain on your credit report for years. This may affect your ability to obtain an auto loan, credit cards, or other financing.
If a borrower fails to make payments over a period of time, the loan goes into default. The consequences of default on student and medical education loans include that the entire unpaid amount of the loan, including interest, may become immediately due and payable.
If you are having trouble repaying your loan, consult your lender for options that may be available to help.
Help with student-loan repayment
Some hospitals and other healthcare employers will offer student-loan repayment in an effort to recruit physicians. This can be a substantial benefit for a resident with significant residual medical education debt.
Many such loan-repayment programs come with strings attached. This often includes a requirement that the physician stay and treat patients within a certain area or for a specified number of years.
A variety of organizations offer loan-repayment assistance in exchange for service in physician-shortage areas. These include the National Health Service Corps.
The Association of American Medical Colleges maintains a helpful list of student loan repayment, forgiveness, scholarship and other programs by state.
The AMA provides additional help with refinancing medical student loans, including AMA-negotiated options for refinancing student loans through KeyBank, a preferred provider of the AMA Member Benefits PLUS program, through which AMA members have access to special discounts and offers.
Learn more about federal repayment versus private refinancing of medical student loans, and check out this video interview about relieving money anxiety and achieving financial wellness.
Read more about AMA policy on medical education costs and student debt. That includes support for the Resident Education Deferred Interest (REDI) Act (H.R. 2028/S. 942). “The REDI Act would restore the ability for eligible borrowers who are enrolled in accredited medical and dental internship or residency programs to defer the interest accrual on their federal student loans during this required period of training,” says a letter sent in September (PDF) to congressional leaders on the issue by the AMA and more than 40 national medical specialty societies and other physician organizations.
