Loan Repayment and Consolidation
Understanding your loan repayment options
Medical student debt outpaces debt for any other educational path. Becoming a physician is expensive, and eventually it comes time to pay back those six-figure loans. Some borrowers will make payments during residency, keeping overall interest costs down, while others postpone until training is over. Salaries for physicians are high enough that loan repayment is affordable with most lifestyles. Service-based loan forgiveness may be an opportunity for some physicians to help dramatically reduce or eliminate debt within your first decade of practice.
The federal government offers several repayment options for federal loans. Private lenders will have their own terms and timelines. If you take out a loan with a variable interest rate, the interest you’re expected to pay by the time you graduate medical school or complete residency could be much higher than when you received your first disbursement.
When looking at how you’ll repay your loans and deciding which makes the most sense for you, always use a loan repayment calculator, like the MedLoans® Organizer and Calculator (MLOC)(students-residents.aamc.org), to understand loan repayment scenarios. A calculator will help you see what it costs to pay back your loan for different time periods. The National Student Loan Data System (NSLDS)(www.nslds.ed.gov) will show you numbers for what you owe the federal government.
Standard, extended, and graduated repayment plans(studentaid.ed.gov) are offered by the federal government for federal loans. Additionally, there are four different income-driven repayment plans(studentaid.ed.gov) that borrowers can use to pay back their federal loans. Payments are determined based on income and family size. In some cases, payments are capped after a certain number of years with the remainder of your balance forgiven. The income-driven plans are:
- Revised Pay As You Earn Repayment Plan (REPAYE Plan)
- Pay As You Earn Repayment Plan (PAYE Plan)
- Income-Based Repayment Plan (IBR Plan)
- Income-Contingent Repayment Plan (ICR Plan)
These income-based options are very practical during residency when receiving a lower salary means you may be able to only make lower payments.
One way to simplify repayment of your loans is consolidation. Instead of juggling multiple loans (and multiple monthly payments), you have the option to consolidate all your federal loans into a Direct Consolidation Loan(studentaid.ed.gov). This program can improve your overall debt situation by:
- Changing your variable interest rate loans to a fixed interest rate. The fixed rate is based on the average of the original loan’s interest rate, rounded up to the nearest one-eighth of 1%.
- Extending the repayment period of your loan by up to 30 years. This could lower your monthly payments. However, you'll also pay more interest over the life of the loan. You also might lose some of the benefits of the original loans, such as interest rate discounts or premium rebates.
Consolidating Federal and Private Loans
There are many loan consolidation programs that offer to consolidate private and federal debt together into one monthly payment. Although one monthly payment for all debt sounds tempting, the resulting interest costs might not be worth the convenience.
The Direct Consolidation Loan is the most cost-effective way to manage your federal debt because the federal loans remain at a simple interest rate—meaning that you only pay interest on the principal balance you borrowed. By transitioning your federal debt into a private loan consolidation program, your federal debt could begin to compound interest and you will lose out on the low interest rates you received with federal loans.
Private loans will most likely have higher interest rates than federal loans. One solution is to defer your federal loans until you can pay off your private loans. In order to pay less interest on your loans and pay them off faster, it might make sense to keep your federal loans within a federal consolidation program and manage your private loans separately.
The AAFP has partnered with SoFi to offer its members a rate discount when they refinance their student loans. Get more details about the program here. There are many lenders offering consolidation programs, all with unique borrower benefits. Be sure to check the eligibility requirements of any benefit that is being offered to make sure you qualify