Kari Brayden, student financial services coordinator at the UVM Larner College of Medicine
Kari Brayden, student financial services coordinator at the Larner College of Medicine at the University of Vermont, shares details regarding the current medical student debt environment, as well as financing options. Learn more about medical student financial services here.
The national mean debt for a medical school graduate hovers around $181,179*. While it’s true new physicians will eventually be considered high-earning, many finish their medical degree with an unusually high debt burden. In fact, 75 percent* of the nation’s M.D. graduates rely on education loans, so the student loan industry is certain to remain in the spotlight for years to come.
Taking the time to evaluate the most affordable repayment route is critical for medical students. While the Larner College of Medicine at the University of Vermont has limited subsidized institutional loan programs for medical students (for example, the Larner Loan Fund), the majority of medical student borrowing falls under federal lending through the U.S. Department of Education/Federal Student Aid. Federal interest rates for the 2017-18 academic year have remained high at a fixed 7 percent for the Graduate PLUS loan and a fixed 6 percent for the unsubsidized Stafford loan. These loans are easy to obtain, and come with a myriad of repayment benefits like residency deferment, loan forgiveness, and income-based billing – a particularly handy option during post-graduation training. However, many borrowers don’t always need these perks or even qualify, and as a result, private refinancing is gaining popularity for not only new graduates, but also those well into their career.
There are good reasons for the refinancing trend of the past few years. Private lending companies have realized that federal student loan programs have not proved to be the ultimate option in terms of repayment – a scary possibility for students considering forfeiting the federal benefits mentioned above. However, private refinancing can save you a considerable amount of money and allows you to retain perks like unemployment protection, a tax deduction for interest paid, death discharge, and auto-payment discounts. If you’re intrigued, here is a credible article that dives into savings examples, as well as outlines the 6 better banks to refinance with at this point in time.
It is important to note that refinancing is different than the federal consolidation program. With consolidation, loans remain federal and Federal Student Aid simply calculates a weighted average interest rate for one single ballooned loan. The idea is that one loan is easier to manage with one single servicer (many graduate students hold 15 or more underlying loans, all from different semesters and degrees).
So, should you refinance after graduation or post-residency? There is no standard advice, and individual circumstances must be evaluated. Someone with only $100,000 in debt (yes, that’s low for an M.D.) going into a lucrative field, such as radiology or surgery, may be more inclined to leave the federal program. On the other hand, someone owing $300,000 going into a primary care field may be inclined to target federal loan forgiveness. Ultimately, there are four factors that must be considered:
- How long is your training?
- What is your specialty?
- What do you owe?
- Are you married, or will you be? (Spousal earnings can impact income-based billing)
While you are all future M.D. graduates, these factors differentiate you, so establishing a one-size-fits-all approach is difficult. Whether or not you leave your debt in the federal program or move it to a private refinanced product is, fortunately, up to you as an empowered borrower. Here is a helpful quiz to guide you. (Please note, if you’re still in school and have more borrowing ahead of you, we recommend you continue with federal borrowing; obtaining a “private loan” for tuition is very different than a refinanced portfolio after graduation.)
Here’s one perfectly acceptable option: a federal income-based bill during your residency and/or fellowship, during which you may be working toward Public Service Loan Forgiveness (PSLF) (since academic hospitals are nonprofit). Post-training, you will be at a more telling crossroad. If you’re eager to learn more now, though, here’s that quiz again! My next article will discuss PSLF in relation to medical school graduates.
Whether you are a first-year medical student or about to match to a residency, it is never too early to think about your debt portfolio. You are not alone! I encourage you to reach out to Student Financial Services at any time and we would be happy to assist you in a personalized repayment strategy.