How to pay off medical school debt: A comprehensive guide

Medical school student debt is a burden that follows many physicians well into their career. Fortunately, there are sound financial strategies that can help you pay your debt off more quickly and reduce the overall amount you'll end up paying. This guide will help you:

  1. Understand your options
  2. Learn how other physicians are paying off debt
  3. Know when and where to get help

How does your debt compare?

Most physicians finish residency with more than $150,000 in medical school student loans, and nearly half (48%) say they owe more than $200,000. It's not uncommon for new doctors to carry student loan debt of $300,000 or more.

A 2019 medical school debt survey conducted by Weatherby Healthcare produced similar findings. Of the physicians surveyed who were still carrying medical school debt, 49% said they still owed more than $200,000, and 32% had more than $250,000 in medical school debt remaining.

Most (59%) expect to be paying off their loans for at least more six years, and 34% believe it will be more than 10 years before their medical school debt is eliminated.

However, the survey's finding also shed a ray of hope for those physicians who are aggressive in their debt repayment strategies. Of the respondents who had already paid off their medical school loans (35%), a majority were able to do so relatively quickly. Nearly three-quarters (74%) were medical school debt-free in five years or less, while 47% had paid off their loans in two years or less.

Read the full Weatherby Healthcare 2019 medical school debt report


Understanding your medical school debt repayment options

Every physician's circumstances are unique and there are many different ways to eliminate medical school debt. Which strategy is best for you will depend on factors such as:

  • Your specialty
  • How much you earn
  • Where you want to work
  • Your desired lifestyle

Here's a summary of the most common repayment options along with insights on when and why you should consider them.

Federal student loan consolidation

If you have multiple federal loans, it may be helpful to consolidate them. However, it's not a requirement.

Usually, you only need to consolidate your loans if you plan to pursue Public Service Loan Forgiveness (PSLF). Even then, you're not required in all circumstances to consolidate your loans to qualify for PSLF. However, it may be a good idea to consolidate your loans right out of medical school for a few reasons:

  1. It will automatically convert all federal loans to a qualified loan type that will work for all forgiveness and income-driven programs, including PSLF.
  2. It allows you to choose the loan servicer.

Jan Miller, president of Miller Student Loan Consulting, cautions against consolidating if you are an attending physician and have already been making qualified payments.

"If you're three or four years into your career, and you've already been making qualified payments, you want to pause before you consolidate," Miller says. "By consolidating, you may cancel your qualified payments and have to start from scratch."

If you consolidate with the intent to pursue Public Service Loan Forgiveness, Miller recommends choosing FedLoan as the loan servicer. "There are a dozen loan servicers who manage the debt but only one of them actually administers the Public Service Loan Forgiveness Program and that's FedLoan," he says. "You can still be in Public Service Loan Forgiveness with any of the other loan servicers, but you will have to report your qualified payments to FedLoan, so why not cut out the middleman?"

Private loan refinancing

If Public Service Loan Forgiveness isn't your preferred option, refinancing with a private lender like SoFi or CommonBond may be a better choice. Refinancing with a private lender means changing your federal loans into a bank loan with a lower rate and/or better repayment terms.

If private loan refinancing makes sense, you can apply for loan forbearance during residency and refinance once you become an attending physician. This means you won't have to make payments while your earnings are low during residency, and you'll have more favorable terms when your income is higher as an attending.

This option is attractive to many physicians because it's a simple, easy approach. You just apply for deferment once a year and then refinance when you're ready. You pay the loan off just like you would your house or your car.

Refinancing makes sense when you expect to have a high income as an attending. "If your annual income is going to be 70% or more of the amount of debt, then it's a good solution," Miller says. "Especially if you have a strong debt-to-income ratio."

Another advantage of private loans is they can also be refinanced more than once during the lifetime of the loan.

Joy Sorensen Navarre, president and founder of Navigate, a consulting firm that specializes in medical student debt, recommends reviewing your loans annually. "Some physicians think you can only refinance once and then you're stuck — but you're not," Navarre says. "Interest rates are changing every month, so it's a best practice to shop for interest rates on an annual basis, even if you've already refinanced. Interest rates may have dropped or your financial underwriting as an attending might be stronger and you can qualify for a better interest rate."

Public Service Loan Forgiveness

Public Service Loan Forgiveness (PSLF) is a good option if you plan to stay in the nonprofit world working for a hospital or university once you become an attending physician. This federal program forgives the remaining loan balance tax free after 10 years of service of working full-time for a qualified employer. PSLF is not an option if you plan to work for a private practice or a for-profit group.

The total savings can be significant, especially if you have a higher student loan balance. However, for physicians with lower student debt, it may not be the best option.

“Your qualified payment total is going to land somewhere between $100,000 and $200,000 typically, so if you don't have any more debt than that, it doesn't make sense to do it," Miller says. You can estimate your total loan cost under PSLF by multiplying the qualified payment amount by 120 (the number of required monthly payments over 10 years of service).

In addition to working full-time for a qualified employer, you must have PSLF-qualified Direct Loans and be enrolled in an income-driven repayment program that will determine your qualified payments.

The most common income-driven programs 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)

Deciding which of the four income-driven programs to use depends on your situation, according to Miller. "Whether or not you're married, whether or not your spouse has student loans themselves, and how old your loans are can all affect your decision," Miller says. "Not all programs are available for all people, not all programs are suitable for all people, and there's no one-size-fits-all solution."

An experienced student loan consultant can help you select the right program for your individual needs and circumstances.

Income-driven plans

Whether or not you qualify for Public Service Loan Forgiveness, you can still enroll in an income-driven plan. These plans will forgive the remaining balance after 20 or 25 years, depending on the plan, and your payment size depends on your debt-to-income ratio.

If your income is lower compared to your debt, an income-drive plan is a good option. For example, if you make $150,000-$175,000 and you owe $500,000, income-driven plans will often outperform even the best refinance despite the cost of the forgiveness tax you will pay at the end of the program.

"As a general rule, anybody who owes twice what their attending yearly salary is or more is a good candidate," Miller says. "You will likely save more money in one of the income-driven programs than you would if you were to just to pay it off outright."

However, when your income is high compared to your debt — for example, if you owe $300,000 and you will make $300,000 as an attending — you will be able to pay off the loan before you ever receive any forgiveness, so a refinance may be a better option.

Unlike the PSLF program, income-driven plans do not forgive your remaining loan balance tax free at the end of the program, so make sure to reserve a portion of your income to pay taxes at the end of the program.

"With a higher starting loan balance, you will still come out ahead even with the taxes, because of the lower cumulative payments," Miller says. "You may only pay a couple of hundred thousand out of pocket and then a tax payment of another hundred thousand or so — that's still only $300,000 on a $400,000 loan. No refinance could ever beat that."


Medical school debt repayment strategies

With so many options, your repayment strategy should be determined by your individual situation and career priorities. Here are four medical school debt repayment strategies to consider when evaluating your options.

Strategy 1: Keep debt payments low and invest the difference

Using an income-driven plan is a way to keep your payments low so you can have increased cash flow for other priorities.

For example, a pediatrician expects to earn $175,000 per year as an attending and has a loan balance of $400,000. In full repayment, a $400,000 loan will yield a payment of between $3,500 and $5,000 per month depending on the interest rate and how long it takes to pay off the loan. An income-driven plan will lower the payments to the low $1,000s, which frees up $3,000 per month that can be used toward other financial objectives, such as paying off other debt, contributing to retirement savings, or investing.

"If you use the programs smartly, you can take advantage of the lowest payment in the income-driven plan. Don't pay a dime extra and instead take the extra cash flow and move it and invest it," Miller says. "As long as you hedge against the taxes at the end, you could put yourself in a very nice position. It usually only takes a few hundred dollars a month to prepare for the tax costs. That still leaves you a lot of extra cash to move elsewhere, especially if you've got a strong return."

Strategy 2: Work locum tenens or per diem and make higher loan payments

A strategy employed by many early career physicians is to work locum tenens or per diem shifts and apply the extra earnings toward paying off student loans more quickly.

Dr. Gary Trewick

Dr. Gary Trewick, a hospitalist specializing in internal medicine, started out with over $500,000 in student loan debt and paid off all but about $70,000 in three years by working locum tenens full-time.

"I had multiple recruiters working on my behalf at all times, maximizing the number of days I could work in a month without burning myself out," Dr. Trewick says. "And always taking the highest rate, within reason, I could achieve."

Dr. Trewick worked about 20 days a month, compared to the typical 14-16 days per month most hospitalists work.

Dr. Bankim Patel, a hospitalist who graduated in June of 2018, decided to work locum tenens initially as well. "I realized I can set a goal for myself and pay down my student debt between one to two years after graduating rather than waiting out the 10-20 years," Dr. Patel says.

He plans on doing locums work for a year or two and then start looking for a permanent job. "For where I am in my career and at my age, I think maximizing my flexibility and my opportunity and the financial return, locums is the best thing for I would say the next one or two years at least," he says.

Dr. Melissa Macaraeg, a pediatrician, initially considered doing Public Service Loan Forgiveness, but ultimately opted to do locum tenens and per diem work instead. "The hardest part about PSLF was that it had to be a perm job, and I was just really tired after residency — a little burned out. I could earn more as a per diem and locums. It would come with more responsibility, but I could pay it off that way quicker than I could do with the PSLF. Paying off $200,000 is a lot of money, but nothing is going to come second to my own mental health."

Strategy 3: Wait to refinance until you're sure of your plan

It's common for physicians to make irreversible mistakes during the transition stage when they are still planning out their career path. Once you refinance federal student loans with a private lender, you close the door on loan forgiveness options.

"Two-thirds of the healthcare systems in the U.S. employ doctors who would qualify for Public Service Loan Forgiveness," Joy Navarre says. "A physician who's working locum tenens, for example, still has the door open for that 10-year program of Public Service Loan Forgiveness. They might be tempted to refinance their loans, but that would be a mistake because they're going to pay twice as much on their student loans than if they waited and kept the door open for Public Service Loan Forgiveness."

Jan Miller agrees: "Make sure you get some advice first before you refinance. Once you refinance you've forfeited all federal programs forever. You have a loan with a bank and that's the end of it. You always want to put yourself in a good position in case nonprofit work comes up that you can take advantage of. You never know where life is going to take you, including your medical career."

Strategy 4: Live modestly until loans are paid off

Dr. Ashita Gehlot and her husband, Dr. Hevil Gehlot, are both physicians. She's an OB/GYN and he is a neonatologist. Carrying medical school debt for two physicians is a huge burden, but the couple focused on paying down their loans as quickly as possible by living modestly for the first few years of their career.

"We were really able to hit our loans hard and probably next year we're both going to be clean slate for everything," Dr. Ashita Gehlot says.

She admits the temptation is there to live a more extravagant lifestyle, but having a plan in place has helped them achieve their goals. "Once we laid everything out and put pen to paper and looked at what our assets were, it made us realize that the faster that this burden was lifted the better."

Good communication and a willingness to negotiate are critical for this approach to be successful, Gehlot asserts. "You've got to be brutally honest in this conversation," she says. "But be kind to each other when you're talking about money. You don't have to be mean, because everybody has needs and sometimes what one person thinks is important may not be what you think is important. Keep your ears and eyes open and learn to adapt and learn to negotiate."

Dr. Hevil Gehlot (left) and Dr. Ashita Gehlot (right)

Dr. Gehlot and her spouse have found a good balance that allows them to live comfortably but modestly. "I think we have figured out a good balance for us but it's not like we're missing out on the really fun things on life. We still have a good time."

Dr. Macaraeg likes taking the middle ground where she lives modestly, but still enjoys her attending salary. "I did work in another country for two months and then I took a vacation for another four weeks and then now I'm just working hard again in my per diem job," she says. "If I had stuck to the, ‘only live like a resident at all times,' taking a vacation twice a year like I did in residency, I probably would have driven myself crazy. I keep my budget but now my budget is just a little bit bigger. I pay off things faster and I can justify taking a trip that I wouldn't necessarily take or buy something I wouldn't necessarily buy if I were a resident, but I can justify it now because I stuck to a budget and I paid down extra and I saved up extra."

"Living comfortably but below your means for the first three to five years really contributes to the long-term enjoyment of your life," Gehlot says. "You're not dependent on this huge mountain of debt that's hanging over you."


When to get help

Help is available for physicians who want guidance in determining which debt repayment strategy to pursue, and it's best to get advice early on in the process.

Dr. Bankim Patel

Dr. Bankim Patel recommends starting early. "If you can initiate that conversation with yourself as early as you can it will help you direct what's going to happen later on," he says. "You can still do some things while you're in still in residency, like start a retirement account."

Joy Navarre identifies several points at which it's a good idea to consult with a professional. "It makes sense in the last couple of months of medical school and any time during residency, then once you have an offer for your full attending position."

Navarre also recommends regular follow-up consultations. "Once you're a couple years into your loan repayment strategy just check in and make sure you are on track," she says. "Things are always changing; individuals' lives are changing, the loan programs are changing, the interest rates are changing, so really this is the kind of project that deserves check-ins regularly."

Even if you are well into your career, you may benefit from consulting with a loan repayment expert. "Recently I spoke to a woman who is the director of a residency program. It's been 15 years since her residency program, but we ended up saving her $40,000 on her student loans because of something she had missed," Navarre says. "A lot of people have a set-it-and-forget-it mindset, which is fabulous. I love it when people get to that place, but if you set it and forget it and never check on it you could be missing some opportunities."


Weighing opportunities vs. cost

The decisions you'll make when determining how to pay off your medical school loans have long-term consequences, so it's important to consider how each strategy will affect your career and financial future.

"Are you making any sacrifices in your overall career? It's not all about dollars and cents; it's about what works for you," Miller says.

"You are unique and so you need a unique plan that is going to work for you and change as you change," Navarre says. "You have to be willing to spend the time and figure it out yourself or find someone you want to work with to help build that plan with you."

For additional help in paying off your medical school debt, check out these helpful resources:

Interested in learning more about working locum tenens? Call 954.343.3050 to speak with a Weatherby Healthcare consultant or view locum tenens job opportunities.


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