Federal and Private (Sallie Mae) Medical School Loan Options

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For most applicants, acceptance into medical school is the first step on the way to a lifelong dream of becoming a doctor. Unfortunately, the cost of a medical school education is very high. According to the Association of American Medical Colleges (AAMC), the average cost of one year of medical school at a public university is close to $35,000, while the annual costs of a private medical school education tops $50,000. Very few medical students can pay their tuition in full, grants and scholarships are few and far between, so loans are the primary method of paying for medical school. Most medical school students graduate with a substantial amount of medical school debt, sometimes running into the hundreds of thousands of dollars. The average medical school debt is around $183,000.

On the other hand, physicians generally earn high salaries once they go into practice, so the expectation is that these medical school loans are not beyond the borrower’s ability to repay while maintaining a comfortable standard of living.

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What Are Medical School Loans?

Since nearly all aspiring physicians need a way to pay for their education, the answer for most students is obtaining medical school loans. These loans pay for tuition as well as living expenses, although much depends on the specific loan terms. Many students take out loan from more than one lender to cover all of their needs.

When it comes to medical school loans, there is no one-size-fits-all. Every lender and loan type has specific requirements. Interest rates for medical school loans vary considerably.

Loan Types to Help Pay for Medical Classes and Courses


Medical school loans fall into basic categories federal and private, and subsidized and unsubsidized. With subsidized federal loans, the government pays the interest while the student is still in college. With an unsubsidized loan, the interest starts accruing immediately.

Federal medical student loans include:

  • Federal Grad PLUS Loans:
    All borrowers attending a Title IV school qualify for these loans, which offer more flexible repayment options than other medical school loans. PLUS loan terms range between 10 and 25 years once repayment starts. It is possible to postpone payments during residency. On the downside, interest rates are generally higher than with other plans, and a credit check is necessary. PLUS loans also charge an origination fee.
  • Direct Stafford Loans:
    These unsubsidized loans offered by the U.S. Department of Education usually have lower interest rates than many other medical school loans. While students do not have to make loan repayments while in school, interest still accrues on these loans during that time.
  • Perkins Loans:
    Medical students experiencing “exceptional” financial need may qualify for a Perkins loan. This low interest, fixed-rate loan does not have an origination fee, and its grace period of nine months is longer than other federal loans. The medical school determines which students may qualify for Perkins loans based on the Free Application for Federal Student Aid (FAFSA) and the student's expected family contribution (EFC), as per the AAMC.
  • Health Resources and Service Administration Primary Care Loan:
    Those medical students planning on a career in primary care may qualify for the HRSA PCL program. This loan offers specific interest rate to students who agree to work in the primary field until the loan is paid off, in 10 years. Should the medical student fail to practice in the primary field for this time period, a significantly higher interest rate may apply.

Unlike federal medical school loans, private medical school loans may pay for specific medical school experiences under different terms, such as medical residency and relocation. Private medical school loans are a good option for those borrowers with excellent credit, as interest rates can be lower than with federal loans. It may also prove possible to refinance higher interest-rate federal loans into a private loan. However, for those doctors planning to work in low-income areas or other areas of need to qualify for public service student loan forgiveness, such refinancing renders them ineligible for the forgiveness program. Look for a private loan with a bank or lender specializing in medical school loans.

Differences Between Federal and Private Loans


Federal medical school loans offer options such as public service student loan forgiveness for eligible physicians, or income-drive repayment, which is not the case with private loans. Private medical school loans may not have the borrowing caps of federal loans, which is important if attending an especially expensive medical school. Of course, private loans are not subsidized, so they could cost more in interest in the long run. Private medical school loans may also require a co-signer.

Borrowing Limits on Medical School Loans


Federal medical school loans have annual borrowing limits. Medical students may borrow up to $40,500 per year in Stafford loans, and the combined aggregate limit for all federal loans is $224,000. GradPlus loans, on the other hand, have no limit per se, but are limited to the total cost of attending medical school as determined by the institution.

Many private medical loans do not specify limits, which allows students to use the money for their living expenses as well as the cost of tuition, books, and other school fees.

What to Think About When Looking for a Loan


When searching for a loan, research is imperative. You can’t determine the best loan situation for your needs without taking all of the facts into consideration.

Here is what you should consider and compare with each loan option:

  • Forbearance/Deferment:
    Unforeseen issues may arise so that you can’t pay the medical school loan. Both forbearance and deferment can temporarily postpone your payments, but there is a price with either. With deferment, usually best with Perkins or subsidized loans, interest is not charged on the loan during the deferment period. Forbearance will almost always result in an increase in the amount owed and is best used when only when you are ineligible for deferment and you don’t expect ongoing financial problems. Private lenders usually have stricter forbearance policies than federal lenders.
  • Interest Rates:
    When taking out any type of loan, interest rates are critical, and this holds true for medical school loans. Much depends on whether the loan has a fixed or variable rate. With a fixed rate, payments will remain the same over the life of the loan. You’ll know the exact amount of your monthly payment going forward.
    With a variable rate, the interest rate changes over time depending on market index changes, so you could end up spending less or more than you would with a fixed interest rate. Keep in mind that medical school loans often have higher interest rates associated with them.
  • Loan Fees:
    When considering a loan, check to see whether it charges origination or any other fees. Review all loans to make sure there aren’t hidden fees, which can add up. Origination fees are the processing fees charged by the lender, and the amount is usually a percentage of the total loan. For example, if the origination fee is 1% on a $150,000 loan, that is an extra $1,500.
  • Eligibility Requirements:
    PLUS loans and Direct Stafford loans do not require students to prove financial need. Most loans other than unsubsidized loans require a hard credit check, which means looking into your credit score from one of the three majoring reporting companies. You will have to provide your income information, as well as proof of citizenship.
  • Repayment Options:
    For Direct Stafford loans, the standard repayment term is 10 years. That is the least expensive repayment option, because less interest is paid. Borrowers may qualify for a longer repayment period when consolidating loans or if they have in excess of $30,000 in federal student loans with one lender. Some doctors may qualify for an income-driven repayment plan if their income is not high, which lowers the monthly payment amount but takes longer to pay off.
    With private loans, repayment usually begins as soon as the loan is disbursed, and you should start paying the loan as soon as you start school. You might be required to make full or just interest-only payments while in school.

Tips for Finding


  • Talk to Your Financial Advisors Early:
    When it comes to finding medical school loans, it’s best to start as soon as possible. Speak with a financial professional as soon as you’ve been accepted to medical school, and even beforehand if you are fairly certain a medical school will accept you. For best results, find an advisor specializing in medical school loans.
  • Use A Loan Calculator to Determine Future Payments:
    Fortunately, determining your future payments under each particular loan structure is as easy as using an online loan calculator. Crunch the numbers carefully on all loan options to see your future payments as per your repayment timeline. If considering a variable interest rate loan, make sure you can afford the payments if the variable rate meets its maximum, as per the loan contract.
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