Deciding on the right loans for medical school
Loans are a necessity for most medical students. They make it possible to pay for medical school and help cover living expenses. There are many types of loans, and students often take out a mix from different lenders to ensure they have enough funds throughout training.
Each lender and loan type has its own provisions, qualifications, and requirements, and the interest rates they charge vary greatly. Being knowledgeable and strategic about the types of loans you apply for and accept can help in your decision making. Federal loans and private loans are the primary sources of medical school loans.
Keep physical and electronic copies of all your loan paperwork. Make sure you know which loans, if any, are tied to your academic progress by asking your financial aid office for complete details of any aid you are awarded.
Federal loans typically have lower (and fixed) interest rates compared with many private loans. If you took out federal loans during undergraduate school, some portion of it may be subsidized, helping reduce the burden of interest capitalization for the borrower during medical school and residency. The Department of Education updates interest rates for federal loans(studentaid.ed.gov) each year. Loan amounts from the government are capped, meaning you can only take out so many loans from the federal government each year.
Eligibility for government loans is based on your Free Application for Federal Student Aid (FAFSA) (www.fafsa.ed.gov)(fafsa.ed.gov). Every medical student seeking loans should complete a FAFSA. Deadlines vary depending on the school and state, but the federal deadline is usually June 30. Check with the financial aid offices of the schools you are applying for verification of application deadlines.
The financial aid office is required to inform you of their aid procedures and deadlines, and how and when you’ll receive your federal aid award. You will be provided with an award package (based on your FAFSA information) that reports your Expected Family Contribution (EFC) (www.fafsa.ed.gov)(ifap.ed.gov), your family’s eligibility for federal loans, and your status regarding the work-study program.
There are four types of Federal Direct Loans administered through the William D. Ford Federal Direct Loan Program. Most federal loans are through this program. Direct Loans are the loans that are currently eligible for forgiveness under the Public Service Loan Forgiveness program.
Two Direct loans are available for those entering medical school:
- Direct Unsubsidized Loans (also called Stafford Loans): These are low-interest loans that are available regardless of financial need. Being unsubsidized, the interest on any unpaid Direct Loans will grow during medical school as you borrow.
- Direct PLUS Loans: These loans are intended to cover any costs of attendance that are not covered by other financial aid you may be receiving. It is important that you or your loan endorser have a good credit score when applying for these loans. PLUS loans begin to accrue interest as soon as they are disbursed.
Another type of federal loan that can be used to pay for medical school is the Perkins Loan. These are administered through the medical school to students who have an exceptional need for financial assistance. Not every student with a financial need receives help. It is important to apply for this aid early through FAFSA and speak with your school’s financial aid office about support as soon as possible.
The Health Resources and Services Administration (HRSA) offer several school-based scholarships for medical students. One of these, the Primary Care Loan(ersrs.hrsa.gov), is offered to students in need who plan to specialize and practice in primary care. Search for your school (ersrs.hrsa.gov) to find out if they participate in this program, and contact a representative in your financial aid office for more information.
Each private lender has its own loan options to help you if federal loans are not enough to cover medical school costs. Shop around for competitive interest rates and make sure you understand all the terms of the agreement. For example, some private lenders will require you to begin paying back your loans while you are still in school. Private loans can sometimes have variable interest rates, which means that the interest rate will change or increase over time. Some students need a cosigner, such as a parent, to help them qualify for private loans.
Residency and Relocation Loans
Residency and relocation loans are a type of private loan that some students use to help them pay for costs associated with matching into a residency. These costs include board exam fees, travel for interviews during Match season, and moving costs once you’ve found your program. These expenses add up, but not every student uses this type of loan to get through the process. Remember, the fewer loans you take out, the more of your salary you’ll get to keep early on when you are a physician