Loan repayment may seem too far away to even think about. However, the more emphasis you place on the issues discussed in this manual, the better prepared you will be when repayment begins. Once you graduate from medical school and enter your residency program you will receive a salary and your financial profile will change significantly. You will finally be earning an income! However, your responsibilities to your lenders, who have a claim to some of this new income, will also increase.
The key factor is to maintain contact with the holders, or servicers, of your loans.
By keeping your lenders informed of your status, and particularly of any financial problems you are having, you will be able to use one or more of the following options to help you survive the residency years. These options include:
The period of time that begins the day a student borrower ceases to be enrolled at least half-time (or full-time as required by the individual school), during which repayment of a loan is postponed per the original agreement. Grace periods are automatic (you do not have to apply for them) and can last from three to nine months, depending on the original terms of the loan. The repayment period begins on the day that the grace period ends.
A specified and limited period of time during which payments on principle and/or interest are postponed while the loan is in good standing; deferements can, in some cases, be granted for residency and further study. Deferments are not automatic. you must apply for deferment and the lender must fomally approve them.
If a borrower is willing but financially unable to make the required payments on a federal Stafford loan, he or she may request the lender to grant forbearance. Forbearance means permitting the temporary cessation of payments unless the borrower requests forbearance as an extension of time for making payments, or in order to make smaller payments than were previously scheduled. The lender may grant forbearance of principle, interest, or both. Upon written request, lenders are required to grant forbearance to medical residents, renewable at 12-month intervals for the duration of residency. Interest accrues during forbearance and the borrower is responsible for paying all accrued interest.
Under NO circumstance should you ignore your financial problems. Open mail and return calls from your Loan Servicer to avoid defaulting on any of your student loans. Default will result in legal actions that will have severe consequences for many years, BOTH professionally and personally.
A repayment plan is a schedule which outlines the total principal and interest due, a monthly payment amount, and the number of payments required to repay the loan in full. It also restates the interest rate for the loan(s), any schedule for changes in the interest rate if the rate is variable, the due date of the first payment, and the frequency of payments.
Repayment plan options include:
Standard repayment: A fixed payment that remains the same during the repayment period of 10 years for stafford loans. Consolidation loans are typically longer. If you do not request an option, your loan servicer will automatically give you the standard repayment option. It is the option that will allow you to pay the least amount of interest.
Extended repayment: New borrowers with an outstanding loan balance of more than $30,000 in FFELP or DL loans may extend their repayment term for up to 25 years.
Graduated repayment: Smaller loan repayments in the early years with larger payments over time. The assumption is that the borrower’s income increases over time.
Income-sensitive repayment (For FFEL borrowers only): Repayments that change with borrower’s income, so that your repayment installments fluctuate as income rises and falls.
Income-Contingent repayment (For DL borrowers only): Payments are adjusted annually based on borrowers household income, family size and total loan debt. Not available to PLUS loan payments. Maximum 25 year repayment period.
Income-Based repayment (IBR): Loan payments are capped at 15% of your income that exceeds 150% of the federal poverty guideline for your family size. A borrower can choose to participate in this payment plan for up to 25 years.
Service-connected loan repayment programs: To assist debt-burdened physicians and improve care in medically undeserved areas, the federal government and most states have developed service-connected loan repayment programs. The programs generally require physicians to practice primary care or a needed specialty in a designated undeserved area. Through these programs, the government will pay a predetermined amount of the physician’s student loan debt for each year the physician meets specified conditions.
Consolidation: An option by which a student borrower can combine several loans into a single new loan with a more manageable repayment schedule of monthly payments. Some consolidation programs will allow for inclusion of educational loans of the spouse. Consolidated loan repayments may be extended beyond the normal ten-year period, depending on the amount borrowed. Additional loans can be added to a federal consolidation loan within 180 days after making the consolidation loan.
Loan servicers may provide interest rate reductions if you make a certain number of payments on time. They may offer an additional interest rate reduction if you have your loan payment automatically deducted from a checking or savings account.
Budgeting for loan payments will require a detailed review of your payment schedule to determine the amount of your monthly payments. Since some of your loans will have variable interest rates, you will have to select an average rate for your calculations. You can estimate your monthly loan payment(s) by using the student loan calculator on the internet at
EXAMPLE: A rule-of thumb estimate of federal, state, and social security taxes to be deducted is 30% of your gross pay. As an example, a new doctor earning $46,000 annual gross pay would be taking home about $2,683 per month [$46,000 (less 30% taxes) ¸ 12]. If the doctor borrowed $100,000 at an average interest rate of 6.8% for 10 years of repayment, the monthly payments would be almost $1151 per month. That leaves you only $1,532 per month to live on, which is about the same as your school budget will permit while you are going through medical school.
To reiterate a previous point, your lifestyle as a student and the amount of money you borrow will have a tremendous impact on your professional and personal life for many years.