Should I consolidate my loans during medical school?

Michael Lux Blog, Consolidation, Student Loans 0 Comments

A medical education in the United States is incredibly expensive.  Even with the high pay that many young physicians earn, paying back medical school student loans can take a very long time.  Faced with the huge burden of this debt, one student wrote us asking:

I’m currently a 3rd year medical student and my student loans are already in the $180,000s.  I was wondering if I am able to start consolidating some of my loans now?  Or do I have to graduate first and have a steady income?

The thinking behind this email makes perfect sense.  Assuming a relatively low interest rate of 6%, this emailer is running up $900 of debt each month… on interest alone.  Private consolidation lenders offer rates below 2%, which can mean a huge savings over the life of the loan.  But is it an option during medical school?

Unfortunately, a number of circumstances make consolidation during medical school an impossibility.  However, it is worth noting that there are specialized programs available for both residents and fellows.  Additionally, many young doctors might actually be better off avoiding consolidation entirely.

Now isn’t the time to consolidate

As a student, you have lots of debt and little or no income.  This makes lending you money a risky proposition, meaning even if you could consolidate, the rates wouldn’t be very good.

More importantly, consolidation on the private market might actually be a really bad idea for you.  If your loans are federal student loans, you could be passing up great student loan forgiveness programs.  One program that many newly minted doctors need to consider is the Public Service Student Loan Forgiveness Program.  A recent grad could conceivably contribute 10% of their discretionary income for 10 years and have their remaining federal balance forgiven after 10 years.  The public service program is not just for the extremely poor or those working in very limited fields.  If your hospital is a 501(c)(3) hospital, or you work for the government, you might be eligible.

For someone in school, whose future employment is a question mark, waiting is the best path.

After graduation

Shortly after graduation you transition from the ranks of the unemployed and uneducated to someone who has a medical degree and a job.  All of the sudden, you are less of a credit risk.

A residency or a fellowship may not pay very much, but lenders are more willing to take on the risk.  One lender, Laurel Road, even has a specialized program where residents and fellows pay $100 per month towards their consolidated loan and then return to a regular payment schedule at the conclusion of the residency or fellowship.

Once you are earning the lofty salary that most people associate with being a doctor, you will have your choice of a number of different student loan consolidation companies.  These lenders target high income low risk borrowers, and young physicians fit that bill.

Bottom Line

If you are in medical school and thinking about student loan consolidation, you are on the right track.  Unfortunately, now isn’t the time to do it.  In a few years consolidation will make more sense for you and for lenders.