In this edition of the student loan plan, we take a look at managing student loans during residency. For many medical professionals, this is a tricky time. Student loans are large and in repayment, but the income is barely sufficient to keep up.
The average salary for someone in their residency is between $50,000 and $60,000. Living on this salary and keeping up with well over six figures of student debt is a huge challenge. Fortunately, there are resources available, through the government and the private sector, that make keeping up manageable.
Federal Student Loans
These are the easy ones to address. With repayment options based upon your income, such as PAYE, IBR, and REPAYE, monthly bills drop from thousands to a couple of hundred dollars.
Perhaps the best part about the income-driven plans is that they qualify for public service student loan forgiveness. If you end up practicing at a non-profit hospital or as a government employee, you will be eligible to have your loans forgiven after ten years of certified payments.
Even if you end up going into private practice before the ten years are up, the lower payments afford flexibility to help you survive the leaner years.
Some residents choose to refinance their federal loans, but waiting a bit longer may be advised. Don’t assume a huge salary in the future and regret passing up the valuable federal protections like income-driven repayment and loan forgiveness.
Private Student Loans
These are the complicated ones to deal with. While some lenders, such as Navient, have rate reduction programs for borrowers who cannot keep up, it may be hard for anyone with an M.D. after their name to get enrolled. That being said, making a phone call never hurts, and you may get good news.
The best option is usually to look into student loan refinancing. By getting a better interest rate, you can lower monthly payments AND put a bigger dent in your mountain of debt.
The part that makes the refinancing process difficult for most residents is that their debt-to-income ratio looks awful. The key is to find lenders who recognize the lower risk in the loan due to future earning potential.
As an example, Laurel Road has a special program for people in their residency. Residents can refinance loans now, lock in lower interest rates, and make payments of $100 until completion of their residency.
Even though Laurel Road only ranks 6th in our student loan refinancing rankings, it may very well be the best option for residents due to the specialized option. Plus, it is important to remember that refinancing or consolidating is not a lifetime commitment. You can always refinance with another lender in the future. For purposes of a residency, find the best option available now, then revisit the issue once you have a change in circumstances.
Keeping up with high student loans on a lower income is difficult. The good news is that there are options for both federal and private student loans to keep your monthly budget numbers reasonable.