When I went to an expensive college and medical school, I did not consider how much debt I was accruing. I owe over 300,000 dollars in student loans. I almost thought of it as monopoly money. “Of course I can pay this off, I’ll be a doctor, this will be no problem right?” This was the previous sentiment of physicians before us. The cost of college was a fraction of what many of us pay, and medical school was also. At that time, you could finish school and easily take out a mortgage on a home without batting an eye. They could live the American dream before the age of 30. Things have changed and the American dream seems out of reach. The New York Times published an article articulating that those with student loans are less likely to take out a mortgage on a home than their less educated counterparts. Our debt-to-income-ratio is starting to make us less attractive borrowers. This is shocking considering how much hard work and investment we are putting in this career. Before closing your biology book and searching positions at Google, read this article on some ways to manage this debt and pursue your American dream.
I.Understanding Your Loans
When finishing medical school, I was given a packet with 20 different loans. My jaw dropped as I scanned through the different types. My head was spinning adding up the amounts and seeing my lump sum. Why can’t college be two years, and we work for the next two years, and then only pay for the two non-clinical years of medical school? Our education is really expensive and I would argue that there are other alternatives. However, I digress. The loans are a reality and it’s best to first understand the different types of loans.
For the most part, you’ll have federal loans and loans from your institution. If you received previous grants or scholarships thats great. Those helped to cut down your debt. If you are like most of us, you will have a substantial amount of loans to pay. It helps to first understand which loans are which. The federal loans include Direct Stafford Subsidized Loans, Direct Stafford Unsubsidized Loans, and Private Loans. The amount of money for each loan is decided on by your lender. Unfortunately, the amount of unsubsidized loans will be greater than the subsidized loans.
The Direct Stafford Subsidized Loans are loans in which the government pays the interest while you are in school. They pay the interest only while you are in school. This is helpful, considering the interest rate on Federal Stafford loans is 6.21% for graduate students (http://www.staffordloan.com/stafford-loan-info/interest-rates.php). Once you finish medical school you will have to start paying the interest on these loans.
You will have to pay the interest on your Direct Stafford Unsubsidized Loans once you receive the loan. During medical school, you will be deferring your loans and your lender may offer that you start paying your interest. I did not have enough money to always pay my rent on time, let alone pay the interest on my loans. If you do not pay the interest during medical school, your loan will capitalize. That means, the interest will be added and your principle amount will increase. Simply, lets say you take out a loan for 100 dollars. The interest on this loan is 10%. If you do not pay this interest, your new principle amount becomes $110. The 10% interest continues to add on, but now the principle is $110. You would next have $121 due. If you pay the interest, your principle amount does not change.
Finally the government can provide private loans.The name of the private loans include the Direct Plus Loan and Federal Family Education Loan. The Direct Plus Loan covers all costs of attendance minus any other financial aid received. Private loans have different interest rates than the Federal Stafford Loans. Also, private loans that cannot be consolidated are not eligible for loan forgiveness programs.
Your institution may offer private loans as well. Mine is called a Case Loan (I went to Case Western Reserve University School of Medicine). This means the lender of your loan is your school. Their interest rates are also different. Your school may also offer a federal loan; however, the school is the lender. This is the Federal Perkins Loan. This is a need based loan that is burrowed at a low interest rate. The nice thing about this loan, is that it can be consolidated with your direct federal loans.
Don’t panic, I know it is a lot to handle. However, I’ll provide some insight on how to at least tread water with this flood of debt. Stay tuned for part 2