You’ve done it. You killed undergrad, conquered the MCAT and finally received a fateful acceptance letter. You’re going to be a doctor. Then it hits you: how much you will owe in medical school debt.
The good news is that you will likely be able to manage your student loan debt. Doctors are in demand and they all make excellent pay. With an ounce of financial sense and a dash of self-control you can find yourself debt free only a few short years out of residency.
The bad news? You will be paying significantly more money to your loan company of choice than you borrowed.
Welcome to the joys of compound interest. If it feels like a scam just wait until your first mortgage. I almost want to screenshot mine, so you can share in my horror. Let’s take an imaginary walk through how the numbers pan out.
There are two kinds of federal loans available for medical students:
- Federal Direct Unsubsidized Loans: This product offers an interest rate of 6.08 percent. Medical students can borrow up to 20,500 USD for a lifetime maximum of 138,500 USD.
- Federal Plus Loans: This product offers an interest rate of 7.08 percent. You can borrow up to cost of attendance (including living expenses) less any financial aid received.
If you have excellent credit it might be worth looking into private options but let’s work with these numbers as they will apply to most medical students. Also, before jumping ship to the private sector carefully consider the repayment options that will no longer be available to you.
Student One: Johnny Sanders
Like most medical students, Johnny Sanders is a bright kid. He is also incredibly lucky. Why? Johnny Sanders is from Texas. His MD will cost roughly 15,000 USD/year at the University of Texas in San Antonio. In addition, he will accrue living expenses of roughly 15,000 USD with a total bill of 30,000 USD/year. Here is what his numbers look like:
| Johnny Sanders’ Awesome Financial Chart | |
| 20,500 + interest over 1 year (MS4 Loan) | 21,746.40 |
| 9,500 + interest over 1 year (MS4 Loan) | 10,172.60 |
| 20,500 + interest over 2 years (MS3 Loan) | 23,068.58 |
| 9500 + interest over 2 years (MS3 Loan) | 10,892.82 |
| 20,500 + interest over 3 years (MS2 Loan) | 24,471.15 |
| 9,500 + interest over 3 years (MS2 Loan) | 11,664.03 |
| 20,500 + interest over 4 years (MS1 Loan) | 25,959.00 |
| 9,500 + interest over 4 years (MS1 Loan) | 12,489.85 |
| Total Borrowed on Match Day | 120,000.00 |
| Total Owed on Match Day | 140,464.43 |
| Interest Owed | 20,464.43 |
Student Two: Mary Rodgers
Mary is also pretty smart. So smart that she was accepted to one of the top medical schools in the country: Johns Hopkins. With tuition of 53,000 USD/year and equivalent living expenses to Johnny, Mary is looking at an annual bill of 68,000 USD.
| Mary Rodgers’ Awesome Financial Chart | |
| 20,500 + interest over 1 year (MS4 Loan) | 21,746.40 |
| 47,500 + interest over 1 year (MS4 Loan) | 50,863.00 |
| 20,500 + interest over 2 years (MS3 Loan) | 23,068.58 |
| 47,500 + interest over 2 years (MS3 Loan) | 54,464.10 |
| 20,500 + interest over 3 years (MS2 Loan) | 24,471.15 |
| 47,500 + interest over 3 years (MS2 Loan) | 58,320.16 |
| 20,500 + interest over 4 years (MS1 Loan) | 25,959.00 |
| 47,500 + interest over 4 years (MS1 Loan) | 62,449.23 |
| Total Borrowed on Match Day | 272,000.00 |
| Total Owed on Match Day | 321,341.62 |
| Interest Owed | 49,341.62 |
Comparing Johnny and Mary’s medical school debt
When Mary graduates from Johns Hopkins (or a comparatively priced school) she will already owe nearly a full year’s tuition in interest. Johnny’s interest costs are significantly less. This difference will grow if our future doctors choose to keep their loans on deferment through residency. Every year interest is paid on the current amount owed, including accrued interest. Thus: compound interest.
The difference in cost between any schools you are considering should include this difference in interest.
There are two important things to remember here. The first is that Johnny can borrow most of his needed money at the lower interest rate, while Mary has to borrow a significant amount at higher interest rates. The second is that interest begins compounding immediately and then compounds daily.
Calculating the debt
Here is a fun calculator to help you make your very own awesome financial chart: https://www.calculator.net/loan-calculator.html.
Just plug your loan amounts and rate into the deferred loan calculator for each year and compile a chart similar to the ones above in Excel. You can easily take this a step further by figuring out what you will owe if you are thinking about deferring during residency. Then, using your final loan amount, plug it into the amortized loan option on that same webpage. Amortized just means to gradually pay off a balance with regular payments. Once you begin paying off a loan, this type of calculator can help you figure out how payments and interest accrued line up.
There is probably an easier way to do this, but this works and really makes you think about what is going on. Most student loan calculators spit out a monthly payment without giving you a good idea of how everything fits together.
Let’s look at a breakdown of our two young future doctors and their debt repayment options.
Loan repayment options
| Johnny | Mary | |
| Cost of Medical School | 120,000.00 | 272,000.00 |
| Amount owed on Match Day | 140,464.43 | 321,341.62 |
| Monthly payment on ten-year loan* | 1,565.09 | 3,580.47 |
| Additional interest on ten-year loan* | 47,346.63 | 108,315.27 |
| Monthly payment on 30-year loan* | 849.39 | 1,943.16 |
| Additional interest on 30-year loan* | 165,317.18 | 378,197.46 |
*These number are not exact as they assume the lower interest rate of 6.08 percent on each lump loan.
Reducing the amount you owe
I would like to draw your attention to the difference in interest depending on whether you pay off your loan on a ten-year plan or a 30-year plan. This is why the advice is always to start paying your loans off as soon as you can and to pay them off as quickly as possible. A little less cash flow in the beginning can save hundred of thousands of dollars in some cases.
The smart financial decision is to ramp up your payments to as much as you can afford with every increase in salary. The difference between forbearance during residency and paying on an income-based payment plan, for example, can save tens of thousands of dollars. Here is a calculator that helps residents figure out what forbearance will cost, though the financial specifics of paying on an income-based plan can vary wildly. Since your payment scheme incorporates things like living and childcare expenses, you should be able to make your assigned payment on a resident’s salary. Paying anything is a good thing, and the more you’re able to pay the less interest will accrue.
If your income-based plan has you paying $0/month, however, you’re no better off than if you had deferred payment. One caveat is that Public Service Loan Forgiveness (PSFL) technically comes into play once you’ve made ten years of payments while working at a public institution, even if your payments are $0/month. Is it worth trying for? Absolutely. Would I place any faith in the program? None at all.
Don’t worry. Both Dr. Sanders and Dr. Rodgers are going to be just fine. But if you are in the enviable position of choosing between multiple acceptances, you should calculate exactly what you’re getting into at each price differential. Good luck!
Erin is a non-traditional medical student training to become a physician scientist. Before starting medical school she worked as a writer, bootstrapped an educational non-profit in Cameroon, and made hundreds of underwater videos for tourists in Thailand. She lives with her husband and two children in Baltimore, Maryland.