Why Most Health Professionals are Overpaying on Their Student Loans
We are learning that over 80 percent of medical school graduates borrow student loans to earn their degrees. Most borrowers in healthcare have an excess of $200,000 in student loan debt. It’s no surprise that health professionals are paying more for their student loans than the average borrower, but most borrowers working in healthcare are overpaying on their loans and they don’t even know it. Are you one of these borrowers?
Why Lenders Consider You Risky
When you first started college to pursue your advanced degree, you were considered a risky investment by lenders for federal and private student loans. But why would a student who is considering a profession in healthcare be deemed a riskier investment than other students?
- Not All Students Finish
Going to medical school is a long process. Not only do you have to pass the Medical College Admission Tests (MCAT) for attending medical school but you also have to pass the bar and go through residency. If you failed medical school or dropped out, you would not have the steady income that comes with being a licensed medical practitioner.
Medical school is a difficult process and not everyone succeeds. When you started medical school, there was no guarantee you would be able to successfully pay off the loan down the road. Your interest rates would reflect that risk. If you have federal or private loans and you work in healthcare, your interest rates are likely very high.
- You Didn’t or Couldn’t Work While Going to School
Another reason lenders might consider medical students to be a riskier investment is they typically don’t work while they are in school so they can focus on their studies. Some learning institutions require students to abstain from working while attending school. If you are not actively making an income, either because you are in school or residency, then lenders will continue to think you are a risky borrower.
What Are Your Next Steps?
Ok, so when you took out the loan you were a risky investment, but now you’re a licensed medical professional and your interest rates should reflect that! If your interest rates haven’t changed since you were a freshman in graduate school, you’re overpaying on your student loans.
- Refinance
Refinancing your student loans is an excellent tool to lower interest rates and save money over the loan’s life. Some lenders have refinancing products that are specifically tailored to health professionals. Researching and executing these options can save you thousands of dollars.
With present interest rates at a historic low, it may be time to reassess your student loan payment and save yourself money in the long run.
- Switch to Income-Driven Repayment
When you are first out of school, paying your student loans’ monthly payment can be a burden. Even if you have less than $200,000 in student loans, you still could still be paying over $2,000 a month. While you now have a steady job, it might not be enough to live on and pay the entire monthly balance. If you feel this stretch, you may want to consider enrolling in an income-driven repayment plan. This plan takes your current income into account and structures a monthly payment that is based on that income.
An income-driven repayment plan is not the fastest or cheapest way to pay off your student loans, but it could be the avenue needed to stay current on your payments while having the required funds for other living expenses.
- Negotiate a Physician Signing Bonus
A signing bonus is a popular way for hospitals or employers to attract medical professionals. If you receive a signing bonus for starting at a hospital, you can make a lump sum payment towards your loans. Making a large lump sum payment could save you thousands in interest payments over the loan’s life and allows you to get out of debt faster.