How to Avoid These 5 Common Student Loan Mistakes Made by MDs

Rebecca writes for Student Loan Hero about education, careers, and other personal finance topics.

by: Rebecca Safier

As a doctor, you’re well-trained in the science of healing. But, unfortunately, there’s no quick cure for student loan debt. And chances are, you have a pretty severe case as most docs make many student loan mistakes shortly after graduating. According to 2016 data from the Association of American Medical Colleges, the average medical school graduate left owing nearly $190,000 in student loans.

Paying off debt of this magnitude takes time and patience, and you must be careful not to mismanage your finances along the way. Whether you’re in medical school or already graduated, these five tips will help you avoid student loan mistakes that could keep you in debt for longer than you need to be.

1. Borrow as much as you need — and no more

Tuition costs have been rising steadily over the years, and medical schools are not immune. According to U.S. News, public medical schools charged in-state students an average of $34,699 for the 2017-18 school year. Private medical schools, meanwhile, cost an average of $54,877.

Student loans can be a useful tool for covering the costs of your education, but avoid borrowing more than you need.

One way to reduce the amount of debt you need to take on is to apply for scholarships and grants. While this can be time-consuming, it’s well worth the effort if you can avoid a larger student loan debt and all the interest charges that come with it.

Second, find ways to minimize your living costs, such as by having roommates and eating on a budget. Making extra money as a student could also help you keep borrowing to a minimum if you have time and energy for a job on top of your busy schedule.

Whatever you can do to keep borrowing to a minimum will make your life easier in the future, since taking on more debt than you need could burden you for years.

2. Don’t rely on deferment for longer than necessary

As a student, you can postpone payments on your loans by keeping them in deferment. Most federal student loans — and some private ones — don’t require payment while you’re in school or for six months after you graduate.

But while deferment can be useful, it also has a major downside: Except for subsidized loans, your debt will keep accruing interest during deferment. So while you don’t have to deal with monthly payments, you could end up with a bigger balance than you initially borrowed.

To prevent too much interest from building up, don’t keep your loans in deferment for longer than necessary. Start repayment as soon as you can, even if it’s just small or interest-only payments while you’re in school.

“Some of the most common mistakes by doctors when it comes to their student debt boil down to waiting too long or lack of preparation,” said Devin Hughes, director of business development for LendKey. “With balances that are so much higher than the average college grad, each month and year that passes without proper planning and action can mean thousands of dollars in missed savings.”

Although it might be tempting to ignore your debt for as long as possible, doing so only makes a challenging financial situation worse.

3. Be strategic about choosing your repayment plan

Before it’s time to start repaying your student loans, take a moment to learn about your repayment options and find the right plan.

First, write down the details of your loans, including how much you owe and what your interest rates are. You can use Student Loan Hero’s free Student Loan Payment Calculator to estimate your monthly payments and how much you’ll pay in interest.

Federal student loans automatically go on the standard 10-year repayment plan with fixed monthly payments. But if your bills are too burdensome, you could apply for an income-driven repayment plan. Income-driven repayment limits your monthly payments to an affordable percentage of your disposable income, but it also extends your term to 20 or 25 years, generally costing more interest over the long run.

“After graduation, some doctors choose the longest possible repayment plans to reduce the monthly payment,” said Mark Kantrowitz, publisher and vice president of research at Savingforcollege.com. “Choose the repayment plan with the highest monthly payment you can afford. That will save you the most money over the life of the loan.”

One way to lower payments without adding years to your repayment is with the Graduated Repayment Plan, which starts with small payments and then increases them over a period of 10 years. And if you’re already bringing in a high income, you could consider making extra payments to get out of debt even faster.

Whatever approach you choose, make sure you’ve explored all your options and found the optimal one for your situation.

4. Avoid the temptation of lifestyle inflation

After spending years in college, medical school and residency, you might be eager to upgrade your lifestyle once your first paychecks come rolling in. But spending too much too quickly could get in the way of other financial goals.

Instead of moving into a more expensive apartment or buying a new car, consider living like a resident for a few years longer. By keeping costs down, you might be able to pay off your debt ahead of schedule.

Plus, you can funnel more of your income toward other financial priorities, such as building a three- to six-month emergency fund or saving for retirement. Although you’re making more money than you did before, your financial security can suffer greatly if you don’t have a plan.

Make a list of your financial goals, and set aside money from your paycheck to meet them. Although upgrading your lifestyle might have to wait a few more years, you’ll be glad when you’re out from under the shadow of debt.

5. Look for strategies to pay off your debt faster

While the heavy yoke of student loan debt can feel overwhelming, you could find ways to pay off your debt faster. If you’re making a high income — the median salary for physicians and surgeons in 2017 was $208,000, according to the Bureau of Labor Statistics — you could throw some extra payments at your student loans.

Or if you’re drawn to a career in public service, you could qualify for loan forgiveness. Besides the federal Public Service Loan Forgiveness program, some states offer their own student loan repayment assistance to doctors and other medical professionals who work in high-need areas.

Finally, once you’ve got a steady income and strong credit score (or could apply with a cosigner who does), consider refinancing your student loan debt for a lower rate. According to CommonBond, doctors were among the top five most common professions approved for refinancing in 2016.

When you refinance, you could get a lower interest rate on your debt, thereby saving money over the years. You can also choose new repayment terms, whether you select a shorter term to pay off your debt faster or a longer term to lower monthly bills.

That said, refinancing federal student loans means turning them private. As a result, you’ll lose access to income-driven repayment plans and federal forgiveness programs. If you’re relying on any federal protections, refinancing probably wouldn’t be the right move for you.

Taking control of your student loan debt

After spending years in medical school and residency, you probably haven’t had much time to learn about money management. But ignoring your debt would be a mistake that could drag down your finances for years to come.

Take time to learn about your various repayment options. By educating yourself about personal finance, you can avoid harmful student loan mistakes and conquer your debt once and for all.