Prospective students at American and Caribbean medical schools carefully research such things as average GPA, MCAT score and USMLE Step 1 pass rates, but many future doctors fail to look at one of the most important aspects of medical education: How to pay for it.
According to the American Association of Medical Colleges (AAMC), “Most medical students borrow at least a portion of the money they need to finance their education.”
People considering medical school should pay extra attention to the costs of medical education. Studying for an M.D., at nearly every medical school, could have a total cost well into six figures. Keep in mind that, although most doctors earn a good salary, your annual income might be modest in the first few years after graduation, particularly during residency.
The UMHS Pulse looks at the “dos” and “don’ts” of financing medical school, from student loans to scholarships and more. We spoke to Elissa Schoening, UMHS Director of Financial Aid; and J.T. Andrews, a New York City financial PR executive with excessive student loan debt, about the seriousness of student loans and only borrowing what you need and can pay back. We will also give general information about credit reports and credit scores, and tips from U.S. News and World Report.
The Burden of Paying Med School Loans
Once accepted into medical school, it might not be hard to qualify for a variety of student loans: Direct Loans, GradPlus Loans, HRSA Primary Care Loans and numerous private loans. Keep in mind that all types of student loans have to be paid back with interest.
Although physicians have one of the lowest default rates on student loans, don’t simply rely on taking out loans without exploring all options. Granted, getting loans for med school is different than, say, someone with a liberal arts degree owing $100,000 in student loans because eventually you will make a good salary as a doctor. However, keep in mind that any type of student loan debt can be a lifelong commitment since, in most instances, you cannot discharge student loans in bankruptcy (except in extreme cases).
Don’t Be Too Proud to Ask Family for Help
UMHS Financial Aid Director Elissa Schoening says many students don't want to ask family members (parents, grandparents, aunts and uncles, etc.) for help paying medical school mostly due to pride. However, medical school can be so costly that it’s unrealistic for you to give family members the illusion that you can “pay your own way” or “work your way” through it. If you know someone who can afford to help you, you can preserve your integrity as an adult by asking if they could lend you the money instead of asking for a hand out.
“The Bank of Grandma almost always offers the best interest rates anywhere,” Ms. Schoening says.
Ms. Shoening suggests writing up a repayment agreement. This way, you can make payments either at no interest, or an interest rate and payments that you can afford during or after graduation. Borrowing from family is ultimately a lot less expensive than taking out student loans from a national student loan lender
A Good Credit Score Isn’t Always the Answer
Guaranteed, government-insured student loans are not based on credit (the type offered by filling out the FAFSA), but all private loans are. Some medical schools offer private loans that can cover the full cost of attendance, but these loans are credit-based. What constitutes a “good” to “excellent” FICO score depends on many factors. You also have to remember that all three credit reporting agencies have different scoring systems and different scoring scales. A 650 from one agency may not be as good as a 650 at another. Generally speaking, a score of 760 or above is usually considered “excellent”. Typically, the higher your score the lower your interest rate. However, even a high FICO score isn’t always a guarantee of getting approved for a private loan.
Elissa Schoening of UMHS warns, "Lenders do not just look at your number. What's most important to a potential lender is the data details of your credit history that creates the credit score." If you have anything negative on your credit report (from as seemingly insignificant as a few late payments, to a utility bill/cellphone bill/medical bill that you forgot about and was placed with a collection agency (no matter how small the past due balance), to bankruptcy, you might be denied a private student loan. You should get a credit report from all three credit bureaus (Experian, TransUnion, and Equifax) at least once a year and make sure that everything is accurate. There is only one authorized website where you can obtain your free annual copy of your credit report from all three agencies: www.annualcreditreport.com ”.
Accessing your report via this site will not affect your credit score or show as a credit inquiry on your report. Ms. Schoening recommends that you save, or print, a copy of each report as a PDF file. This way your report can easily be shared with your financial aid adviser should the need arise.
One Man’s Advice on Student Loans, Repayment & Credit
Students at American and international medical schools can also learn from people outside of medicine who also have excessive student loan debt. We interviewed New York City-based financial public-relations professional J.T. Andrews about his experience with both student loans and credit. Mr. Andrews, now in his 40s and working in PR for a company he asked us not to disclose, took out student loans for graduate school at Columbia University in the late 1990s, completed an M.A. program, and learned a lot about what failing to research the scale of what loans and interest rates mean in the long term.
“Although I had an undergraduate degree when I was accepted to Columbia, I wasn’t educated at all about student loans, interest rates and finance in general,” he says. “When I was offered minimal scholarships, I took out student loans to pay the bulk of my tuition and total cost of attendance. I didn’t pay attention to the interest rate or even think about whether I could actually afford the payments after graduation.”
After graduation, Mr. Andrews only made a modest salary in PR and was unable to make the high monthly payments. He ended up putting the loans (offered by a major student loan provider) in deferment. “That was a big mistake because the interest added up like crazy, but it was either that or default, so it was a no-win situation,” he says. “Fortunately, I was able to refinance my loans through the Department of Education and I’m now on the IBR (Income-Based Repayment Plan), with payments based on a percentage of my annual income. After several years of repayment, the government forgives the rest but will tax me on the forgiven debt. I’ll be making the payments for most of my working life, but at least I’ll pay off the loan someday.”
Following are his tips for student loans and credit.
Understand What Interest Rates & Repayment Mean
Mr. Andrews tells us that, just because you have an undergraduate degree, it does not mean you’re educated about finances and student loans. “From my experience, most people enter higher education knowing very little about what it means to take out a loan and the consequences of paying it back,” he says. “I remember foolish kids even using student loan money to take lavish vacations or invest in the stock market. I don’t think today’s medical students would be that careless.”
He says new students at American and Caribbean medical schools should shop around for a loan with a low interest rate. “If you’re only eligible for private loans, don’t overlook credit unions because sometimes they have private student loans at much lower interest rates than what is offered by the big banks and student loan lenders.”
Use Online Calculators & Make Payments While in Med School
He recommends using online calculators, such as the ones provided by the Department of Education and Sallie Mae, to get an idea of how you will pay back the loans. “Understand just how much those monthly payments are going to be after graduation,” Mr. Andrews says. “Many private loan companies let you pay monthly interest, $25 a month or defer payments while in med school, but I recommend paying either the interest or a set sum because you don’t want the interest to start adding up and getting out of control. If you can’t afford to pay the interest while in school, see if your parents or a relative can pay it for you. It will mean less money to pay back once you become a doctor.”
Mr. Andrews also recommends paying down any existing debt before entering med school.
“Pay off all your credit cards so you enter med school with a clean financial slate,” he says.
Finally, Mr. Andrews says students need to check their credit report regularly to start building a solid financial future, and realize that credit reports, FICO scores and negative items will affect one’s ability to obtain private student loans for med school.
Credit Reports, Credit History & Improving FICO Scores
Mr. Andrews checks his credit reports and scores at least twice annually. He advises prospective medical students to do the same in case they need to get private, credit-based student loans.
“Time (length of credit history), a low debt-income ratio and not maxing out your credit limit are all things that help your credit score,” he says.
Mr. Andrews’s advice for improving your score: “Always pay on time, pay in full and don’t carry a balance, make more than the minimum payment due (even if it’s a dollar or two more), and if you must use credit when cash is low, don’t charge more than 50% of your credit limit on any credit card because that brings your FICO score way down.”
Not having any credit can be as detrimental as having bad credit when applying for private student loans. Mr. Andrews says prospective students at American and international medical schools can get a secured credit card (using a savings account as collateral) if they cannot get a bank or store credit card.
“If you’ve never had any credit, get a secured credit card, charge small amounts and pay it off every month,” he says. “This way, you’ll start building a credit history.”
Negative Factors Affecting Your Credit
If you do have a credit history and it is not stellar, understand what is on your credit report, and write to the respective bureau if you need to dispute something. What if there is something negative on the report? Mr. Andrews says it depends on what’s there: “A credit card with late payment history, an unpaid utility or doctor bill, etc. Anyone who has your Social Security number (banks, credit card companies, doctors, utilities) can damage your credit if you pay a bill late or don’t pay it at all, by reporting it to credit bureaus. However, as a consumer, you have the right to dispute it.”
If you have had a bankruptcy in the last 10 years, getting a private student loan without a cosigner is going to be impossible no matter how high your credit score, he says.
“I know people who declared bankruptcy but their FICO score is considered good after a few years,” he says. “However, nobody will give them a private student loan even with ‘good’ credit because they declared bankruptcy within the last decade.”
How to Pay for Medical School: Tips from U.S. News & World Report
U.S. News & World Report gives the following tips in its article “How to Pay for Medical School”.
- Be proactive: "While submitting your medical school applications, you should also be investigating your potential financing options. This should start with an open and honest conversation with your family (parents and grandparents) to gauge if they are capable and/or willing to help you finance your medical education. For example, borrowing money from family interest-free can save you tens of thousands of post-tax dollars over time."
- Reach out to financial aid officers: "Available financial aid is influenced by a number of factors, including alumni giving, endowment, and institutional priorities. Review the medical school's financial aid websites and ask financial aid officials for data. You should request data such as the percentage of students who receive financial aid from institutional loans and scholarships; the average need-based scholarship awarded; and the mean, cumulative educational debt for the most recent graduating class. Don't be afraid to reach out directly. Financial aid officers are a terrific resource and are genuinely there to help."
- Do the math: "There is an abundance of web-based calculators that can help you calculate your expected family contribution. Once that is determined, you can communicate with the financial aid office as discussed above, and they can send you an estimated need-based award. This is particularly important when you are deciding between schools."
- Get loan smart: "All loans are not the same, and often the lowest monthly payment doesn't translate into the best loan. Consider initial processing fees, interest rates, interest accrual while in medical school, deferment options, add-on fees at repayment, payment plans, repayment incentives, and other factors.'
- Scholarships: "For those who are willing to serve their country as a military physician or to practice medicine in underserved areas, opportunities for scholarships include the Armed Forces Health Professions Scholarship Program (HPSP) and the National Health Service Corps (NHSC) / Indian Health Service (IHS) Corps Scholarships. Loan repayment programs are another option; they require either patient care in underserved areas of the United States or clinical research in areas of national "need" for a minimum of two years in return for repayment of a portion of your educational debt."
(Top photo) DOCTORS & MED SCHOOL DEBT: AAMC says most med students borrow a portion of funds to finance their education. Photo: Deposit Photos
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Scott is Director of Digital Content & Alumni Communications Liaison at UMHS and editor of the UMHS Endeavour blog. When he's not writing about UMHS students, faculty, events, public health, alumni and UMHS research, he writes and edits Broadway theater reviews for a website he publishes in New York City, StageZine.com.