6 steps to tackle student loan debt in residency

If you’re like me, or one of the millions of med students with student loan debt, you need a plan on how to repay it. Learning about the different loan servicers, repayment plans, and complex financial terms can be a bit daunting. As a graduating med student, I understand your plight. Here are some simple steps to help you tackle your student loan debt:

Step 1: Figure out how much student loan debt you have. If you received student loans from the federal government, then you can go to the website to see your student loan debt balance. Keep in mind, the total amount of debt you have will include the principal (how much you actually borrowed) and the interest (the amount the government charges you each year until you pay the money back).

Step 2: Find out the servicer of your loans. Your federal student loans were issued by the Department of Education. However, there are different sub-departments within the Department of Education that handle your loan repayment. These “sub-departments” are called loan servicers, and they are who you contact when you repay your student loans.

For example, I took out federal loans, but my loan servicer is Nelnet. Thus, Nelnet is who I contact when my loan payment is due. You might have a different servicer (such as Great Lakes, FedLoans, Navient formerly known as Sallie Mae, etc.). You must pay back your particular loan servicer directly. When you log onto the student loan website, your servicer should be listed.

Step 3: Understand the pros and cons of student loan debt consolidation. Debt consolidation is when you combine all your loans into one giant loan. Your new interest rate will be the weighted average of the interest rate on all your loans. The advantages of consolidating your loans (through the federal government) are that having one giant loan, instead of multiple smaller ones, may look better on your credit report. If you do not consolidate, then you will have a different loan for each semester you took out money, each with different interest rates and potentially different loan servicers.

Another advantage of federal consolidation is that any loan that may not have counted towards loan forgiveness programs can now count towards those programs. The disadvantage of consolidating is that any interest that has accrued on your loans will be added to the principal amount. Some people might have been enrolled in programs that pay a portion of that interest each year; if they consolidate their loans, they may forfeit some of this “assistance.”

My point? If you have multiple loan servicers, variable-rate loans, or loans that don’t automatically qualify you for public service loan forgiveness, then consolidating through the federal government may be beneficial.

Step 4: Think twice before you refinance your loans. Although refinancing can be similar to consolidating, the terms are different. Consolidating is when you combine your loans into one giant loan, and the interest rate you pay is the average interest rate you had on each individual loan. Refinancing is different. Refinancing is when you combine all your loans into one giant loan and pay a lower interest rate than what would have been the average on all the loans. Refinancing can only be done outside of the federal government through a commercial bank, credit union, or one of the outside companies that keep sending you flyers in the mail.

The advantage of refinancing is that you pay a lower interest rate than you would have otherwise which can save you thousands of dollars each year. The disadvantage of refinancing is that you lose the protections and benefits of having federal loans. The government is more understanding when you go through life-changing situations. If you become disabled or have pressing financial concerns (i.e., childcare), you can ask the government to put your loans into deferment or forbearance during residency. This allowance will grant you temporary relief from having to pay back your loans for a few months up to a few years. Most private companies will not give you this option.

Another advantage of having federal loans is that they can usually be “forgiven” after 10 to 25 years. So, unless you are confident that you won’t be pursuing public service loan forgiveness, you may want to delay refinancing your loans in residency.

Step 5: Enroll into an affordable repayment plan. Most residents can opt for an income-driven repayment plan like Pay-As-You-Earn (PAYE) or Revised-Pay-As-You-Earn (REPAYE). These income-driven repayment plans cap your payments at 10% of your income and will forgive your loans after 20 to 25 years, if you haven’t already paid them off. If you opt for public service loan forgiveness, your loans will be forgiven in 10 years.

If you don’t choose an income-driven repayment plan, you will be automatically enrolled into the standard repayment plan which puts you on track to pay off your loans in 10 years. Although this plan may save you money in interest, the monthly payments are probably more than you can afford on a resident salary. If you’re like me, with $200,000 to repay, enroll into an income-driven repayment plan during residency.

Step 6: Consider loan forgiveness programs and submit the necessary paperwork. Take some time to consider if you might pursue public service loan forgiveness. You can refer to the student loan website, but essentially you need to have direct loans through the federal government, work at an academic institution or non-profit organization, and make 10 years of on-time qualifying payments (yes, your years in residency count). If you know you want to enroll in this program, fill out the form on the student loan website. You complete sections 1 and 2, have your employer fill out sections 3 and 4, then fax the completed form to the “Fedloans” sub-department of the federal government to officially enroll.