How Do I Pay for Medical School?

by Michelle Smoley, former Assistant Vice President at Chase Student Loans Congratulations! You graduated with your undergraduate degree, studied diligently for the MCAT, and applied to medical school using the American Medical College Application Service (AMCAS). You have put in many hours, blood, sweat, and even a few tears to prepare for medical school. One question remains: have you prepared financially? According to the Association of American Medical Colleges (AAMC), the average cost of medical school tuition and fees topped over $62,000 in 2020. Multiply that amount by four years and you may need over $250,000 just to pay for tuition and fees. Since most medical students do not have an extra $250,000 sitting around and still need money for living expenses, many have to finance the remainder of their medical school costs. Federal Loan Options The Federal Direct Loan is typically the first go-to financing option for students. This unsubsidized (meaning the government does not pay the interest) loan is funded by the federal government and the loan is a student-owned liability. This means no one but the student borrower is legally responsible for the loan. This interest-accruing loan is available to all students regardless of income or credit. The maximum annual amount that a medical student can borrow is typically $40,500 per year; the total lifetime aggregate limit for both undergraduate and graduate debt combined is $224,000. The federal program offers deferment and forbearance options, various repayment options including income-driven repayment plans, and death and permanent disability forgiveness for borrowers. Since the unsubsidized Federal Direct Loan annual borrowing limits may not even cover tuition and fees at some schools, many medical students find the need to access additional financing options. According to the AAMC, nearly 50% of all medical students require enough financing to cover the full cost of attendance, which includes tuition and fees, books and supplies, room and board, transportation, and personal expenses. Another federal student loan option for students is the Grad PLUS Loan. The Grad PLUS Loan has similar terms and conditions as the Federal Direct Loan, and borrowers can annually finance up to the cost of attendance, minus any additional financial aid received, such as scholarships or the federal direct loan. A credit check is necessary to have access to this loan. Interest is accruing during school, grace period, and any deferment/forbearance periods. No payments are required as long as the student is attending school greater than half-time. However, it is always in the best interest (no pun intended) for the student to pay down the accrued interest if possible. Federal student loan options allow for eligibility for Public Service Loan Forgiveness and the ability to consolidate all federal loan debt to a federal consolidation loan. Other Financing Options A few lending entities and financial institutions offer credit-based student loans. Given the fact that you are a student with little to no income, credit approval may be a challenge and your interest rate may be higher than federal student loan options. Similar to the federal loan options, you can borrow up to the cost of attendance each year, minus any additional financial aid. Since these are credit-based loans, be aware that if you are borrowing significantly every year, your debt-to-income ratio may not meet lender underwriting approval for the full duration of your medical school journey. Interest is accruing and no payments are required during your time in school, similar to the federal student loan options. Be sure to read the fine print regarding repayment options and prepayment penalties. Private student loans are not eligible for federal loan provisions, such as public service loans and death and permanent disability forgiveness. These loans often lack various repayment options and cannot be consolidated with federal student loans. Choose Wisely and Borrow Smart Medical students have a few options when it comes to financing their education, so choose wisely. Read loan provisions and take special notes regarding in-school and residency repayment options. Create a spending plan and only borrow the minimum amount needed to get through medical school. When I worked at the Mayo Medical School, we would always say, “If you live like a doctor when you are a student, you will live like a student when you are a doctor.”