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There are two different types of loans available for med students. In this article, we will look at what they are, what features come with them and review five different loan options currently available.
Students have the choice between federal and private loans. Using federal student loans is usually a good idea first and then moving to private loans. This is because federal loans typically come with benefits that are not available from private loans. The most important is access to income-driven repayment plans and loan forgiveness programs. Here is a closer look at what federal and private loans offer med students:
There are three different types of federal loans for medical school students. They are:
These loans differ from other federal loans as they have lower interest rates and come with access to interest subsidies. But there is a catch. These specific student loans are only available to borrowers who have a financial need and are enrolled in a participating educational institute.
These loans are not based on financial needs. Med students can borrow up to $20,500 annually to a total of $138,500, including undergraduate loans. Also, med students with direct unsubsidized loans should use them up completely before accessing Federal PLUS Loans as there are lower interest rates and fees to consider.
Med students should only look to these loans once they have used all other available loans. The interest rate for PLUS loans is 7.54 percent (2022-23 school year). That is almost the rate of a private loan and PLUS loans include something most private loans don’t – a 4.228 percent fee.
To be eligible for federal student loans, a student must attend a school participating in the federal loan program. The application form is the Free Application for Federal Student Aid. If the school is not part of the health professionals student loan program, the school will be able to direct students to other loan sources requiring different application forms. The Federal Direct Unsubsidized Loans do not require a credit check however, there is one for Federal PLUS Loans. Good credit will be a benefit but is not always necessary. Adverse credit history or negative credit marks will impact the likelihood of receiving loans.
Students with excellent credit ratings and no plans to pursue Public Service Loan Forgiveness will find private loans a better fit. Private loans normally have lower interest rates than federal ones and often have no additional fees. The final interest rate a med student will receive with their private loan will be determined by a few factors. They include the student’s credit rating, the term of the loan, and if the loan has a fixed or variable rate (more on that later). Private loan lenders offer benefits to medical school students, such as loan repayment postponement or a reduction in payments while the student is in residency.
As you can probably imagine, federal student loans are available just for US students. International students are not eligible, but there is an option that can help. Some international students qualify for a private loan, provided they have a co-signer that meets the lender’s requirements. Without an eligible co-signer, international med students have fewer options.
Here is a look at five different student loan options ranging from federal to private.
For first-time borrowers, these are the go-to loans that should be considered a first option. They require no credit score limit and feature a fixed Annual Percentage Rate (APR) of between 4.99 and 6.54 percent. There is no variable APR.
This type of student loan offers features not available with Federal Subsidized/Unsubsidized Loans, including manageable payments post-graduation, student loan forgiveness, and income-driven repayment program access. These features make Federal Grad PLUS Loans a strong second option once subsidized/unsubsidized loans are exhausted. They are also a much better choice than private student loans.
To qualify for a private student loan from this lender, the borrower must have a credit score in the mid-600 range. The Fixed APR is set at between 3.99 and 11.46 percent, whereas the variable APR is between 1.99 and 10.45 percent.
Borrowers require a credit score in the mid-600s to qualify for this private med school loan. The Fixed APR falls between 3.75 and 13.72 percent, whereas the variable APR ranges from 2.62 to 12.97 percent.
Borrowers’ credit scores should be in the mid-600s or higher with this lender. The Fixed APR starts at 3.22 percent with the variable APR starting at 1.84 percent. There are also several incentives offered.
There is a very important factor to consider with any type of loan. That is the Annual Percentage Rate (APR). Two different types are apparent with medical student loans – fixed and variable. A variable APR is a rate that changes frequently. Economic conditions cause fluctuations in the market rate, and this impacts the APR of a loan. The interesting thing to remember is that although many variable APRs begin lower than fixed APRs, they can go higher over time. A fixed APR is as the term implies. The rate remains the same for the life of the loan.
Medical students end up carrying massive student loan debts. For example, students from the Class of 2019 have an average debt of over $201,000. This is why loan programs are so important and require scrutiny to find the best rates for the long term. While the list above is far from complete, it should provide enough information to give med school students an idea of what to expect when shopping for a loan.