Featured Items
Jul
13

Federal vs. Private Loans for Medical Students

Posted by: Author · Date 07.13.2014 @ 4:05 pm ⋅ Comments 2 Comments
 

 

Will it take decades to pay off student loan debt? Yes.

Will it take decades to pay off student loan debt? Yes.

Getting into medical school is hard enough as it is. After you’ve successfully obtained admission and submitted your few hundred dollar deposit–now you have to come up with hundreds of thousands of dollars to fund your education.

The federal loan process after your undergraduate years can get complex. I seriously recommend that you discuss your options with a financial aid representative or counselor at your school. Even if you feel like you know everything there is to know about borrowing money, they can tell you even more about the several different financial options: scholarships, grants, federal loans, and private loans.

Private loans are considered the last of the last resorts. After you have exhausted all other resources like scholarships or federal loans go back and search for no hassle, no strings attached scholarship money.

Next, think about asking for a bit of help from family members, friends, the congregation, the 10-year old Girl Scout who sold you those cookies last March or your favorite barista at Starbucks. If, after all other options are exhausted and you are still looking for $50,000 to $150,000+ dollars, then you should look into private loans. But let’s talk about federal loan options first.

Federal Loans

Remember FAFSA? Remember your 4-digit FAFSA PIN? That’s where you start. If you’re a recent graduate or non-traditional student with current federal loan debt you’re familiar with the process of applying. You should also know that at this time in your life you are considered independent therefore you cannot file with your parents. If you are unfamiliar with the process, take a look at the list below.

Documents & Information Required to Complete Your FAFSA:
  • Find the six-digit federal school code for your school (most likely listed on the Financial Aid page of your school’s website)
  • Find your 1040A/1040EZ, W2′s, or federal income tax return
  • Any information regarding the amount in your savings and/or checking accounts and other assets
  • Calculate your net worth
  • Make sure this information is ACCURATE because inaccuracy or false information slows down the process.
  • Use the National Student Loan Data System (NSLDS) to determine the amount that you have already borrowed in federal loans. (You need your 4-digit FAFSA Pin)
  • Once you’ve gathered all of the above information, you’re ready to start the Free Application for Federal Student Aid (FAFSA) website and click on “Start a New FAFSA”. Please note: the directions are explained as you go through the form. Any questions that require the documents above or other documents will be listed.
There are two federal student loan programs: Direct (Stafford) Loans and Federal Perkins Loans
  • Federal Direct (Stafford) Loan Program
    • Direct Subsidized Loans are only for undergraduate students. Graduate and health professions students do not qualify.
    • Direct Unsubsidized Loans allow graduate and health professions students to borrow between $43,833 (Year 1) – $47,167 (Year 2-4) annually. No credit check, based on financial need.
    • Direct PLUS Loans require a credit check. This loan only kicks in after all other loan options are exhausted and you still need federal funds for your education. You can borrow the maximum amount of the cost of attendance minus financial aid that you receive from the school.
    • Direct Consolidation Loans combine all of your federal student loans into one loan.
  • Federal Perkins Loan Program
    • Federal Perkins Loan are school-based, meaning your school loans you the funds depending on your financial need.
    • Graduate/Health Professions students can borrow up to $8,000 each year with a maximum of $60,000 over a lifetime.

All federal loans have a lifetime limit. The lifetime limit for direct loans (subsidized + unsubsidized) is $224,000. There are also grants available to students in the form of the Federal Pell Grant. These grants, just like loans, also have a maximum lifetime limit.

Private Loans

Private loans, again, should be considered the last resort for students. There are different reasons why someone might resort to private loans:

  • You somehow found better rates with a private loan than a federal loan
  • You have reached the aggregate (lifetime amount) of federal aid
  • You have defaulted on a federal loan and do not qualify1
  • You need money for living expenses and other real-life circumstances that require money

There are several places to start when looking for loans for school. This is what I did: I checked my FICO credit score and then I started the loan search with SimpleTuition.com, a website that allows you to compare different loan companies that will work with your school to verify the cost of attendance. Please note: not all loan companies will work with a school to provide help with educational loans. You have to check with your school and double check with the loan company to see if they will work together.

If your credit is amazing and you can sign a loan application alone that is fantastic. If your credit history is short (less than two years) or you have bad credit you will definitely need a cosigner with at least two years of strong credit history.

When considering private loans, do not forget to calculate how much money you will have to repay once you start your repayment period. Some loans offer deferment for several years (4-7 years) and some repayment periods are longer for lower monthly payments but overall higher interest paid. When you are budgeting for loans, take out only what you need. Some people may not be accustomed to it, but living by simpler means in medical school is the way to go. So relax. Don’t think you’re a “baller, shot caller” now that you have some loan money.

Below is a comparison table of federal loans and private educational loans for health professions students. Click on the name of the loan/company to find out more information.

Comparison of Federal & Private Loans

Lender Interest Rates (Max Variable; Fixed) Repayment Period Loan Limit (Annual; Lifetime)
Direct Unsubsidized Loans (Stafford) 6.21% (fixed) 10-25 years $43,833-$47,1674; $224,000
Direct PLUS Loans 7.21% (fixed) Varies Varies5
Federal Perkins Loans2 5.00% (fixed) 10-25 years $8,000; $60,000
Citizens Bank Trufit Student Loan® 9.40%; 11.75% 15 years Varies5; $170,000
Discover Health Professions Loans 2.99%; 5.99% 20 years Varies5
Fifth Third Smart Option Student Loan® 7.27%; 8.56% 5-15 years Varies5
PNC Solution Loan for Health Professions3 10.40%; 12.99% 15 years $65,000; $225,000
Sallie Mae Smart Option Student Loan® 7.27%; 8.88% 5-15 years Varies5; $200,000
Suntrust Custom Choice Loan® 8.01%; 9.77% 15 years $150,000
Wells Fargo MedCAP® Alternative Loan for Health Professionals 7.56%; 9.32% 15 years $250,000

I will add to this table as I learn of more loan companies.

References & Resources
  1. Repayment Options: Repayment, loan forgiveness and cancellation, rehabilitation, consolidation, etc.
  2. Federal Perkins Loan borrowers begin repayment 9-months after graduation/drop-out
  3. PNC Loans: Aggregate amount is the sum of all federal + private loans
  4. Understand how interest is calculated and what fees are associated with your federal student loan
  5. Federal Direct Subsidized and Unsubsidized Loans“, University of Wisconsin-Madison Office of Student Financial Aid
  6. Maximum Annual Loan Limit is up to the cost of attendance minus other financial aid (federal + scholarships).
  7. Federal Student Loans Comparison Chart
  8. FinAid Private Student Loans Comparison Chart
 
 

 

About the Author: Mel Sherman · 54 post(s)

Mel ShermanFuture M.D. is a blog created by Mel Sherman. She is a biological anthropology graduate from Maryland preparing for medical school. Follow Mel: Feedburner, Twitter , and Tumblr.


Other posts written by: .

 
 
 

 
 
  • Julia

    The lifetime limit for federal loans for medical school is actually 224,000. It is a separate category from graduate/professional loans.

    Here are two sources:
    https://finaid.msu.edu/limits.asp

    https://finaid.wisc.edu/213.htm

    • http://www.afuturemd.com Mel

      Thanks for info! I just corrected the post with the $43,833 for annual limit and $224,000 for aggregate limit! :)