Medical What kind of loans should we get if we're both entering medical school?

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TheBoneDoctah

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My wife and I are entering a fully accredited, private MD school with zero financial aid, minimal parental help, ~20k in gap year savings. The COA estimated by them and us is 80k per person, per year.

Credit score is good with no bad history, but isn't spectacular because we've never taken out loans before.

Financial aid office is slow getting back to us due to covid.

1. Are federal or private loans generally more favorable?

2. Are federal loans calculated with simple or compound interest? Daily, monthly, or annually?

3. Which federal loan is best? Direct unsubsidized, perkins, or PLUS?

4. Any other resources for related information is appreciated.


We are master budgeters and penny-pinchers, so I don't think we need help in that realm.
1. They both have their pros/cons. Federal loans have the pros of different payback options. For example, when you graduate from medical school, at 160k/year, you are looking at close to 700k-750k when you graduate. If you both go into a high-paying specialty, paying off the debt can be done, but if you go into something with a lower salary, it can be tough to overcome this debt and accumulate wealth. For federal loans, they offer loan forgiveness (PSLF). In this program, if you work in a non-profit (501c3) hospital in residency/fellowship/attending, you may qualify for loan forgiveness which would be huge with this kind of debt. You would have to work in a non-profit for ten years and make 120 payments. Most academic hospitals are non-profit, so if you do a 4-year residency at a 501c3, a 1-year fellowship at a 5013c, and then work in a 5013c hospital for five more years, you would qualify. Let me know if this makes sense.

Also, you can be placed on an income-based payment plan. There is no way you are going to be able to pay a standard payment on 700k loans in residency. You would NEED an income-based payment plan. The good thing is that any payments made on the IBR plan would count towards your 120 payments for PSLF. Some private companies offer a "$100/month" plan while in residency, but they are newer plans and I haven't done much to check them out. It seems like most students go with the federal loan route, and then use REPAYE/PAYE payment plans until they are done with residency, then you can refinance with a private company and get a better interest rate so that you can start to pay them off quicker as an attending.

2. From my understanding, federal student loans do not compound except in special circumstances such as default or forbearance. You pay interest only on the principal value, not on the accumulated interest.

3. Direct subsidized would be best because your interest does not start to accumulate until after you graduate. Unsubsidized starts accumulating the minute you take out that loan, and that is a ton of interest on your high loan amount. I am not sure if this is too basic for you. Some people know nothing about loans, so if you already know what the differences are, my apologies. Chances are for your situation, you will need to get a combination of both kinds, plus maybe even private loans to cover the entire amount.

Interesting, I didn't know residency could count towards PSLF, but that changes things dramatically.

No need to apologize. Better to over-cover the basics than skip the fundamentals.

I appreciate it. Thanks!
 
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