Getting Ready for Graduation

Use this checklist as you prepare to graduate from medical school.

• Find your federal loan information.
• Check your credit report.
• Complete required federal “Exit Counseling” on the Federal Student Aid (FSA) website and any other school requirements for graduating students.
• Evaluate postponement and repayment options.
• Determine your loan repayment goals.
• Create a loan repayment strategy based upon your financial goals.
• Develop a residency budget based on your PGY-1 stipend.
• Use the AAMC Financial Wellness program to learn about insurance, saving and investing, taxes, etc.
• Determine if a Direct Consolidation Loan is right for you.
• Explore loan forgiveness and loan repayment assistance programs.
• Set up a meeting with financial aid to discuss any questions or concerns you may have about loan repayment.

Resources

• Find the Details of Your Federal Loans
• Obtain Your Free Credit Report
• Federal Student Aid Exit Counseling
• Postponing Loan Repayment: Grace, Deferment, and Forbearance
• Repayment Plans for Federal Student Loans
• Living on a Resident Budget
• AAMC Financial Wellness Program
• Direct Consolidation Loan
• Loan Forgiveness, Scholarships and Service Programs
• AAMC Loan Repayment/Forgiveness/Scholarship and Other Programs Database

Graduation and Your Student Loans

Now is the time to double-check the information within your Federal Student Aid (FSA) account and compare it to the information on your servicer’s website.  You will want to make sure the information matches and if anything is incorrect, you will want to contact your servicer to find out why there is a discrepancy.

If you borrowed Loans for Disadvantaged Students (LDS), Primary Care Loans (PCL), private, or institutional loans, these loans will not be in your FSA account. To obtain details about these loans, you would need to talk with the financial aid staff at your school, the lender or servicer of the loan, or review your credit report.

It’s important to know what’s in your loan portfolio so that you can determine how best to manage your loans during and after residency.  Your actual repayment start date may differ depending on the following details, so take the time to learn this information before graduation:

•  types of loans in your portfolio
•  grace period availability
•  loan disbursement dates
•  loan servicer(s)
•  terms and conditions of loans in your portfolio

Your Loans 

When you graduate, your federal loans will enter a grace period (Direct Unsubsidized Loans) or post-enrollment deferment (Direct PLUS Loan). A grace period and a post-enrollment deferment covers a 6-month period in which no payments are required. 

If you took a leave of absence (LOA) during medical school, the loans disbursed to you prior to the LOA would have used their grace period. Since federal loans only get one grace period, you will need to contact your servicer to make plans for the loans that may not have a grace period; this would apply to loans during medical school, and any loans from undergraduate study that don’t have a grace period. You will either have to select a repayment plan or request a postponement of payment through a deferment or forbearance for any loans that don’t have a remaining grace period or post-enrollment deferment period.

Borrowers can choose to make unscheduled (or voluntary payments) at any time without any penalty – even during a grace period or post-enrollment deferment.

If you make an unscheduled payment, servicers are required to apply those payments like this: 

1. Apply payment to any outstanding late fees or penalties (if there are any).
2. Apply payment to any outstanding unpaid interest.
3. Apply payment to principal once all outstanding interest has been satisfied.

If your servicer allows you to make extra or unscheduled payments from the portal on their website, you may want to consider that option because it will likely give you more control in making sure the payment is applied as intended. If you are sending an unscheduled or voluntary payment to your servicer by check, be sure to explain how you want your payment applied to your loan(s), and then follow up to make sure your directions were followed.

Budgeting After Graduation

It will be important to continue your budgeting process your last year of medical school, after graduation and as you move into residency. If you borrowed loans during medical school, and you plan to make payments during residency, preparing for loan repayment may be a part of your budgeting process.

As you think about graduation, you will also likely start to think about transitioning to residency which may include thoughts about managing your finances during residency. Some financial tips to consider while easing into residency include:

• Determining how and when you will be paid.
• Understanding the repayment terms and cost of your loans.
• Establishing a system for maintaining accurate financial records.
• Evaluating your insurance needs and taking the steps to purchase necessary insurance.
• Creating a budget based on your resident stipend and expenses.
• Setting financial goals for residency and post-residency.
• Realistically assessing your housing wants and needs.

Any life change can impact your finances, and marriage is certainly one example of a change that may occur for some graduates and/or residents. Getting married during residency may make a difference in how you manage your finances, just as it can play a role in determining your monthly budget or how much of your budget will go toward your loan payment (based on certain repayment plans). It’s wise to think about possible changes before they happen so that you can prepare for the change and the potential financial impact so that you can ultimately meet your financial goals as a couple.

In addition to getting married, there are many other possible life changes that may have a financial impact throughout your training years.  Your financial goals may change as you begin to think about steps for making big purchases so to help you prepare, you may want to review some of the FIRST videos below:

• Home Financing for Medical Students and Residents
• Choosing Insurance and What You Need to Know
• Filing Taxes and Student Loans
• Credit Scores and Identity Theft Precautions
• Monitoring, Maintaining and Improving Your Credit Score

Loan Repayment Decisions 

If you borrowed loans for medical school, you will need to decide how you want to manage your loans after graduation. You will need to determine if you want to make payments during residency or if you want to postpone payments during residency. Both options are possible, and your decision will be based upon your personal and financial goals.  There is no right way or perfect plan to manage your federal student loans; it’s a decision that can change when your life’s plans and priorities change.

Postponing Payments During Residency

Medical residents may choose to postpone payment on their federal student loans during residency with a mandatory residency forbearance. The servicer is required to grant this forbearance if a borrower requests it. The Mandatory Forbearance Request form can be obtained on the FSA website or by contacting your loan servicer. A mandatory residency forbearance is approved in annual increments so if you want the forbearance to remain in effect throughout residency, you will need to re-submit the request annually. You have the right to switch into--and out of--a mandatory medical residency forbearance at any time.  You can choose to make voluntary payments while enrolled in a mandatory residency forbearance, or you could even choose to pay the loan off early, without a penalty.  If you choose to make voluntary payments, think strategically, and apply the payment to the most expensive loan first.

If you postpone payments with a mandatory residency forbearance but chose to make voluntary payments, your voluntary payments will not count toward Public Service Loan Forgiveness (PSLF) because you will not be enrolled in an eligible repayment plan when participating in a mandatory residency forbearance.

Making Payments During Residency

If you choose to make payments during residency, you will want to think about the repayment plan that best aligns with your personal and financial goals. Understanding the plans will be helpful, so you will want to review the Repayment Plans section of this guide and you will also want to review the repayment scenarios based upon the loans you borrowed, your residency length, household size, and household income.

You can switch repayment plans and adjust your repayment strategy at any time. Contact your loan servicer to discuss how any potential changes you make may impact the total cost of loan repayment. At any time, you may choose to make extra payments, larger payments, or pay the loan off early without a penalty.

Resources

• Postponing Loan Repayment: Grace, Deferment, and Forbearance
• Repayment Plans for Federal Student Loans

MLOC^™: A Repayment Tool for Medical Graduates

If you’ve been using the MedLoans Organizer and Calculator (MLOC) throughout medical school, you probably have a good idea of what’s in your loan portfolio, a realistic estimate of your total borrowing costs, and an understanding of what postponing repayment or making payments during residency may look like. If you have not used the MLOC tool yet, it is not too late. You can enter your federal student loan information into the MLOC tool and review your repayment scenarios now.

The MLOC tool was created specifically for medical students and residents and uses the information you enter (or upload from your Federal Student Aid account) to show what repayment will look like for you. There are other repayment calculators available; however, the other calculators don’t account for the increase in salary that you will experience post-residency, and how that will affect your total repayment costs and length of repayment as physician.

Traditional and Income-Driven Repayment Plans

There are two types of repayment plans for federal student loans They offer flexibility for managing your payments during residency and post-residency. The repayment plan that is best for you will depend upon your repayment goals and your financial goals. Repayment plans can be broken into two types of plans: traditional repayment plans and income-driven repayment plans.

Traditional Repayment Plans

These plans base a borrower’s monthly payment on the amount borrowed and the repayment term associated with the plan. With these plans, the borrower repays the same monthly payment amount over a specific period (or term). Traditional repayment plans include Standard, Extended, and Graduated plans.

Income-Driven Repayment (IDR) Plans

These plans generally offer affordable monthly payments because payments are based on discretionary income and family size; however, the affordability of these plans can lead to higher overall costs and longer repayment timeframes.

These plans generally offer affordable monthly payments because payments are based on discretionary income and family size. With IDR plans, borrowers are required to submit income and household size information to their servicer annually, and the borrower’s monthly payment amount will be adjusted every year based on the updated information.

View all federal student loan repayment options at www.studentaid.gov.

Forgiveness is available with the income-driven repayment plans.  If a borrower reaches the end of the IDR term and still has a loan balance, the remaining loan balance is forgiven; however, the amount forgiven is considered taxable income when filing a federal income tax return.

All IDR plans are eligible repayment plans for the federal Public Service Loan Forgiveness (PSLF) program. PSLF offers loan forgiveness for borrowers who meet all program eligibility requirements which include having Direct Loans, making required loan payments while enrolled in a qualifying repayment plan and while working full-time for an eligible employer. The primary difference between forgiveness through an IDR plan vs. forgiveness through the federal PSLF program is that the amount forgiven through the PSLF program is currently non-taxable.

What is a Direct Consolidation Loan?

If a federal loan borrower has more than one loan, they may choose to combine their previously disbursed federal student loans into one new loan called a Direct Consolidation Loan.  The Direct Consolidation Loan will pay off the principal and interest of all the loans previously disbursed, and the new loan will have a fixed interest rate based on the combined loans. There is no charge to apply for a Direct Consolidation Loan and the application can be completed on the Federal Student Aid (FSA) website or by contacting your loan servicer.

What’s the Purpose of a Direct Consolidation Loan?
 

Not all borrowers will want (or need) to consolidate their federal student loans.

Some borrowers may choose to consolidate if they want to:

1. Eliminate multiple servicers (Note: if you currently have only one servicer, you will only be required to make one monthly payment regardless of how many individual loans you have).
2. Make non-Direct loans such as Perkins or Federal Family Education Loan (FFEL) Program loans eligible for Direct Loan-only repayment plans.
3. Make non-Direct loans eligible for forgiveness through income-driven repayment plans or programs -- like Public Service Loan Forgiveness (PSLF).
4. Move into a repayment plan before the end of their originally scheduled 6-month grace period.

When Can a Borrower Consolidate?

Borrowers may apply for a federal Direct Consolidation Loan only when their loan servicer has been notified by the school that the student is no longer enrolled in school. Some schools report a separation date for all students enrolled at the school at the same time, regardless of the actual medical school graduation date. The registrar or your financial aid staff will likely be able to tell you when your school will report this information; however, it could take 30–60 days before your servicer is notified of your separation date.

Only after your servicer updates your status from “in school” to “graduated” can you submit a Direct Consolidation Loan application.

Resources

• Instructions for Completing Direct Consolidation Loan
• Direct Consolidation Loan Application and Promissory Note

Reducing Loan Debt Through Service

If you are interested in a service career, or if you want to reduce your medical school debt, working in public service or following a career in the military may be viable career options that could also provide financial benefits. While these programs provide great opportunities for some borrowers, it is also important for borrowers to be aware of the service requirements and commitment that they agree to when participating in these programs.

The AAMC provides a database of loan repayment, forgiveness, and scholarship programs. This searchable database provides detailed information about programs available to medical and health professions students. Although this database provides a compilation of opportunities, it certainly is not an exhaustive list and medical students and graduates are encouraged to talk with the financial aid staff at their school to see if any additional information or resources may be available.

Resources

• Indian Health Service (IHS) - Loan Repayment and Scholarship Programs
• NHSC: Scholarship and Loan Repayment Programs
• Loan Forgiveness, Scholarship and Service Programs
• Veterans Affairs - Loan Repayment and Scholarship Programs
• Public Service Loan Forgiveness (PSLF) Program

A Federal Program

In addition to the state, federal and/or county programs found in the AAMC database, there is also a federal program, Public Service Loan Forgiveness (PSLF), that may be of interest to federal loan borrowers. After meeting the requirements for PSLF, if a borrower has a remaining federal Direct Loan balance, their loan balance is forgiven, and the amount forgiven is non-taxable. 

To qualify for PSLF, borrowers must:

1. Have Direct Loans in good standing.
2. Be employed full time by a qualifying employer.
3. Make 120 qualifying monthly payments.
4. Be enrolled in a qualifying repayment plan.

Resources

• Public Service Loan Forgiveness (PSLF)
• Public Service Loan Forgiveness Help Tool
• Income-Driven Repayment Plans and Public Service Loan Forgiveness
• Guide to Public Service Loan Forgiveness (PSLF)

Steps to Manage Your Loans 
 

Before Graduation
Step 1. Find out what loans you have, who your servicer(s) are, and when your payments will be due by logging into your Federal Student Aid (FSA) account. Set up an account on your loan servicer’s website if you haven’t done this yet.
Step 2. If any of your loans don’t have a grace period, contact your loan servicer(s) to select a repayment plan or request a deferment or forbearance.

After Graduation
Step 3. Determine if you want/need to apply for a Direct Consolidation Loan.  Consolidation is not a requirement (or necessary) for all borrowers. Borrowers can only apply for a Direct Consolidation Loan after the loan servicer is officially notified of the student’s separation date, which is handled by staff at the medical school.

At the Beginning of Residency, Annually, and if You Change Employers
Step 4. If interested in Public Service Loan Forgiveness (PSLF), complete the borrower section of the PSLF form, have your employer complete their section, and then submit the PSLF form to MOHELA (PSLF servicer).

Before the End of Your 6-month Grace/Post-Enrollment Deferment Period
Step 5A: If you want to make payments during residency: about 60 days before the end of your grace period, apply for your repayment plan. Apply for an income-driven repayment plan on the Federal Student Aid (FSA) website or by contacting your loan servicer(s). If you submit your application too early, it can be denied, and you may have to re-apply.
Step 5B: If you want to postpone payments during residency: contact your loan servicer at least 30 days before the end of your grace period to request a mandatory residency forbearance.

Annually
Step 6A: If you are enrolled in an income-driven repayment (IDR) plan, submit your income and household size information to your servicer by the servicer’s re-certification due date. Check with your loan servicer for the re-certification date and mark this on your calendar.
Step 6B: If you are enrolled in a mandatory residency forbearance and want to continue the forbearance throughout residency, be sure to submit the forbearance request form annually before the original request expires.