By Dr. James M. Dahle, WCI Founder
For 3/4 of medical (and other professional) students, dealing with student loans is part of the sacrifice required for them to become a doctor. Living frugally and not taking out loans too soon is the mainstay of student loan management during school, but as school comes to an end, there are a few tricks that fourth-year students should know about. Don't be the person who throws away tens of thousands of dollars by not knowing these simple tricks.
#1 File a Tax Return
Every graduating student with student loans should file a tax return for the prior year. Yes, we're all aware you probably didn't have any income and aren't required to file. So why should you file? Because that is how you prove your income when you enroll your federal loans in a federal Income Driven Repayment (IDR) program. If you don't file, the program will use your intern pay stubs, and your required payments will be higher. That means worse cash flow during residency and, more importantly for many, less to be forgiven via Public Service Loan Forgiveness (PSLF) or even IDR forgiveness programs.
#2 Consolidate Your Federal Loans
As soon as you can (generally right after graduation), consolidate (not refinance) your federal loans. This turns all your different federal loans into one big federal loan and gives you the weighted average interest rate rounded up to the nearest 1/8th of a point. That's convenient but not actually the point of consolidating. When you leave school, you are automatically given a six-month grace period. However, you don't actually want a six-month grace period unless you are 100% positive you will NOT be going for PSLF or IDR forgiveness. If you think there is even a chance of doing so, consolidate your loans. This allows you to waive the grace period and start making payments immediately. Don't worry, the “payments” are likely $0, but they will count toward the 120 monthly required payments for PSLF (or 240-300 required payments for IDR forgiveness). Get that clock started ASAP.
#3 Take Out Some Extra Money
During your final year of medical school, you will probably want to borrow a little more money than your budget says you will need just for the cost of school. While many residency interviews can now be done by Zoom with very limited expenses, you may still want to visit a few locations. You will also have moving expenses, including first and last month's rent and a deposit. Plus, your first intern paycheck may not arrive until the first week of August. You will probably want to eat something between graduation in May and August when that check rolls in. If you can get it, having a little extra student loan money left over is likely the best way to pay for all of these expenses. Is it fraudulent since these aren't technically school expenses? I'd call it a gray area, and I like to call the gray in my favor. Certainly, the interest rate will be better than you can expect from a private loan or your credit card.
#4 Refinance Your Private Loans
While the majority of graduating students with federal loans will (and should) enroll them in an IDR like the Revised Pay As Your Earn (REPAYE) program and thus should not yet refinance their federal loans, they should all refinance their private loans. While putting them into some sort of forbearance is attractive, the truth is that you'll just end up paying more later. By refinancing them now, you will get a lower interest rate and save thousands over the course of your training. Many are afraid of having to make payments during residency, but the companies that refinance your loans early in residency also allow you to have $100 per month payments—and even a broke intern can afford that.
Variable 5.09% - 8.99% APR
Fixed 3.74% - 8.99% APR
^Up to 0.75% off rates
Variable 3.99%-11.97% APR
Fixed 4.40%-11.87% APR
^Best Rate Guarantee
† Bonus includes cash rebates and value of free course. Borrowers who refinance more than $60,000 in student loans using the WCI links will be enrolled in The White Coat Investor’s flagship course, Fire Your Financial Advisor for free ($799 value). Borrowers will still receive the amazing cash rebates that WCI has negotiated with each lender. Offer valid for loan applications submitted from May 1, 2021 through June 30, 2023. Free course must be claimed within 90 days of loan disbursement. To claim free course enrollment, visit https://www.whitecoatinvestor.com/RefiBonus.
#5 Get Advice
The most difficult part of student loan management is during residency. It is much more straightforward as you leave residency than it is when you enter residency. If there is ever a time to spend a few hundred dollars getting professional advice and coaching to help you run the numbers with your various options, it is when you start residency. You want to know which IDR to enroll in, whether to refinance, how to file your taxes, and even which retirement accounts to use. While the answer to these questions can be really straightforward for single docs and docs married to non-earners (refinance private loans and enroll in REPAYE), they can be really complicated when you are or soon will be married to another earner. Our recommended resource is StudentLoanAdvice.com. An investment of $559 now saves you research time and provides reassurance, and it can also save you thousands of dollars in avoided student loan management mistakes.
#6 Get Educated
We (try to) give away a free copy of The White Coat Investor's Guide for Students (via our WCI Champions Program) to every first-year medical and dental student in the country every year, but we don't give them away to fourth-year students. If you don't yet have a copy, we recommend picking one up. It's only $9.99 on Kindle, but the education you will get from it may literally be worth millions of dollars over the course of your career. You definitely have time to read it late in your fourth year, and there is no better time to become financially literate.
None of this is complicated, even if it is new to you. Rest assured that thousands of doctors have been down this path before. They have taken advantage of these “tricks” to properly start off their journey to being free of their student loans. You can do it too, and we'll be with you every step of the way.
What do you think? Did you take out extra loans in your fourth year? Did you consolidate your loans to get the PSLF clock started? Did you file your taxes even though you didn't need to? When did you refinance your private loans? Have you gotten student loan-specific advice? What books do you think a graduating student should read before starting residency? Comment below!