As a practicing resident fresh out of medical school, chances are you’re earning relatively little compared to the amount of student loan debt you’ve racked up.

In fact, the average salary for a first-year resident was just over $54,000 in 2016, according to an Association of American Medical Colleges survey of resident and fellow stipends. Meanwhile, a recent study from Student Loan Hero shows the average medical school debt for a graduate is a whopping $164,800.

However, by adjusting your student loan repayment now, you can free up monthly cash flow down the road. That way, you can focus more on learning and working. Here’s how you can get started.

 

How to manage medical school debt during your residency

Let’s say you have medical school debt of $164,800.

Assuming an interest rate of 6.31% (the rate on today’s Grad PLUS loans), you’re looking at a $1,855 monthly payment on a 10-year Standard Repayment Plan. And don’t forget: payments are due within six months of graduation.

What’s more, that monthly $1,855 student loan payment accounts for 40% of a resident’s average $4,500 gross monthly pay. Simply put, the high payments on medical school debt won’t be affordable for many residents.

That’s all the more reason to make important student loan decisions now. Creating a student loan repayment strategy that works will help you build a secure financial foundation—and free up mental resources to devote to your training.

Here are four effective strategies residents can use to pay off medical school loans, better manage their money, and plan their financial future.

 

1. Don’t rely on student loan deferment or forbearance

A common solution for handling high student loan payments and a low-paying medical residency is to put your student loans in deferment or forbearance. If you have federal student loans, you’re entitled to mandatory residency forbearance, for instance. This postpones repayment until after you complete your residency.

For a resident too busy to worry about student debt, this can seem like the easiest and most straightforward option. But forbearance just pushes the realities of medical school debt further into the future. It doesn’t get you any closer to paying off these student loans.

In most cases, residency forbearance actually works against you in the long run. While in forbearance, student loan balances will continue to accrue interest and grow.

For example, assuming an average medical school debt of $164,800 and a 6.31% interest rate, the interest added to your balance each month will be a whopping $867. After a three-year residency, that initial balance balloons to more than $199,000.

 

2. Choose a new student loan repayment plan

When medical school debt enters repayment, federal student loans will automatically be set to a Standard Repayment Plan. This amortizes the balance over 10 years.

But if your medical school debt is closer to the size of a mortgage, these payments get unwieldy and unmanageable. In short, staying on a Standard Repayment Plan may simply cost too much each month.

Fortunately, federal student loans offer several repayment plans that can help lower the amount due each month:

• Extended Repayment Plan: Instead of amortizing student loans over 10 years, you can choose a longer repayment period of 15-30 years. You can use this calculator to see how different repayment periods might affect your student loans.
• Graduated Repayment Plan: Sets payments lower at first and raises them every two years. Hopefully, you can complete your residency and grow your income so that as your payments increase, so does your ability to afford them.
• Income-Driven Repayment Plans: These plans allow you to set payments according to your income, family size, and local costs of living so payments are always affordable. The AAMC estimates that typical monthly student loan payments are $300-350 in residency. This can be especially helpful for parent residents or doctors living in high-cost areas.

 

3. Consider refinancing medical school loans

Medical school debt is an expensive combination of high balances accruing interest at some of the highest student loan rates. In recent years, federal student loans available to medical students carried rates of 5.00% or more.

That’s where student loan refinancing can come in. Refinancing your medical school debt lets you choose the repayment length and rate right for you.

The best student loan refinancing lenders offer rates as low as 2.50%, which can add up to significant savings. Refinancing $164,800 from a 6.31% rate to 4.00%, for example, lowers monthly payments by $187 and saves $22,423 in interest over 10 years.

Alternatively, you could choose a longer repayment period of 15 years (at 4.00%) to drop monthly payments even further, by $636 a month. And you’d still save $3,224 in interest while paying less each month.

Enter your own balance and rates into this student loan refinancing calculator to see how different repayment periods and rates would affect your loans.

 

4. Look into loan repayment assistance and forgiveness programs

Another option is choosing a residency that includes student loan repayment assistance or forgiveness.

Working or performing research for nonprofits or government organizations, for instance, could qualify doctors for Public Service Loan Forgiveness.

Additionally, all three branches of the military offer some form of loan assistance for doctors. The National Institute of Health (NIH) and National Health Service Corps (NHSC) also provide repayment programs to physicians serving areas with a high need for medical professionals.

Find out which options you qualify for with this tool for finding student loan repayment assistance programs.

 

Don’t wait to plan your financial future

After four intense years of medical school, residents are already trailing—in lifetime earnings—their peers who started working instead of continuing their studies. For instance, the average 2014 college graduate earned just over $48,000 a year, according to TIME Money.

A typical medical student who graduated the same year will finish their studies in 2018 with six figures in debt. Meanwhile, peers who started working immediately upon completing a bachelor’s degree will have average gross earnings of $200,000 during those four years (assuming a 3% annual raise).

Between lost earnings and medical school debt, a typical 2018 graduate can expect to be about $360,000 behind peers in their undergraduate class. Doctors are likely to catch up, of course, but those lost years of earning, saving, and investing money make a difference.

That’s why it’s important to get a head start on your financial planning during your residency. You can make an effort to include financial goals in your budget, such as saving for retirement, building a house-buying fund, or building capital to start a private practice.

Getting started on these goals in residency, rather than waiting until long after, can make a big difference in the trajectory of your career and personal life later on.

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This post has been sponsored by Student Loan Hero.