The subsidized Stafford loans were one of the few ways to inexpensively fund a medical education. With these loans, the government will pay the interest while you are in school and until 6 months after graduation. You cannot rely only on the subsidized Stafford to fund your education because the yearly limit you can borrow is quite small, at only $8,500 per year. (Compare that to my in-state tuition of over $30,000.) However, any little bit helps.
The cost of medical school is sky high and most students must incur a crushing load of debt just to become a doctor. Starting next school year (2012 – 2013), it will get even worse.
The Dreaded E-mail
Two weeks ago, I received an e-mail from the financial aids office that says:
Effective for loans made for periods of enrollment (loan periods) beginning on or after July 1, 2012, graduate and professional students are no longer eligible to receive Federal Direct Subsidized Loans. The terms and conditions of Direct Subsidized Loans received by any student for loan periods beginning before July 1, 2012, for either graduate or undergraduate study, are not affected by this change.
I doubt that my school is the only one discontinuing subsidized loans. In fact, this will affect medical schools all over the country.
How Much More Will Medical School Cost You?
Because the US government does not think a diminishing doctor’s salary and a yearly increase in tuition are enough burdens for current and future doctors, the loss of subsidized Stafford loan is thrown into the mix as well. So what does this mean for medical school students? It means that over the course of a 4 year education, you and I, along with many others, will have to pay an extra $5,700.
For the math and finance gurus, I made a simple amortization table to show you exactly how the unsubsidized Stafford loan will accrue over the span of a four year education.
The max amount of subsidized Stafford loan a medical student can get per year is $8,500. The amount is evenly split between two semesters. The interest rate is 6.8%, compounded daily. What you want to be concerned about is the total interest you will have to pay after four years: $5,746.38.
Maybe an extra $5,700 is not so much compared to an average of $160,000 in medical school debt. But do not forget the power of compounding. The resident’s tiny salary would not be enough to cover interest on the loan and cost of living. Therefore, the only option is to let the debt grow. If you do a 7 year residency, that $5,700 will turn into more than $9,000 (assuming the interest rate remains the same at 6.8%).
Possibly More Unfavorable Winds in the Future
Next school year, expect a loss of subsidized Stafford loans. Maybe the year after that, the government will raise the interest rates on the student loans. It is definitely possible. With each passing year, the financial rewards of being a doctor are decreasing while the financial costs are increasing. It is getting more and more tempting to say “no more” to medical schools.
This article is part of the Medical School Loans series. Click on the link if you want more tips and hints about borrowing money smartly.