Unless you have a significant pool of savings, chances are you’re living your best, broke student life while you’re in medical school. By now, you’ve settled into the realization that residency isn’t going to bring in the big bucks, and preparation and moving for residency isn’t going to be cheap, either. To help cover some of the costs, many students take out residency relocation loans for necessary expenses after graduation and into residency. There’s no doubt that taking on more debt is a daunting prospect, and not always in your best interest. So, are residency relocation loans worth it – or are they a bad idea?
What are Residency Relocation Loans?
We write about residency relocation loans extensively in this article, but in short, getting into residency often involves application fees, travel/lodging expenses, and even moving costs. Despite their necessity, these costs generally aren’t included in standard financial aid packages. If you don’t have federal student loans left to spend, where do you scrounge up the average $4,000 needed?
This is where residency relocation loans come in.
These privately offered loans help fourth-year and recently graduated medical students cover costs related to residency interviews and moving to a residency program. These loans help soon-to-be or current residents cover:
- Application fees
- Travel, room, and board to attend residency interviews
- Internship expenses
- Moving and shipping expenses
- Textbook, review course, and board exam fees
Residency relocation loans can have limits up to $45,000, though most average around $20,000. Unlike most private loans, which carry repayment terms of 2-7 years, you have up to 20 years to repay your debt. Many lenders offer interest-only or 3-5 year deferments to help you get through your residency.
What You Should Know About Residency Relocation Loans
Residency relocation loans fall somewhere between a medical school loan and a personal loan. For instance, you have to prove that you’re a current or recent student or matched with a residency program to qualify. Like student loans, they often come with unique deferment or interest-only options, so you can focus on your residency. However, unlike traditional student loans, residency loans require a decent credit score and credit history. If you have poor credit, you may have to bring on a cosigner or pay a higher interest rate to qualify.
Additionally, these loans often charge higher interest rates than federal loans but lower rates than other kinds of personal loans. They also begin accruing interest immediately even if you’re on a deferment plan. Unlike some federal loans, you’re responsible for any origination and processing fees (variable by the lender).
How to Find a Suitable Residency Relocation Loan
When you take out a residency loan, you’re taking on more debt to pile on top of your student loans. However, unlike traditional student loans, you don’t have access to the same federal loan protections. As such, you should know what you’re getting into.
The AMA recommends asking several crucial questions before signing for a residency and relocation loan, such as:
- Is your interest rate fixed or variable?
- Do you need (or want) a cosigner?
- What are your deferment and forbearance options?
- When does your repayment plan kick in?
- Does the loan come with prepayment penalties?
Because these loans come from private lenders, the answer to these questions will depend on both the lender and your financial situation.
Beyond picking the specific lender, you’ll also want to be picky about how much you borrow. While taking out as much as you qualify for gives you a financial cushion, it also increases your debt load. Keep in mind that every dollar you borrow isn’t just a dollar you have to repay, it’s a dollar you pay interest on. Instead, take the time to tally up your current and projected application, travel, moving, and board exam costs. Then, use that to determine how much you realistically should borrow – not how much you can borrow.
Are Residency Relocation Loans Worth It?
Whether or not medical students should take out a residency loan depends on their financial situation and needs. While you’ll be piling on additional debt, you may also need the money to get your residency. After all, you can’t become a practicing doctor without it!
Before you make your decision, you’ll also want to consider your current loan load, deferment options, and potential salary.
Resident salaries average around $60,000 per year. Depending on where you live, that could be enough. However, once you consider living and personal expenses, your student loan repayments, and any career-related expenditures, there may not be much left over. Throwing another loan on top of that, even if you defer payments, can stress your current and future budget.
Are Residency Relocation Loans a Bad Idea?
Ultimately, residency relocation loans aren’t a good or bad idea. Like all other loans, it depends on their rates, terms, and how you use the funds. For some, they’re necessary to complete residency; for others, it’s an unneeded expense that eats up your paycheck.
For students who don’t have other options, residency relocation loans are worth the cost of kickstarting your career (not to mention much cheaper than using your credit card!). But for students who can already afford the costs of getting into a residency, residency relocation loans might not be necessary.