Medical school loans work much like other graduate student loans, but with higher borrowing limits, protections built around the long residency years, and forgiveness pathways aimed at physicians. Most students fund their degree through federal Direct Unsubsidized Loans and Direct PLUS Loans from the U.S. Department of Education, add private loans only if a gap remains, and then repay over 10 to 25 years using a plan matched to their income. The average medical graduate carries about $223,000 in educational debt by the time training begins.
Where the Money Comes From
Two federal loans do most of the work. Direct Unsubsidized Loans are available to essentially every enrolled medical student without a financial-need test and sit at a fixed interest rate for the life of the loan.1Federal Student Aid. Unsubsidized Loan When unsubsidized borrowing isn’t enough, Direct PLUS Loans (commonly called Grad PLUS) cover the rest up to your school’s cost of attendance minus any other aid.2Federal Student Aid. How Much Money Can I Borrow in Federal Student Loans? Grad PLUS requires a credit check, and a borrower with an adverse credit history may need an endorser or documentation of extenuating circumstances.3Student Financial Services. Direct PLUS Loans
Private loans from banks, credit unions, and online lenders are the third option. Rates and terms depend on your credit and income, or a co-signer’s. The trade-off matters: private loans don’t offer income-driven repayment, mandatory residency forbearance, or Public Service Loan Forgiveness. Most financial aid offices suggest exhausting federal loans first and using private loans only for a leftover gap.
How Much You Can Borrow
Standard graduate students are capped at $20,500 per year in Direct Unsubsidized Loans. Medical students in eligible health professions programs get higher ceilings: $40,500 for a typical nine-month academic year and up to $47,167 for a twelve-month year. The lifetime aggregate cap for health professions students is $224,000 in combined subsidized and unsubsidized loans, compared with $138,500 for other graduate students.4Federal Student Aid Knowledge Center. Annual and Aggregate Loan Limits
Grad PLUS has no fixed annual or lifetime cap. Instead, you can borrow up to the full cost of attendance set by your school, minus any other aid you’ve received.
What the Loans Cost
Interest Rates
Federal rates are fixed for the life of each loan but reset annually for new disbursements based on the 10-year Treasury auction each May. For loans first disbursed between July 1, 2025, and June 30, 2026, the rate is 7.94% on Direct Unsubsidized Loans for graduate and professional students and 8.94% on Direct PLUS Loans.5Federal Student Aid. Interest Rates for Direct Loans First Disbursed Between July 1, 2025 and June 30, 2026 Once a loan is disbursed, that rate doesn’t change.
Origination Fees
Before any loan money reaches your school, the government deducts a one-time origination fee from each disbursement. For loans first disbursed between October 1, 2025, and September 30, 2026, the fee is 1.057% on Direct Unsubsidized Loans and 4.228% on Direct PLUS Loans.6Federal Student Aid. FY 26 Sequester-Required Changes to the Title IV Student Aid Programs On a $40,500 unsubsidized loan, about $40,072 actually reaches the school even though you owe the full $40,500. The PLUS fee is large enough that it should factor into how much you borrow.
Interest While You’re in School
Interest on Direct Unsubsidized and Grad PLUS Loans starts accruing the day the money is disbursed, including the years you’re still in school.1Federal Student Aid. Unsubsidized Loan On a single $40,500 loan at 7.94%, roughly $3,200 in interest piles up in a year with no payments.
Unpaid interest capitalizes (gets added to your principal) at specific trigger points, such as when a deferment ends, when you leave an income-driven repayment plan, or when the grace period after graduation closes. Once capitalized, you pay interest on the higher balance, and the total cost of the loan grows. Making even small interest-only payments during school can prevent some of that capitalization.
Applying and Getting the Funds
Federal aid starts with the Free Application for Federal Student Aid (FAFSA), filed each year at studentaid.gov. Your financial information is shared with the medical schools you select so they can build an aid package.7Federal Student Aid. What is the FAFSA Form? The FAFSA is free and must be renewed every year you want federal aid.
Once your package is set, you sign a Master Promissory Note (MPN) electronically. The MPN is a binding agreement to repay what you borrow plus interest, and it stays valid for up to ten years, covering multiple disbursements.8Federal Student Aid. Completing a Master Promissory Note First-time federal borrowers also have to complete entrance counseling before funds release.9Federal Student Aid Knowledge Center. Direct Loan Counseling
Loan money goes to the school, not to you. The financial aid office applies the funds to tuition, fees, and mandatory charges first. Anything left over is released to you as a credit balance for living expenses, usually by direct deposit or check, at the start of each term.
Repaying After Graduation
The Grace Period
After you graduate or drop below half-time enrollment, Direct Unsubsidized Loans give you a six-month grace period before payments begin.10AAMC. Postponing Loan Repayment: Grace, Deferment, and Forbearance Interest keeps accruing, but nothing is due. For most new physicians, that window overlaps the start of residency.
The Standard Plan
If you don’t choose otherwise, you’re placed on the Standard Repayment Plan: a fixed monthly payment calibrated to pay the loan off in 10 years.11Aidvantage. Federal Student Loan Repayment Options It costs the least in total interest, but on a resident salary of roughly $60,000 to $75,000 against a balance over $200,000, the monthly figure is usually impractical.
Income-Driven Repayment
Income-driven repayment (IDR) plans tie your monthly payment to a percentage of discretionary income (your adjusted gross income minus a multiple of the federal poverty guideline). Under Income-Based Repayment (IBR), payments are capped at 10% of discretionary income for newer borrowers and 15% for those who borrowed before July 1, 2014. If the calculated payment comes out below $5, your required payment is $0, and that zero-dollar payment still counts toward eventual forgiveness.12Federal Student Aid. Questions and Answers About IDR Plans
The SAVE Plan, which offered lower payments than other IDR options, was struck down by the Eighth Circuit Court of Appeals in early 2025 and is currently blocked by a federal court injunction. The Department of Education has told the roughly 7.7 million borrowers enrolled in SAVE to switch to another IDR plan, most often IBR, to resume qualifying payments toward forgiveness.13U.S. Department of Education. U.S. Department of Education Continues to Improve Federal Student Loan Repayment Options In 2026, IBR and Pay As You Earn (PAYE) are the IDR options actually available.
After 20 or 25 years of qualifying IDR payments (depending on the plan and whether you borrowed for graduate school), any remaining balance is forgiven. Starting in 2026, that forgiven amount may be treated as taxable income on your federal return. A temporary American Rescue Plan Act provision had shielded student loan forgiveness from federal taxes through January 1, 2026, but that protection has expired for IDR forgiveness. This potential tax bill is one reason many physicians compare IDR forgiveness carefully against PSLF, which remains tax-free.
Residency Forbearance
If payments remain too high even under IDR, medical and dental residents can request mandatory forbearance. The servicer must grant it when you document participation in an accredited internship or residency, in increments of up to 12 months, and it can be renewed through training.14Federal Student Aid. Service-Based Mandatory Forbearance Request – Medical or Dental Internship/Residency
Interest keeps accruing during forbearance and eventually capitalizes. And for anyone pursuing Public Service Loan Forgiveness, IDR payments during residency (including $0 payments) count toward the 120-payment requirement, while forbearance months do not. If PSLF is in your long-term plan, IDR almost always beats forbearance.
Forgiveness Pathways for Physicians
Public Service Loan Forgiveness
PSLF erases the remaining federal loan balance after 120 qualifying monthly payments made while you work full-time (an average of at least 30 hours per week) for a qualifying employer, typically a government agency, nonprofit hospital, or academic medical center.15Federal Student Aid. Employer Eligibility for Public Service Loan Forgiveness (PSLF) The 120 payments don’t need to be consecutive, and only payments made after October 1, 2007, count.
Unlike IDR forgiveness, the amount forgiven under PSLF is not taxable income. That exclusion comes from federal tax law and wasn’t affected by the expiration of the American Rescue Plan Act provision.16Office of the Law Revision Counsel. 26 U.S. Code 108 – Income From Discharge of Indebtedness For a physician spending three to seven years in residency and fellowship at a nonprofit hospital, PSLF can wipe out hundreds of thousands of dollars tax-free. To stay on track, submit the PSLF Certification and Application form through the PSLF Help Tool on studentaid.gov each year or whenever you change employers.
Service-Based Repayment Programs
The National Health Service Corps (NHSC) Loan Repayment Program pays up to $75,000 toward qualifying loans for physicians who practice primary care, psychiatry, or obstetrics/gynecology for two full-time years at an approved site in a Health Professional Shortage Area. Half-time service pays up to $37,500, and awards can be renewed.17NHSC. NHSC Loan Repayment Program
The NIH Loan Repayment Programs pay up to $50,000 per year toward qualifying educational debt for physicians doing biomedical or biobehavioral research. Both extramural researchers and intramural NIH employees are eligible.18National Institutes of Health. Loan Repayment Programs Amounts received under the NHSC program and similar state loan repayment programs are also excluded from taxable income under federal law.16Office of the Law Revision Counsel. 26 U.S. Code 108 – Income From Discharge of Indebtedness Many states run their own repayment programs for physicians who practice in underserved areas; your state health department can tell you what’s available.
Consolidation and Refinancing
A federal Direct Consolidation Loan combines multiple federal loans into one, with one monthly payment and an interest rate set at the weighted average of your existing rates, rounded up to the nearest one-eighth of a percent. Consolidation can simplify billing and can bring certain older loans into eligibility for IDR plans or PSLF.
It also comes with real costs. Consolidation can extend your repayment period and raise total interest; any unpaid interest capitalizes when the new loan is created; and it resets your qualifying payment count for PSLF and IDR forgiveness to zero.19Federal Student Aid. 5 Things to Know Before Consolidating Federal Student Loans The process cannot be undone.
Private refinancing is different: a private lender pays off your existing loans and issues a new loan at a different rate. With strong credit and an attending-physician income, you may land a lower rate than your federal loans carry. But refinancing federal loans into a private loan permanently ends access to IDR, PSLF, and residency forbearance. Physicians who may pursue PSLF, or who may need income-driven flexibility during training, should generally hold off until those benefits are no longer in play.
A Tax Break While You’re Repaying
You can deduct up to $2,500 per year of student loan interest paid on qualified education loans, taken as an adjustment to income rather than an itemized deduction.20Internal Revenue Service. Publication 970, Tax Benefits for Education The deduction phases out at higher incomes based on your modified adjusted gross income and filing status, with thresholds the IRS adjusts annually.21Internal Revenue Service. Topic No. 456, Student Loan Interest Deduction
During residency, when income is modest and interest charges are high, you’ll likely qualify for the full deduction. Once attending income kicks in, you may be phased out entirely. Claiming it every eligible year is worth the few minutes it takes.