Life as a medical student can be challenging – and costly. Many aspiring physicians rack up hundreds of thousands of dollars in student loan debt during their years in medical school.

All of that expense makes choosing the right loan crucial. Find out more about the best medical school student loans, and discover which one is right for you.

“The vast majority of medical school students borrow through the federal student loan program,” says Julie Fresne, senior director of student financial and career advising services at the Association of American Medical Colleges.

In 2020, about 75% of medical school students had some type of education debt, Fresne says. Most of that debt was in the form of federal loans, with just 1% to 2% of those students using private loans.

Many students choose federal loans because they do not require either a co-signer or collateral and because the terms are generous. “Barring any highly unusual circumstances, they can borrow up to the cost of attendance at their medical school,” Fresne says.

Federal loans also offer flexible repayment options and opportunities for debt forgiveness if students work in the public service sector.

If you have good credit and choose private medical school loans, you may qualify for lower interest rates than on federal loans. The qualifications, interest rates and terms vary by lender and type of loan.

“Private loans are just like a loan you would owe a bank traditionally,” says Jan Miller, president and student loan consultant for Miller Student Loan Consulting. As a result, “There’s no forgiveness benefits, or not very many,” he adds.

Students tend to favor federal loans, in part because of the flexible repayment plans and the loan forgiveness perks. Most students who use federal loans to pay for medical school can defer payments for six months after they graduate, leave school or drop below half-time enrollment.

Students who borrow to pay for medical school can choose from two types of federal loans as well as private loans from banks, credit unions and other lenders.

Federal student loans. The federal government offers medical students direct unsubsidized and Direct PLUS loans. Direct loans – also known as Stafford loans – are available to students enrolled at least part time.

“It’s easy to get approved for what you want,” Miller says. “Most doctors are able to take out the debt they need. The limits are quite high.”

An unsubsidized loan accrues interest the day it is disbursed until it is paid in full. Although students can wait until after graduation to repay loans, starting earlier can save on interest.

A Direct PLUS loan is available to help pay for education expenses not covered by other financial aid. A medical student might seek a PLUS loan after reaching the annual borrowing limit on direct unsubsidized loans.

Private student loans. Borrowers may choose private medical school loans to fill funding gaps or if they are ineligible for federal student loans or qualify for lower interest rates on private loans compared with federal loans.

Before selecting a private loan, make sure you understand the conditions attached to it. Some private student loans have variable interest rates that may start low and then adjust higher.

“You’re taking on a certain amount of risk because usually to get that uber-low rate, it’s a variable rate rather than a fixed rate,” Fresne says.

Interest rates for private student loans are based on the borrower’s creditworthiness, and the borrower may need a co-signer to qualify for the best possible rate. The government, on the other hand, sets federal loan rates.

Terms can be less flexible on private student loans compared with federal loans. Borrowers may find limited repayment, deferment, forbearance, grace period and loan forgiveness options, notes the Association of American Medical Colleges.

“With a private loan, you have an amortization schedule; you have a promissory note,” Miller says. “You won’t be able to renegotiate the terms unless you refinance, and you can’t refinance unless your debt-to-income or your income potential is great.”

Other private lenders have created loan programs and features with medical students in mind.

Discover offers fixed- and variable-rate loans that can help you pay for medical residency and internship expenses, such as relocation and board exam review. The lender charges no application, origination or late fees, and enrolling in automatic payments reduces your interest rate by 0.25%.

Meanwhile, online lender CommonBond provides medical school loans with flexible repayment that allows you to make monthly payments as low as $100 when you’re in a verified residency program. No co-signers are required for this loan.

Online lender Ascent also has flexible terms, including deferred payments for up to 36 months, $25 minimum payments or in-school interest-only payments.

Either a federal or private student loan can work to finance medical school, but borrowers should consider these differences:

Qualifications. Direct unsubsidized loans are available to students enrolled at least part time, regardless of income and credit history. Financial need is not required.

A Direct PLUS loan, however, calls for a credit check, and the applicant must not have an adverse credit history for approval. If your credit is poor, you may need a co-signer to secure the loan.

Similarly, private student loans base eligibility and rates on the borrower’s credit history. Adding a co-signer to a loan could help borrowers with average or low credit scores obtain better loan terms. The most creditworthy borrowers tend to receive the lowest interest rates.

Interest rates. Interest rates on federal student loans are fixed, and borrowers pay no interest through Sept. 30, 2021, because of the extension of a pandemic relief measure.

The government recalculates interest rates on federal loans each academic year, which begins July 1. A borrower’s creditworthiness does not affect the loan rate.

Borrowers will pay 4.3% interest on Stafford loans and 5.3% interest on Direct PLUS loans disbursed before July 1, 2021.

You can choose whether to pay interest on your direct loan while you are a student – even during the pandemic. Normally, your interest will accrue and be added to the principal amount of your loan.

By contrast, interest rates on private loans are based on the borrower’s credit history. Rates on these loans may be fixed or variable.

For an idea of what you might pay, Sallie Mae charges variable rates between 2.12% APR and 11.48% APR and fixed rates between 4.75% APR and 11.97% APR. Citizens Bank offers fixed rates between 4.39% APR and 11.40% APR and variable rates between 1.36% APR and 11.11% APR. Discover has loans for certain specialties at variable rates from 1.99% APR to 6.99% APR and fixed rates from 4.49% APR to 7.74% APR.

If interest rates are variable, they may adjust higher over time. In some cases, a cap may be placed on the rate so that it does not climb too high.

Limits. Federal student loans have annual and aggregate limits on how much you can borrow, while private loans generally can’t exceed a school’s cost of attendance.

The annual borrowing limit for direct unsubsidized loans is $20,500, and the aggregate limit – including all federal loans received for undergraduate studies – is $138,500. Your school will determine the amount you can borrow each academic year based on your cost of attendance and other financial aid you receive.

Loan limits vary with private lenders.

Although Discover says you can borrow up to 100% of your school-certified cost of attendance minus financial aid, aggregate loan limits apply. Also, the minimum amount for each loan is $1,000.

Sallie Mae also provides 100% coverage for medical school costs but sets no maximum for all years of medical school.

Fees. For a federal loan, you will pay a fee that is a percentage of the total loan amount, deducted proportionately from each disbursement. This means you will receive less than what you borrowed, but you will still be responsible for repaying the full amount.

Loan fees are based on disbursement dates. The fee for direct unsubsidized loans disbursed between Oct. 1, 2020, and Oct. 1, 2021, is 1.057%, and the fee for Direct PLUS loans disbursed during the same time period is 4.228%.

Fees for private school loans may vary by lender. Unlike with federal school loans, many private school loans do not charge a loan origination fee.

Repayment requirements and options. If you fall below part-time enrollment, exit a program or graduate, you will get a six-month grace period before you have to begin repaying your federal student loans. Your loan servicer will provide more details, including your first payment due date.

Students who use federal loans can access income-driven payment plans that set monthly payments based on what you earn and family size. This can be an attractive option for graduates who may not make a lot of money right out of school or who choose less lucrative career paths, such as teaching.

“Your monthly payment is based on your income,” Fresne says. “Whether that’s your physician income or your teacher income, you’ll have a manageable monthly payment.”

On the other hand, individual lenders set the terms for private medical school loans. “With a private loan, you have a traditional amortized schedule,” Miller says. “You know exactly what you’re going to pay.”

The terms of private student loans for medical school vary by lender. Sallie Mae, for example, charges interest upon disbursement and throughout the life of the loan, including any grace period. PNC also notes that it offers a deferment option, but loan interest will accrue during such periods.

Interest rates are higher on Sallie Mae’s fixed and deferred repayment options than on the interest repayment option, as unpaid interest is added to your loan’s principal at the end of the grace period. Variable interest rates may increase over the life of the loan, the lender also notes.

Most experts suggest exploring federal student aid first and then considering private student loans if you still need help paying for medical school.

Begin by completing the Free Application for Federal Student Aid, or FAFSA, to determine your eligibility for federal loans and grants for medical school. You will list on the FAFSA the schools you are interested in attending, and these schools will receive an Institutional Student Information Record, or ISIR.

Information from the ISIR determines the amount and the type of federal aid, including direct loans, applicants receive. Schools and states can also use information from the ISR to award their own financial aid.

Next, you will receive aid offers with directions. Follow them carefully.

Before you receive your loan funds, you will need to complete entrance counseling if you have not previously received a direct unsubsidized or Direct PLUS loan. This process is intended to make sure you understand the terms and conditions of your loan, as well as your rights and obligations.

You will also sign a Master Promissory Note, a legal document in which you promise to repay your loan to the Department of Education. If you have questions or do not understand your aid offer, contact your school.

If federal aid falls short, private student loans from banks and credit unions can help you cover medical school costs. However, your ability to get a private loan will depend on the strength of your credit profile, and you may need a co-signer to qualify.

The typical application process for a private medical school loan involves:

Medical school is expensive. The median four-year cost of attendance for the class of 2021 is $259,347 at public schools and $346,955 at private schools, reports the Association of American Medical Colleges, or AAMC.

How much students need to borrow depends on whether their school is public or private and whether they qualify for in-state tuition. Students also have to pay for medical malpractice insurance, a contributor to medical school’s high cost.

Although 73% of medical students graduated with debt in 2019, says the AAMC, many specialties also provide comfortable salaries.

The size of medical school loans may intimidate some prospective students, but repaying them may be more manageable than it seems at first.

Residents can expect to earn an annual stipend of about $59,000, according to the AAMC. A recent survey by the organization found that 70% of recent graduates expect to be able to make loan payments during their residencies.

Of course, your salary is likely to rise sharply as your medical career advances, which will make paying off the rest of your debt easier.

Medical school students can view the large debts they take on as investments in the future, Fresne says.

“Strong job security and excellent income potential are reasons that it’s a good investment,” she says. “And that security and income potential should enable any medical school graduate practicing in any specialty to both repay their education debt and provide for a comfortable lifestyle and safer retirement.”