Overview
As early-career physicians, many of you are navigating the complexities of student loans, whether from undergraduate studies or medical school.
Understanding the differences between federal subsidized and unsubsidized loans can help you make informed financial decisions as you embark on your medical career.
Here’s a breakdown of each type, along with examples to illustrate their impact.
Overview
As early-career physicians, many of you are navigating the complexities of student loans, whether from undergraduate studies or medical school.
Understanding the differences between federal subsidized and unsubsidized loans can help you make informed financial decisions as you embark on your medical career.
Here’s a breakdown of each type, along with examples to illustrate their impact.
Subscribe to The Dream Bigger – Physician Edition Newsetter
A weekly newsletter designed for early-career physicians and anyone looking to enhance their financial well-being.
Discover helpful tips, strategies, and insights to dream bigger and take control of your financial future. 🥼
Get student loan updates, money-saving tips, and financial strategies – all delivered to your inbox.
Subscribe to The Dream Bigger – Physician Edition Newsetter
A weekly newsletter designed for early-career physicians and anyone looking to enhance their financial well-being.
Discover helpful tips, strategies, and insights to dream bigger and take control of your financial future. 🥼
Get student loan updates, money-saving tips, and financial strategies – all delivered to your inbox.
Subsidized Loans: A Helping Hand
What They Are:
Federal subsidized loans are designed for undergraduate students who demonstrate financial need.
The key benefit is that the government pays the interest while you’re in school and during the grace period after graduation.
Example:
Suppose you took out a total of $50,000 in subsidized loans for your undergraduate studies, distributed over eight semesters (approximately $6,250 per semester).
Since the government covers the interest while you’re in school, you won’t accrue (accumulate) any interest during that time.
When you graduate, you’ll owe exactly $50,000, making it easier to manage your repayment.
Subsidized Loans: A Helping Hand
What They Are:
Federal subsidized loans are designed for undergraduate students who demonstrate financial need.
The key benefit is that the government pays the interest while you’re in school and during the grace period after graduation.
Example:
Suppose you took out a total of $50,000 in subsidized loans for your undergraduate studies, distributed over eight semesters (approximately $6,250 per semester).
Since the government covers the interest while you’re in school, you won’t accrue (accumulate) any interest during that time.
When you graduate, you’ll owe exactly $50,000, making it easier to manage your repayment.
Unsubsidized Loans: Immediate Responsibility
What They Are:
Unsubsidized loans are available to both undergraduate and graduate students, regardless of financial need.
The main difference is that interest begins accruing (accumulating) as soon as the loan is disbursed, even while you’re still in school.
Example:
If you took out $200,000 in unsubsidized loans for medical school, also distributed over eight semesters (about $25,000 per semester), and the interest rate is 6%, here’s how it breaks down:
-
-
First Semester: $25,000 accrues interest for 4 years (48 months).
-
Second Semester: $25,000 accrues interest for 3.5 years (42 months).
-
Third Semester: $25,000 accrues interest for 3 years (36 months).
-
Fourth Semester: $25,000 accrues interest for 2.5 years (30 months).
-
Fifth Semester: $25,000 accrues interest for 2 years (24 months).
-
Sixth Semester: $25,000 accrues interest for 1.5 years (18 months).
-
Seventh Semester: $25,000 accrues interest for 1 year (12 months).
-
Eighth Semester: $25,000 accrues interest for 6 months.
-
Calculating the total interest for each semester:
-
-
First Semester: $25,000 × 0.06 × 4 = $6,000
-
Second Semester: $25,000 × 0.06 × 3.5 = $5,250
-
Third Semester: $25,000 × 0.06 × 3 = $4,500
-
Fourth Semester: $25,000 × 0.06 × 2.5 = $3,750
-
Fifth Semester: $25,000 × 0.06 × 2 = $3,000
-
Sixth Semester: $25,000 × 0.06 × 1.5 = $2,250
-
Seventh Semester: $25,000 × 0.06 × 1 = $1,500
-
Eighth Semester: $25,000 × 0.06 × 0.5 = $750
-
Total Interest: $6,000 + $5,250 + $4,500 + $3,750 + $3,000 + $2,250 + $1,500 + $750 = $26,000
So, by the time you graduate, you would owe approximately $226,000 ($200,000 principal + $26,000 interest).
Unsubsidized Loans: Immediate Responsibility
What They Are:
Unsubsidized loans are available to both undergraduate and graduate students, regardless of financial need.
The main difference is that interest begins accruing (accumulating) as soon as the loan is disbursed, even while you’re still in school.
Example:
If you took out $200,000 in unsubsidized loans for medical school, also distributed over eight semesters (about $25,000 per semester), and the interest rate is 6%, here’s how it breaks down:
-
-
First Semester: $25,000 accrues interest for 4 years (48 months).
-
Second Semester: $25,000 accrues interest for 3.5 years (42 months).
-
Third Semester: $25,000 accrues interest for 3 years (36 months).
-
Fourth Semester: $25,000 accrues interest for 2.5 years (30 months).
-
Fifth Semester: $25,000 accrues interest for 2 years (24 months).
-
Sixth Semester: $25,000 accrues interest for 1.5 years (18 months).
-
Seventh Semester: $25,000 accrues interest for 1 year (12 months).
-
Eighth Semester: $25,000 accrues interest for 6 months.
-
Calculating the total interest for each semester:
-
-
First Semester: $25,000 × 0.06 × 4 = $6,000
-
Second Semester: $25,000 × 0.06 × 3.5 = $5,250
-
Third Semester: $25,000 × 0.06 × 3 = $4,500
-
Fourth Semester: $25,000 × 0.06 × 2.5 = $3,750
-
Fifth Semester: $25,000 × 0.06 × 2 = $3,000
-
Sixth Semester: $25,000 × 0.06 × 1.5 = $2,250
-
Seventh Semester: $25,000 × 0.06 × 1 = $1,500
-
Eighth Semester: $25,000 × 0.06 × 0.5 = $750
-
Total Interest: $6,000 + $5,250 + $4,500 + $3,750 + $3,000 + $2,250 + $1,500 + $750 = $26,000
So, by the time you graduate, you would owe approximately $226,000 ($200,000 principal + $26,000 interest).
Repayment Considerations
When you leave school and enter repayment under the Standard 10-Year Repayment Plan, any unpaid interest on your loans will capitalize (be added to your student loan balance).
This means that any interest accrued during your grace period will be added to your principal balance, increasing the total amount you owe.
After entering repayment, if you enroll in an income-driven repayment (IDR) plan like PAYE or IBR, the government pays 100% of the accrued but unpaid interest on subsidized loans for the first three years.
However, there is no interest subsidy for unsubsidized loans during these plans, meaning you will be responsible for paying the interest that accrues on those loans.
Repayment Considerations
When you leave school and enter repayment under the Standard 10-Year Repayment Plan, any unpaid interest on your loans will capitalize (be added to your student loan balance).
This means that any interest accrued during your grace period will be added to your principal balance, increasing the total amount you owe.
After entering repayment, if you enroll in an income-driven repayment (IDR) plan like PAYE or IBR, the government pays 100% of the accrued but unpaid interest on subsidized loans for the first three years.
However, there is no interest subsidy for unsubsidized loans during these plans, meaning you will be responsible for paying the interest that accrues on those loans.
Understanding the distinctions between subsidized and unsubsidized loans is important for managing your financial future as a physician.
If you have both types of loans, consider prioritizing repayment strategies that minimize interest costs.
Always explore your options, including loan forgiveness programs, which can be particularly beneficial for those in the medical field.
By making informed choices now, you can set yourself up for a more secure financial future.
Disclaimer: These examples are high-level and intended for informational purposes only.
Understanding the distinctions between subsidized and unsubsidized loans is important for managing your financial future as a physician.
If you have both types of loans, consider prioritizing repayment strategies that minimize interest costs.
Always explore your options, including loan forgiveness programs, which can be particularly beneficial for those in the medical field.
By making informed choices now, you can set yourself up for a more secure financial future.
Disclaimer: These examples are high-level and intended for informational purposes only.
Start Dreaming Bigger,
Finally Take Control of Your Student Loans!
Start Dreaming Bigger,
Finally Take Control of Your Student Loans!
It All Begins with a Diagnosis…
At Dream Bigger Financial, we’re dedicated to setting early-career physicians on the right financial treatment plan.
With a comprehensive diagnosis, we guide you towards financial peace of mind, ensuring you can be your best self for your loved ones and patients.
Considering financial planning?
We’re currently accepting new patients!
If you prefer self-diagnosing,
join us on social media!
We regularly share tips and tricks on lowering taxes, managing student loans, saving for retirement, and guiding you to live your best financial life.
Michael Putterman, CFP®
☁ Virtually serving clients nationwide ☁
It All Begins with a Diagnosis…
At Dream Bigger Financial, we’re dedicated to setting early-career physicians on the right financial treatment plan.
With a comprehensive diagnosis, we guide you towards financial peace of mind, ensuring you can be your best self for your loved ones and patients.
Considering financial planning?
We’re currently accepting new patients!
If you prefer self-diagnosing,
join us on social media!
We regularly share tips and tricks on lowering taxes, managing student loans, saving for retirement, and guiding you to live your best financial life.
Michael Putterman, CFP®
☁ Virtually serving clients nationwide ☁