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Medical Residency and Relocation Loans

After a student graduates from medical school with a degree in allopathic or osteopathic medicine, the new doctor must spend a year as an intern before being able to practice medicine. The internship is typically followed by several years in a medical residency, during which the doctor receives training in a specialty. In some cases, the internship is treated as the first year of the medical residency. Some states require doctors to complete a medical residency before they can receive a full license to practice medicine. The residency may be followed by one or more years of a fellowship, after which the doctor is no longer subject to the supervision of the attending physician in his or her specialty.

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Although medical residents are paid a living wage, they often face costs not traditionally covered by student financial aid award packages or awards. Federal education loans, for example, are available only to students who are still enrolled in medical school. When the student graduates from medical school and begins the medical residency, federal student aid is no longer available. Instead, medical school graduates obtain a residency and relocation loan from private lenders to cover expenses related to medical board exam preparation, participating in residency interviews, the cost of relocating for the residency and other related expenses (e.g., transportation, housing, groceries).

Benefits of Residency/Relocation Loans

  • Borrow up to $15,000 or $20,000, depending on the lender
  • Up to a 15- or 20-year repayment term, with no prepayment penalties
  • Payments may be deferred for up to 7 years during the residency
  • Cosigner release option may be available after 12 to 48 consecutive, on-time payments
  • Fixed or variable interest rates are available

Eligibility Requirements

Medical residency and relocation loans are available to students in their final year of medical school and for 6 or 12 months following graduation.

Since residency and relocation loans are private student loans, they have the same eligibility requirements as most other private student loans:

  • If the borrower is not a U.S. citizen or permanent resident, a creditworthy cosigner who is a U.S. citizen or permanent resident will be required.
  • If the borrower is the sole applicant, he/she must have reached the age of majority in his/her state of residence. The borrower must be at least 18 years old in all states with the exception of age 19 in Alabama and Nebraska and age 21 in Indiana, Mississippi, New York and Puerto Rico. If a borrower does not meet the age of majority requirements in his/her state, a creditworthy cosigner will be required.
  • The borrower must satisfy credit criteria. If the borrower does not have satisfactory credit, a creditworthy cosigner will be required.

Whose credit history is checked for loan approval, the cosigner’s or the borrower’s?

The credit history of both the borrower and cosigner will be checked, regardless of whether the cosigner is optional or required. Eligibility and interest rates and fees may be based on the higher of the two credit scores. So, even if a borrower could qualify for a private student loan on his or her own, adding a cosigner may yield a lower interest rate.

What is my interest rate going to be?

The interest rate may be fixed or variable. A fixed rate remains unchanged for the life of the loan. A variable rate changes periodically, typically on a monthly or quarterly basis.

The interest rate on a variable rate loan may be pegged to market rates by combining a variable-rate index, such as the one-month or three-month LIBOR index or Prime Lending Rate, with a fixed margin based on the borrower’s (and cosigner’s) credit.

For example, if a borrower qualifies for a variable interest rate of LIBOR + 6.0%, the interest rate will be 6.25% when the LIBOR index is 0.25% and 9.0% when the LIBOR index is 3.0%.

The London Interbank Offered Rate (LIBOR) is the interest rate banks charge each other for short-term loans. A lender’s cost of funds may be pegged to the LIBOR index (e.g., through securitizations of the lender’s loan portfolios), so the lender may peg the interest rates it charges to the same index to yield a predictable spread between the interest income and expense.

The Prime Lending Rate is a reference or base rate that banks use to set the price or interest rate on many of their commercial loans and consumer loan products. It is the interest rate that they charge to their best credit customers. The Prime Lending Rate is published in the Wall Street Journal.

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