Congratulations! You’ve graduated from medical school and are ready to start a new stage of your career. But if you’re like many of your peers, there’s a good chance you’ve borrowed money and are graduating with debt. As you look ahead to residency and beyond, here’s what you need to know about paying down what you owe — and how to plan for future borrowing needs.
The interest you owe can fluctuate
The main benefits of a professional student line of credit are flexibility and lower interest rates. In other words, you borrow money only as you need it, and you pay interest only on the funds you use.
The downside? Rates can change. Line of credit rates are based on the prime rate1 (the rate the lender charges its best customers) and shown as an annual percentage. Interest is calculated daily on the amount you’ve borrowed, based on the lender’s prime rate.
The prime rate is tied to the Bank of Canada’s interest rate policy, so it can go up or down over time. This means the interest you owe on the funds you borrow will also change.
You may be able to take advantage of a grace period
When you’re in medical school, residency, or doing fellowship, principal payments on your professional student line of credit are not required. If you have a regular source of employment income, you should try to make regular payments if you can, to reduce the overall amount you owe, since interest is added to your outstanding balance each month.
After you’ve completed your residency or fellowship, you’ll have to start paying back the principal (the original amount you borrowed) and the monthly interest. But depending on your lender’s rules, you may be able to delay your repayment for a certain period of time (the grace period).
For example, the Scotia Professional® Student Plan Line of Credit offers a grace period of up to 24 months after graduation on repayment of the principal amount borrowed. Though you may be entitled to a 24-month grace period, make sure you provide your sales advisor with your annual proof of enrolment (POE) in order to retain your interest-only status.
But the quicker you pay it back, the less you’ll pay in interest
Depending on your financial institution, you may or may not be required to make interest payments during residency and during the grace period. If you don’t need to make interest payments, remember that interest will continue to accrue on any amount you borrow until you pay it back in full.
It’s always a good idea to make principal payments, if you can, to reduce the interest you’ll pay overall. Getting into the habit of making payments is a way to create good financial habits at the beginning of your medical career (and a regular reminder that it’s not free money).
You can still borrow from your student line of credit as needed
If you need to bridge the income gap between residency and when you join or start a new practice, you can continue to borrow as needed from your professional student line of credit during the grace period. But again, if you don’t have to make interest payments, remember that interest will continue to accrue on the funds you borrow2.
Before the 24-month grace period ends, you may wish to convert your professional line of credit to a Scotia Professional Plan® overdraft facility1 and/or a retail unsecured line of credit1.. If you roll your student line of credit into a regular line of revolving credit, that will allow you to borrow as needed, pay interest only and make lump sum payments when you want. With Scotiabank, you’ll continue to enjoy competitive rates tied to prime.
Develop a financial plan that balances saving with paying down debt
As you move into the next stage of your career, it’s critical to think strategically about your finances. Whether you’re focused on just paying down your student debt or looking to roll your debt into another borrowing option, an MD Advisor* can work with you to develop a plan to help you reduce interest costs and repay the debt faster.
* MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.
1 Prime rate means the annual variable interest rate published by the lending financial institution from time to time as the benchmark interest rate for Canadian dollar demand loans. This rate is subject to change without notice.
2While you remain in school and for 24 months after your residency program ends (the “Repayment Grace Period”) no payments will be required on your Scotia Professional Student Plan Line of Credit (the “Account”) so long as your balance does not exceed the credit limit on your Account but interest will continue to accrue during that Repayment Grace Period and is charged on any amount you borrow starting from the day you borrow until you pay that amount in full. See your Application Disclosure Statement we provided you or speak with your Scotiabank Advisor for more information about the repayment grace period and how interest is charged to your Account.
Banking and credit products and services are offered by The Bank of Nova Scotia “Scotiabank”. Credit and lending products are subject to credit approval by Scotiabank.
The above information should not be construed as offering specific financial, investment, foreign or domestic taxation, legal, accounting or similar professional advice nor is it intended to replace the advice of independent tax, accounting or legal professionals.