Get the Facts About Borrowing Specialized Health Care Student Loans

Recently, the Student Loan Ranger caught up with a friend who was in his fifth year of medical residency. As often happens when you bring together a medical school student and someone who works in student loans, the conversation turned to debt.

The student couldn't believe how much he owed -- and how taking on another $50,000 would be like borrowing nothing. For many medical students, $50,000 is a drop in the bucket compared to their overall debt.

According to the Association of American Medical Colleges, 86 percent of the class of 2013 graduated with debt, and 40 percent owed at least $200,000. That's not necessarily frivolous borrowing, either.

As the AAMC also reports, the cost of attendance at private medical schools averaged $286,806 for the class of 2014. Public universities were less expensive, but their cost of attendance still averaged $218,898.

[See the 10 most expensive private medical schools. ]

Student loans are a great option to manage these costs and allow health care students achieve their dreams, and the federal government is happy to help. Health care students can borrow more unsubsidized Stafford loans -- from $12,500 to $26,667 -- and the government offers health profession-specific loans. Of course, these loans have their own criteria, so before you borrow them, be sure you know the following facts.

-- There are different loans for different professions. Federal loan options for health profession students include health professions student loans, nursing student loans, primary care loans and loans for disadvantaged students. The loan or loans you qualify for typically depend on your career specialization and financial need.

Health professions student loans are for full-time students studying a specialized medical field, such as dentistry, optometry podiatry, veterinary sciences or pharmaceuticals. Nursing and primary care student loans offer narrower funding, with loans available only to those students who are attending an accredited nursing school at least half time or have studied primary care full time at a participating school in a program leading to a doctor of medicine or doctor of osteopathy degree.

Loans for disadvantaged students are an exception to this rule. These funds have no real restrictions based on your specialization. However, you have to come from a disadvantaged background to be eligible.

-- Funding amounts vary. It's easy to find out which federal loans you can receive just by filling out the Free Application for Federal Student Aid. Determining the amounts you can receive, though, is trickier. These health care loans do not come with specific borrowing maximums like Stafford loans do. Instead, annual award amounts vary.

Your school will serve as the holder of this loan, and they will determine how much you can borrow. Their criteria for this amount can include how many people apply for these loans and how much funding is available to them.

Ask your school's financial aid office what their average award amount is in order to understand how much you might receive. In addition, since funding is limited, be sure to submit your FAFSA as early as possible and definitely by your school's priority filing deadline. This will give you the best chance to maximize your financial aid.

[Find out how graduate student loans differ from college debt.]

-- Health care loans have better repayment benefits than private loans: In addition to federal loan options, students can also look toward private lenders for special loan options. While the names of their products may sound similar to federal options, they typically don't come with the same repayment benefits that federal loans do, let alone the various programs that can help you get out of debt faster or eliminate your loans altogether.

The federal loans listed above all come with a one-year grace period that begins after you graduate or drop below half-time enrollment. Once you begin repayment, you can choose from graduated and extended repayment options to make your payments more manageable. Nursing student loans offer only a graduated option that still needs to be repaid within 10 years.

Should you need to postpone your payments, each of these loans also comes with deferment and forbearance options. The criteria for receiving these varies by loan type, but each has deferments that can pause your payments for up to three years if you're serving on active duty in the military or volunteering in Peace Corps, as well as for various lengths of time while you remain enrolled in school. During these periods of deferment, you are not responsible for any interest that accrues on your loans.

[Get additional advice on ways to pay for medical school.]

-- Health care loans have quicker paths to default. Not everything is better with these loans. Unlike Stafford loans, which enter default once payment is 270 days past due, these health profession loans can default much quicker -- sometimes missing one or two payments is all it takes. In these instances, you can face serious consequences.

Specific penalties vary by loan type, but interest rates on a primary care loan can jump to 18 percent, and health professions student loans and loans for disadvantaged students both come with late fees of up to 6 percent.

In addition, many of these loans also have strict repayment requirements. For instance, borrowers who took out a primary care loan cannot enter subspecialty training while paying off this loan and must complete a primary care residency within four years of graduation.

Failing to meet these criteria could leave borrowers in default as well. Ultimately, like with any loan, read your agreement in full before signing to know what you're getting into.

Ryan Lane is the senior editor for American Student Assistance, where he oversees the financial website saltmoney.org and serves as the editor of the SALT Blog. He graduated from Syracuse University with a B.S. in journalism.