Residency and fellowship loans
Residency and fellowship loans are specialized private loans designed to cover relocation expenses, board exam fees, and living costs during the financial gap between medical school graduation and receiving your first paycheck as a resident. Unlike standard student loans, these funds are disbursed directly to you, offering vital liquidity during the transition to postgraduate training.
For many medical graduates and their families, the period immediately following “Match Day” brings a mix of celebration and financial pressure. While federal student loans cover tuition and living expenses during school, that funding typically stops upon graduation. However, the costs of moving to a new city, securing housing, and paying for licensing exams occur months before the first residency paycheck arrives. A residency loan bridges this specific gap, ensuring you can focus on your training rather than financial survival.
By the end of this guide, you will be able to:
- Identify the specific expenses that residency and fellowship loans cover.
- Compare interest rates and repayment terms from major private lenders.
- Determine if you meet the credit and program eligibility requirements.
- Execute a borrowing strategy that integrates with your existing medical school debt.
Context: the financial gap during medical training
To understand why residency loans are necessary, it is important to recognize the unique economic “dead zone” that occurs between graduating from medical school in May and starting a residency program in July. During this time, you are no longer a student eligible for federal financial aid, but you are not yet an employee receiving a salary.
The financial demands during this transition are significant. According to the Association of American Medical Colleges (AAMC), the median stipend for a first-year resident (PGY-1) was approximately $61,000 as of the 2023-2024 academic year. While this salary eventually provides stability, it does not help with the upfront costs required to start the job. New residents often face relocation costs averaging $3,000 to $5,000, depending on the distance and city cost of living. Furthermore, security deposits and first month’s rent must be paid before the first paycheck is issued.
Beyond living costs, professional requirements carry heavy price tags. According to the Federation of State Medical Boards (FSMB), the United States Medical Licensing Examination (USMLE) Step 3 fee is $925 as of January 2025, and state licensing fees can add several hundred dollars more. For those entering fellowships, similar gaps occur when transitioning between programs or cities.
Federal student loans generally cannot be used for these post-graduation expenses because the cost of attendance (COA) calculation set by medical schools ends on the last day of enrollment. Consequently, families often scramble to cover these costs out of pocket, or graduates turn to high-interest credit cards. Specialized residency loans were created to solve this specific liquidity problem by offering lower interest rates and deferred payments that align with the trajectory of a physician’s career.
For a broader look at financing your education prior to this stage, review our guide on medical school loans and professional graduate program financing strategies.
Residency and fellowship loan products: your options
Residency and fellowship loans are distinct products offered by a select group of private lenders. They are tailored to the risk profile of medical professionals—borrowers who may have high debt and low current income, but excellent future earning potential. Because of this, terms are often more favorable than standard personal loans.
Below is a comparison of typical features you will encounter when shopping for these loans. Note that specific offers depend on creditworthiness and the lender’s current policies.
| Feature | Typical Residency Loan Terms | Considerations |
|---|---|---|
| Loan Limits | $15,000 – $30,000 (Residency) $15,000 – $75,000 (Fellowship) |
Borrow only what you strictly need to cover the gap. |
| Interest Rates | Fixed: 6.50% – 13.00% Variable: 6.00% – 12.50% |
Rates are credit-based. Fixed rates provide stability; variable rates may start lower but fluctuate. |
| Repayment Timing | Deferred or Interest-Only during training (up to 3-5 years) | Minimizes monthly obligation while your salary is lower. |
| Grace Period | 6–9 months after training ends | Provides a buffer before full principal and interest payments begin. |
Source: Lender websites and aggregate data from Bankrate (current as of January 2025).
Several major financial institutions specialize in healthcare financing. As of January 2025, prominent lenders in this space include Sallie Mae, Citizens Bank, and specialized divisions of SoFi and Laurel Road.
- Sallie Mae: Offers the Medical Residency and Relocation Loan with fixed rates of 2.89% - 17.49%1 and variable rates of 3.87% - 16.50%¹. Features include a lengthy grace period and the ability to apply up to a year before graduation.
- Citizens Bank: Known for the Medical Residency Loan with fixed rates of 5.99% - 15.00% and variable rates of 6.98% - 15.69%, no origination fees and limits often up to $20,000, depending on credit.
- Laurel Road: Frequently offers resident-specific refinancing options that include a “relocation” cash-out component, though their product structures evolve frequently.
According to Mark Kantrowitz, financial aid expert, “Private loans can offer variable interest rates, which may be lower than federal fixed rates initially,” though borrowers must carefully weigh the risk of rising rates over a long residency period.
When evaluating these products, look for “occupancy” requirements. Some lenders require you to be in your final year of medical school, while others allow you to apply after you have matched but before you graduate. For more details on the broader private lending landscape, visit our guide to comparing private student loan options and finding the best rates for your situation.
Eligibility requirements and credit considerations
Qualifying for a residency loan differs from qualifying for federal aid. Because these are private loans, approval is based on creditworthiness and debt-to-income ratios, though lenders use modified underwriting criteria that account for a resident’s future income.
To be eligible, you generally must be enrolled in an accredited medical school (allopathic or osteopathic) and be in your final year, or have graduated within the last 12 months. Crucially, you must provide proof of “Match” or acceptance into an accredited residency or fellowship program. This Match Letter serves as proof of future employment and is the golden ticket for approval.
Lenders typically require a minimum FICO score in the range of 650 to 700. However, a higher score (740+) will secure the lowest interest rates. Lenders will also review your credit history for derogatory marks, such as missed payments or accounts in collections.
For students with a limited credit history or a score below the cutoff, applying with a creditworthy cosigner is often necessary. According to LendingTree data as of January 2025, adding a qualified cosigner can lower your APR by 1–2 percentage points and significantly increase approval odds.
For parents, cosigning a residency loan is a serious commitment. The loan appears on your credit report, affecting your debt-to-income ratio and potentially impacting your ability to secure other financing, such as a mortgage or auto loan. However, many residency loans offer a cosigner release provision. This allows the borrower to apply to remove the cosigner from the loan after making a set number of on-time payments (typically 12 to 36 months) and meeting income requirements—usually once they become an attending physician.
If you are considering this route, read our detailed article on understanding your obligations and options when cosigning student loans, including release provisions and legal responsibilities.
What expenses can residency loans cover?
Unlike tuition loans sent to the school, residency loans are “direct-to-consumer” products. The funds are deposited into your personal bank account, giving you discretion over how to spend them. However, lenders intend these funds for specific transition-related costs.
- Relocation: Hiring movers, shipping vehicles, and purchasing plane tickets. Moving a household cross-country can easily cost $3,000 to $5,000.
- Housing Deposits: First and last month’s rent plus security deposits. In major metropolitan areas like New York or San Francisco, this upfront cash requirement can exceed $6,000.
- Temporary Housing: Costs for hotels or short-term rentals while searching for a permanent apartment in your new city.
- Board Exams: Registration for USMLE Step 3 or COMLEX Level 3.
- Licensing: State medical license application fees, which vary by state but typically range from $300 to $800.
- Equipment: Purchase of scrubs, white coats, stethoscopes, or loupes required for your specialty.
Perhaps the most critical use is covering basic living expenses—food, utilities, and insurance—during the 2-3 months between graduation and your first paycheck. Having a financial cushion prevents missed payments on existing obligations during this vulnerable period.
What is NOT Covered: Generally, these loans should not be used to pay off existing student loan balances (consolidation is a separate process) or for non-essential luxury purchases. Lenders may ask for an estimated budget during the application process.
Application process and timing strategies
Timing your application correctly is essential to ensuring funds are available when you need to book movers or pay a security deposit. Because these loans involve credit underwriting and document verification, they are not instantaneous.
The optimal window to apply is 30 to 60 days before you need the funds. Most students apply immediately after Match Day (mid-March). Applying too early (e.g., fall of your final year) may result in credit inquiries expiring before disbursement, while applying too late (June) risks not having cash in hand for a July 1st start date.
- Prequalification: Many lenders allow you to check your rate with a “soft” credit pull, which does not impact your credit score. This allows you to compare offers from multiple lenders risk-free.
- Formal Application: Once you choose a lender, you submit a full application. This triggers a “hard” credit inquiry.
- Documentation: You will need to upload your government ID, proof of graduation (or enrollment verification), and your Match Letter or fellowship acceptance letter.
- Approval and Signature: Upon approval, you (and your cosigner, if applicable) sign the promissory note electronically.
- Disbursement: Funds are typically sent via direct deposit to your bank account within 5 to 10 business days after final approval.
If you are concerned about your eligibility or rates, it is wise to compare options early. You can view current rates without committing to a loan.
Check your rate with multiple lenders (soft credit check; no impact to your score). Compare rates from 8+ lenders
Managing residency loans alongside medical school debt
Taking on additional debt when you likely already have a significant student loan balance requires a strategic approach. Residency loans are private debts, meaning they do not qualify for federal protections like Income-Driven Repayment (IDR) plans or Public Service Loan Forgiveness (PSLF).
During residency, your federal loans will likely be in an IDR plan (like SAVE or PAYE) to keep payments manageable based on your resident stipend. Your residency loan, however, will have its own terms. Most residents choose a mandatory forbearance or interest-only repayment option for their private residency loan during training. This keeps monthly costs low ($25-$100/month) but results in interest accruing and capitalizing at the end of the term.
According to Sandy Baum, education finance expert, “Borrowing is not inherently bad; the question is how much, and under what terms.” The goal is to minimize the total debt load while maintaining liquidity. If you have extra cash flow during residency (e.g., from moonlighting), prioritize paying down the loan with the highest interest rate—which is often the private residency loan compared to federal options.
Once you become an attending physician and your income jumps significantly, you may consider refinancing your residency loan along with your other private student loans to secure a lower interest rate. Note that you generally should not refinance federal loans into private loans if you are pursuing PSLF. For more on this strategy, read our guide to understanding when and how to refinance student loans to lower your interest rate and monthly payments.
Key differences: residency loans vs. relocation loans
You may see products advertised as “Relocation Loans” or “Bar Study Loans” (for law students). It is important to distinguish specialized medical residency loans from general relocation or personal loans.
| Feature | Medical Residency Loan | General Relocation/Personal Loan |
|---|---|---|
| Target Audience | Medical students/residents only | General public/any employee |
| Loan Term | Longer (10-20 years) | Shorter (3-7 years) |
| Repayment Start | Deferred until after residency (often) | Immediate (usually 30-60 days) |
| Interest Rates | Often lower (accounts for future physician income) | Higher (based on current income/credit only) |
| Verification | Requires Match Letter | Requires proof of income/employment |
Source: Analysis of loan terms from major lenders (SoFi, Discover, Sallie Mae) as of January 2025.
While a general personal loan can provide quick cash, the immediate repayment requirement is often difficult for residents on a tight budget. Residency loans are specifically engineered to delay the heavy lifting of repayment until you are earning an attending salary.
Frequently asked questions
Yes, it is possible if you have a strong credit history (typically a FICO score of 700+) and meet the lender’s income or debt-to-income criteria. However, because most medical students have limited income, applying with a creditworthy cosigner often results in a lower interest rate and a higher chance of approval.
Most lenders offer a deferment period during your residency (typically 3 to 4 years) where you are not required to make full principal and interest payments. However, interest continues to accrue. Many borrowers choose to make small, interest-only payments during this time to prevent the balance from growing significantly.
Loan limits vary by lender, but fellowship loans often have higher caps than residency loans, sometimes reaching up to $75,000. This accounts for the fact that fellows may have higher living expenses or families to support compared to new graduates. Always borrow the minimum amount necessary to reduce long-term costs.
No. Unlike federal student loans or private tuition loans, residency loans are “non-certified.” This means the school’s financial aid office does not need to sign off on the loan amount, and the funds are sent directly to you rather than the university.
Yes, but typically they require a U.S. citizen or permanent resident cosigner. Some specialized lenders may offer loans to IMGs with specific visa types (such as J-1 or H-1B), but options are more limited compared to U.S. graduates.
Residency and fellowship loans serve as a vital financial tool to bridge the gap between being a student and becoming a practicing physician. While taking on more debt can be daunting, these loans provide the liquidity needed to secure housing, pay for licensing, and relocate without the immediate repayment pressure of standard personal loans or credit cards.
To make the best decision, calculate your exact funding needs for the transition period. Avoid borrowing “just in case” money, as interest will accrue from day one. Check your credit score early, and if necessary, have a conversation with a potential cosigner well before Match Day. By planning 30 to 60 days ahead, you can secure the funds you need at the best possible rate.
- Purpose: These loans cover relocation, exams, and living costs post-graduation, not tuition.
- Timing: Apply 1-2 months before you need the cash; funds go directly to your bank account.
- Cost: Interest rates are credit-based; adding a cosigner can significantly lower your rate.
- Repayment: Look for lenders offering deferred or interest-only payments during your training years.
- Strategy: Borrow only what is essential to preserve cash flow until your first resident paycheck arrives.
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References and resources
For further research and to verify current requirements, consult the following authoritative sources:
- Association of American Medical Colleges (AAMC): Provides data on resident stipends and debt management strategies for medical graduates.
- Federation of State Medical Boards (FSMB): The official source for USMLE Step 3 fees and state-specific licensing costs.
- StudentAid.gov: The Department of Education’s portal for understanding how your federal loans function during residency deferment and forbearance.
- Lender Websites: Visit official sites for Sallie Mae, Citizens Bank, SoFi, and Laurel Road for the most up-to-date interest rates and terms as of January 2025.
