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Personal Loans

The Ultimate Guide to Personal Loans

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Part I: Personal Loans 101

Personal loans are among the easiest financial tools to understand. When you take out a personal loan, a bank lends you money for a fixed interest rate and a fixed period of time.

This means you’ll be expected to make a fixed monthly payment for the life of the loan, but it also means you’ll face less uncertainty than with a credit card. With a personal loan, you’ll know exactly how much you borrowed, how much you’ll pay every month and when your debt will be paid in full.

This isn’t to suggest that personal loans are perfect. Like anything else in life, they come with risks and drawbacks. Most of the downsides depend on how responsible you are with credit and what interest rate you’ll pay.

Keep reading to learn more about how personal loans work, which pitfalls to avoid and how to get the most out of the loan you choose.

How personal loans work

As we mentioned, a personal loan is easy to grasp. You borrow money at a fixed interest rate, over a fixed amount of time, then you pay a fixed monthly payment until your loan is paid off.

While the terms of your personal loan can depend on an array of factors, these loans are typically offered in amounts up to $35,000. You may be able to borrow this amount for any length of time from 12 months to 20 years.

In addition to the interest rate you’ll pay, personal loans may also come with an origination fee, which can range from 1 percent to as high as 8 percent at some lenders, according to a review of personal loan terms on MagnifyMoney.com. On the bright side, it’s a competitive business and many lenders charge no origination fee or any other fees upfront.

The real costs to worry about with personal loans involve the APR. Interest rates charged through personal loans can vary quite a bit, and they are typically higher than you see with secured loans such as home equity or auto loans. That’s because personal loans are unsecured debts. Whereas a secured loan — think home or auto loan — is secured by an underlying investment (in these cases, a home or car), unsecured loans aren’t secured by an investment. The banks are taking on a greater risk lending without any collateral, so they charge higher fees and APRs as a result.

How to qualify for one

If you’re considering a personal loan, here’s what you’ll need to qualify:

  • Good or excellent creditSome personal loan companies will approve you with a credit score as low as 580, according to MagnifyMoney’s parent company, LendingTree. But having very good credit (a FICO score over 740) will put you in a position to qualify for a personal loan with the best interest rate and terms.
  • Proof of ability to repay – You need to be able to show your ability to repay your loan, usually with pay stubs or other evidence of employment.
  • Low debt-to-income ratio – Lenders may be hesitant to lend you money if your debt-to-income ratio is high. This ratio is determined by taking your total monthly recurring debt and dividing it by your monthly income. Discover Personal Loans notes that borrowers with a debt-to-income ratio below 36 percent may qualify for the best terms and rates on loans and mortgages.
  • Co-signer – If your credit score is poor, you may need a co-signer with good credit to help you qualify for a personal loan.

How to pick the best personal loan

When it comes to personal loans, there is no one-size-fits-all option. The best loan for your needs depends on factors such as how much you need to borrow and whether you have good credit scores.

Here are some tips that can help you identify a loan that fits your goals:

  • Shop around with different lenders. Thanks to the internet, it’s easier than ever to shop around and compare rates and loan terms. Our parent company, LendingTree, is an excellent place to start because you can easily explore options from different lenders in one place. Start by filling out an online form.
  • Read the fine print. Make sure you understand each loan’s terms, conditions and interest rate, along with your monthly payment.
  • Look for a low-cost loan. Ideally, you should look for a personal loan with the lowest rate and fees (or no fees) you can find.
  • Read reviews. The internet is a treasure trove for reviews of various lenders. Reading product reviews can help you gauge the quality of each lender and what your experience might be like.

Part II: Common Uses for a Personal Loan

While borrowing money and paying it back slowly can be ideal no matter what your goals might be, you might be surprised to find out just how many uses personal loans can have.

“I’ve found that personal loans can be helpful when looking to consolidate higher interest debt, pay for a major expense or quickly get funds when needed for an emergency,” says Jeff Rose, founder of Good Financial Cents and partner of Discover Personal Loans.

Rose also pointed to a new survey from Discover Personal Loans, which showed that 26 percent of respondents cited a major medical expense as the most popular potential use for a personal loan, followed by 22 percent saying debt consolidation, and 13 percent using it to fund a small business.

Take note: That doesn’t mean personal loans are ideal for all uses. Here are some potential uses for personal loans, along with some pros and cons to consider:

Debt consolidation

If you have several types of debt and you’re struggling to keep up, consolidation can be a smart way to tackle the problem. When you consolidate debt, you take out a new loan, use it to pay off your existing debts and are left with just one loan to repay.

The real benefit of using a personal loan for debt consolidation is knowing exactly how much you pay each month and precisely how long you have until you’re debt-free.

“You don’t get that with a credit card,” says Gerri Detweiler, a writer, educator and authority on credit and loans.

You’ll have to decide when a personal loan makes sense as a debt consolidation tool over other options — such as a balance transfer credit card. It will likely come down to your credit score and which option will cost you the least over time. For example, a debt consolidation loan may have a higher interest rate than a balance transfer credit card, many of which come with a 0 percent APR for 12 to 21 months.

You can find 0% balance transfer offers at CompareCards.com, another LendingTree site.

Medical expenses

Taking a personal loan to cover medical expenses “can be very helpful, especially if it keeps you out of collections,” Detweiler says.

Before you take this step, however, you should speak to your provider to see if it offers a payment plan. If so, you may be able to make payments on your outstanding medical debts without paying interest.

Car purchase

You can take out a personal loan to buy a car, but should you? Detweiler says it depends on the type of car you’re buying and how much it costs.

“You would probably get a better interest rate through a car dealership since personal loans are unsecured but car loans use the car as collateral,” she says.

On the flip side, a personal loan might work better if you’re buying an older used car from an individual instead of a dealership.

Home improvement

Detweiler notes that, while a lot of people use a home equity loan or HELOC, or home equity line of credit, to remodel their home, not everyone has enough equity to qualify. A personal loan could be ideal since you may qualify no matter how much equity you have in your home.

Not only that, but you won’t lose your home if you fall behind on payments with a personal loan. A home equity loan uses your home as collateral.

Moving expenses

Moving can be expensive, but you should try to save up the cash before your move, if you can. If you’re short on funds, a personal loan or a credit card can work well. The best option for your needs depends on the interest rate you qualify for and how long repayment might take you.

Starting a business

Detweiler says she’s a big fan of trying to separate personal and business credit, but there are still times when using a personal loan to finance a business could be beneficial.

If you’re a startup that’s not yet earning money, for example, you might not yet qualify for a business loan.

“In that case, a personal loan could help you get your business off the ground,” she says.

Boosting your credit

“A personal loan can help you improve your credit mix, and that can boost your score,” says Detweiler. “But you shouldn’t get into debt just to build credit.”

If you want to build credit without getting into debt, signing up for a secured credit card and using it regularly can also help. Read more about how secured cards work.

Emergencies

When it comes to the unexpected, personal loans can be a better option than some other types of borrowing, like payday loans. Not only are interest rates typically low, but you can figure out an exact payment plan to pay the debt off before you sign up.

But first, you should “really think about whether you need to borrow or whether you could come up with the money another way,” says Detweiler.

When to avoid using a personal loan

While a personal loan can be a valuable financial tool, there are plenty of times where you might be better off borrowing money a different way – or not borrowing at all.

Joseph Toms, president of the nonbank consumer lender Freedom Financial Asset Management, says these instances really depend on individuals and their situation, although there are many telltale signs a personal loan is not for you.s

One of the biggest signs, he says, is when you can’t afford to keep up with the monthly payments for the loan you plan to take out.

“Not being able to keep up with the monthly payments means you won’t pay your loan on time,” he says. “If you pay your bills late or not at all, your credit will take a hit. That can lead to higher interest rates and cause your debt to spiral out of control.”

Before you take out a personal loan, you should write out a budget and make sure you can truly afford the monthly payments, he says.

Another time you shouldn’t take out a personal loan is when you don’t truly need what you’re borrowing for – or if you should probably live without it.

“A personal loan can be like a candy store,” says Toms.

The temptation of being able to borrow money can be too much for some people. It can inspire crazy actions, like financing purchases that can leave the borrower in financial peril, Toms says.

Another instance where you may not want to get a personal loan? “If you’re going to buy a house in the near future, you should think twice about taking out a personal loan,” Detweiler says.

This is because the amount you owe can affect how much you can borrow for a home.

Lastly, you should probably avoid a personal loan if you’re on shaky financial ground, says Detweiler.

“If you aren’t in a very stable financial situation, a personal loan could make your problems worse,” she says. “It’s risky because if you don’t make the payments, you could wind up hurting your credit and could end up in default or collections.”

Using personal loans for a vacation might be tempting, but it’s not the wisest choice. However, the truth is, some people do this anyway. In a recent survey, we found that 16 percent of people who said they are going into debt for vacation are using personal loans.

“Don’t borrow money and go into debt for a vacation,” Detweiler urges. “You’ll come back from vacation in debt. Save the money instead, or have a staycation.”

Like vacations, a wedding financed with debt is rarely a good idea.

“Don’t start your marriage in debt,” says Detweiler. If you have to use a personal loan for your wedding, make sure you shop around for a loan with the lowest interest rate and best terms.

If you believe you could pay the balance off in a short amount of time, you may also be better off with a 0 percent APR credit card.

The risks of using a personal loan

Taking out a personal loan can help you borrow the money you need to achieve any goal, but that doesn’t mean these loans are without risk. Some of the perils you’ll face when taking out any loan include:

  • Overspending – A personal loan can be the answer to your prayers, but some experts say they’re almost too easy. “No one is going to question what you’re spending the money on, so you might use this loan to justify things you shouldn’t really buy,” says Detweiler. “If you go overboard, you can end up with debt that takes years to pay off and a lifetime of regret.”
  • Damage to your credit if you don’t repay the loan – Obviously, your personal loan may go off without a hitch if you don’t borrow too much and can always afford your payments. “But if you can’t afford your payments due to job loss or another issue, your credit will see damage,” Detweiler explains. That damage can ruin your credit, or even lead to collections or bankruptcy.
  • Bad financial habits – Getting into the habit of constantly borrowing money can make your life more difficult, she adds. While personal loans can be easy to get, relying on credit over and over can leave you short on cash to reach other financial goals.

And the benefits?

There are times to avoid a personal loan, without doubt, but these loans aren’t all bad. In the real world, there are plenty of instances where a personal loan can help you get what you want or even improve your financial life.

If you take out a personal loan – and do it in a financially responsible way – there are plenty of benefits to look forward to. These loans can:

  • Simplify your financial life – “A personal loan can be a great tool for people looking to simplify and save by consolidating higher interest debt into one fixed monthly payment,” says Rose, of Discover Personal Loans. “If you have multiple credit cards or store card bills, and are having difficulty keeping track of them all, a personal loan can be a smart tool to streamline your payments and potentially save thousands of dollars on interest.”
  • Help with emergencies – If you are hit with an unexpected expense you can’t cover, “personal loans can provide the funds fairly quickly to help manage through the situation,” says Rose. In that sense, a personal loan could actually save you from financial peril.
  • Offer you predictable payments and interest – Because of the way personal loans are set up, you’ll never wonder how much you’ll pay each month or how much interest you owe. “Compared to higher-interest financial tools, having a fixed interest rate and monthly payment could save you money in the long run,” Rose explains.

Part III: Personal Loan Traps and Scams to Avoid

While there are plenty of reputable lenders in the personal loan space, that doesn’t mean it’s scam-free. Like most other areas of personal finance, there are plenty of fraudsters who will use personal loans to extract money from you or perpetrate fraud in some other way.

As you explore the world of personal loans, here are some traps to be aware of:

Advance loan fees

Occasionally, a fraudulent loan company will offer outrageous loans and loan terms with a catch: You have to pay the first few months of payments to qualify.

“They usually ask for these funds via Western Union or Moneygram,” says Detweiler. “But it’s a complete scam.”

No reputable lender would ask you to pay money upfront. “Do not pay money upfront for a personal loan under any circumstances,” she says.

Loan insurance

Another one from Detweiler: the fraudulent lender who will offer you a personal loan, only to say you need to buy “insurance” to cover the loan in case you default.

This is also a scam because personal loans are unsecured – and because no reputable lender would require you to buy insurance to insure your own loan.

‘No credit check’ loans

According to the Consumer Financial Protection Bureau (CFPB), a lender who isn’t interested in checking your credit should set off alarms.

Ads that say: “Bad credit? No problem” or “We don’t care about your past” should be particularly worrisome, notes the CFPB. These slogans are usually suggestive of a scam.

Pre-compute interest

Some personal loans might come with the caveat of pre-compute interest, interest that is stacked so you pay the bulk of it near the beginning of your loan term.

This is a bad deal, since you’ll wind up paying extra interest – even if you pay your loan off early. Before you take out a personal loan, make sure you know how interest is accrued and how it will impact the total costs of your loan.

Prepayment penalties

Some personal loans will tack on a prepayment penalty if you pay your loan off early. Since this fee isn’t that common and is totally unnecessary, you should avoid loans that charge this fee altogether.

Make sure you read through your loans terms to check for a prepayment penalty. If you find one, look for another lender and loan.

Part IV: Alternatives to a Personal Loan

A personal loan might be ideal for helping you reach your financial goals, but it’s also possible a different financial product might work better. As you consider the prospect of a personal loan, don’t forget to explore your other options.

Here are some alternatives to consider, along with some instances where they may represent a better deal:

Personal loans versus credit cards

According to Paul Gentile, president of Cooperative Credit Union Association, there are definitely times where a credit card may be better than a personal loan.

“A credit card can be used to purchase something, so that can offer more flexibility,” he says. Credit cards can also be a great deal if you pay them off monthly, he notes, since you have the potential to earn rewards. Lastly, credit cards can be beneficial for certain short-term purchases since many offer 0 percent APR for 12 to 21 months.

On the flip side, “a personal loan may be better for someone who wants to make a large, intentional purchase that they planned for.”

Personal loans also offer the benefit of a fixed payment and payoff date, whereas credit cards can literally tether you to payments indefinitely if you keep using them for purchases.

Personal loans versus HELOCs

As Gentile notes, HELOCs come with the advantage of interest deductions (similar to how you deduct mortgage interest) if you itemize your taxes. In contrast, interest paid on your personal loan is not tax-deductible. Rates on HELOCs may also be lower than those on personal loans, he notes.

A possible downside with HELOCs is the fact that some only require you to pay interest for years. “This means you may not be paying anything toward the principal,” Gentile says.

Some HELOCs also come with balloon payments at the end, and those big payments may be hard to handle. On the other hand, personal loans come with predictable, fixed monthly payments and no surprises.

Personal loans versus peer-to-peer loans

Gentile notes that peer-to-peer lending is really similar to a personal loan. Both things allow you to borrow a fixed rate of cash and repay it over a predetermined length of time.

But since peer-to-peer lending isn’t regulated as heavily, this could be worrisome, says Gentile.

Before you choose among personal loans and peer-to-peer loans, make sure you compare all related fees, all total costs and interest rates.

Personal Loans versus cash-out refinancing

Gentile believes that opting for a cash-out refinance is the best option for people committed to their properties in the long term, whereas personal loans are better for short-term financial needs.

There are risks to getting cash out of your home as well, he notes. “If home prices drop, you could end up underwater.”

On the other hand, refinancing your home to get access to your home equity could help you qualify for a lower interest rate than a personal loan. “You also get to write off your mortgage interest, so you get a tax deduction,” notes Gentile.

Check out this cash-out refi calculator from MagnifyMoney’s parent company, LendingTree.

Frequently Asked Questions

According to the CFPB, lenders and loan brokers are required to be registered in all states where they conduct business. To check registration, they suggest calling your state attorney general’s office, or your state’s Department of Banking or Financial Regulation.

Yes, if you use it to consolidate high interest debts from credit cards or other loans. To get out of debt faster, make sure your new personal loan comes with a lower interest rate than you’re already paying, along with no or few fees. Paying more than your minimum payment is another great way to pay down debt faster.

Your interest rate will be determined based on the type of loan you apply for, how much you want to borrow and the quality of your credit. Getting the best loan terms and the best interest rate typically requires a credit score of 740 or more, or very good or exceptional credit.

If you were denied a personal loan due to poor credit, the best thing you can do is take a few simple steps to improve your credit rating over time. Pay all of your bills on time, pay off debt to reduce your credit utilization, and avoid opening or closing too many accounts.

Thanks to the internet, you can apply for a personal loan online and from the comfort of your own home. You can also compare lenders, fees, and interest rates by visiting this page.

Because personal loans are unsecured, you don’t need collateral. What you do need is the ability to illustrate how you’ll repay your loan, along with a good credit score.

You can absolutely pay your loan off early; very few loans will charge a prepayment penalty. Before you take out a personal loan, you should make sure you won’t be charged a prepayment penalty if you’re able to repay your loan early.

While applying for a personal loan will result in a hard inquiry being placed on your credit report, any negative hit your score takes will be short-lived. Borrowing too much in relation to your credit limits can hurt your utilization, however, and yes, that could hurt your credit score.

On the other hand, repaying your personal loan on time, and ultimately in full, can actually help your score in the long run.

Depending on your lender, you may receive funds from your new personal loan as early as the next business day. However, it could take up to seven business days (or longer) if you apply for a loan on a weekend, have errors in your application, or your loan takes longer to process for any reason.

The best part about personal loans is that you can use the funds however you want. You can use the cash to pay off high interest debt, remodel your kitchen or buy a newer car, for example.

Just keep in mind that borrowing is never free. In addition to the interest you pay on your loan, you may also incur additional costs, such as origination or application fees.

Holly Johnson
Holly Johnson |

Holly Johnson is a writer at MagnifyMoney. You can email Holly here

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Mortgage

A Guide to Understanding Bridge Loans

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Getting a bridge loan
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Buying a new home before you can sell your old one can present quite the financial conundrum. This is mostly because you have to come up with the cash for a new property when you don’t have access to the home equity you have already built up in your existing property. That’s where a bridge loan comes in.

What is a bridge loan?

Bridge loans promise to fill the gap or “provide a bridge” between your old residence and the one you hope to buy. They accomplish this by providing temporary financial assistance through short-term lending.

Unfortunately, bridge loans come with pitfalls, some of which can be costly or have long-term financial consequences. This guide will explain the good and the bad about bridge loans, how they work, and some alternative strategies.

How does a bridge loan work?

While bridge loans can come in different amounts and last for varying lengths of time, they are meant to be short-term tools. Generally speaking, bridge loans are temporary financing options intended to help real estate buyers secure initial funding that helps them transition from one property to the next.

Let’s say you found your dream home and need to buy it quickly, yet you haven’t had the time to prepare your current residence for sale, let alone sell it. A bridge loan would provide the short-term funding required to purchase the new home quickly, buying you time to get your current home ready for sale. Ideally, you would move into your new home, sell your old property, then pay off the loan.

Here are some additional details to consider with bridge loans:

  • Your current residence is used as collateral for the loan.
  • These loans may only be set up to last for a period of six to 12 months.
  • Interest rates are higher than those you can get for a traditional mortgage.
  • You need equity in your current home to qualify, usually at least 20 percent.

Also keep in mind that there are several ways to repay a bridge loan. You may be required to start making payments right away, or you may be able to wait several months. Make sure to read the terms and conditions of your loan so you know where your financial obligations begin and end.

Risks of taking out a bridge loan

Taking out a temporary loan so you can purchase a new home may sound ideal, but as with most financial products, the devil is in the details. While these loans can help in a pinch if you aren’t able to purchase a property through other means, there are notable disadvantages.

They can cost more than alternatives

David Reiss, a professor at Brooklyn Law School and the academic program director at the Center for Urban Business Entrepreneurship, says the biggest downside of these loans is the price tag. Because bridge loans are meant to work for the short term, lenders have a much shorter timeline for turning a profit. As a result, “they typically charge a few percentage points higher than what you would pay with home equity loans,” says Reiss. Not only that, but they come with closing costs that may be expensive, and can vary from loan to loan.

So, even if the loan is short-term, it will likely cost you more than borrowing the money through a traditional mortgage by selling your existing home first, or through other means.

You’re taking on more debt

Another inherent risk with bridge loans: You’re simply borrowing more money. “The loan is secured by your home, so you have another mortgage,” Reiss says. “If you don’t make payments, then you could face late fees and financial turmoil.”

You can’t predict when you’ll sell your home

And if you’re unable to sell your home and your new or old monthly mortgage payments are taking a big chunk of your income, you could have trouble meeting all your financial obligations.

Reiss offers one other scenario in which a bridge loan could spell financial trouble: if the real estate market sours.

“You might assume you’ll sell your home easily, but that isn’t always the case,” says Reiss. “Unexpected events can screw up your plans to sell your home, so if you end up carrying multiple mortgages, you could potentially end up in trouble.”

According to Reiss, taking out a bridge loan could easily leave you with three home loans — your old mortgage, your loan, and your new mortgage — if the housing market slumps inexplicably and you can’t sell.

“This may not be a problem temporarily, but it can cause financial havoc in the long run,” he says. “You’ll be stuck with the unexpected expense of carrying all these mortgages.”

Falling behind on payments can lead to foreclosure on your old home, your new property, or both.

Advantages of a bridge loan

Applicants who are well aware of the risks of this financial product may still benefit from choosing this option. There are notable advantages, Reiss says, especially for certain types of buyers.

They can give you an edge in competitive markets

Bridge loans are “the kind of loan you get when you need to move forward and you can’t do it any other way,” says Reiss. If you are absolutely dead-set on purchasing a property and struggling to make the financials work, then a bridge loan could truly save the day.

This is especially true in housing markets where homes are moving quickly, Reiss notes, since a bridge loan allows you to buy a new home without a sales contingency in the new contract. What this means is, you’re able to write an offer on a new property without requiring the sale of your old home before you can buy.

This can be quite advantageous “in a hot market where sellers are getting lots of offers and you’re competing against other buyers who are paying in cash or making offers without a contingency,” Reiss says.

Bridge loans may be more convenient than the alternatives

Reiss also says that, while there are other loan options to consider for buying a new home, they aren’t always feasible in the heat of the moment. If you wanted to purchase a new home before selling your old home and needed cash, you could consider borrowing against your 401(k) or taking out a home equity loan, for example.

Yes, these options may be cheaper than getting a bridge loan, Reiss acknowledges. The problem is, they both take time. Borrowing money from your 401(k) may take several weeks and plenty of back and forth with your employer or human resources department, and home equity loans can take months. Not only that, but it might be difficult to qualify for a home equity loan if your home is for sale, Reiss says.

“A home equity lender who catches wind of your intent to sell your home may not even loan you the money since it’s fairly likely you’ll pay off the home equity loan quickly, meaning they won’t turn a profit,” he says.

Bridge loans, on the other hand, could be more convenient and timely because you may be able to get one through your new mortgage lender.

Four good reasons to take out a bridge loan

With the listed advantages and disadvantages above in mind, there are plenty of reasons buyers will take on the risk of a bridge loan and use it to transition into a new home. Reasons consumers commonly take out bridge loans include:

1. You want to make an offer on a new home without a sales contingency to improve your chances of securing a deal.

The most important reason to get a bridge loan is if you want to buy a property so much that you don’t mind the added costs or risk. These loans let you make an offer without promising to sell your old home first.

2. You need cash for a down payment without accessing your home equity right away.

A bridge loan can help you borrow the money you need for a down payment. Once you sell your old home, you can use the equity and profit from the sale to pay off your loan.

3. You want to avoid PMI, or private mortgage insurance.

If most of your cash is locked up as equity in your current home, you may not have enough money to put down 20 percent on your new home and avoid PMI, or private mortgage insurance. A bridge loan may help you put down 20 percent and avoid the need for this costly insurance product.

“But you would need to net out the costs of the bridge loan against the PMI savings to see if it is worth it,” says Reiss. “And remember, once you have sold the first home, you could use the equity from that home to pay down the mortgage on your new home and get out of paying PMI.”

According to the Consumer Financial Protection Bureau (CFPB), you may have to order an appraisal to show you have at least 20 percent equity to get PMI taken off your new loan, and even then, it can take several months.

“So, we might be talking about six to 12 months of avoided PMI payments if you were planning on using the equity from your old home to pay down the mortgage on your new home,” says Reiss.

4. You’re building a new home.

A bridge loan can help you pay the upfront costs of building a new home when you aren’t yet prepared to sell your old one because you still need a place to live.

How to qualify for a bridge mortgage loan

Because bridge loans are offered through mortgage lenders, typically in conjunction with a new mortgage, the requirements to qualify are similar to getting a new home loan.
While requirements can vary from lender to lender, you commonly need to meet the following criteria for a bridge loan:

  • Excellent credit
  • A low debt-to-income ratio
  • Significant home equity of 20 percent or more

Typically, lenders will approve bridge loans at the value of 80 percent of both the borrower’s current mortgage and the proposed mortgage they are aiming to attain. Let’s say you’re selling a home worth $300,000 with the goal of buying a new property worth $500,000. In this example, across both loans, you could only borrow 80 percent of the combined property values, or $640,000.

If you don’t have enough equity or cash to meet these requirements — or if your credit isn’t good enough — you may not qualify for a bridge loan, even if you want one.

Fees and other fine print

Before you take out a bridge loan, it’s important to understand all the costs involved. Here are some fees and fine print you should look for and understand:

Fees

Since bridge loans vary widely from lender to lender, the fees involved — and the costs of those fees — can vary significantly as well. Common fees to look for include an origination fee that can be equal to 1 percent or more of your loan value. You will also likely be on the hook for closing costs for your loan, although the amount of those costs can be all over the map based on the terms and conditions included in your loan’s fine print. As example, Third Federal Savings and Loan out of Cleveland, Ohio, offers a bridge loan product with no prepayment penalties or appraisal fees, but with a $595 fee for closing costs. Borrowers may also be on the hook for documentary stamp taxes or state taxes, if applicable. Make sure to check your loan’s terms and conditions.

Prepayment penalties

While it’s unlikely your loan will include any prepayment penalties, you should read the terms and conditions to make sure.

Payoff terms and conditions

Because all bridge loans work differently, you need to be sure when your loan comes due, or when you need to start making payments. You may need to make payments right away, or you might have a few months of wiggle room. Because there are no set guidelines, these terms can vary dramatically among different lenders.

Tips to sell your home quickly and avoid a bridge loan

If you’re on the fence about getting a bridge loan because you’re worried about short-term costs or the added layer of risk, try to sell your home quickly instead. If you’re able to sell, you may be able to access your home’s equity and avoid a bridge loan altogether, while also eliminating the possibility of getting “stuck” with more than one home.

We spoke to several real estate professionals to get their tips for selling your home quickly. Here are their best tips for getting your home ready to sell in a short amount of time:

Tip #1: Do some quick outdoor cleanup and landscaping work, then try to make your home as neutral as possible.

“To get people inside, they need to like the outside of your house,” says Nancy Brook, a Realtor who sells properties with RE/MAX of Billings, Mont. “Trim trees and shrubs, treat weeds, and mow and trim lawns.”

You should also make sure that there’s no chipped or peeling paint, she recommends. “And if your home is anything but a neutral color, you should seriously consider painting it.”

Tip #2: Get rid of half your stuff (or more).

As Brooks notes, most real estate agents suggest that sellers pack up most of their personal items and remove them from the house when they’re trying to sell. This helps people declutter while also making their property more appealing to people who might be turned off by someone else’s personal photos and items.

“Pack up or get rid of rid of paperwork, knick-knacks, personal photos and collections,” says Brooks. “Any furniture that obstructs a walkway should be eliminated. Get rid of any unnecessary dishes, pots, pans and small appliances in your kitchen. All the excess gives a junky appearance.”

Tip #3: Deep-clean from top to bottom.

While cleaning seems like an obvious first step, it is often neglected, notes Trina Larson, RE/MAX Realtor and selling specialist from Potomac, Md.

“You would never purchase a dirty car or a dirty new jacket,” she says. “Get everything as clean as possible, and try to make your house look brand-new.”

Items on your to-clean list should include corners, edges of baseboards, light fixtures, windows inside and out, your home’s siding and anything that isn’t in pristine condition.

Tip #4: Get rid of off-putting smells.

If you want to sell quickly, your house should smell clean and inviting, Larson suggests. “Your first step is to remove every offensive odor,” she says.

Go through each room and take inventory of what you smell. “Pet urine is especially heinous, and there is only way to remove it,” she says. “You have to go in and replace the carpet where the accident happened. Although it might seem like an expensive task, it is worth every penny. No cooking or animal odors.”

Basic cleaning can also help remove smells. The cleaner your home, the fresher it will seem to potential buyers.

Bottom line: Is a bridge loan worth considering?

If you want to buy a home quickly and don’t have time to sell your home, a bridge loan could help. Likewise, bridge loans can be a good option for people who are moving or building a new home and need the capital to make the sale go through regardless of cost.

On the other hand, such loans may not be the best choice for consumers who don’t want to risk getting stuck with two homes and multiple payments. They’re also a poor choice for buyers who don’t want to pay any additional closing costs or interest payments to get in the home they want.

In the end, only you can decide if the risk of getting a bridge loan for your new home is an acceptable one.

Holly Johnson
Holly Johnson |

Holly Johnson is a writer at MagnifyMoney. You can email Holly here

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College Students and Recent Grads

The Ultimate Guide to Paying off Medical School Debt

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Part I: Is Medical School Worth It?

Getting accepted to medical school is a major accomplishment, but graduating from medical school can be life-changing for your finances. According to The College Payoff, a collaborative study conducted by the Georgetown University Center on Education and the Workforce, individuals with a doctoral-level degree enjoyed median lifetime earnings of $3,252,000 in 2009 dollars. This figure compares favorably to degrees that require a smaller commitment of time and resources, showing that pursuing a medical degree can pay off.

Now on to the bad news. While earning more money over a lifetime is advantageous, there’s a notable downside to going to medical school. While doctoral-level degrees can pay off with a lifetime of higher wages, the costs of pursuing this degree can be astronomical.

As the Association of American Medical Colleges notes, the average indebted 2016 medical school graduate left college with a median medical school debt of $190,000. No matter how you cut it, that’s a lot of money to borrow and spend.

Medical school debt

Medical school debt in the U.S.

The Association of American Medical Colleges shares statistics on average medical school debt. As of 2016, indebted medical school graduates left school with a median debt loan of $190,000. At public schools, the median debt load worked out to $180,000. Private medical schools, on the other hand, reported a slightly higher level of debt with a median debt load of $200,000.

The high levels of debt many medical school graduates endure are caused by myriad factors, including the rising costs of tuition. While average medical school tuition hasn’t been tracked since 2009, the price tag of a medical education was $29,890 that year.

In addition to the price of tuition, medical students need to pay for countless other expenses, some of which only apply to those in the medical field:

  • Room and board
  • Rent and utilities
  • Food
  • Travel and transportation
  • Health care
  • Instruments and supplies
  • Textbooks
  • Lab fees
  • Test fees
  • Relocation for residency

Lifetime earnings for a doctor

While the costs of medical school are high, doctors’ higher salaries can take the sting out of the long-term costs. In 2016, for example, family and general practitioners earned an annual mean wage of $200,810, while physicians and surgeons earned $210,170, on average. Several medical specialties earned even more.

The following table highlights profitable medical careers alongside careers that require only a bachelor’s degree:

Careers & Degree Requirements

Annual Mean Wage in 2016 (National)

Medical Careers:

Family and general practitioners

$200,810

Physicians and surgeons

$210,170

Anesthesiologists

$269,600

Surgeons

$252,910

Bachelor’s Degree Careers:

Petroleum engineers

$147,030

Biomedical engineers

$89,970

Registered nurses

$72,180

Market research analysts

$70,620

Elementary school teachers

$59,020

Is medical school worth the cost?

If you’re trying to decide between degree programs with varying costs and educational outcomes, it’s important to consider the ROI, or return on investment, for your education. While there’s no hard and fast rule to help you decide, figuring out your post-education monthly payment for medical school debt and comparing it to your potential salary can help.

As an example, the average medical school graduate with $190,000 in debt with a 6% interest rate would need to pay $2,109.39 per month toward their loans if they chose standard, 10-year repayment. According to the Bureau of Labor Statistics, however, the median weekly earnings for someone with a doctoral degree worked out to $1,664 in 2016.

During a month with four weeks of paydays, a doctoral graduate would bring in $6,656 before taxes and $4,659.20 after taxes, considering a 30% tax rate. While a $2,103.39 payment represents nearly half of this person’s income, it’s only for 10 years. Further, the percentage of income will only decrease as their income grows. And if they choose a higher paying medical specialty, the difference could be even greater.

Also keep in mind that doctors don’t have to choose 10-year, standard repayment as there are plenty of other options available, including repayment plans that span up to 25 years. If the graduate with the same level of debt as above chose to repay their loan over 25 years at the same interest rate, for example, they would pay only $1,224.17 per month.

Part II: Paying for Medical School

Federal student loans are usually the first source of funding medical students turn to as they seek to finance their education. Several different types of federal student loans are available, and each has their own benefits, drawbacks and practical limitations. Federal student loans tend to be a good option for medical students since they offer relatively low, fixed interest rates and help students qualify for federal perks like income-driven repayment, student loan forgiveness programs, deferment and forbearance.

Pros of federal student loans:

  • Fixed interest rates that can be competitive
  • Access to federal loan repayment and student loan forgiveness programs
  • Qualifying for subsidized loans means the government may pay the interest on your loans during school
  • Access to student loan forbearance and deferment (if you qualify)
  • No credit check

Cons of federal student loans:

  • Caps on how much you can borrow
  • You may need to take out private loans once you exhaust federal loans
 

Interest Rates

Maximum Annual
Borrowing Amount

Perkins Loans

5%

Up to $5,500 per year for
undergraduate students, depending
on financial need and other aid
received; up to $8,000 per year
for graduate students

Direct Subsidized Loans

4.45% for undergraduate
loans first disbursed on or
after July 1, 2017,
and before July 1, 2018

$3,500 to $5,500 per year for
undergraduate only

Direct Unsubsidized Loans

4.45% for undergraduate
loans first disbursed on or
after July 1, 2017, and before
July 1, 2018; 6% for graduate
loans

$5,500 to $12,500 per year for
undergraduate students;
up to $20,500 per year for
graduate students

Direct PLUS Loans

For Direct PLUS Loans first
disbursed on or after July 1, 2017,
and before July 1, 2018,
the interest rate is 7%

Maximum loan amounts
are limited to the cost of
attendance in school minus
financial aid received

Direct Consolidation Loans

Weighted average of the
loans being consolidated

No minimum or maximum
loan limits

Private student loan debt for medical school

Private student loans are commonly used once medical students max out the amount of federal money they can borrow for school. These loans are offered through private lenders, which means their rates and repayment terms are not fixed by the government. As a result, they can vary greatly but may be lower than rates offered through government programs.

Pros of private student loans:

  • Interest rates may be lower than federal student loans
  • Loan limits can be high enough to cover the entire cost of medical school
  • Loan disbursement may be faster
  • You can shop around among lenders to find the best deal

Cons of private student loans:

  • You need good or excellent credit to qualify on your own
  • Without good credit, you may need a co-signer
  • Interest rates can be fixed or variable
  • Private loans do not offer federal student loan forgiveness, income-driven repayment, or federally sponsored deferment or forbearance
  • You may need to make payments or pay interest while still in school

When to consider private student loans:

  • You’ve maxed out on federal student loan amounts
  • Private loans offer a better interest rate
  • You don’t plan to take advantage of government programs when it comes to repaying your loans

Private student loan lenders to consider

 

Interest Rates*


Borrowing Limits


Credit Requirement


Discover
Student Loans

Variable rates from 3.87%
to 11.12% APR; fixed rates
from 6.24% to 12.99% APR

Limited to 100% of the
cost of attendance minus
other aid

You may need a co-signer
to qualify if you don’t
have excellent credit


Sallie Mae
Student Loans

Variable rates available
from 3.25% to 8.21% APR;
fixed rates from
5.7% to 8.56% APR

Borrow up to 100% of
the cost of attendance

You need good or
excellent credit to qualify
without a co-signer


Wells Fargo
Student Loans

Variable rates available
from 4.91% to 10.38% APR;
fixed rates available from
6.84% to 11.67% APR

The lifetime limit for this
loan and all other
education-related debt,
including federal loans,
is $250,000 for allopathic
(M.D.) or osteopathic
(D.O.) medicine; $120,000
for all other disciplines

You have a better
chance to qualify if you
have a co-signer;
excellent credit required


Citizens Bank
Student Loans

Variable rates available
from 4.19% to 10.69% APR;
fixed rates available from
5.99% to 10.99% APR

Lifetime limit is $225,000
for medical school loans

Good or excellent credit
required without a
co-signer


College Avenue
Student Loans

Variable rates available
from 3.69% to 9.25% APR;
fixed rates available from
6.22% to 11.58% APR

Borrow up to 100% of the
cost of attendance

Good or excellent credit
required without a
co-signer

Grants for medical students

Grants for medical school students are offered through the government, research facilities, corporations and institutions of higher education. Students can seek out information on available grants by asking their school’s financial aid office, searching the internet, or checking government resources that cover the medical field.

Here are some popular grants available to medical students:

This Medical Scientist Training Program grant was created to assist students pursuing degrees in clinical and biomedical research. This program is offered at over 47 universities that help facilitate the grant.

  • Award amount: Amounts vary
  • Qualifications: Available to qualified M.D.-Ph.D. dual-degree students with a GPA of 3.0 or higher
  • Deadline to apply in 2017: Depends on the participating institution

The Ford Foundation Fellowship Program seeks to increase diversity and offers grants to medical students pursuing a Ph.D. with the goal of participating in medical research or teaching. Other Ph.D. students are considered as well.

  • Award amount: $20,000 to $45,000, depending on the specific program
  • Qualifications: Medical students in pursuit of a Ph.D. can apply
  • Deadline to apply in 2017: Applications open in December 2017

This American Medical Women’s Association grant awards four AWMA student members every year. This two-year fellowship focuses on global health and includes a trip to Uganda.

  • Award amount: $1,000 to fund local project planning and subsidize experiential education in Uganda
  • Qualifications: Must be AWMA member pursuing a medical education
  • Deadline to apply in 2017: The next application cycle is Aug. 1, 2018, to Oct. 30, 2018

This grant, which is offered through the Radiological Society of North America, was created for medical students considering academic radiology.

  • Award amount: $3,000 to be matched by a sponsoring department for a total of $6,000
  • Qualifications: Must be a full-time medical student and RSNA member
  • Deadline to apply: Feb. 1, 2008

This program, which is offered through the American Medical Women’s Association, is available to medical students and residents working in clinics around the world.

  • Award amount: Up to $1,000 in transportation assistance costs
  • Qualifications: Students must work in an off-campus clinic where the medically neglected will benefit, be an AMWA member in at least their second year of school, and must spend four weeks to one year serving the medically underserved
  • Deadline to apply in 2017: Applications are accepted Jan. 5, April 5, July 5 and Oct. 5

Scholarships for medical students

Scholarships are available to medical students from all walks of life and all backgrounds, although requirements vary based on the program. Medical students can seek out merit-based scholarships, institution-based scholarships and various other scholarships offered through research facilities and corporations.

Here are a handful of popular scholarship options for medical students:

This grant, offered through the American Medical Association, doles out scholarships to medical students who meet certain criteria. The goal of this program is to reduce the debt burden on medical school students across the country.

  • Award amount: $10,000
  • Qualifications: Must be a medical student who is nominated by their school dean and approaching their last year of medical school
  • Deadline to apply in 2017: Nomination applications are available every fall

The Herbert W. Nickens Award is available to third-year medical students who have shown proven leadership in the area of medical equality for all.

  • Award amount: $10,000
  • Qualifications: Must be a medical student who is nominated for excellence in leadership; checklist is available here
  • Deadline to apply in 2017: Applications due in April each year

This scholarship is open to all students pursuing a service career in health care, including medical students considering any medical field.

  • Award amount: $5,000 to $10,000
  • Qualifications: Must be a medical student with at least one year of medical school remaining
  • Deadline to apply in 2017: Application opens at the beginning of May each year and closes at the end of June

This scholarship is available to all medical students with financial need regardless of their gender, race or ethnicity. Applicants are judged on financial need, achievements, essays and community service records.

  • Award amount: $2,000 to $5,000
  • Qualifications: Must be a medical student who can demonstrate financial need and complete the application process
  • Deadline to apply in 2017: Applications for 2018 will open at the end of 2017

The Harvey Fellows Program was created for Christian students pursuing higher education in important fields such as medicine.

  • Award amount: $16,000
  • Qualifications: Must be a student who identifies as Christian and attends service regularly
  • Deadline to apply in 2017: Application deadline is Nov. 1 of each year

Part III: Medical School Loan Repayment Programs

Income-driven repayment (for federal student loan debt)

Income-driven repayment programs allow medical students to pay only a percentage of their income toward their federal student loans for 20 to 25 years no matter how much they owe. These programs can be advantageous since they let medical students with large debt loads pay a smaller percentage of their income every month than they would with standard, 10-year repayment. Several different income-driven repayment programs are available, each with their own rules and benefits. The following table highlights each program and how it works:

 

Payment Amount

Repayment Period

Eligibility

Pay As You Earn
Repayment Plan
(PAYE Plan)

10% of your
discretionary income,
but never more than your
payment on 10-year
Standard Repayment

20 years

Your payment must be
less than what you would
pay under standard,
10-year repayment

Revised Pay As You
Earn Repayment
Plan (REPAYE Plan)

10% of your
discretionary income

20 years for
undergraduate loans
and 25 years “if any
loans you’re repaying
under the plan were
received for graduate
or professional study”

Any borrower with
eligible federal student loans
can qualify

Income-Based
Repayment Plan
(IBR Plan)

10% of your
discretionary income
if your loan originated
after July 1, 2014,
but never more than
the 10-year Standard
Repayment Plan;
generally 15% of your
discretionary income
if you’re not a new
borrower on or after
July 1, 2014; either way,
you’ll never pay more
than the payment on a
standard, 10-year
repayment plan

20 years if you’re a
borrower on or after
July 1, 2014; 25 years
otherwise

To qualify, your
payment under this plan
must be less than what you
would pay under standard,
10-year repayment

Income-Contingent
Repayment Plan
(ICR Plan)

20% of your
discretionary income or
what you would pay over
the course of a fixed
12-year repayment plan

25 years

Any borrower with
eligible federal student loans
can qualify for the ICR Plan

Pros of income-driven repayment:

  • Pay a smaller amount of your income for up to 25 years
  • Have your student loan balance forgiven once you complete the program
  • Pay off your debts slowly and at your own pace

Cons of income-driven repayment:

  • You may have to pay income taxes on forgiven loan amounts
  • You may not qualify if you earn too much

Who is eligible?

These programs are available to graduates who have federal student loans and meet income requirements.

How to apply

You can apply for income-driven repayment programs using the U.S. Department of Education website.

Medical school loan forgiveness for doctors

There are numerous loan forgiveness programs available to doctors, each with their own criteria for applicants. Commonly, these programs offer loan forgiveness in exchange for service in a specific field or for a certain type of employer.

Some examples include:

Who is eligible?

Since loan forgiveness programs vary in their details and requirements, you’ll need to read terms and conditions of applicable programs to determine if you qualify.

Is this option right for you?

If you are willing to relocate or know that a loan forgiveness program is already available in your area, then loan forgiveness programs offer a great way to earn a living while having part of your debt forgiven. For this option to be right for you, however, you have to be willing to meet special program requirements such as working in an urban, rural or underserved community.

National Health Service Corps Loan Repayment Program

This program offers loan repayment assistance for individuals entering qualified health care careers in medical or dental fields. Licensed health care providers may earn up to $50,000 of tax-free loan forgiveness for a two-year commitment to NHSC-approved employment in a high-need area.

Who is eligible?

Medical graduates who agree to work in an NHSC-approved career for at least two years may qualify for this assistance.

How to apply

Contact the National Health Service Corps or visit the NHSC website for tips on the application process.

Is this option right for you?

If you’re willing to work in an area of high need after you graduate, this program may work well at the beginning of your medical career.

U.S. military loan repayment programs

United States Army

Army Student Loan Assistance offers up to $45,000 per year in loan assistance, along with a monthly stipend of up to $2,000. This assistance is available to U.S. residents working to complete an accredited residency.

The U.S. Army also offers up to $120,000 to pay down medical school debt in exchange for three years of service.

Lastly, the U.S. Army offers a Health Care Professionals Loan Repayment Program that provides up to $250,000 for repayment of “education loans for physicians in certain specialties who are serving in an Army Reserve Troop Program Units, AMEDD Professional Management Command, or the Individual Mobilization Program.”

How to apply

For additional information, contact your local Army recruiter, call 1-800-USA-Army, or visit Healthcare.GoArmy.com.

United States Navy

The Navy Student Loan Repayment Program offers up to $65,000 in repayment assistance, depending on your loan amount and year in school. Eligible applicants serve in the U.S. Navy and have federal student loans.

You may also qualify for the U.S. Navy’s loan forgiveness and repayment program, which offers up to $40,000 per year in loan assistance before taxes. You must be a final year medical student ready to join the U.S. Navy.

Lastly, the Navy Financial Assistance Program offers up to $275,000 in loan repayment assistance plus a monthly stipend to medical residents who agree to serve in the U.S. Navy. Physician sign-up bonuses may also be available.

How to apply

Contact your local Navy recruiter or visit the Navy Recruiting Command website.

United States Air Force

The Air Force Health Professions Scholarship Program offers up to $45,000 per year plus a monthly stipend up to $2,000 for medical students who join the U.S. Air Force and serve their country as a medical professional. Once you complete your residency, you’ll have a one-year obligation for each year you participate in the program plus one extra year.

How to apply

Contact a U.S. Air Force recruiter for more information, or visit the U.S. Air Force application page to apply.

State-level loan repayment programs for doctors

 

Program

Eligibility

Alaska


The SHARP Program offers new doctors
up to $35,000 in loan repayment
assistance per year.

Doctors must agree to work at least two
years in a high-need shortage area.

Arizona


The Arizona State Loan Repayment
Program
offers up to $65,000 per year in
repayment assistance for doctors for two
years, with lower repayment amounts
offered in subsequent years. You must
work in outpatient care to qualify.

The doctor must be a U.S. citizen who
agrees to work in a state-approved high
need position.

Arkansas


The Arkansas Department of Health
offers up to $50,000 in loan forgiveness
in exchange for a two-year contract.

You must agree to work in an
underserved area approved by the state.

California


The California State Loan Repayment
Program
offers doctors up to $50,000 in
loan forgiveness.

Applicants must be medical school
graduates and agree to at least a
two-year commitment in an eligible,
state-approved position.

Colorado


The Colorado Health Service Corps
offers up to $90,000 for doctors who
qualify.

Doctors must practice in a
state-approved shortage area that
accepts public insurance and offers
discounted services to the poor for three
years.

Delaware


The Delaware State Loan Repayment
Program
offers between $70,000 and
$100,000 in loan forgiveness for doctors
who qualify.

Doctors must agree to work in an area
with a substantial yet underserved
medical need for two years.

Georgia


The Georgia Physician Loan Repayment
Program
offers up to $25,000 per year
for two years.

Physicians must practice in a shortage
area and in one of the following medical
fields: family medicine, internal medicine,
pediatrics, OB/GYN, geriatrics or
psychiatry.

Hawaii


The Hawaii State Loan Repayment
Program
is a federal grant you can use
to pay off educational loans. Amounts
vary.

Applicants must agree to a two-year
commitment in a state-designated
shortage area.

Idaho


The Idaho State Loan Repayment
Program
offers doctors $2,000 to $25,000
per year in loan repayment assistance.

Doctors must agree to work in a health
care shortage area designed by the
state of Idaho.

Illinois


The Illinois National Health Service Corps
State Loan Repayment Program
offers up
to $50,000 in loan repayment assistance
for doctors who qualify.

Doctors must agree to a two-year
commitment in a health care shortage
area.

Iowa


Iowa’s Primary Care Recruitment and
Retention Endeavor
offers up to $50,000
for full-time doctors and up to $25,000 in
assistance for those who agree to work
part time.

Doctors must agree to work in a shortage
area approved by the state.

Kansas


The Kansas State Loan Repayment
Program
offers doctors up to $25,000 in
assistance per year.

Applicants must agree to a two-year
commitment in an eligible position.

Kentucky


The Kentucky State Loan Repayment
Program
awards up to $300,000 in loan
repayment assistance to up to 13
applicants who work in primary care.

You must agree to work in a designated
health care shortage area.

Louisiana


The Louisiana State Loan Repayment
Program
offers up to $30,000 annually for
up to a three-year commitment.

Applicants need to work in a traditionally
underserved health care shortage area.

Maryland


The Maryland Loan Repayment Assistance
Program
for Physicians offers up to
$50,000 per year for a two-year
commitment.

Applicants must be medical graduates
who are current on their student loans
and willing to work in a health care
shortage area.

Massachusetts


The Massachusetts Loan Repayment
Program
for Health Professionals offers
up to $50,000 for a two-year contract.

You must work in an area experiencing
exceptional medical need.

Michigan


Through the Michigan State Loan
Repayment Program
, doctors can receive
up to $200,000 in loan repayment
assistance.

Doctors must agree to a two-year,
full-time commitment in a health care
shortage area.

Minnesota


The Minnesota State Loan Repayment
Program
offers up to $20,000 in loan
assistance per year. Programs for rural
doctors
and urban physicians in
Minnesota also offer up to $25,000 per
year in assistance.

Dentists must agree to work in a
shortage area for at least two years to
qualify.

Missouri


The Missouri Health Professional State
Loan Repayment Program
offers up to
$50,000 in loan repayment assistance.

Doctors must agree to a two-year
commitment in a health care shortage
area.

Montana


The Montana Rural Physician Incentive
Program
offers up to $20,000 per year in
assistance for up to five years.

You must agree to work in a designated
rural or underserved community.

Nebraska


The Nebraska Loan Repayment Program
offers up to $60,000 per year in loan
repayment assistance.

Physicians must agree to work in
designated shortage areas for at least
three years.

Nevada


The Nevada Health Service Corps offers
varying amounts of loan repayment
assistance based on the term of service.

Doctors must agree to work in assigned
areas of need.

New Hampshire


This state program offers doctors up to
$75,000 in loan repayment for a full-time
commitment.

Applicants must agree to work in a
health care shortage area for at least
three years.

New Jersey


The Primary Care Practitioner Loan
Redemption Program
of New Jersey
helps doctors earn up to $120,000 in loan
repayment assistance.

Doctors must agree to a two- to
four-year commitment.

New Mexico


The Health Professional Loan Repayment
Program
of New Mexico offers up to
$25,000 in assistance per year.

Applicants must agree to a two-year
service agreement in a state-approved
position.

New York


Through Doctors Across New York, you
may qualify for up to $150,000 in
assistance over five years.

You need to work in a health care
shortage area for at least two years.

North Carolina


The state of North Carolina doles out
$100,000 in loan repayment assistance
for doctors who qualify.

Physicians must agree to work at least
four years in a health care shortage area.

North Dakota


North Dakota’s Federal State Loan
Repayment Program
offers up to $50,000
per year for up to two years.

Doctors must agree to work in a health
care shortage area for the duration of
the program.

Ohio


The Ohio Physician Loan Repayment
Program
offers $25,000 per year in
assistance for two years of service
followed by up to $35,000 per year for
third and fourth years.

You must agree to work in a health care
shortage area to qualify.

Oklahoma


The Oklahoma Medical Loan Repayment
Program
offers up to $160,000 for a
four-year commitment.

To qualify, physicians must work in a
rural or underserved area.

Oregon


The Oregon Partnership State Loan
Repayment program
offers tiered levels
of assistance based on a variety of
factors.

Applicants must agree to work in a
shortage area for at least two years.

Pennsylvania


The Pennsylvania Primary Health Care
Loan Repayment Program
offers up to
$100,000 in loan repayment assistance in
exchange for a full-time commitment.

Doctors need to agree to work in a
qualified position for at least two years.

Rhode Island


The Rhode Island Health Professionals
Loan Repayment Program
offers financial
assistance for doctors who qualify.

Doctors must agree to work in a shortage
area for at least two years.

South Carolina


South Carolina’s Rural Physician
Incentive Grant Program
offers $60,000
to $100,000 for a four-year contract.

Physicians must work in a rural or
underserved area of the state.

South Dakota


The South Dakota Recruitment Assistance
Program
offers up to $208,754 in
repayment assistance for doctors. The
benefit of the program changes annually.

Doctors must practice full time in a
health care shortage area for at least
three years.

Tennessee


The Tennessee State Loan Repayment
Program
offers up to $50,000 in
assistance for a two-year commitment.

Doctors must work in a designated
shortage area.

Texas


The state’s Physician Education Loan
Repayment Program
offers up to
$160,000 for a four-year commitment.

You must work in a designated
shortage area to qualify.

Utah


Utah’s Rural Physician Loan Repayment
Program
offers up to $15,000 per year in
assistance for doctors who qualify.

Doctors must work in a qualified rural
hospital.

Vermont


The Educational Loan Repayment for
Health Care Professionals program
of
Vermont gives out up to $20,000 in loan
repayment assistance per year.

Doctors in Vermont must work in
medically underserved communities for
at least 12 to 24 months.

Virginia


The Virginia Department of Health offers
loan repayment for doctors of up to
$140,000 for a four-year commitment or
up to $100,000 for a two-year
commitment.

Doctors must work in a state-approved
shortage area.

Washington


Washington’s Health Professional Loan
Repayment Program
offers a maximum
award of $75,000.

A commitment in a health care shortage
area is required.

Wisconsin


Wisconsin’s Health Professions Loan
Assistance Program
offers a maximum
award of $50,000 for doctors who qualify.

This program requires a three-year
commitment in a health care shortage
area.

Part IV: Paying Down Your Medical School Debt

While the very idea of medical school debt could have you feeling overwhelmed, it’s important to understand the many options available when it comes to paying off your loans sooner rather than later. In addition to paying off your loans faster, some strategies can help you save money on interest or secure a more manageable monthly payment.

Here are some tips that can help as you pay down medical school debt:

#1: Refinance your student loans to a lower rate.

Refinancing your student loans to a new loan product with a lower interest rate and better terms can help you save money and possibly even lower your monthly payment. With a lower interest rate, you’ll save money on interest each month, which could help you save money and pay off your loans faster, provided you keep making the same monthly payment.

Keep in mind, however, that there are notable disadvantages that come with refinancing federal loans with a private lender. When you refinance federal loans with a private lender, you lose out on special protections afforded to federal loan borrowers like deferment and forbearance. You also disqualify yourself from federally sponsored income-driven repayment and loan forgiveness programs.

Recommended lenders for refinancing your medical school loans

LenderTransparency ScoreMax TermFixed APRVariable APRMax Loan Amount 
SoFiA+

20


Years

3.35% - 7.125%


Fixed Rate*

2.815% - 6.740%


Variable Rate*

No Max


Undergrad/Grad
Max Loan
apply-now
earnestA+

20


Years

3.35% - 6.39%


Fixed Rate

2.82% - 6.19%


Variable Rate

No Max


Undergrad/Grad
Max Loan
apply-now
commonbondA+

20


Years

3.35% - 7.12%


Fixed Rate

2.81% - 6.74%


Variable Rate

No Max


Undergrad/Grad
Max Loan
apply-now
lendkeyA+

20


Years

3.15% - 7.26%


Fixed Rate

2.58% - 6.31%


Variable Rate

$125k / $175k


Undergrad/Grad
Max Loan
apply-now

#2: Find ways to save on monthly expenses.

While graduating from medical school can be a momentous occasion, you can put yourself in a better financial position by living a modest “student” lifestyle as long as you can. Ways to save money include, but aren’t limited to, finding a roommate to share living expenses, skipping pricey dinners out, living without cable television, driving your older car as long as you can, and preventing lifestyle inflation as you start earning more.

#3: Pay all of your monthly payments on time.

Federal Direct Loans and some private lenders offer interest rate discounts after you complete a specific number of on-time monthly payments. Check with your lender to see if they offer this option. If not, you should still make on-time monthly payments to avoid late fees and keep your loans in good standing.

#4: Pay extra toward the principal of your loans.

If you don’t want to go through the trouble of refinancing, you can still pay off your loans faster by paying more than the minimum payment on your student loans each month. Throwing extra money at the principal of your loans reduces the amount of interest you owe with each passing month, helping you save money while paying off your loans faster.

#5: Pay interest while in school.

Some medical student loans let interest accrue while you’re still in school. If you have the financial means to make interest-only payments while you’re still in school, doing so can help you prevent your student loan balance from ballooning before you graduate.

Frequently Asked Questions

Tuition at medical schools is not fixed, meaning it can pay to shop around before you choose an institution. Private schools tend to be more expensive than public schools as well, meaning you can usually save money if you decide on a public education for your medical degree.

The amount you can save depends on your current interest rate and your new loan rate and its terms. To find out how much you could potentially save by refinancing, enter your old loan and new loan information in a student loan calculator.

You can lower the payment on your student loans in a few different ways. First, you can refinance your student loans into a new loan product with a lower interest rate or longer repayment timeline. Second, you can choose an extended repayment plan or even income-driven repayment.

Federal student loans come with important federal benefits and protections such as deferment and forbearance. They also leave you eligible for income-driven repayment plans and federal loan forgiveness.

As you shop for student loans for medical school, remember that the terms of your loan can make a big difference in how much you’ll pay over time. Compare loans based on the interest rate, any applicable fees, and the monthly payment amount you’ll need to make. You can also check student loan providers’ profiles with the Better Business Bureau and read student loan reviews for even more insight.

According to the Association of American Medical Colleges, some of most popular pre-med majors include biological sciences, physical sciences, social sciences and humanities.

According to Swarthmore College, medical schools are interested in students with excellent academic ability, strong interpersonal skills, leadership skills, and demonstrated compassion and care for others.

Holly Johnson
Holly Johnson |

Holly Johnson is a writer at MagnifyMoney. You can email Holly here

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College Students and Recent Grads

The Ultimate Guide to Paying off Dental School Debt

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Part I: Dental School Debt in the U.S.

How much debt do dental students have?

The American Dental Education Association (ADEA) shares numerous statistics about dental school debt and the profound impact it can make on new dentists’ lives. According to the agency, the average dental school debt for indebted dental school graduates from the class of 2016 reached $262,119. Large debt loads were reported at both public schools and private schools — $238,582 and $291,668, respectively.

Even more startling is the fact that more than 30% of indebted dental graduates from the class of 2016 reported debt loads of more than $300,000.

These statistics show just how expensive dental school can be, but they also make us wonder if dental school is truly worth the cost. This guide was created to show how a dental education can pay off with proper loan and money management. If you’re considering a future in dental school and worrying about the high price tag, keep reading to learn more.

Is dental school worth it?

Before anyone can gauge whether dental school is worth it, it’s crucial to consider the level of income one can expect in this career. According to the U.S. Department of Labor’s Bureau of Labor Statistics, dentists earned an annual mean wage of $173,860 nationally as of May 2016. It is important to note, however, that the bottom 10% of earners brought in only $67,690 that year, while the bottom 25% of earners made an average of $106,180.

The key to deciphering dentist income is figuring out how much you might earn after you gain some experience and the type of dentistry role you might take on. It’s only natural to expect dentists to earn more as they progress through their careers, but the industry they work in can also impact their earnings.

As the BLS reports, some industries paid dentists considerably more in 2016, including residential intellectual and developmental disability, mental health, and substance abuse facilities ($184,620) and offices of dentists ($176,470).

Location matters, too, of course. Some states reported consistently higher incomes for dentists that year, including Delaware ($236,130), North Carolina ($236,020), Alaska ($234,240), New Hampshire ($220,480), and Nevada ($210,690).

With these salaries in mind, it’s easier to see how one might overcome $200,000+ in educational debt compared to workers in other, lower-paying industries.

Still, it’s important to note that dental school debt can still make a big impact on any dentist’s finances after graduation. A dentist with the average debt load of $262,119 at 6% APR would need to fork over a minimum of $2,910.06 per month if they chose standard, 10-year loan repayment after graduation per LendingTree’s loan calculator (Note: LendingTree is the parent company of MagnifyMoney). Because of this, some dentists choose alternative repayment options that allow them to pay smaller monthly payments for a lengthier timeline. How long it takes a dental graduate to repay their debt depends on whether they choose standard, 10-year repayment or opt for an alternative repayment plan instead.

Is dental school right for you?

Part II: How to Pay for Dental School

If you answered “yes” to all or most of the questions above, considering a dental education could be a smart move. Still, it’s important to learn more about the different ways to pay for dental education and the debt repayment options that may be available to you. We’ll cover these concepts and more in this section.

Federal vs. Private Student Loans for Dental School

Federal student loans for dental school

Federal loans can be valuable for students who need to borrow money for dental education. Several different types of student loans are available, each having their own benefits and drawbacks. Federal student loans are often a good option for dental students since they offer relatively low interest rates and help students qualify for federal perks like income-driven repayment and student loan forgiveness programs.

Pros of federal student loans:

  • Fixed and competitive interest rates
  • Access to federal loan repayment and student loan forgiveness programs
  • The government can pay your interest while you’re in college if you qualify for subsidized loans
  • Flexible repayment plans
  • Access to student loan forbearance and deferment (if you qualify)
  • You don’t need a credit check to qualify for most federal student loans
  • You can defer repayment until you graduate college or drop down to half-time

Cons of federal student loans:

  • Borrowing caps that limit the amount of federal loans you can take out
  • You may need to take out more loans to cover the costs of dental school
  • The government can garnish your wages if you miss many payments

When to consider federal student loans:

  • You are gearing up for dental school and want a low, fixed-interest rate
  • You haven’t surpassed borrowing limits on federal loans yet
  • You want options in terms of deferment, forbearance, and income-driven repayment in the future

Private student loans for dental school

Private loans offer an alternative option for dental students to use instead of, or in addition to, federal student loans. Private student loans are offered through private lenders, which means their rates and repayment terms vary. Many dental students wind up taking out private student loans once they have borrowed as much federal aid as they could receive.

Pros of private student loans:

  • Rates can be lower than federal loans if you have excellent credit and/or a co-signer
  • Loan limits can be high enough to cover your entire cost of admission
  • The application process and loan disbursement may happen faster than federal student loans

Cons of private student loans:

  • You typically need good or excellent credit to qualify
  • You may need a co-signer
  • Interest rates can be fixed or variable
  • You don’t qualify for federal student loan forgiveness, income-driven repayment, or federally sponsored deferment or forbearance
  • You may need to make payments or pay interest while still in school

When to consider private loans:

  • You’ve tapped out your federal student loan limits but still need to borrow money
  • You qualify for a lower interest rate
  • You don’t want to take advantage of federal plans or protections on your student loans

*Rates current as of Aug. 14, 2017.

Grants & fellowships for dental students

The Dr. Ray Bowen Student Research Award is a financial award open to dental students who seek to “undertake novel research relevant to contemporary operative dentistry.”

  • Award amount: The award provides up to $6,000 for research and up to $1,000 to defray the costs of attending a conference to accept the award.
  • Qualifications: This is open to all dental students considering research.
  • Deadline to apply in 2017: The award is offered every other year, with the next application period opening in mid-2018.

This program is offered through the Dr. Anthony Volpe Research Center and is open to 1-2 dental students per year. The goal is to help students apply classroom and lab experiences to real-world scenarios students will find in the field of dentistry.

  • Award amount: Award varies.
  • Qualifications: You must be a dental student to qualify.
  • Deadline to apply in 2017: Application period opens in late December and closes in late January.

This award was created to encourage dental students to conduct important research in their field by creating a financial incentive. The goal of the award is to promote advances in preventative dentistry.

  • Award amount: A $5,000 grant is awarded to one student each year.
  • Qualifications: According to the American Dental Association Foundation, dental students pursuing this grant must be in pursuit of one of the following dental degree programs at an eligible institution: D.D.S. or D.M.D., D.D.S./D.M.D. and Ph.D. dual degree, Ph.D. or equivalent, or M.P.H., M.S. or equivalent.
  • Deadline to apply in 2017: The application period opens the first Friday of each April and closes the last Friday of each June.

The Intel International Science and Engineering Fair Special Awards is a partnership between the Society for Science & the Public and the Intel Foundation. Students in high school can win a variety of prizes including scholarships, summer internships, equipment grants, and educational trips.

  • Award amount: Cash prizes total $3,500 for outstanding projects related to dentistry and oral health. The American Dental Association Foundation sponsors these awards.
  • Qualifications: The award is open to any student presenting at the Intel International Science and Engineering Fair.
  • Deadline to apply in 2017: Winners are selected among those who present at the fair.

Scholarships for dental students

This ADA Foundation scholarship helps select students defray the overwhelming costs of dental education and is meant to apply to academically gifted students.

  • Award amount: Scholarships up to $2,500 are available.
  • Qualifications: Students must be in their second year of school, must be enrolled full time, must demonstrate financial need, and must have a GPA of at least 3.25. References and minority status are also required.
  • Deadline to apply in 2017: Applications open the first Friday in September and close the second Friday in November.

This program offers two $5,000 awards to dental students who are nominated by someone else after demonstrating leadership skills in pursuit of their dental education.

  • Award amount: Two $5,000 awards are granted each year.
  • Qualifications: Students must be nominated and be in the process of earning a D.D.S. or D.M.D. degree from a dental school accredited by the Commission on Dental Accreditation. Students must also be under the age of 40 and a student, graduate student, or resident in their first five years of residency.
  • Deadline to apply in 2017: The nomination period begins the first Friday in April and ends the last Friday in June.

This scholarship is open to 27 dental students nominated by the dean of their school.

  • Award amount: Awards come in the form of $5,000 scholarships.
  • Qualifications: Students must be nominated by the dean of their school and must be in the class of 2018 or class of 2019 at a dental school accredited by the Commission on Dental Accreditation. Students must also demonstrate financial need.
  • Deadline to apply in 2017: The deadline to apply for a 2017 scholarship was May 17, 2017. A 2018 deadline will be announced soon.

The TYLENOL Future Care Scholarship is open to U.S. students who are actively seeking a degree that will help them treat patients.

  • Award amount: Scholarships are awarded in both $5,000 and $10,000 amounts.
  • Qualifications: Students must be in pursuit of a degree that leads to a career treating patients. Students must also have at least one year left in school.
  • Deadline to apply in 2017: The application period opens in May and ends at the end of June for the following school year.

This scholarship, which was created to commemorate Senator Barry Goldwater, is open to students who pursue research careers in natural sciences, mathematics, and engineering.

  • Award amount: Scholarships of up to $7,500 per year are available.
  • Qualifications: You must be a full-time sophomore or junior student pursuing a dental degree or a degree at a four-year or two-year school. Medical research must be a central part of your career goals.
  • Deadline to apply in 2017: Application period opens the first Tuesday in September and ends the last Friday in January.

Part III: How to Pay Back Dental School Debt

Due to the many federal and private loan programs available, students entering dental school have plenty of options to compare and contrast. Since dental school funds borrowed need to be repaid eventually, however, it’s important for students to educate themselves on their many repayment options as well.

Repayment programs to consider

Here are the repayment programs students can choose as they wrap up their dental degrees.

Income-Driven Repayment Plans

For federal student loan borrowers, there are several different income-driven repayment programs, each with their own stipulations and intended audience. The following table highlights each program and how it works.

Is an income-driven repayment plan right for you?

Income-driven repayment may be a good option for dental students who want to make lower monthly payments than they would with standard, 10-year repayment plans. These plans are also a good option for students who want their loans forgiven after 20-25 years. Keep in mind, however, that forgiven loan amounts are considered taxable income in the year they are forgiven.

How to apply

Apply for income-driven repayment programs using the U.S. Department of Education website.

Public Service Loan Forgiveness Program

The Public Service Loan Forgiveness Plan offers students the opportunity to have their student loans forgiven after 10 years provided they work in an approved public service position during that time. Once a student finds eligible employment and starts working, they can have their loans forgiven after 10 years and 120 months of timely loan payments.

While this program can be advantageous for dental graduates, it’s important to note that changes to this program could be on the way. It still works as promised for the time being, but budget cuts of the future could bring this program to an end or bring on considerable changes to benefits.

Who is eligible?

Dentists who agree to work in government-approved public service positions may be eligible for the Public Service Loan Forgiveness (PSLF) Program. You can learn more about qualifying employment here.

Is this program right for you?

This program can work well for dentists who want to work in public service or in an area with a high need for dentists and other health care workers. After 10 years, your loan balances will be forgiven, and you are free to move on to other employment if you wish.

How to apply

Fill out an application for PSLF with the U.S. Department of Education as soon as you can.

Army Dental Corps Program

This program offers tuition assistance up to 100% for individuals who serve in the U.S. Army while working on their degree. The Army will pay your tuition, your required books, and most academic fees while offering a monthly stipend of up to $2,000.

Who is eligible?

Dental students who qualify to serve in the U.S. Army may qualify for this program. You must be 21-42 years of age, be a U.S. citizen, and meet prescribed medical standards.

How to apply

For additional information, contact your local Army recruiter, call 1-800-USA-Army, or visit Healthcare.GoArmy.com.

National Health Service Corps Loan Repayment Program

This program offers tax-free loan repayment assistance for individuals entering qualified health care careers. Licensed health care providers may earn up to $50,000 for a two-year commitment to NHSC-approved employment in a high-need area.

Who is eligible?

Dentists who agree to work in an NHSC-approved career for at least two years can qualify for this assistance.

How to apply

Contact the National Health Service Corps to apply. You can also explore the NHSC website for tips on the application process.

State Loan Repayment Programs for Dentists

5 tips to pay off your student loans faster

While loan repayment programs can help you whittle away your student loans, there are several strategies that can help you reduce the amounts you owe whether you sign up for special programs or not. Here are five tips to pay your loans off faster no matter your situation or how much you owe:

#1: Start paying right away.

According to the U.S. Department of Education’s blog, paying your loans right away – whether you have to or not – can be a smart move. While student loan payments may not be required until you graduate, you can reduce the amount of interest you’ll pay over time by paying any amounts you can toward your loans as you can.

#2: Refinance your loans to a lower rate.

Refinancing student loans into a new loan product with a lower interest rate and better terms can help you save money on interest over the long haul. This is especially true with private student loans since rates tend to be competitive and can change over time. Keep in mind, however, that refinancing federal student loans with a private lender can cause you to miss out on certain federal perks and protections including income-driven repayment, deferment, or forbearance.

Signing up for automatically debited payments can take the stress out of repaying your student loans. By setting up automatic bank drafts, you can rest assured your loan payment is taken care of and you won’t face late fees or penalties. Some lenders also offer an interest rate reduction for enrolling in their automatic payment plan. This is where savings come into play since a lower interest rate means less of your payment goes toward interest over time.

#3: Sign up for automatic payments.

Signing up for automatically debited payments can take the stress out of repaying your student loans. By setting up automatic bank drafts, you can rest assured your loan payment is taken care of and you won’t face late fees or penalties. Some lenders also offer an interest rate reduction for enrolling in their automatic payment plan. This is where savings come into play since a lower interest rate means less of your payment goes toward interest over time.

#4: Pay more than the minimum payment.

This tip might seem obvious, but it’s extremely important. Whether you start paying your loans off right away or wait until you graduate and have to start making payments, paying more than the minimum will let you pay off your loans faster. The more you can pay toward the principal of your loan balance, the more you save on interest and the faster your loans will disappear.

#5: Consider a loan repayment program.

Some of the programs we listed above (such as the PSLF Plan or state loan repayment assistance programs) can help you get out of debt faster while gaining valuable work experience. These programs typically require you to work in a specific shortage area for a predetermined length of time, so they’re not for everyone. If you do qualify and apply, however, you could have your loans forgiven completely or earn tens of thousands of dollars in loan repayment assistance.

Frequently Asked Questions: Paying for Dental School

Determine your current interest rate and compare it to the new rate you could qualify for. If the difference is substantial, refinancing can make a lot of financial sense. With a lower interest rate, you could save money and pay off your debts faster. However, it’s important to remember that you’ll lose federal student loan benefits if you refinance federal loans with a private lender.

The amount you’ll save depends on the amount you owe, your old interest rate, and your new rate and loan terms. A student loan calculator can give you a general idea of your savings.

One of the best ways to reduce the amount of money you owe for dental school is to spend less on your education to begin with. As you consider dental schools, make sure to compare program details such as the price of tuition, room, and board. How much you pay for school has a direct correlation to how much you’ll need to borrow.

Start by filling out a FAFSA form, or Free Application for Federal Student Aid. This form helps schools determine how much federal aid you might qualify for. You should also contact the financial aid office at your dental school. They can point you toward applicable school-based scholarships and grants you may not even know about.

While the amount of time it takes dental students to find employment varies, the ADEA reports that dental school graduates typically enter the workforce much faster than colleagues in many other health professions.

According to the ADEA, any college major that offers a well-rounded education or fosters a foundation in science is appropriate for future dental students. This goes against the common wisdom that a major in biology or a similar subject is required.

The ADEA reports that both designations mean the same thing – that the dentist graduated from an accredited dental school. Universities determine which degree they award, and it has no bearing on employment opportunity or earnings.

Holly Johnson
Holly Johnson |

Holly Johnson is a writer at MagnifyMoney. You can email Holly here

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