Currently, 70% of graduating medical students owe money on educational loans. The average amount of these loans is $228,000 ($215,000 from medical school and $13,000 from undergraduate college). A new Federal law limits the amount of Federal loans to $50,000 per year of professional school and $200,000 total for all of undergraduate and professional school combined. The result is that most medical students are no longer able to afford medical school on just Federal student loans in combination with their personal savings. Their only options are to either take out private commercial loans or obtain scholarships.
Medical school is expensive. The average cost of tuition, fees, and insurance for an in-state resident at a public medical school is $48,000 per year. Private medical colleges are more expensive and cost an average of $68,000 per year. However, there is considerable variation between medical schools and between different years of medical school. For example, at the Ohio State University, the cost of tuition and fees for years 1 & 2 is $32,000 per year and for years 3 & 4 is $48,000 per year for Ohio residents. For non-residents, the cost at OSU for years 1 & 2 is $57,000 per year and for years 3 & 4 is $58,000 per year. Add to that the cost of books, supplies, transportation, living and personal expenses at an average of an additional $30,000 per year. This means that the average total cost to attend a 4-year public medical school as an in-state resident is $312,000. For a private medical college or an out-of-state resident at a public medical college, the average total cost is $392,000!
The result is that no medical student can pay for medical education with Federal student loans alone. Options for students are to ask their parents for financial support, to work for a few years between college and medical school, to get scholarships, or to take out private commercial loans. Nationwide, 65% of medical students have non-loan financial support, usually scholarships or grants. Increasingly, medical students take a “gap year” between college and medical school. As discussed in a previous post, 73% of medical students reported taking at least 1 year between college graduation and medical school; 48% reported taking between 1 and 2 years; 16.5% reported taking 3 to 4 years, and 8.7% took 5 or more years off. Although there are numerous reasons why medical students take gap years, 40% reported that the main reason was to earn money to pay for medical school.
Commercial student loans are often the only other option for medical students. After all, banks consider medical students good loan risks given that when they become attending physicians, they will not have difficulty getting a job and they will have a relatively high salary. However, commercial student loans come with a very high cost with annual interest rates as high as 18% (Federal graduate student loans are currently at an annual interest rate of 7.94%). These commercial loans often come with variable interest rates that start off very low but then rapidly balloon upward into double digits. The bottom line is that commercial loans in the long run come with a higher interest rate than Federal student loans. Furthermore, unlike Federal student loans, commercial loans generally do not have income-based repayment plans that can lower payments during the years of residency and fellowship. Also unlike Federal student loans, commercial loans are not eligible for PSLF (public service loan forgiveness). Because of these factors, commercial loans are the last resort for most medical students trying to finance their medical education.
How scholarships can help
With the new Federal loan limit of $200,000 per medical student, financial need-based scholarships are more important than ever before in order to cover the gap between the cost of medical education and the Federal student loan limit. To have the greatest impact, these scholarships should be need-based rather than merit-based. Let’s face it, you’ve already got to be really, really smart to get into medical school. As a result, merit-based scholarships award money to only the smartest of a bunch of very smart students. On the other hand, need-based scholarships ensure that those students who are smart enough to get into medical school have the financial ability to attend. Otherwise, these students may find the cost of medical school to be an insurmountable barrier and choose to go into a different career.
Most scholarships come from endowments into scholarship funds. These funds are designed to generate money to award scholarships indefinitely. They are therefore invested into institution investment portfolios in order to generate predictable annual returns. Thus, most scholarship funds will award 4% – 5% of the fund value each year in order to continue awards in perpetuity. Given that the new Federal student loan limit for medical students is $200,000 and that the average student loan debt for graduating students is $228,000, there is currently an average $28,000 gap ($7,000 per year for 4 years) that each student needs come up with to attend medical school. A scholarship fund that awards $7,000 per year would need to maintain a balance of between $140,000 and $175,000.
But… the problem with the gap year
Many students take gap years to earn enough to cover the difference in the cost of medical school compared to what they can borrow in Federal loans. When a student takes a gap year between college and medical school, that student enters the physician workforce a year later than if the student had gone straight into medical school after college graduation. Most medical students now take at least one gap year and 1 out of every 12 students take five or more gap years. Medical school admission committees like students who take gap years because of the perception that these students are more mature and are more certain of their career choice.
But gap years are terrible for society. Doctors who took gap years do not retire at an older age than those who did not take a gap year. Therefore, taking a gap year results in a shorter career as a practicing physician. Shorter careers result in a smaller physician workforce and a greater shortage of physicians. For taxpayers who subsidize public medical schools, it means that those taxpayers are getting a smaller return on their investment into every medical student who takes a gap year. Gap years are also terrible for physician financial health. If taking a 3-year gap between college and medical school results in a physician working 3 fewer years over the course of their career, then that means the physician has 3 fewer years to save for retirement while paying off student loans. Taking a 3-year gap results in a 10% shorter career as a practicing physician. A medical education can be a great financial investment but only if you then work enough years in clinical practice to derive the benefit of a physician income.
I would argue that the target for an annual scholarship award should be higher than $7,000 so that students do not need to take gap years in order to pay for the cost of medical education that is not covered by Federal loans. From a societal standpoint and from a physician financial health standpoint, we should be doing everything possible to eliminate gap years, rather than encouraging them. Having an average annual scholarship award of $10,000 – $12,000 would pay for the average cost of medical education not covered by Federal student loans and also eliminate the need for most students to take gap years.
So, how large should scholarship funds be?
The reality is that average financial needs are just that… average. Some graduating medical students have education debt that far exceeds the $200,000 Federal student loan limit. Maybe a student had to borrow the entire amount for both undergraduate college and medical school. Maybe a student could only get into an out-of-state public medical college with high non-resident tuition. Or maybe the student could only get into a costly private medical college. Maybe the student really wants to go into family medicine, a relatively low-paying specialty, but feels pressure to go into a surgical specialty that pays several times more than family medicine in order to be able to pay off student loans. For any of these reasons, some students may need larger annual scholarship awards than others. A $10,000 annual scholarship award might completely fill the needs of one student but another might need a $100,000 annual scholarship award to have the same impact.
But for simplicity, let’s say that a scholarship fund’s annual award target is $10,000. To generate that annual award, the fund balance would need to be between $200,000 – $250,000. Most of us do not have a quarter of a million dollars to donate as a charitable contribution to create a scholarship. But there are other options.
- Contribute to existing scholarship funds. Every medical school will have multiple scholarship funds that anyone can contribute to. Many medical schools have class funds where physicians who graduated in a given year can donate to their class scholarship fund. When selecting a scholarship fund to donate to, look at the requirements for different scholarships – some will be merit-based, some will be financial need-based, and others might be for students coming from a particular hometown or high school.
- Utilize a donor-directed fund. In a donor-directed fund, you donate to the fund and take a charitable deduction from your Federal income tax return that year. The fund then grows tax-free until you direct the fund administrator to disperse some or all of the funds. The disbursements can be made as scholarship awards and you can dictate the application requirements, such as financial need or desire to practice in a underserved area.
- Put it in your will. Every college of medicine has development officers who can advise you on putting a contribution to a scholarship fund in your will. If you have a trust, you may need to have your own attorney modify the trust documents to include a scholarship contribution. The advantage of this approach is that if you live a long time and need all of your money, you can spend it. But if you die earlier than you expected, the money left in your estate can be put to good use as a contribution to a scholarship fund.
- Charitable gift annuity. With a charitable gift annuity, you make a cash or stock contribution to a charity, such as a college of medicine scholarship. The charity then pays you a guaranteed fixed percentage of that contribution every year for the rest of your life. At death, the remaining amount in the annuity goes to the charity., A typical annual percentage would be about 5% – 6% for a donor in their late 60’s increasing to about 9% for a donor over age 85. This allows the donor to have a predictable income stream if the donor lives longer than they expect while still ensuring that there is a substantial contribution to the charity.
Now is a particularly good time to donate to a scholarship fund
Last year, Congress passed a law that makes it more favorable for Americans to donate to charities. By increasing the SALT (State And Local Tax) deduction limits, it has now become more advantageous for many taxpayers to itemize deductions. And when you itemize deductions, you can deduct charitable contributions such as donating to a scholarship fund. Before 2025, the most you could deduct on your Federal income tax returns for the amount you paid in property tax, state income tax, and local income tax was $10,000 if you are married filing jointly. With a standard deduction of $29,200 (married filing jointly), taxpayers would have to have $19,200 in charitable deductions combined with the $10,000 SALT deductions to even reach the amount of the standard deduction. So, most taxpayers just took the standard deduction and did not get any additional tax benefit from their $5,000, $10,000, or $15,000 donations to charity.
For 2025, the SALT limit increased to $40,000 and the standard eduction is $31,500 (married filing jointly). The result is that for many Americans, particularly those with higher incomes, it is now more advantageous to itemize deductions instead of taking the standard deduction. This means that your $5,000, $10,000, or $15,000 charitable contribution to a scholarship fund is now tax deductible whereas in 2024 it likely was not. If you are in the 32% tax bracket, then donating $1,000 to a scholarship fund in 2025 is like donating $1,320 in 2024 – you’re now giving more of your donation to charity and less to the IRS.
Its about giving back
The vast majority of physicians went into medicine in order to make positive contributions to society by improving health. We can continue that by ensuring that qualified students are able to go into medicine without having to borrow at excessively high interest rates or take gap years. I regularly donate to my medical school alma mater’s class scholarship fund. I don’t get any special recognition, no one is going to name a building after me, and the students who get scholarship awards from our class fund will never know my name. I do it simply because it is important and for decades to come will help students who otherwise could not afford medical school.
January 14, 2026
