How the Payment Terms of Your Line of Credit Can Affect Your Medical or Dental School Debt

It’s no secret that the cost of medical and dental education is among the highest of all professional degrees in Canada. As a result, borrowing to pay for school is common – research on professional programs suggests that the vast majority of medical and dental students rely on some sort of borrowing to fund their education.

TLDR

• Lines of credit from different lenders come with different repayment structures
• Each approach balances what you can afford to pay now with how much interest you’ll pay over time
• Choosing the right repayment approach for you often depends on your income, priorities and career plans
• An RBC Healthcare Specialist can help you compare options and choose the one that fits you best

The fundamentals of a line of credit

A line of credit allows medical and dental students to borrow funds up to an approved limit as needed throughout their academic journey and beyond.

You only pay interest on the actual amount you borrow (the principal), not the full limit. For example, if you’re approved for a $100,000 line of credit but only use $20,000, interest is charged on the $20,000 you’ve used. That $20,000 is called your principal, which simply means it’s the balance you currently owe.

As you repay the principal, that credit becomes available again without having to reapply – you keep the same line of credit from school into residency and practice.

This flexibility makes lines of credit a common choice for covering tuition, living expenses and other education-related costs.

Common line of credit repayment options

While details vary by lender, most medical and dental student lines of credit fall into one of three repayment structures:

• Deferred payments – No payments are required for a set period. Interest still accumulates during this time and is added to the principal balance at the end of this period, which means you’ll pay interest on that interest
• Interest-only payments – You pay only the interest owing for the current statement period, but your principal (the amount you’ve borrowed) doesn’t decrease
• Interest plus principal payments – Each payment first covers the interest accrued during your statement period, with the remaining amount going toward paying down your principal and reducing your overall balance

Each payment option can make sense at different stages of your education and career. The difference is the trade-off between keeping payments low today and reducing your overall debt sooner.

How your repayment approach affects your payments today and the interest you pay over time

A line of credit can help you manage day-to-day expenses during school and residency and may later support goals like opening a practice. Choosing the right repayment approach means balancing what you can comfortably afford each month with the longer-term impact, including how much interest you’ll pay over time.

Approach 1: Deferred payment

With this approach, no payments are required for a set period of time, for example, during school and/or residency (each financial institution will have different rules).

Benefit:

• Focus on your school or residency without having to worry about monthly payment obligations

Things to consider:

• Interest accumulates on the funds you borrow and is “capitalized,” which means that unpaid interest is added to what you owe. This results in paying interest on top of interest.
• There is a risk of overextending yourself – without feeling the consequences until later
• Should interest rates increase, so will the rate at which your interest accumulates
• With this approach, it’s wise to review the interest owing on a regular basis and build interest costs into your financial plan

Approach 2: Interest-only payments

With this option, you’re only required to pay the interest owing on your balance each month.

Benefit:

• You can maintain the balance on your line of credit with minimal payments, which can help with budgeting when times are lean

Things to consider:

• While you’re making interest payments, you’re not paying down the principal on your line of credit, so the balance owing remains the same
• You could end up paying interest indefinitely if you don’t begin making principal payments
• A higher balance may reduce your ability to reuse your credit to fund other personal or professional goals in the future
• Rising interest rates would increase payments without reducing your debt, which could lead to debt that’s difficult to manage

Approach 3: Interest plus principal payments

With this approach, your payments are made up of interest and a portion of principal.

Benefit:

• By paying down a portion of the principal with each payment, you’re reducing your balance and your overall debt
• You may have greater financial flexibility later, as you can reuse the paid-down funds for goals in the future

Things to consider:

• Monthly payments are higher
• This may be difficult to manage during school or early residency

Comparing the approaches

Running the numbers: How your payment strategy affects interest costs

So, how does your repayment approach affect the amount of interest you pay over time? Here’s how the options stack up using the same assumptions:

Starting balance: $90,000
Interest rate: 4.5%
Time period: 5 years

*While interest isn’t payable while in school, it accumulates over that period and is added to the balance owing.

These examples are for illustration only. Actual results depend on interest rates, compounding frequency and lender terms.

Finding a repayment strategy that works for you

Finding the right solution means finding the right balance between today’s cash flow and tomorrow’s financial goals. There’s no single right answer – the path you choose will depend on your individual needs and priorities.

Key factors to think about:

• Your cash flow during school and residency: Will the line of credit be your primary source of funds? How much will school/residency cost you? The RBC Student Budget Calculator can help you estimate costs.
• The cost of borrowing: How much interest will accrue over time, and how do different payment options impact your total borrowing cost
• How your needs may change: Your payment strategy may change along your journey.

Choosing a solution that allows flexibility – letting you move between repayment approaches or adjust payments over time – can help ensure your line of credit continues to support you throughout your education and early career.

Medical and dental school debt is a reality for many students, but how that debt grows – and how manageable it feels later – depends heavily on your repayment choices.

An RBC Healthcare Specialist can help you evaluate your options, assess what you’ll need as you move through your medical career and build a debt management plan aligned with your goals – so you can focus on your training without unnecessary financial uncertainty.