Refinancing is a common strategy for paying off medical school debt. Whether you’re a doctor in residency, an attending physician or a fellow, you need to know your medical school loan refinance options and how they affect your finances.
When you refinance, a new loan is created with a private lender. This can be a bank, credit union or financial institution. You can use a company like Credible to look at several lender options at once.
You’d only refinance if you could get a lower interest rate, as there are some major drawbacks to refinancing for doctors.
Student Loan Planner estimates that refinancing medical school loans is the right choice for only 20% to 30% of physicians. The rest would come out ahead by going for federal loan forgiveness. Be sure refinancing is the right move before taking steps to switch your loans to a private lender.
Before you refinance medical student loans
Before tackling your student loans, you have to figure out what kind of loans you have. The average medical student carries six figures of student loan debt. It’s not uncommon to have a combination of federal and private medical student loans.
You can check what federal student loans you have by logging into the National Student Loan Data System (NSLDS). Any loan listed in this database is federal debt that you still owe. And if you ask for a credit report from AnnualCreditReport.com, you can download a free summary of your entire credit history, including any private student loans you owe.
You may have taken out medical-specific loans as well. These could be housed under the Health Resources and Services Administration (HRSA). These loans won’t always show up on your credit report or in the NSLDS. If you have questions about these loans or need to review which ones you have, contact the HRSA directly.
Once you have all your student loans mapped out, you should also be aware of your credit score. If you choose to refinance, having a healthy credit history will help you get a lower interest rate.
If you refinance medical student loans, it can cost you
Refinancing medical school loans can end up costing you a serious chunk of change. This is especially true if you’re currently in residency.
Because refinancing means your loans are no longer in the federal system, you’re giving up benefits and flexible options forever. These include:
- Income-driven repayment plans
- Extended forbearance and deferment in periods of hardship
- Federal loan forgiveness programs, such as the tax-free Public Service Loan Forgiveness (PSLF) program
Student Loan Planner can confidently say that giving up these kinds of options for a lower interest rate is almost always a bad decision.
Refinancing isn’t the best path for medical student loans
PSLF is a federal student loan forgiveness program that can wipe out all your student debt in 10 years. You can enter PSLF as soon as you begin your residency training. This way, you can be on your path to forgiveness before you’re an attending physician.
PSLF is also a tax-free forgiveness program. This is especially important for anyone with large amounts of student loan debt. Income-driven repayment (IDR) forgiveness, on the other hand, treats all forgiven student loan debt as income, so you have to pay taxes. You’ll owe a hefty amount after you reach forgiveness, whereas PSLF lets you off the hook with Uncle Sam.
While on PSLF, you’re required to sign up for an IDR plan. Whether you’re in residency or already an attending physician, sign up for a plan that offers the lowest monthly payment. Your student loan balance will grow, but since you’re pursuing forgiveness after a few years, it shouldn’t be an issue.
Two payment options to consider are Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE). Each of these plans takes 10% of your discretionary income as your payment amount each month. After signing up for either PAYE or REPAYE, follow up on all needed paperwork for PSLF, then plan on forgiveness in 10 years.
When does it make sense to refinance medical student loans?
There are a few scenarios where refinancing your medical school loans might make sense for you.
1. You don’t need PSLF or a federal loan forgiveness program
Not everyone with medical student loans is eligible for loan forgiveness. For example, if you have private student loans, you’re ineligible.
If you complete your residency at a for-profit hospital, you’ll set yourself back about five years on PSLF. You may decide to aggressively pay your medical student loans off instead. Know that if you refinance federal student loans, you’re giving up a lot of options. If you’re unsure and still in residency, don’t refinance. If you are sure, then you can refinance medical student loans.
2. You plan to work in the private sector
If you plan to work in the private sector — or already do — this means your employer doesn’t qualify as a 501(c)(3) not-for-profit organization. In this case, your situation is very straightforward.
Refinance your medical student loans and get rid of them as fast as you can. Because you won’t qualify for any of the federal forgiveness programs, it’s a no-brainer to refinance and save interest over the lives of your loans.
3. You have high-interest private medical school loans
Private student loans aren’t eligible for any of the borrower benefits of federal student loans. If you have private student loans with a higher interest rate, consider shopping around for lower rates.
You may have a combination of private student loans and federal student loans. If so, you can choose to only refinance medical school loans that are private.
4. You have a high-income-earning spouse
If you’re married to a high-income-earning spouse, your payments on REPAYE could be very steep. You’ll want to run the numbers on this using a student loan repayment calculator. Look at what the payments would be if you filed taxes jointly versus separately. If you’re in residency and make less, filing separately will lower your payment. However, you’ll pay a large amount when you file your federal tax return.
If you’re sure you can’t benefit from a forgiveness program like PSLF because your spouse makes a high income, then it would make sense to refinance medical school loans
The bottom line? Refinance medical school loans if you’re confident in these scenarios:
- You can meet the financial obligation of making your monthly student loan payments when you refinance.
- Your new employer is not a not-for-profit 501(c)(3).
- You can’t or don’t want to go for loan forgiveness.
- You have private student loans and a healthy credit score.
There are many companies out there that refinance medical school loans, and each will have its own offers. Look at all your options before making a decision.
Options to refinance your medical school loans
Your loans’ interest rates are one of the first considerations when refinancing your medical school loans. Most lenders offer you fixed and variable rate options. Fixed interest rates never increase (or decrease). Variable rates are tied to short-term interest rates that fluctuate with the market. Usually, variable rates start low and can increase (or decrease) over time.
If you’re planning to pay off your medical school loans as quickly as possible — say, five to seven years — then the variable rate option could be a good choice. Your loans will be paid off before they balloon to a higher interest rate. But if you want the predictability of having a set monthly payment and knowing your rate from here on out, then choose a fixed rate to refinance your medical school loans.
When looking at lenders for refinancing, consider what they can offer you other than a low rate. For example, some lenders offer unemployment benefits. Laurel Road and SoFi both refinance medical student loans; however, Laurel Road invented resident and fellow refinancing and typically has a better rate than SoFi.
If you’re looking for a relatively low required payment with significant interest rate savings, Laurel Road could be a great fit. Student Loan Planner negotiated an exclusive tiered cash bonus with Laurel Road, so the higher your refinancing amount, the larger your cash-back bonus.
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You can shop refinancing lenders even if you refinanced in the past. Compare opportunities for a better interest rate and terms to help you wipe out medical school loan debt.
Ask us if refinancing medical school loans is right for you
When you refinance your medical school loans, it’s permanent. If you’re still unsure about your medical student loan refinance options or want professional help to crunch the numbers, reach out to our consultants today. We specialize in helping individuals with large sums of student loan debt. We’ll look at your forgiveness options and help you create a student loan payoff plan for wherever you’re at with medical school.