consolidation versus refinancing

Consolidation Versus Refinance: Could Either Option Make Sense for Medical School Loans?

Consolidation Versus Refinance: Could Either Option Make Sense for Medical School Loans?

It’s hard to read an article about personal finance these days and not see something related to medical school loans. In this case, consolidation versus refinance may be a question you should be asking yourself.

Consolidation Versus Refinance is Not a One-Size Fits All

Maybe it’s the sky-high amounts of student loan debts that continue to mount for you personally. Or perhaps the news articles you keep reading about with the potential medical student loan crisis we are facing as a country.

All of these point to one thing – people need some sort of relief from the amount they pay each month towards student loan debt.  

No doubt as you have finished your years of school and training and are starting to focus on your practice and career that you’ve wondered if there’s anything you could do to feel some of this relief.

This is where the words “consolidation” and “refinance” often come into play for borrowers. Many financial experts are quick to point to these as solutions. But like so many other aspects of your student loan debt, it’s not a one-size-fits-all approach that works best for everyone.

What exactly does consolidation versus refinance even mean? Is it something you could consider for your medical student loans? Does it make sense for your situation and the amount of loan debt you are carrying?

Let’s take a look at what consolidation and refinance could mean for you so you can decide if either of these are options for your loans.


Want to learn how to get your student loan debt paid off? Here’s a blog to help you start thinking about your options.

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Student Loan Consolidation

The very definition of consolidation is the process in which you combine a number of things into a single whole. In the case of student loan debt, it’s the process of combining several loans into one monthly payment. This is different than refinancing in that your interest rate is based on the weighted average interest rate of all the combined loans.

Student Loan Consolidation for Federal Loans

Besides the advantages and disadvantages that go along with consolidation, there are other points you need to take into account.

The process for consolidating all of your federal student loans into one loan is called a Direct Consolidation Loan. The government will continue to be the lender for this type of loan, just as it has for your student loans.

All types of federal student loans are eligible for the consolidation program. It can be a subsidized loan, an unsubsidized loan, Stafford Loans, FFEL, or Perkins Loans (just to name a few). Your federal loans also have to be in your name. So if your parents took out a PLUS loan, then that will not roll into a consolidated loan.

Advantages of Consolidation for Federal Loans

There are several distinct advantages to combining several monthly payments into one monthly amount. While the ones listed below are for federal loans,

  1.  Eligibility for Repayment Plans

By consolidating your federal loans, you are then eligible to participate in income-driven repayment, plans. We have spent a lot of time in our podcasts and the blog discussing the different income-driven repayment options and it is worth mentioning again because this is such an important part of managing your debt.

If you choose to go the route of a Direct Consolidation Loan for your federal student loans, then you will be eligible for an income-driven repayment programs. There are several repayment programs that are offered under this umbrella.

There is the REPAYE, the PAYE, the IBR Plan, and the ICR Plan and each one has a different repayment amount, based on your income. There are also other programs that are referred to as Standard, Graduated, and Extended. It’s important to familiarize yourself with each of these programs, especially if you choose to consolidate your federal loans.

These income-driven repayment plans are a big advantage to anyone with federal loans, as they allow you to manage your monthly payments depending on your current financial situation, your family situation, your income and other factors.  If you need further information and need help choosing a repayment plan, then you can start with the student loan repayment estimator.

  1.  Convenience

You are a busy professional. Don’t underestimate how valuable your time is. Or perhaps you already realize how over-stretched you are and you can’t bear to add one more thing to your plate.

The amount of time you spend each month devoted to making a payment (or only thinking about it) to several different companies probably adds up to a decent amount. Whether you are paying online or writing a check, or just making mental notes, consolidating to one payment can give you one less thing to worry about.

  1. Lower Monthly Payment

Depending on how many loans you choose to consolidate, the interest rate that is confirmed, and the payment terms, then it is possible you could have a lower monthly payment. This will also be true if you consolidate and then participate in an income-driven repayment plan.

  1. Fixed Interest Rate

If your federal student loans currently have a variable interest rate, then consolidation will provide you with a fixed rate. For those of you who took out federal loans prior to 2006, when variable rate loans were available, then this could be a real incentive.

Speaking of interest rates, a lower interest rate is not a guarantee when considering a consolidation. As a matter of fact, it is not a likely scenario either. Depending on the rates of the loans you consolidate, it is possible you could pay slightly less of an interest rate, but again, it’s not likely. Keep in mind, that the interest rate will be a weighted average (plus a small percentage) of your consolidated loans.

  1. You Can Consolidate Select Federal Loans

You are actually not obligated to consolidate all of your federal loans into one loan unless you choose to do so. It may be beneficial to you to keep some loans out of the consolidation process, particularly if it has a low-interest rate or more favorable repayment term.

  1. No Application Fees or Prepayment Penalties

Thankfully, if you decide to consolidate you will not have to pay an outrageous amount in fees. The process to consolidate your federal loans is free.

In addition to zero application fees, you are not responsible for any origination or processing fees either. There is no penalty for prepayment of your consolidated loan.

We should also take a moment here to point out that there are companies out there that like to take advantage of the consolidation process. They will charge you a set of fees to be able to consolidate your federal loans for you. This is unnecessary and you shouldn’t utilize a company for this type of loan process.

  1. Longer Payment Terms

This may be both a pro and a con. When you consolidate, the life of your loan will be extended. While this could help you in the short-term, in the long run you could end up adding to the number of years it takes to pay back your loan.

Disadvantages of Consolidation for Federal Loans

Yes, there are actually instances where you should not consolidate your loans. We aren’t saying if you fall into one of these groups that you should definitely never consider a consolidation. We are highly recommending that you proceed with caution and consider all of your options.

  1. Consolidation Can Potentially Reset Your PSLF Qualifying Payments

Many physicians participate in the PSLF program or are researching the possibility of utilizing the PSLF program. If you are currently working towards your PSLF eligibility or perhaps not sure yet if you will choose to go that route, then you will need to be careful here.

If you choose to consolidate your federal loans through a company, and not the federal government, then you will lose the eligibility for the PSLF.

  1. Consolidation Could Extend Your Payment Terms

Every time you consolidate your student loans, you are most likely adding years to the payment terms. This could equal thousands of dollars over the life of the loan. While you may be attracted to the lower monthly payment that an extended term can offer, you shouldn’t sacrifice your long-term financial health for a short-term monthly payment gain.

If you are interested in knowing the exact impact of consolidation, there are many websites that offer a calculator to help you figure out your savings and your new monthly payment.

  1. Potentially Higher Interest Rate

It is actually possible, depending on which of your loans you choose to consolidate and the weighted average of the loans, that you could end up with a slightly higher interest rate. Make sure you have a full understanding of the rate and how it will affect your monthly payment.

Consolidation for Private Student Loans

If you have any private loans – whether you also have federal loans or not – then you will have to consolidate the private loans through a bank or credit union.

If you choose to go this route for private loans, keep in mind that you will be evaluated by the lender based on your current financial situation.  

Many of the same benefits that are realized when you consolidate federal loans are also true of private loans. Here is a list of the pros and cons of consolidating private loans, and what you should consider fully if you choose to go down this path.

  • Convenience of one loan payment, versus several
  • Potential for a lower monthly payment
  • Extended payment terms
  • Potential for a lower interest rate
  • You will be responsible for application and origination Fees
  • The refinancing of private loans will have not have any Impact on PSLF or Repayment Programs since those programs apply only to federal loans.

Refinance of Student Loans

Let’s move on to discussing the option of refinancing your medical student loans. Many people confuse this term with consolidation, but it’s actually a very different concept.

Physician Wealth ServicesRefinancing your student loans is simply the act of taking out a new loan to pay off one or more of your student loans. You can choose to refinance several loans or only one. Almost always, the number one reason for someone considering a refinance option is to lock in a lower interest rate on their loan.

Here is where it starts to get a little more confusing – private lenders will refinance both your federal and private student loans. However, the government will not refinance any of your loans.

Who Should Consider the Refinance Option for Student Loans?

Many of you have a combination of both federal loans and private student loans. There are several pros and cons to refinancing your loans, depending on your situation. Here are the circumstances where we may or may not recommend the path of refinancing.

  1.  High Interest Rate Loans

If your private student loans have higher interest rates, and you are able to refinance to one, single lower interest rate, then refinancing could make sense. You should be able to calculate how much you can save by refinancing one or more of your loans.

  1. Private Loan Holders

We only recommend refinancing your private student loans for several reasons. Here are the biggest reasons why.

  • If you refinance your federal student loans then those payments will no longer count towards your PSLF eligibility. This is one of the major reasons we do not recommend the refinance of your federal student loans.
  • Refinancing your federal loans will also interfere with your repayment plans. If you have any federal loans and are currently enrolled in any of the repayment programs (PAYE, REPAYE, IBR for instance) then you would lose eligibility if you decide to refinance your federal loans with a private lender.

You may be tempted by the lower interest rate that comes with a refinance – after all, the lenders are competing for your business. However, the lower interest rate can’t compete with how much you could save by having your student loans forgiven through the PSLF program.

  1. Convenience of One Payment

Of course, just like with process of consolidation, refinancing into one loan will have the added benefit of a convenient, singular monthly loan payment.

Refinancing your private students may actually be a smart financial move for you, but only if you are paying less in interest and saving money over the life of the loan.

Should I Refinance While I am a Resident?

You may be wondering if it is wise to consider a refinance while you are a resident. Refinancing during your residency is not recommended unless it is for your private student loans only.

The primary reason for this is because during your residency you may not have decided if you will take part in the PSLF program. By refinancing your federal loans, you will wipe out any chance you have of participating in the PSLF program and paying off your loans through that route.


In order to take care of your student loan debt, you need to know where the problem lies. Here’s an article that may interest you. 

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If you decide to go down the path of refinancing, whether it’s your private or federal loans (or both), then you will have to do your homework to compare rates. Just like you would shop for a home mortgage based on different interest rates and payment terms, the same is true for a refinance option.

You will want to compare information from several private lenders such as banks, or if you qualify for a credit union.

Making the Decision to Consolidate or Refinance Your Loans

The first step involved in deciding on consolidation or refinancing is to have a clear understanding of the amount of student debt you have. Take a moment (or two!) to list out all of your federal loans, your private loans, the interest rates and the repayment terms for all of them. While it may seem daunting at first, the best way to make a financial decision is to tackle it head on.

If you are unsure how many loans you have, try logging into your federal student loan portal first. This will give you all the information you need in regards to your federal loans. If you need information regarding your private loans, the quickest way to double check your information is to pull a credit report.

There are also multiple calculators available to help you compare monthly payments, number of years, and the amount you will pay over the life of the loan. If you are still confused by it all and would like additional help, you can always consult with a fee only financial planner to get specific, actionable advice in regards to your financial situation.

Hopefully after laying out all of this information you have a better understanding of if and when a consolidation or refinance of your medical student loans might make sense.

Our goal at FinancialResidency.com is not only provide you with information on all of these different financial terms, but also the impact that these financial decisions could have on your long-term fiscal health. We know there are many choices when it comes to student loans and it can be downright overwhelming. But knowing the resources that are available to you, whether it’s for consolidation or refinancing, is an important step in feeling relief from student debt.

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Ryan Inman