Refinancing Medical School Debt: The Definitive Guide

You would think refinancing medical school debt would be a straightforward task, wouldn’t you? You get a monthly statement, you make a payment, and slowly but surely you chip away at the balance.


Except it feels as if you aren’t moving the needle on your loan balance at all. When you look at your statement each month, the number has barely changed. Then when you try to research your options, you are inundated with a million different messages.  There has to be a better way to do this, right?


It may be time to consider refinancing your medical school loans so you can make a difference with these monthly payments and simplify your finances. But before you go down this path, let’s make sure it’s the right choice for your situation. If it is, then we have a few tips and tools for you to get the most out of refinancing.


The Basics of Refinancing

Refinance is a popular term used whenever a discussion of student loans comes up. But what exactly is it? In simple terms, refinancing is where you replace a current debt (such as a student loan) with a new note, under new terms and conditions.


When you refinance a loan, you typically do so because you have a goal in mind. Your goal could be to replace the loan with one with a lower interest rate. A lower interest rate results in paying less over the life of the loan and could potentially allow you to pay off the loan sooner. Or your goal could be to obtain a fixed rate, versus a variable rate. Perhaps you don’t like the uncertainty of knowing exactly what your monthly payment will be.


Another goal could be to get a lower monthly payment. Maybe you’re having an issue making monthly payments and if you had a reduction then it would help add wiggle room into your budget. The downside to a lower monthly payment means it will take you longer to pay your note off.


If you have multiple loans – which is common when dealing with medical school debt – you could choose to refinance some (or all) of the loans into one loan. Not only could this save money with a lower interest rate, but you will also have the convenience of one monthly payment.


It’s important to understand your goal before you can make any decisions.  After you’ve established your goal, you can move on to evaluate whether you should consolidate or refinance your medical school debt.


When talking about student loans to remember refinancing is different than loan consolidation. Often times when you research student loans, you will see consolidation and refinancing used somewhat interchangeably. But these are actually two very different terms when it comes to medical school debt.  


Consolidation Versus Refinancing

When it comes to determining if you should refinance medical school debt, the second thing you need to do (after establishing your goal) is to determine which type of loans you are carrying. Student loans will fall into one of two categories: federal or private. Federal loans are the loans where the Department of Education is the lender. There are several different types of federal loans, some with subsidized interest rates, others with unsubsidized. There are multiple options for federal loans and it’s likely you took out several different ones as you went from undergraduate to medical school.


Private loans are loans where a bank or credit union is the lender. These are subject to the terms and conditions set forth by the bank, and usually, a credit score is a determining factor with this type of loan.



This is where refinancing versus consolidation becomes two distinct options for your medical school debt. Consolidation generally refers to the program offered for federal loans only, which is known as a Direct Consolidation Loan. The Direct Consolidation Loan allows you to consolidate all of your eligible federal student loans into one payment. The interest rate will be the weighted average of the interest rate of all the loans, rounded up to the nearest one-eighth percent. As a result, your interest rate may or not be a great deal lower than it was previously.


A Direct Consolidation Loan offers federal student loan holders two advantages. The first is a singular monthly payment, instead of having to worry about making multiple different payments. The second is if you are working towards loan forgiveness through PSLF, then a Direct Consolidated Loan will qualify and count towards loan forgiveness.  



If you want to refinance medical school debt however, a refinance can involve either federal loans or private loans. The Department of Education is not involved in the process of refinancing federal loans but you will find plenty of banks and credit unions offer to refinance your student loans.


Refinancing can have numerous benefits. The lower interest rate from refinancing can save you thousands over the course of repayment and allow you to pay your debt off sooner. Or your monthly payment can finally get to a manageable amount so you can budget as efficiently as possible. But before you refinance your loans, you have to review each of your loans to determine if it makes sense to refinance. This is true whether your loans are federal or private, or a mixture of both.


You will need to evaluate whether or not you want to refinance your federal student loans. Currently, the interest rates for federal loans are ranging from 5-7%, depending on which exact loan you have. If you have a decent credit score and meet the income requirements, then you could potentially qualify for a much lower interest rate with a refinance.


The downside to refinancing your federal loans is the loans will no longer be eligible for an income-driven repayment plan or loan forgiveness through the PSLF program. You may decide these consequences are suitable for your situation though.  If you are trying to pay off your federal loans sooner or choose not to work in a public setting, then a refinance could be a good option for you.


As far as private loans are concerned, it could make sense to refinance them if you can find a lower interest rate (a no-brainer) or if you can move into a fixed interest rate. Since your private loans will never qualify for an income-driven repayment plan or the PSLF, you don’t have to worry about missing out on future benefits.

How Much Could You Save?

Let’s talk about how much money you could potentially save by refinancing. We know the average medical school debt in 2018 is now up to around $194,000. We also know this average is most likely a mixture of federal and private loans. Let’s assume the average interest rate of your loans is 6% and you have a 10-year payment term (the standard for standard repayment plans).


If you refinanced the $194,000 into one loan, with a new fixed rate of 3.89% for 10 years, you would save around $24,00 in interest over 10 years. Now granted, these are only averages but the potential to save is there. One of the best ways to see your potential savings is to use a refinance calculator for your loans.

When to Refinance Medical School Loans

Believe it or not, choosing when to refinance your medical school loans is as important as choosing the right loan to refinance into. The question of when to refinance – either during residency or after – isn’t always straightforward.


Choosing to refinance your federal medical school loans during residency could end up costing you more in the long run and here’s why. As mentioned earlier, if you have federal loans and are working towards forgiveness through the PSLF program, then you cannot refinance your loans and still receive forgiveness. If you are enrolled in an income-driven repayment plan, such as the REPAYE or PAYE, then you will also lose out on the interest subsidies for those repayment plans. You may be convinced you will never work for a public institution, but the truth is you can never be 100% sure.


For private loans, it’s a slightly different story. No doubt at this point in residency you have been flooded with offers from well-known companies to refinance your loans. These companies can try to earn your business by offering you $100 a month payments until you have completed your residency. You will need to run the numbers to determine if it’s the right time to refinance private loans during residency.


Are you still confused about federal and private loan options, which ones qualify for forgiveness and which do not? Are you still wondering if you should wait or refinance while you’re a resident? It’s understandable because these programs can really start to get confusing – especially when dealing with multiple loans. It would be good to mention to you at this time that you may want to consider working with a fee-only financial advisor. These types of financial planners can help guide you towards what makes the most sense, both now and years down the road, based on your current financial goals.


I Want to Refinance my Medical School Debt – Now What?


So you’ve looked at all of your student loans and you know which ones are private and which ones are federal. You should have a good idea of how much you are paying in interest for each loan and how much your monthly payment is. You’ve decided you know exactly which loans you think could benefit from refinancing.


This is great progress! Now, what do you do?


Now, it’s time to put pen to paper and start mapping out how much you can save with your loans by starting the comparison shopping.


Steps to Refinance Medical School Debt

You may find it helpful to use a trusted website to help you compare the current rates for a student loan refinance. It makes it easier when you can compare several rates all at once instead of flipping back and forth between sites. And how do you even know you’re getting a quote based on your credit score and income?


One website I personally recommend to anyone looking to refinance is Credible. This site makes it extremely easy to find exactly what you need in order to start the refinance process. I especially love it because you can compare several options without even affecting your credit score.


Get Organized

The first question you are going to have to ask before you can even consider refinancing is what type of loans you have and how much you owe for each of them. While this may seem like a daunting task at first, you will be better off facing reality and knowing exactly what you are dealing with when it comes to your loans.


You have either federal student loans, private student loans, or a combination of both. And don’t be surprised if you can’t remember which ones you have in your name. If you have had to finance your medical school education and undergraduate degree then you most likely have multiple. It can be hard to keep track of them all, especially if you have several!


Federal loans are the loans where the Department of Education is the lender. Many of these loans are classified as subsidized, unsubsidized, Direct PLUS, Stafford, FFEL, or Perkins.


Private student loans are ones that have been taken out via a bank or credit union.


If you are unsure which loans you have in your name, then the first step is to log in to the federal student loan portal. You will clearly see how many different federal loans you have as well as the amounts you are obligated for payment each month. For private loan information, the quickest way to know which loans you have is to pull your credit report.


Ask: How Much Do I Owe for Each Individual Loan?


This goes hand in hand with identifying what types of loans you have, and the process is similar. Before you can make an informed decision about refinancing your student loans, you need to have a complete understanding of the amount you owe for each one.11 questions to ask before refinancing student loans


While it may be easy to try to estimate or take a swag, you will be better off identifying the exact amounts for each type of loan you have.


You also need to confirm the interest rate you have on each one and the number of years of the repayment terms. All of this information is necessary so you can accurately estimate your new monthly payment or your new payoff date, should you choose to refinance. You can use different calculators online to help you determine if refinancing is going to be a financially savvy option for you.

Know Your Credit Score

If you have already pulled your credit report in order to verify the private loans you have, then this question may already be answered for you. If not, go ahead and pull your credit report so you can understand what the bank or credit union will be seeing when they pull your information.


As a reminder, as a consumer, you are entitled to three free credit reports each year.


Your creditworthiness to a private lender is going to be largely based on your credit score. In turn, this will determine the interest rate your new loan could have. To get the lowest rate possible your credit score needs to be as high as possible. Yes, there are other determining factors besides the score, but this is a very important consideration.

Know the Income Requirements

Because many physicians have such high-income potential, it typically makes them a good candidate for a refinance option. If you choose to refinance with a bank or credit union (which is a private loan) then you will be subject to each individual requirement. You will need to make sure you understand what each lender is looking for in terms of both a credit score and an income requirement.

Determine if You Will Need a Co-Signer

If your income and credit score do not meet the requirements for the lender in order for you to refinance, then it’s possible you could need a co-signer. A co-signor, or co-borrower, on a loan is someone else who is willing to be obligated to pay on the loan. It could be your parents, grandparents, a cousin, a mentor – anyone who is willing to be obligated for a payment in case you default on the loan.


A co-signer should only be considered after a great deal of thought has been given. There are as many risks to this path as there are advantages. Having a credit-worthy co-signer could mean you get a lower interest rate on your refinanced loan but it may not be worth the risk.


No matter how well-intentioned a family member or friend is, if you default on your loan then they are also going to be penalized.


Define Your Goal

What is My Financial Goal- Lower Monthly Payment, Earlier Payoff, or Something Else?


Before you make a decision to refinance your student loans, one of the questions you need to ask is the exact motivation for wanting to make a financial change. Sure, we all want to get rid of our student loan debt as quickly as possible and be done with it. But what is it specifically about the loans that is causing you the most anxiety right now?


Is it that your monthly payment is too high and you are having trouble paying for your other necessary expenses? Perhaps your goal is to only have a lower monthly payment, even if it means it takes you longer to pay it off in the end.


Or, is your goal to pay these loans off as soon as possible because having debt hanging over your head causes too much stress in your life? Perhaps you feel you can’t fully enjoy the benefits of your career choice because you are saddled with this debt.  Maybe you have goals to purchase big-ticket items later on down the road and you know this debt could obstruct your plans.


You may be in the camp of people who want to refinance because you need to simplify your life and therefore your payments, too. Having one singular payment is your ultimate goal.


Depending on how you answer this question could determine if the refinance route is right for your situation. Ask yourself if you have explored all of your options in order to achieve your specific financial goal.


Source the Loan

When you first start the comparisons, it’s going to look very simple. You should see the option for student loan refinancing right away – on the very front page of the website.


You will want to choose the option for student loan refinancing. While you are doing your research with Credible, you will have two options. You can go ahead and enter your information to get personalized interest rates. Or, if you aren’t quite ready, you can input a few general points and Credible can still give you a snapshot of what you could be eligible for.


I highly recommend you go through the basic process of filling out the initial form and provide your information to get the exact quote. You will go through a quick series of prompts so you can compare rates for up to 8 companies. The really good news is your information won’t be shared with the lenders in the beginning. You will be able to get the information you need for research, and then it’s up to you whether or not you choose to move forward.


Prequalify & Compare Rates 

After this first step, you’ll receive rates based on your prequalification. At this point, you can be confident the rates you are looking at are based on your credit profile. You can move beyond the estimate now and know exactly what terms you will qualify for.


If you like what you see and decide to move forward, you will need to provide additional information to Credible. You will also need to choose which loans you will want to refinance, and Credible has created a tool to make this as easy as possible. This information will be used to work with the lender to secure your exact rate. Then you sit back and wait! You will receive your final offer for your refinance in as little as one business day.


And how much will this service through Credible cost you? Not a dime. Think of this as doing your homework and shopping around to find the best deal. The same way you would shop multiple stores for the best deal on a big-ticket item is the same way you should treat selecting a loan for a refinance. Credible makes it incredibly easy for you to do your homework.


Using a website like Credible is perfect for busy physicians. They know you do not have a lot of free time to research multiple websites and figure out how to refinance medical school debt.


Understand the Loan

Before you sign on the dotted line with your new refinance loan, you should make sure you have a clear understanding of what you are signing. Here is a checklist of items for you to review:


  • What is the new interest rate?
  • Is it a fixed interest rate or variable interest rate?
  • What is the number of years I have to pay back the loan?
  • What is the new monthly payment?
  • Are there prepayment penalties if I decide to pay the loan off early?
  • How much interest will I be paying over the life of the loan?
  • How much are the fees to refinance? (Generally, the fees are minimal for refinancing, unlike with a mortgage.)


Knowing this information will ensure you’re making an informed decision and you will know exactly where your money is going each month. This is what we refer to as being intentional with money – when you understand how much you are spending and how it is helping you to achieve a specific goal.


Choosing to refinance medical school debt doesn’t have to be a long, drawn-out process. If you do your homework upfront by identifying your loans and use a site such as Credible to compare rates, you’ll be able to make a decision quickly. But it’s not only about saving time with research and comparisons. You want to make an informed decision, knowing you are choosing the plan which makes the most sense for you.


Many of you have a goal of paying off your debt as quickly as possible, and refinancing your loans is a fantastic way to help you achieve this goal.


Ryan Inman